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You can create a plan for your finances using the following four steps.
Step 1: Determine Your Financial Goals
A financial goal is a specific amount that you want to save for a defined purpose. These goals are usually set for expenses that are one-time, intermittent, or difficult to pay for with the cash you have on hand if not budgeted ahead of time. Think about what necessities you will have to pay for as well as desired purchases, and list them in the Goal Worksheet. Include both housing- and non-housing-related goals.
Make a List
Take your time to create a thorough list. What are all the expenses that you will have when you move? What expenses do you expect to incur during your first year? What do you think you will need to spend money on a few years down the road? The home inspection can give you an idea of when things may need to be replaced or repaired. Some timeframes may be set, while others may be flexible.
If you do not have an emergency fund (of at least two months worth of mortgage payments), you should make saving for that a priority. If you have an unexpected expense or loss of income, an emergency fund will allow you to continue paying your mortgage.
If you are not sure what amount to list for some expenses, do research. For example, if you need to buy new plumbing fixtures, do online research or visit your local hardware store to find out prices. If you are not sure what you will have to pay for your supplemental tax bill (or if you will even have one), talk to your real estate agent, who should be able to get you the information needed to estimate it.
Once you know the timeframes and costs, you can budget the monthly amount you need to save. Divide the total cost by the months until the desired achievement date. After completing Step 3, you will have a better idea of what is realistic to save each month.
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.
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
If your expenses are less than your income 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.