Advice on managing money after purchasing a home (Everything You Need to Know)

 How can you safeguard your first-home investment? The effort of financial planning and budgeting does not end once you receive the keys to your new house, despite the satisfaction of finally being there after all the labor of finding and purchasing the property.

Of course, all of your previous efforts should aid the process. You had to figure out how much house you could afford, save enough for a down payment, then apply for a mortgage. This may be an excruciatingly painful and distressing procedure. According to a free and clear poll, 75% of house buyers compare the mortgage-acquisition process to going to the dentist or getting a medical.

Advice on managing money after purchasing a home (Everything You Need to Know)

Continue reading to find out what you need to do next to maintain momentum and secure this critical stage in your financial life.

Financial Advice After Purchasing Your First Home

Return to Your Budget Agent According to Elizabeth H. O'Neill of Warburg Realty in New York City, it might be intimidating to think about creating a homeowner-oriented financial plan after you've just gone through the buying process, but it's an important step you can't afford to neglect.

O'Neill advised making a budget, noting that it should completely account for all expenses related to home ownership. This covers your mortgage payment as well as any increases in expenses due to rising energy bills, homeowner's association or condo fees, and maintenance or repairs. 

The last two are important to consider if you've recently moved from renting to owning. If you've never owned a house before, having to fix a leaky toilet or replace a broken window out of pocket might be a rude awakening, according to O'Neill.

You may anticipate spending between 1% and 4% of the sale price on maintenance and upkeep, which includes gardening, housekeeping, and small repairs.

However, that sum doesn't cover larger costs you might incur as a homeowner, such as having to replace your HVAC system or a roof, which could cost tens of thousands of dollars each.

First-time buyers should establish a separate homeownership savings account to pay for larger repairs, according to Tad Hill, founder and president of Freedom Financial Group in Birmingham, Alabama. "The price range for these services is not modest, so I'd recommend keeping at least $5,000 to $10,000 in cash on hand in case something fails," he added.

The spending plan for improvements

If you want to renovate your kitchen or update the bathrooms, you'll also need to make a place in your budget for upgrades. According to the latest U.S. Houzz & Home Annual Renovation Trends report, homeowners spent a median total of $15,000 on renovations in 2020. 

One-third of the homeowners polled said they would utilize credit to finance the improvements. However, it may be more cost-effective to pay in cash (nearly 80% of those polled did).

In order to help you cover any unforeseen costs for repairs or renovations, it may be helpful if you are a first-time buyer to set aside money in a savings account and add to it on a regular basis.

You should prioritize paying off any existing debt in addition to avoiding additional debt. Eliminating car, credit card, or student loan payments can free up more cash for your home savings fund and give you more budget breathing room.

Check Your Insurance Policy

Homeowner's insurance is a requirement for first-time buyers, but you could also require other insurance, starting with life insurance. "Life insurance is like a self-completion plan," Kyle Whipple, a financial advisor at C. Curtis Financial Group in Livonia, Mich., explained. 

Insurance is intended to decrease risk, and if you die, "it's pleasant to know that the tax-free proceeds might assist pay off a mortgage." This is crucial if you are married and do not want to leave your spouse in debt. If you have a family, life insurance can also assist provide cash flow to support monthly bills or college tuition for your children.

According to O'Neill, while purchasing or upgrading a life insurance policy, you should ensure that you have at least enough coverage to pay off your mortgage and cover your family's living expenses for the first few years after your death. One dilemma you may have is whether to get term or permanent life insurance.

Term Life Insurance

• Because you are only insured for a certain period of time, term life insurance is the most affordable alternative. If you are a first-time buyer and just need coverage while you have a mortgage, this sort of insurance may make sense.

Life Without End

• Lifelong coverage with the potential for cash value accumulation is available with permanent life insurance, such as whole or universal life, although the price can be significantly higher. Whipple advises speaking with a certified insurance broker or agent about your alternatives if you're not sure which to buy.

Disability

• Another issue to think about is disability insurance. According to the Centers for Disease Control and Prevention (CDC), 26% of individuals in the United States have some form of physical or mental handicap.
• Your capacity to make your mortgage payments might be impacted if an injury prevents you from working temporarily or a serious illness necessitates a lengthy leave of absence. In such cases, short- and long-term disability insurance can assist protect you financially.

To help with repair costs, particularly if you have an older home, Whipple advised that you might also want to look into insurance policies or home warranties. O'Neill suggested checking into if you may receive a discount by combining your homeowner's insurance and other insurance plans.

Examine Your Retirement Strategy

Don't forget about your other financial objectives, even if your budget changes and expands after purchasing a property. This includes putting money aside for retirement. You don't want to be one of the 64% of Americans who will retire indigent, per a report by GOBankingRates.

If you have a 401(k) or similar retirement account at work, double-check your contribution rate. Compare that to your freshly updated budget to see if the amount is sustainable and if there is room to raise it. If you don't have access to a 401(k), consider a regular or Roth IRA instead.

Your list of objectives might also include setting aside money for your children's college accounts and creating an emergency fund for non-housing-related expenses.

How Should I Proceed After Purchasing a House?

• Keep contributing to your retirement accounts after you buy your first property, and set aside some cash for any unforeseen household needs, such as fixing a broken dishwasher or repairing a window.

What Will Happen to My Budget After I Buy a House?

• The majority of individuals utilize a mortgage loan to purchase a home, and these payments are typically made monthly along with homeowners insurance and other costs if you want to purchase a condo or join a homeowners association (HOA). All of these expenses should be considered in your budget as a new homeowner.

What Amount Should a New Homeowner Save?

• According to many financial experts, first-time homebuyers should aim to put at least six to twelve months' worth of expenses in liquid savings account for emergency situations.

Purchasing a house brings with it new financial obligations, but with proper planning, you may avoid being overwhelmed. Ideally, financial planning should begin before you buy a house, but even if you're getting a late start, it's critical to prioritize preparation. 

"Creating a budget is a great idea, but it often begins with tracking where your money is going so you know how much you need to budget," Whipple explained.

When saving money after purchasing a home, you should pay closer attention to your spending if you're having trouble doing so.