The word, “budget” often brings up notions of lack or restriction. People tend not to want to think about creating a monthly housing budget because it reminds them of what they don’t have.
But budgeting is a matter of taking control of your expenses. When you “budget” an evening, for example, you are planning how you will spend it. If you budget your finances, you are deciding how you will use the money you have coming in and taking charge of your finances.
The idea of a budget can be looked at positively if you consider the fact that it empowers you to decide how your money will be spent and lets you control your money, instead of your money managing you!
If you are in the market for a new home or another major purchase, it is even more critical that you learn to budget your money.
Having a home of your own is an investment in yourself and your financial future. Once you own your own home, you then will have a substantial piece of ownership that will allow you to feel more secure and to know that you can use the equity in your home if you ever need it to pay bills.
More importantly, you’ll have an investment in real estate, which is one of the most important investments you can make for your future.
- Planning a Budget
- Template for Success
- Sample Budget
- Words of Wisdom
- Setting Financial Goals
- Steps to Controlling Your Household Budget
- The Creation of Your Monthly Budget
- Apps that Help You Stay on Your Budget
- Getting the Best Deal on Your Home
- What about Homeowners’ Insurance?
- Why Your Budget Matters
- Words to Live By
Planning a Budget
When preparing a budget, the first thing you need to do is to estimate your monthly expenses.
If you are in the process of buying a home, the mortgage payment and any associated home insurance should be included.
One resource that you can use as a jumping off point is mentioned in the famous book, Think and Grow Rich by Napoleon Hill.
It is suggested again in the audiobook, “Managing and Budgeting Money” by Tony Scott.
In both books, the authors talk about the exact percentages that you should allocate in general to various areas of expenses.
Template for Success
The following model is recommended by T. Harv Ecker, author of The Millionaire Mind.
Budgeting experts such as Ecker and Tony Scott, as well as many others who help homeowners to budget their expenses.
This system is not cut in stone, but it is an excellent place to start when allocating your costs to manage your money with better results. This show the percentages that are recommended in both variable and fixed expenses on a monthly basis.
55% should go to your living and necessary expenses (rent, mortgages, car expense, clothing, expenses)
10% should go to Long-term savings- Money you do not touch for future use
10% should go to Financial freedom (real estate, stocks, mutual funds, etc.)
10% should go to Education account (books, courses, seminars, coaching)
10% Fun account– Money you allocate for fun, hobbies, and enjoyment.
5% Give account- Money allocated to helping others in need
Look back at this template and write it down. It is not the only way you can assign your money, but many successful millionaires say that they have used this system of budgeting to control their finances and household budgets. Notice that you should not be spending more than 55% on your living expenses.
Look at the following sample budget and think about which expenses you have yourself or plug in your own amounts to create your personal budget.
HOA Fees $300
Homeowners’ insurance $250
Food $300/month for a family of 3
Clothing $200 (may vary according to need)
Household supplies and maintenance $150
Total expenses= $2,500
Income ($4,000- $2,500) = $1,500
The leftover amount ($1,500) is what you can save or have left over for other extra expenses or purchases. If you are planning to buy a home, this could serve as a savings account for a down payment on a future home.
Words of Wisdom
There is an old saying that goes like this: “Whatever can be measured can be improved.”
A famous entrepreneur said this a few decades ago, and it is still very true today. When you start becoming more aware of how you are managing your money, you will be able to make the changes necessary to improve your financial situation.
Part of this has to do with setting your household income and spending goals. The other part has to do with staying on top of the managerial tasks required to take control of your finances.
Another fundamental principle addresses the fact that you should feel that you are managing your money and planning every type of expense so that you can control the process.
Setting Financial Goals
One of the most important things you should do to control your future and your finances is to set financial goals.
Whether it is in buying a home or saving for a child’s college education, planning for future savings and allocating your finances is critical to controlling your spending and financial future.
The most crucial aspect of money management and budgeting is to know how much money is going out and how much is coming in.
If the majority of your expenses are being spent on luxuries or unnecessary expenses, you can start to see how your budget is breaking down.
