Home Purchases & Household Budgets, Related?
Have you been asking yourself "how much house can I afford?" Our home buyers guide includes a good amount of information on how to budget for the home purchase. The development of a household budget is a desirable activity both before you make a Real Estate purchase as well as consistently during your ownership. By preparing a home budget while you are looking at houses, you can better focus on mortgage payment goals and how the new house will affect your total household expenses. Maintaining a home budget during the time you own the home can help to prevent potential financial disasters as well as point you in a money saving direction so you have more funds available for those things that you need or want.
You will need a little time to develop your home budget -- it's not a five minute exercise -- but should not take longer than a few hours if you gather the necessary information first. Get everyone who will be involved in spending involved in developing the household budget. You can print out a form for developing your home budget here.
Some of the items and information you will need to develop your home budget are:
- All current monthly loan payments.
- All other monthly expenses (such as child care, dues, etc.).
- Records of variable expenses (for example, utilities, food and car repair) from the last 12 months. This will give you an estimate of your monthly expenditures.
- Records of annual or semi-annual expenses (such as insurance and taxes).
- An estimate of what your new mortgage payment will be. You can estimate that using our mortgage calculator.
- Records of other non-fixed expenses (for example, medical expenditures) for the last year. This will give you an estimate of average expenses of this type.
- Records or an estimate of personal expenses (entertainment, travel, etc.)
- Having a current copy of your credit report can be very helpful. Not only will it reveal any inaccuracies in your credit history, it will also give you a clear picture of not only your total debt but your monthly obligations. You can get a
 Credit Report, Credit Score & FICO Score here .
Be realistic in your budget assessment. Make provisions for possible increases in some items (for example, school tuition, insurance and taxes). Then, look for ways to get (and maintain) control over your home budget.
Most People Spend 10% More Than They Make! You probably know how much money you made last month, but do you know how much money you spent? Or do you know how much money you have left to spend this month? If you don't you're not alone, most people have no idea. The fact is most of us spend 10% more per month than we make. That comes out to 1 per month based on the average American income. No wonder the average credit card debt is now at $ 20,500!
So why is it so difficult to track spending? Today we live in a near "cashless" society. Using debit cards, credit cards, automatic deposits, and wire transfers we rarely even see our money. It's easier than ever to spend, spend, spend!
Check out our easy to use mortgage calculators to help determine payments, amortization, compare loans, and more.
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Photo Copyright © 2005 Paul Silver Photography
How Much House Can I Afford?
More Home Buyers Guide pages throughout the Home Buyers section!
Check out our easy to use mortgage calculators to help determine payments, amortization, compare loans, and more. |
Tips on Saving Money
Going hand and hand with an effective household budget is saving money on those things that you truly need. To start saving, take an inventory of your needs to see where you can shave the dollars. Begin with the biggest items first, where the most potential for savings is, and move down the scale to the less expensive items. A moderate savings on one of the big items (houses and cars) combined with savings on the smaller items (food, clothes, etc.) can reap a large reward in your total budget. The following are some thought starters:
General Household Budget Tips
Distinguish between Wants and Needs: You will save a ton of money if you don't mistake wants for needs. Needs are pretty simple to identify -- those items that are necessary to sustain: Shelter, food, clothing, transportation. Wants are those things that enhance or possibly improve our family life. A car is a need. Unless necessary for your business, a $ 50,000 Sport Utility Vehicle is a want, even if a lot of people don't see it that way. Have you ever heard (or said) "I absolutely need...?" when the actual meaning was "I really want?" This is not to suggest that you shouldn't be able to have the things you want -- only that to confuse wants with needs -- and busting your budget in the process -- is a recipe for financial disaster.
Is less better? Perhaps it was due to the booming economy, perhaps "keeping up with the Joneses", maybe its ego, but for many of us, we often seem to insist on the biggest and the best, no matter what the cost. When a ,000 new car may be more than acceptable, we stretch the seams of our budget to afford a ,000 vehicle. We buy shirts with designer labels attached. We opt for the 0 dinner at the trendy restaurant when a meal would have been just as delicious. Think about where you are spending the family money -- and how -- to see if there couldn't be savings found with minor changes in habits.
Try before you Buy: This goes a long way in helping to avoid the silly purchases of things you rarely or never use. Before you buy something, especially items with big price tags, borrow one, rent one or try one out before you plunk down the cash. If you are bored with it, or determine that it truly is not something you need before you buy it (and you will be on a certain percentage of items) you will definitely be bored with it, or find it not that necessary, after! Example: You feel that you absolutely must have a new Jet-Ski, at a cost of 00 (and that is before financing and taxes). You go to the lake, rent one, and 45 minutes into a one hour rental you are saying, "geez, this is a long hour." Saved: More than 00 (perhaps a year of college fees for the kid!) |
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Specific Home Budget Tips
House Mortgages. In all probability, your mortgage payment will be the largest single expense in your budget. Obviously, getting the best deal here is of ultimate importance. Not comparing different mortgage programs could cost you thousands of dollars over the term of the mortgage.
Cars. For most families, the next biggest expense is their car(s). Mistakes made here can often be as costly (on a monthly basis) as mortgage miscues. Take a look at the vehicle(s) you presently own. Do you own too much vehicle for your needs? Do you have equity in a car that you no longer use frequently? Could you downsize and save money, not only in monthly payments but also in maintenance, insurance and operating expenses? With the vehicles that you do own, are you getting the best deal on your repairs, maintenance and insurance?
