You are in your late 20’s to 30’s and have been saving for years to put a down payment on a house and the time has finally arrived. You now own the house you have dreamed of. Let me start by saying congratulations. Owning a house is a dream for many. It’s a place to build a life, grow a family, and ultimately to set down roots. But… owning a house is not an easy job. It comes with lawn care, more cleaning, projects, fixing all the things that break, new expenses, and much more.
So knowing all this, how should your finances change with this big life change?
1. Go Back And Review Your New Monthly Expenses
If you previously were renting, you are probably going to have many additional costs now that you are a homeowner. It is important to review your expenses now and see how they fit the budget. You may be required to cut back on certain things to be able to afford the new house while simultaneously still planning for retirement, kids’ education, travel, etc.
You need to see how these new expenses alter your surplus so you can go back and change your monthly allocations to investing, saving, paying down debt, spending on wants, etc. You don’t want to skip this step and end up having to use your emergency fund or credit card because you overspent. Plan ahead!
2. Increase Your Emergency Fund
Owning a house will most likely increase your monthly spending. If you want to have 3 months of expenses built up and previously were spending $4,000 a month, then you needed $12,000 in your emergency fund. But, if you now are spending $5,500, your emergency fund will need to increase to $16,500 to reflect this change in monthly expenses.
Do not neglect this step. You need to grow your emergency fund to align with your expenses to ensure you are protected.
3. Add A Savings Fund For Regular Yearly Expenses (Back Up Emergency Fund)
From furnaces going out, to new windows, to a plumber having to come out to fix your toilet, you never know what will happen — but we do know something is going to happen. The average cost per year is around $2,000 for minor expenses. Since we know this is going to happen, you can set up an account to plan for this every year. Your emergency fund was created for unexpected costs that come up, but fixing things around your house is expected — so you need to plan for these expenses and not use your emergency fund for them.
4. Update Your Insurances
You will need homeowners insurance and may even want some home warranties as well to help with the unfortunate problems that could arise, but it doesn’t stop there. If you are married or buying a house with someone else, you will want to look into getting some life insurance to help protect the other person if you were to pass away. You would not want your loved ones to have to sell the house because they could no longer afford it without your salary. Term insurance typically makes the most sense for young people who are trying to protect their families.
5. Review Your Financial Plan
You may have just put your head down and grinded for years to make the house a reality. You no longer have to save monthly for a down payment and may have freed up some money to be used elsewhere. Now is the time to start focusing on other goals you may have neglected like college for kids, retirement, travel, etc. Use this money to help prepare for the future by increasing your investing/savings rate. Do not just inflate your expenses. This is the number 1 problem millennials have with money, too much lifestyle inflation.
6. Prioritize Other Debt Over Your Mortgage
You may want to pay off your mortgage as quickly as possible, but if you have other debt, you will probably want to take care of that first. Mortgage rates are as low as they’ve ever really been, but your student loans, credit card debt, etc. probably have a higher interest rate. Focus on that higher interest debt first. Then decide if you would rather pay off your mortgage quicker, invest more, or find a combination of the two.
As you can see, owning a home is a big change… And you need to make sure your finances align with this change. Get into the weeds of your cash flow to ensure you are prepared and are ready to handle the expenses that are coming. It’s definitely an adjustment going from renting to owning, but you got this! Enjoy this time and all the learning that comes with it.
If you are a new homeowner and need some help managing all of these changes, you can book a meeting with me here to have a free first meeting to see if I would be the right advisor for you.
Disclaimer: Nothing on this blog should be considered advice, or recommendations. If you have questions pertaining your individual situation you should consult your financial advisor. For all of the disclaimers, please see my disclaimer page.
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