Steps to Controlling Your Household Budget
1. Secure your personal or financial family statements.
2. Record the income sources of your family budget and the amount.
3. Review and record the items and the expenses that are incurred monthly and the amount.
4. Divide expenses between variable and fixed expenses.
5. Subtract expenses from income.
6. Adjust your expenses accordingly.
7. Review compliance with your fixed budget monthly.
The Creation of Your Monthly Budget
The first step is always the hardest when it comes to creating your household budget.
Getting the information together is the first step, as outlined in the above step-by-step list for budgeting.
So print out your most recent bank statements, credit card statements, and any other financial statements that pertain to your finances.
By recording the exact income that you have coming in each month, you will be able to see how much money you have coming in.
Then you will need to look at how your money is being spent. If you have enough money to cover your expenses, then you should have plenty left over to spread out over the various categories we mentioned earlier.
If you find that the money is going to the wrong things or that your expenses do not match up with your income, you will need to make the appropriate adjustments so that you can reach your financial goals.
Apps that Help You Stay on Your Budget
One of the best tools you can use to improve your budget is mobile apps such as Mint.com.
This app lets you streamline all of your expenses in one convenient place and integrate all of your finances together where you can control them. I
t is available on both the iOS and Google platforms so you can scroll down to the bottom of the page and download this nifty app on either type of device. Once you download it, you’ll find that it will help with some things including:
- Budget creation and maintenance right in the app
- Track and pay bills
- Check your credit score
- Send payments fast to avoid delinquencies
The Mint.com app is a handy tool that can keep you on top of your budget and finances without having to use multiple different sources to pull it together. Other financial and budgeting apps are mentioned below.
Check them out and see how they can help with your housing budget tasks.
- Wally- This app allows you to log all of your expenses and store copies of your receipts.
- Level Money- This app will remind you of how much money you have to spend and keep you from going over your budget.
- Good Budget– Synchronizes your budget across all of your devices
- Unsplurge– Features a live online community and support group to help you stay on your goals and stop splurging so that you can save money and reach your financial goals.
Other mobile budgeting apps may help you to manage your budget and financial goals. Check them out and download a few to decide which one fits your needs.
Getting the Best Deal on Your Home
When shopping for a home, you should compare rates through your local homeowners’ association.
Some homeowners’ associations such as HDA are focused on apartment or condo rentals while others may be able to provide you with rates on a possible home purchase.
Remember that, if you do decide to go through a homeowners’ association, you may be responsible for fees that you have to pay as part of your financial agreement.
Investopedia has a lot of information about this topic along with an online calculator where you can figure the estimated expenses of a home purchase.
What about Homeowners’ Insurance?
When you purchase a home, you are required to obtain homeowners’ insurance. This is to protect your investment as well as the bank’s interest that you are getting the home loan from.
They will usually not allow you to get a loan without purchasing this type of insurance. Check with your local real estate agency or homeowners’ association for information on this.
There are sometimes unknown fees that you may not be aware of when you purchase a home. It can cost you more money than you budgeted for if you don’t do your homework ahead of time.
There is no set fee for homeowners’ fees, taxes, or insurance, just as there is no exact amount for purchasing a home.
Start by searching for properties and then inquire with the real estate agent who is handling the house what the other expenses are. In some cases, you may be required to have an inspection done as well.
Find out the appraisal value of the home in question before you buy it so you will know what the actual cost is in comparison to the asking price.
Why Your Budget Matters
As you can see, there are many different expenses associated with buying a home. Budgeting cannot start when you are purchasing a home.
It is expensive to take on such a large purchase, so you need to feel secure with your finances before making such a big decision.
Start now by tracking your monthly expenses and income so that you can plan for your future. When making a significant purchase, you will need to find a home that fits into your budget.
But you may free up more money for this by merely controlling your expenses using some of the techniques we have shared with you in this post.
When we discuss developing and maintaining a budget, it indeed is a situation that involves detailed planning that should become a habit long before you decide to buy a home.
So if you are planning to make a significant home purchase shortly, start now by applying the template and the techniques that we have shared with you in this article.
Words to Live By
Remember the words of financier, Warren Buffet, “The best investment anyone can make is in themselves.”
Think about how you are currently spending your money and decide today to take charge of that behavior. It will all pay off in the end, and you’ll be able to move into that dream house in no time at all.
Whatever your financial goals, you’ll get there, a step at a time!