As a new homeowner, you’re going to make dozens of financial decisions each year. You want to make smart money choices, but you may not always know how. Fortunately, there’s sound financial advice you can follow to guide your decision-making. Check out these five tips to set yourself up for financial success.
Learn how much you can borrow.
As a new homeowner, you may be surprised by the number of expenses that crop up in relation to your home. Your HVAC system may break unexpectedly or your windows may get damaged during a hail storm. In some cases, you may not have enough in your savings to cover these costs.
Each year, calculate your borrowing capacity to determine how much money you could receive from financial institutions if you find yourself in need of a loan. Your borrowing capacity factors in information about your income, credit history, and interest rate in your home to determine how much you can afford. Knowing your borrowing capacity could help you ask for reasonable loans that are more likely to get approved in the event of unexpected home repairs.
Revisit your budget after you move in.
When you first plan your budget for a new home, you may forget certain costs or fees (like homeowner’s association costs or lawn maintenance service expenses). Within the first few months of moving into your home, re-evaluate your budget. Are you spending more than you thought you would? Are there any new changes in your household income? You may need to make a few lifestyle changes to save money and build up your credit and financial security to levels that feel safe and secure.
Budget for repairs each month.
There are some months when you won’t have to spend anything on repairs and others when you’ll get hit with a huge home improvement bill. If you want to have enough saved to cover these costs, follow the “once percent rule.” This states that you should set aside one percent of your home’s value each year for repairs. So, if you bought your home for $350,000, then you need to save $3,500 ($290 per month) per year.
If you don’t use your repair budget each month, simply roll it into the next month’s finances in case something happens.
Look for long-term investments in your home upgrades.
As you discover new repairs that your home needs, consider the big-picture homeownership. Spending more money in the short term could save you money and increase your resale value in the long run.
For example, if you need a new roof, you could opt for a basic asphalt shingle that lasts a few years, or you could look into impact resistant shingles. Impact-resistant shingles can better protect your home from hail damage. Even if you live in an area known for its frequent high wind gusts, these roof shingles are less likely to fly off.
Look for repairs and upgrades that can give you peace of mind and prevent more repairs down the road.
Search for new ways to bundle your expenses.
If you have multiple payments that are due at the same time each month, you may become stressed about having enough funds and paying off each expense. To prevent this, contact your financial lenders and ask if there are any ways to combine your expenses. This could mean bundling multiple types of insurance (like homeowner’s insurance and car insurance) or consolidating your debt onto one credit card.
This way, if you can’t make a payment, you could have an easier time negotiating a lower monthly rate or putting your expenses on hold until you are more financially stable.
You can’t predict the future. It’s impossible to know what financial challenges you might face. However, by making smart financial choices each day, you can set yourself up for success when an unexpected problem arises.
