New homeowners are faced with a number of new financial responsibilities. These include keeping a cushion for unexpected expenses, setting up an emergency fund and saving for retirement.
Ideally, you should make these preparations well before buying a home. But even if you’re getting a late start, these tips can help you feel more prepared for homeownership in 2023.
1. Set Up a Budget
As a new homeowner, you’ll be responsible for more than just your mortgage payment. You’ll also have to pay for things like homeowner’s insurance, yard maintenance and appliance repair costs. It’s important to set a budget and stick to it.
The best way to do this is to track your spending on a regular basis. You can do this by using a spreadsheet, budgeting app or even just keeping track of your expenses in a notebook.
It’s also a good idea to prioritize your needs over your wants and save as much as possible. This will help you avoid unnecessary debt in the future and ensure you’re prepared for unexpected expenses. In addition, you can put the money you’ve saved into a savings or retirement account.
2. Pay Off Your Debt
Purchasing a home is an important financial step, but it can also bring with it many new expenses. Getting your budget in order will protect your investments and leave you better prepared for the unexpected.
First, take inventory of all the debts you owe: credit cards, personal loans and auto loans. Next, determine the minimum payment on each debt. Finally, subtract your baseline costs from your take-home pay to find out how much discretionary income you have left over each month.
From there, set small, achievable goals to help you pay off your debts as quickly as possible. For example, you might try what’s called the “reverse snowball” method, which prioritizes paying off debt with the lowest balances first. This helps keep you motivated and can save you money in the long run.
3. Make Your Home Energy Efficient
The benefits of being energy efficient are many, including improving air quality and reducing greenhouse gas emissions. It doesn’t have to be expensive, either; there are plenty of simple tricks you can do to save energy around your home.
For example, consider upgrading your light bulbs to LED or CFL ones. They use 90% less energy than traditional incandescent bulbs and last 25 times longer. Also, be
sure to unplug appliances when you’re not using them or install power strips to easily disconnect multiple items at once.
It’s important to sit down and work out a budget that thoroughly covers the costs of owning your home. This includes your mortgage payment, increased utility costs, homeowner’s association or condo fees, and any maintenance expenses that may come up.
4. Save for a Home Improvement Fund
Many home improvement projects can be costly, and it’s important to have a financial plan in place. Using tax refunds or any financial windfalls to put into a savings account dedicated to home improvements can help. Alternatively, you can learn DIY skills to cut down on the cost of contractors.
Having a home emergency savings fund is also important. It can save you from a major expense in the event of a flood, fire, or other disaster. It’s recommended that homeowners set aside 1% to 2% of their home’s value each year. Creating a separate savings or checking account to house these funds can make it easier to manage. Educate yourself on what in your home needs to be repaired or replaced and use your money wisely to do so. This great article from Cinch Home Services on a warranty refrigerator for homeowners can be a handy tool to read so you know what to expect.
Lastly, it’s a good idea to have a family meeting and create an escape plan in case of a fire. This will allow you and your loved ones to exit the home safely.
5. Create a Savings Account
Savings accounts at banks and credit unions offer a secure place to park cash that you don’t need immediate access to. Unlike checking accounts, which allow you to make purchases through a debit card or paper checks, savings accounts usually limit your transactions, like withdrawals and transfers, to about six per statement cycle.
In addition to offering a safe haven for cash, most savings accounts also earn modest interest. This makes them an excellent option for achieving short-term financial goals, such as a down payment on a new home. Some institutions may also offer other types of savings vehicles, such as money market accounts, that provide higher rates and more convenient ways to access your money. SmartAsset recommends shopping around to find the best options for your needs.