Our first guest post! Thanks to Mr. CBB…see the contest details at the bottom of the post!
First Time Home Buyer Budgeting Tips You Should Think About
Written By: Canadian Budget Binder
When you become a first time new home buyer budgeting is often overlooked as it’s not part of the dream. First Time Home Buyers want to move right in renovate and fill each room with beautiful decor and forget about the costs that come with a home purchase. There are people who can only dream of owning their own home but for those that take the giant step it does come with its pros and cons. This is why it is imperative to know all the facts before signing on the dotted line. You need to know what you can realistically afford ahead of time and not get caught up in the new home hoopla. Having First Time Home Buyer tunnel vision could potentially hurt you down the line.
What you should be aware of………..
Do you know what projected expenses are?
These expenses are ones that you pay every couple of months or even yearly that you know you have to pay for. These expenses MUST be saved for every month for when the time comes you are armed with the money to pay. We save this money in a separate bank account every month, all year-long. We think of every single thing we “know” we will have to pay for at some point in the year and create a category for it. Most people who don’t budget in these projected expenses end up turning to their Emergency Savings, if they have one or what I don’t suggest using, credit. This is one of the biggest reasons people go into debt when they rely on credit as a second or third income.
Example: You pay for your Vehicle Sticker every year $74/12 months=$6.16 per month you must save 12 months of the year.
If you pay your own house taxes you may pay quarterly so you need to make sure you have that money ready. If you pay $3400 a year for taxes you should be saving $283.33 per month in your projected expenses account.
Wouldn’t you feel better knowing the money is in a separate account when the bill comes in? I know we do!
You know a budget is important and if you don’t you need to be researching how to design a budget that is right for you. I also suggest that if you don’t know your credit score to order one for free which you can do in Canada once per year. You need to know where your financial health stands.
Buying your first house comes with Expenses that you need to be ready for in advance. What are some of these common expenses? Make a list, and budget for these! Most times if you are frugal you can find many of these items at Garage Sales or on Kijiji.
- Window Coverings/Curtains, Blinds, California Shutters
- Furnishings, Decor, Bedroom Suites, Wall Hangings
- Garden tools- shovel, rake, lawn mower, weed trimmer
- Landscape materials- flowers, soil, mulch, fertilizer,grass seed
- Handy Man/Women’s Tool Kit
- Cleaning Supplies
- You may want to change the locks- Who know’s who has the key!
- Snow Removal Tools- Snow shovel, Snow Thrower
- Appliances-washer,dryer,refrigerator,dishwasher,microwave,freezer, stove (not all new homes come with working appliances)
- Kitchen Utensils and accessories- dishes, mugs, knives,forks, pots etc
- Linens, Towels,Bath Accessories
- Rugs,Carpets to make your space cozy
- Utility service charges as some companies will charge you a fee if you are a new subscriber. Some may ask for $400 security, you can call ahead and ask what they will be so you can plan.
Keep in mind that is not a comprehensive list and most are simple necessities to keep up a home. As you can see it can get costly so preparing ahead of time will save you money down the road.
Before we purchased our home we saved for a down-payment but we had to learn how to make the right calculations work for our budget. We had made the classic mistake as most newlyweds who need a budget but don’t really know where to begin or think they know how. We tried to budget in our heads and although we saved some money it wasn’t nearly what we should have.
Since then we designed our own budget first by setting goals. You need to know where you want to be headed or least have an idea. If you know you want to have children keep in mind the costs of a child and having to budget while on maternity leave. Don’t say you will deal with it when the time comes because that’s when couple’s panic.
Here are 9 Steps we used when we designed our budget in our Budgeting Series
- Gather all of the information– Net income, all of your bills, who you owe money to.. even if it is family members
- Categories– Sort out what categories you need in your budget. It may be kids activities, March Break, RRSP, TFSA, Cable, etc…..
- Tracking Receipts– It’s imperative that you track every receipt in your budget. You need to know where the money is going. We always ask for a receipt even if we go to Tim Horton’s. Get used to asking.
- Note taking-Keeping accurate notes in your budget is also imperative. If you ever need to reference data it’s important to know what and where the numbers came from. It also helps when the bills come in to compare what you might have on a credit card in comparison to the receipts you input in your spreadsheet or paper budget.
- Organization– We made sure we were organized, we knew where everything went, time tables, schedules, file folders- there was a plan in place. If you stay organized you are more likely to continue using your budget. If you can’t see your desk and don’t know where the receipts are you will get frustrated and give up. It’s not difficult to stay organized so clean up your space and de-clutter.
- Who Does What And When-It’s important if you are a couple that both of you participate in the budgeting process. There can’t be just one person. If something should happen to one person the other needs to know where to pick up the pieces. We have a schedule and we work as a team.
- Balancing Our Budget-It’s important that your budget balances. You need to use your “net income” (what is deposited into your bank) to design a budget that balances. If you are spending more in the budget than you earn you have some serious work to do. You can’t spend more than you earn. You need to balance the budget.
- Knowing Our Coupon Savings– Not everyone coupons but we do, we also price match, shop flyer deals, get reduced items. Most people are couponing now and want to track the savings. We have implemented this into our spreadsheet so we can track it. We can also track any other discounts that we get as well.
- Reading Our Bills- Have you ever paid too much for a bill? If you don’t read your bills you should start. Don’t rely on computers to get it right because anyone and anything can make a mistake. You don’t want to be the one paying for it. We always read our bills and match up any charges on our credit cards to the data in our spreadsheet.
As you can see there is alot to think about before purchasing your first home. Don’t let anyone pressure you or tell you the time is now so you better buy before it’s too late. Take the time to make informed decisions, talk to the professionals in the mortgage business to give you accurate data to work with. Plan out your path to home ownership whilst implementing your present and future goals financially and you should be well on your way to debt freedom.
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Thanks for a great post Mr. CBB, we can all learn from this! Do you have a comment from your own experience, a tip to add or? The best comment judged by me wins a $50 gift certificate to itunes! Draw will be announced June 22, 2012.