Budgeting considerations for new homeowners

Saving for a home and making your offer will likely be the most stressful, yet incredibly exciting, experience of your life. Once you’ve got a place to call home, some financial adjustments often need to be made. With a new home loan, bills, and fees, a re-budget is often the first thing on the mind of new homeowners, which is a big change to get used to.

In this article, we share some key factors that new homeowners should consider in their new budget.

IDENTIFY YOUR FIXED & VARIABLE EXPENSES

Welcome to your new home! Once you’ve got all the purchase-related one-off payments out of the way—lawyer’s fees, moving company costs, and so on—it’s time to consider your expenditure after the purchase. You can split the ongoing costs into fixed and variable expenses.

• Fixed expenses are your recurring payments that don’t change each month, such as your mortgage payments, internet, insurance, local rates, and in some cases, body corporate fees (if you’ve purchased an apartment or unit).
• Variable purchases are the things that change month-to-month, like grocery shopping and utility bills (power, water, gas).

The difference between the two is important because of how they work with your budget. Fixed expenses are always the same, so you can work them into your budget more easily. Spend $1,000 a week in fixed expenses, but have a household income of $2,000? No problem, your income covers your fixed costs, with $1,000 left over to cover your variable expenses.

Variable expenses are trickier, because they’re harder to predict. One week, you might spend $1,200 in variable expenses, while another week, you might spend $800. Using the example from before, this means that sometimes your budget covers your costs, but sometimes it doesn’t.

The key to avoiding budget blowout is knowing where and what kind of expenses are busting it. Variable expenses are easier to cut down on – you can try to spend less on water by taking shorter showers (variable expense) but you can’t just ‘choose’ to spend less on your internet (fixed expense if you have a contract)!

Sorted.org.nz provides more advice on tackling your budget the right way.

CUT DOWN ON NON-ESSENTIAL PURCHASES

Now that you’ve got more financial responsibility on your shoulders, it’s often helpful to consider those non-essential purchases that you may make. This could mean only spending money on things like clothing, food, and household items when necessary. We also spend a lot of money on subscriptions—sometimes ones we forget about. Eliminating these recurring payments sooner can make a big difference down the line.

You’re not cutting out non-essentials for good, but after making the financial commitment to homeownership, it’s an effective way to start building a little nest of savings. Making cost-cutting considerations, even as small as skipping your morning trip to the coffee shop, can make a bigger difference than many believe, as small savings can add up quickly.

When it comes to purchases like groceries, it’s helpful to put some consideration into your shopping list and identify any non-essential elements of your grocery shop. Think about where you could possibly save a few dollars here and there. It can be helpful to think about your meals in advance and do your very best not to stray from your shopping list. Pro-tip: click-and-collect lets you avoid most of those “little extras” that tempt you at the actual supermarket.

CONSIDER YOUR SURPRISE EXPENSES

Often, things in life just don’t go to plan, whether it’s a flooded basement, medical event, or they’ve cut down your hours at work. No matter the situation, it can make all the difference when you’ve prepared for it.

Saving any extra cash left from your variable expenses can be an effective way to make sure you don’t fall into an unexpected trap. Let’s say you spend a little less on your water bill this month. Take that leftover and store it away in a special emergency fund. Then, if you suddenly need to make a doctor’s visit, you can draw on your emergency fund instead of dipping into next month’s budget.

Maintaining a little bit of emergency savings can be a huge help when it comes to broken appliances, plumbing issues, or other maintenance and repairs. Planning for these surprise costs will help you stay on top of all your payments, rather than be caught off guard with payments you can’t afford to make.

CONSIDER INSURANCE QUOTES

For most homeowners, insurance will be an immediate no-brainer, as you’ll want your lovely new home, and all the belongings within to be protected if an unfortunate event takes place. Research should be done before committing to any large or recurring purchases.

Conducting research and considering a range of insurance quotes from providers can help you find an option that not only fits with your lifestyle but aligns with your budget. This can provide you with peace of mind that your mortgage payments won’t be wasted money in the tragic event of a house fire or natural disaster. Be sure to note that the cost of insurance often matches with the level of protection it provides.

PLAN NOW, RELAX LATER

Planning and taking careful consideration of your finances is the best way to prepare yourself for the future. Avanti Finance provides Kiwis with personal, car, and home loans in NZ. If you’re looking for help with purchasing your new home, get in touch with the Avanti team today!