How to Budget As a Homeowner

financial budget

Now that you have left the ranks of renters, it’s time for a new approach to your financial budget. Being a homeowner brings a new set of financial challenges to navigate.

If you have not yet made the switch, this read will help prepare you. (And if financing is standing in the way of your home ownership, you might benefit from credit repair.)

If you’ve already been making a mortgage payment, this article will keep you on track.

In order to work with this information, you will need a tangible financial budget. You can use a paper budget form or an online tool or app such as Mint.

Three Ways Your Financial Budget Should Be Different as a Homeowner

Have a “Depreciation Fund”

You will be responsible for various repairs and replacements in your home. These can include minor water fixture repairs or new appliances.  They could also mean more high ticket items like a new roof, a new driveway or plumbing fixes that require exterior excavation.

You should also account for regular seasonal maintenance such as lawn care/landscaping (unless you are in an HOA) and regular biennial servicing of your furnace/air conditioning unit.

You will also want to periodically update the home to enhance its resale value.

The “1% Rule” is a good guideline for how much to allocate in your financial budget.  For example, if your home is worth 100,000, you would set aside $1,000 per year for repairs and improvements.

A $1,000 per year allowance for your home’s “depreciation” comes out to be about $83 per month.  This money should be placed into a special bank account earmarked for home repairs and home improvement.

This account is separate from the emergency cash fund that you should have as part of your financial budget.

Factor Insurance Expense

You may have had renters insurance as a tenant. Some landlords require this as a condition of moving into a leased dwelling, while others recommend it but make it optional.

As a homeowner with a mortgage, your bank will require you to have a homeowner’s insurance policy.  Even if and when your home is paid off, homeowner’s insurance is something you do not want to be without.

Homeowner’s insurance is not necessarily something to go cheap on, either.

Having good insurance can protect you from financial disaster. It is extremely important to read your policy to see what it might exclude.  For example, some insurance policies will cover damage resulting from a tree landing on your roof and others will not. Some policies will cover flood/water damage, and others will not.

Paying for Utilities

As a homeowner, you will be responsible for all utilities.  Some landlord-tenant agreements make renters responsible for all utilities, but many cover at least part of them.

As a homeowner, you will be responsible for all water, trash, wi-fi, telephone, cable, electricity, gas (or other heat sources). Some energy companies will put you on a “budget” so that you pay the same amount every month and aren’t subject to seasonal fluctuations.

A Final Word

Financial budgeting for home ownership is one aspect of your overall financial strategy. Saving money and a strategy for paying off debt are two others important aspects.

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