Importance of Budgeting
Homeownership is expensive and unpredictable — you never know when the pipes are going to burst or the roof will need repairs. That why it’s essential for homeowners to have some money put away “for a rainy day.” In order to save money consistently, you need to be able to live on a budget.
A budget is a detailed plan to make your income cover your expenses. It also provides the basis for finding ways to save money on a regular basis. Creating a budget is a key part of preparing for homeownership. If you don’t already have a budget, it’s probably time to start one. This is the best way to ensure that you are always in a position to pay essential bills. CCCS-OC offers excellent workshops to help you learn budgeting basics and money management skills. Click here for more information.
To help you get started, here are some budget basics that have been tried and tested over the years:
- Know what bills are due and when.
- Know how you spend your money. Get in the habit of saving receipts.
- Plan for large periodic expenses such as property taxes (if they’re not paid by the lender), homeowners insurance, and car insurance. You should also plan ahead for major purchases rather than making impulsive decisions. Whenever you purchase anything on time, look carefully at the financing terms, including the annual percentage rate (APR).
- Budget for regular maintenance and unexpected repairs. Some experts suggest budgeting one percent of the purchase price of the house for annual maintenance and repairs.
- Adhere to a regular savings plan. Many financial advisers suggest saving five percent of your take-home pay.
Analyzing Your Current Expenses
If you’ve never lived on a budget, you may not have a clear idea of how you spend your money from month to month. If this is your situation, you need to take a look at your spending patterns. To get started, try keeping a record of everything you spend for a four-week period. Then you can group your expenses into the following categories.
- Fixed Expenses – such as car payments, groceries, utilities, taxes, and day care.
- Discretionary – that is, you have considerable flexibility in deciding how much or how little to spend in these areas (for example, clothing and entertainment).
Examining your spending habits will give you a pretty good idea of what is truly important to you as an individual. In light of this examination, you may find yourself wondering just how important it is to you to own your home. Are you willing to put off some purchases or spend less in certain areas? If the answer is YES, read on!