Insurance. Most of us pay our automobile and homeowners insurance premiums by habit, rarely if ever making comparisons. With many families insurance costs totaling over $ 5000 a year, even a 15% savings equates to $ 750 annually. Some hints from the Insurance Information Institute on saving money on your homeowners insurance include:
- Be sure to shop around. It may take a little time, but it could save you money. The insurer you select should offer both a fair price and excellent service.
- Raise your deductible. Deductibles on homeowners policies typically start at $ 500. By increasing your deductible to $ 1000, you could save up to 12%.
- Beef up your home security. You can usually get discounts of at least 5% for a smoke detector, burglar alarm or dead-bolt locks.
- For more tips, see the Saving on Homeowners Insurance section.
For automobile insurance the Insurance Information Institute recommendations include:
- Shop around. Prices for the same coverage can vary by hundreds of dollars from company to company, so it pays to shop around. Surf the net, ask your friends or call your state insurance department for ideas about companies and agents to contact.
- Ask for Higher Deductibles. By requesting higher deductibles on collision and comprehensive (fire and theft) coverage, you can lower your costs substantially. For example, increasing your deductible from $ 500 to $ 1000 could reduce your collision and comprehensive cost by 15% to 30%.
- Take Advantage of Low Mileage Discounts. Some companies offer discounts to motorists who drive fewer than a predetermined number of miles a year.
Food. Not only do you need to eat food to live, the expense of it for the average family can eat you alive! Since food is a necessary and recurring expense, just saving, for example, a week on your purchases can convert to over 00 in savings over the course of a year.
- Try to plan in advance. By knowing what you need, you will be able to buy in larger quantities (almost always less expensive) and cut down on convenience food purchases (always more expensive).
- If you use national brands, spend a little time clipping and using coupons. .50 invested in the Sunday newspaper could save you or more at the checkout. Organize the coupons by type, so as you develop a shopping list you can make a notation if you have a coupon.
- Consider store brands or generics. You may find the quality is equal to (and sometimes better than) the national brands, and store brands/generics are generally considerably less expensive.
- When it is on sale, stock up. Of course this only applies to those items that you use on a regular basis. Stocking up on an item which you use once a year doesn't make sense (and robs you of spending money, not to mention shelf space).
- Shop at the store that is the cheapest overall. Surveys have shown that there is sometimes as much as 10-15% difference on identical grocery orders at 2 different stores in the same area. Don't throw away your money just because it is your habit to shop at a certain store.
Clothing. Although many consumer items have actually reduced in price over the last few years (most notably, computer and electronic items) the cost of clothing has seen a continuing upward spiral. In addition, a purchase price that not too long ago bought a good quality garment now seems to buy virtually "throw away" clothing. With some planning, though, it is possible to maintain clothing purchases that are in line with your family budget.
- Buy separates that coordinate. You can make numerous combinations with a few well matched items. For women, jackets, slacks, skirts and blouses can be mixed and matched to create many different outfits. Plus you can change the look of these outfits with accessories such as jewelry or scarves. Men's clothing offers a wide variety of separates that can be coordinated: blazers, slacks, shirts and ties can all be interchanged to create a versatile wardrobe with a minimum of expense.
- Buy a season ahead. Buy next year's winter clothes at the end of this season and save. The styles won't change that much (if at all) and you will pocket a big difference in the price.
- If you are "hard" on clothes, buy quality. Buying an pair of shoes that will last saves money in the long run instead of having to buy 3 pairs of shoes that don't hold up.
- Stay away from trendy fashions. Stick with the basics. You can always be sure you clothing styles will last from year to year when you buy perennial standbys such as medium length A-line skirts and solid tailored blazers for women or neutral color shirts and tailored to semi-tailored sports coats for men.
Telephone. In most areas of the country, your local phone service is currently regulated and has a fixed price. The difference in long-distance costs, though, can be eye-opening. Many consumers simply stick with their current long-distance carrier because it is convenient and they feel that it would be a hassle to change. By shopping around, however, you may find some considerable savings that can really add up. We were able to find a plan that gives savings of about .75 a month and 0 a year, a fairly considerable amount. Switching over was simple and not time consuming -- a pretty good return on time spent!
Comparisons. It used to be that comparison shopping was a long and drawn out process. Driving from one store to another or making numerous phone calls could be a real time waster. Even if you were able to make an adequate comparison, sometimes it wasn't worth the hours you needed to invest to get the comparison. The Internet has changed much of that. Now you can make quick comparisons on most items, usually within a matter of minutes. What would once have taken hours to accomplish now happens at the click of a mouse, a real time and money saver. Don't forget online resources. For example, a site such as Ebay could save a lot of money for a couple of reasons: First, you can make comparisons among a number of sellers and second, you may be able to find second-hand merchandise which can save you a bundle.
Travel. Price differences here can be enormous. The difference in costs on the same trip -- same airline, same hotel, same car rental -- between two travelers can run into the thousands of dollars. Take a little time to comparison shop to assure the best possible deal. Some travel resources that we've found effective include Travelocity,  LowestFare and Priceline.
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