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 budget while you are looking at homes, you can better focus on mortgage payment goals and how the new house will affect your total expenses. Maintaining a 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 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 budget. You can print out a form for developing your household budget here.
Some of the items and information you will need to develop your budget are:
- 1.All current monthly loan payments.
- 2.All other monthly expenses (such as child care, dues, etc.).
- 3.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.
- 4.Records of annual or semi-annual expenses (such as insurance and taxes).
- 5.An estimate of what your new mortgage payment will be. You can estimate that using our mortgage calculator.
- 6.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.
- 7.Records or an estimate of personal expenses (entertainment, travel, etc.)
- 8.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.
Be realistic in your budget assessment. Make provisions for possible increases in some items (for example, school tutions, insurance and taxes). Then, look for ways to get (and maintain) control over your budget. If you would like a few hints about saving money–now and in the future–see our saving money section. If you currently are working on a budget but it needs a bit of work, see our article on giving your budget a “tune up“.
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 $431 per month based on the average American income. No wonder the average credit card debt is now at $8,500!
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!