Whether you’re saving for a new home, or managing a monthly home budget for your current place, it’s important to be realistic. At times, when searching for a new home or making home upgrades, your budget can be stretched or completely ignored, causing issues in the long term. That’s why it’s important to have a plan when calculating a realistic monthly home budget. A plan will ensure you don’t put yourself in a sticky situation. As a general rule, your monthly home budget shouldn’t exceed 30% of your monthly income, but there are also some other things to keep in mind if you’re wondering how to calculate a monthly home budget that’s realistic.
Here are tips to calculate a monthly home budget that’s realistic:
1. Use a budget app to track and plan for monthly home expenses
With modern technology, there are a variety of apps available to help you set a realistic monthly home budget. Some budget apps focus on investing your money and others focus on just basic budgeting, however there’s bound to be a free app that fits with your needs. Using budgeting apps like Mint, Personal Capital and others will help you visualize your spending and allow you to calculate a monthly home budget that’s realistic.
Begin tracking your monthly spending using these tools and you will be able to view spending graphs that give you a better idea about how much of an adjustment you’d have to make for a monthly house payment or how much you can realistically increase your monthly home budget to make the upgrades you want.
2. Overestimate your monthly budget for events & activities
One area that’s commonly ignored when calculating a monthly home budget that’s realistic is events and activities. This area of spending can fluctuate month to month, however it’s usually what can tip budgets in a negative direction. Something as simple as having multiple events for friends birthdays in a month’s time can have a large impact on that month’s spending. That’s why it’s important to be realistic when calculating your monthly home budget to ensure you give yourself enough money for varying activities.
When calculating a monthly budget for events and activities, a good rule of thumb is to set aside 5 - 10% of your monthly income. However, it’s important to view your spending in this area monthly and overestimate this number to ensure you’re covered in the long term.
3. Don’t forget to leave yourself wiggle room in your monthly budget
Not only should you budget for what you are spending monthly, but also for what you’re not spending monthly. It’s never a good practice to max out your income with monthly expenses. When calculating a monthly home budget that’s realistic, make sure you consider money left over for savings. Another general rule – you should aim to set aside at least 10% of your monthly income for your savings account.
4. Budget for major home dilemmas & emergencies
Aside from saving for a down payment, another area you should save for are major home dilemmas or emergencies. Owning a home or renovating a home can cause some unexpected expenses, and you don’t want to have to jeopardize your monthly budget for an update you didn’t prepare for. That’s why budgeting for the unexpected will help you maintain a realistic monthly home budget.
5. Follow your own budget when home buying - not your pre-approval rate
Another tip when calculating a monthly home budget that’s realistic, especially when purchasing a new home, is to follow your own budget. In certain circumstances, you may be pre-approved for a mortgage rate that in the long term is not a realistic monthly payment that you and your family can afford. Setting up your own budget before getting pre-approved for a mortgage will help you prevent over-stretching your budget by looking for homes that are way outside of your price range. Take your pre-approval rate with a grain of salt if need be and set your own price range based on your unique budget. In some cases you may decide you can realistically afford less than half of what you’ve been approved for, and that’s okay!
6. Consider other irregular monthly debts when calculating a monthly home budget
No two budgets are alike, and although you can base your budget off of general rules and guidelines, you need to consider other irregular monthly debts that set you apart. In order to calculate a monthly home budget that’s realistic you should consider monthly payments for gym memberships, student loans and even small payments like your Netflix account, to ensure that you’ve taken every area into consideration for your unique budget plan.
It’s easy to get caught up in stretching your budget when it comes to a home search or home updates. Because of this, it’s important to be realistic from the get-go. Taking these tips into consideration, you’ll be able to calculate a monthly home budget that’s realistic and won’t over stretch you.
Now that you have some ideas of how to calculate a monthly home budget that’s realistic for you, go do it. Your monthly home budget shouldn’t be stressful and shouldn’t leave you saying no to regular activities you enjoy. Although some sacrifices may be made when saving for your home, it’s all about balance.