Buying a home is one of the biggest purchases in a person’s life; after all, buying a home isn’t the same as buying a car. It can be overwhelming to think about all the money you need to save for the down and monthly payments, but with a good strategy in place, you’ll be able to save up and purchase a home in due time.
Budgeting can be a tricky thing. Not only do you need to be organized, but you need to make decisions on how much to spend and allocate to your savings account on a consistent basis. Once you figure out how much you can put away and how much you can spend, things will handle itself. Here are some helpful tips.
Add Up Your Income
Learn how much you can spend by figuring out how much money you are bringing in. Add up every source of income you receive each month and once you have that figured out, you will want to make a list of all your expenses.
How Much to Allocate
- 50% of your total monthly income should go into living expenses and essentials. This includes rent, utilities, transportation or gas, and necessary groceries for the week.
- The other 20% of your monthly income should go into savings and debt payments. You can decide how much money will be allocated to credit card debts and any other loans you pay monthly. The rest can be stored in investment accounts or any other accounts that will bring you additional interest.
- The last 30% of your monthly income should be considered disposable income, which means you can use this on any flexible spending. This includes purchases from your wish list or weekend activities. This category is not mandatory but needed for recreation.
Keep it Consistent and Automated
Figuring out how much you bring in and how much you allocate out allows you to automate this system so that it’s consistent each month. This budgeting plan will also help keep your personal finances in order or that you won’t miss paying a bill. The trick is to stay within your means. Do not overspend the allocated 30% of your flex spending and as much as credit cards can be convenient, it can be money crushing. Depending on your credit card limits, it’s easy to spend more than your means.
Give Your Budget Room to grow. Life will happen whether you like it or not. Look ahead and see if you can forecast any events that might increase your living expenses. The good news is you can always revise your allocations to adjust to current situations.
Give your bank account some time to grow so that you can get ready to purchase that home! Once you figure out how much you’ve saved up, you can calculate how much you can afford in a home and start mapping out the details. In the meantime, focus on saving.
