Chapter 3 - Financially Preparing for Homeownership: The First Year

Step 2: Examine Your Expenses and Income
In order to be able to save and pay all of your bills each month without relying on credit, your expenses must be less than your income. To find out what your cash flow will look like once you become a homeowner, you can use the Spending Plan Worksheet. This serves as a preparation for creating Your Money Plan later in the program and will reinforce your target goals.

List your income and amount of your expenses post-purchase. Consider everything that may change in addition to your housing expenses. For example, your commuting costs will likely be different, along with electricity, maintenance, and other potential expenses. Also include the monthly savings amounts from the Goals Worksheet. What if you do not know what you are spending on existing costs, such as food or clothing? For now, use your best guess, and start tracking your spending. This can help you create a more accurate spending plan in the future.

Examining Your Expenses and Income: Maintenance
If you do not have a good idea of what the home will need in the future, you can use a rule-of-thumb estimate of 1% of the home’s value per year. Maintenance expenses will arise and if you have nothing budgeted to cover them, it could create financial difficulties. You may want to consider purchasing a home warranty if the roof, furnace, and major appliances are more than 15 years old and you find a reasonably priced warranty.

 

 

Step 3: Make Adjustments
Your expenses versus your income will be covered to a greater extent when you create your Money Plan in Chapter 7, but if you have already calculated that your expenses are less than your income on this worksheet know that you are in good shape. If not, look over your plan and think about what changes you could make to improve your cash flow. Can you bring your lunch to work instead of buy it? Nix the landline and just use your cell phone? Define what is a necessity and what can be reduced, postponed, or cut out completely. Put any changes you think you can make in the proposed column of your spending plan.

Step 4: Take Action
In order for your goal and spending plans to be useful, you need to follow them. In saving for goals, you can set yourself up for success by making it an automatic process. If you have direct deposit through work, you should be able to have a portion of your paycheck deposited into your savings account, for instance.