Understanding the Complete Picture of Homeowner Finances

Understanding the Complete Picture of Homeowner Finances

While many different valuable subjects are taught in school, many people enter adulthood without a proper knowledge of financial planning. This can lead to poor decisions and money management down the line. It is important for adults to be knowledgeable about their finances, but this is even more critical if they are planning on purchasing a home. While you may not have the time for a full-fledged financial education, you will definitely benefit from a brief overview of important financial preparation techniques. Here are some personal finance hacks you may not be familiar with that can help reduce stress as you prepare to buy a home.

Understand Your Complete Financial Picture

The most important thing you can do with regard to your finances when you are preparing to buy a house is to form a complete picture of your current financial situation and how the purchase of a home will affect it. The best way to do that is to audit your assets and finances. Start by writing out two columns for your assets (your property with value) and your liabilities (money you owe). In the assets column, write in your current bank account total, along with any savings, stocks, and spare cash you have. Next, add in the value of your property, like your car and any higher-priced electronic devices. In the liabilities column, write down debts of any kind you may owe, including credit card debt, taxes, and more.

Compare the two numbers to see whether your worth currently nets positive, negative, or neutral. You can use this total to determine the ideal price for your home, as well as what steps you need to take to pay for it without drastically changing your current standard of living. In particular, try to pay off your debt as soon as possible to remove any additional drains on your income. 

Calculate the Associated Costs

Many home buyers know how to plan for a mortgage payment, but it is common for new buyers to forget about the other costs associated with the purchase and maintenance of a home. In addition to the main price of the property, you’ll also have to pay for the utilities and HOA dues, as well as any routine maintenance that may be required. If you are buying a house in less than stellar shape, you may also want to hire a home inspector to look over your home before you buy it. Be sure to account for these costs in your budget -- you can use an online home cost calculator to determine the true cost of the property.

Cut Costs Wherever You Can

Saving is generally understood as a useful way to be financially stable, but what is less widely understood is precisely how to save. It is a much easier process if you have calculated your assets, liabilities, and net worth.  If you have an expected value for the home you are about to purchase and roughly know how much you’ll be paying per month, you can estimate how much money you will need to save each month for your home. While a significant difference between your current monthly net profit and the cost of the house may indicate the house is too expensive for you at the present time, a closer pair of numbers means that you will be able to pay for your house, with a few adjustments to your current routine.

You can save a large amount of money each month by reducing the amount of fast food and processed food you consume. Even though it may mean you will have to take an extra hour each day to cook, home-cooked food will generally be less expensive than paying for convenience -- and it will make you healthier, to boot. 

Another way you can cut costs is by reducing the amount you spend on entertainment. While this doesn’t mean you have to refuse engagements with your friends, it is advisable to cut the amount you drink at night -- drinks and activities rapidly add up before you know it. 

Buying a house is a costly proposition, but you can manage it as long as you have a full understanding of the associated costs and your current financial position. Once you’ve purchased it, continue to practice your money-saving habits to become even more financially stable as a new homeowner.

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