Three Keys to Evaluating your Personal Finances

When you decide that it is time to pull the trigger and buy a home, you are the one person who is best suited to look out for your personal interests. Your real estate agent, mortgage banker, and any other person involved in a typical real estate deal, is focused on getting their job done and closing the deal. It is not their responsibility to make sure the real estate purchase fits comfortably into your current financial structure. Just because you are approved for a $850,000 home, does not necessarily mean you should spend that much. Taking the time to dissect your spending habits and getting your personal finances in order can save you many future headaches.

Assessing your Budget and Spending

We all know that spending can fluctuate on a daily or monthly basis--even your income may fluctuate, however, you probably have unknowingly developed some sort of spending routine. Every month you receive your paycheck and then you turn around and spend it. Whether you spend some of it, a portion of it, or all of it, you spend it. You may enjoy going out to eat a couple times a week, catching a few movies, taking a trip with your buddies, or snagging tickets to a Cardinals game—spending money is a part of life. Being able to afford a mortgage payment, (and all the added expenses of owning home- HOA’s, Repairs, Maintenance, ect.) as well as maintaining a similar lifestyle that you are accustomed to, is something you must figure out before signing a buyer’s contract.

Examine your Spending

The first step in assessing your budget is to take the time to examine your spending. Look at your current monthly spending and compare it to your monthly expenses after purchasing a home. An example of categories might include taxes, housing expenses, food and eating, transportation, personal appearance (clothing, shoes, haircuts, etc), debt repayments (credit cards, student loans, car loans, etc.), entertainment, advisors (attorney, accountant, etc.), healthcare, insurance, educational expenses, kids, charitable donations/offerings, and anything else that doesn’t fit into a specific category. Once you have documented your monthly expenses, subtract that total from your income. This simple exercise will quickly reveal the difference between your current budget and your new budget after becoming a homeowner.

Set Savings Goals

 One very important thing that we did not factor into our budget was savings. Saving is something that every adult should do. Learning to save was probably something you were taught when you were a child. Unfortunately, most people do not know how much they are currently saving. Even more troubling, the majority of people do not even know how much they should be saving. You should take to the time to determine these amounts before you buy a home.

Setting personal savings goals today will give your “future self” peace of mind. Your goals are going to be unique to you! Saving is not a one size fits all situation, therefore, really focus on your own personal circumstances. Think about the age you want to retire, the amount of money you want in your emergency reserve, educational expenses, and business expenses. These are the types of things you must plan and save for. No matter what your financial goals are, you are more than likely going to need to save a good amount of money to accomplish them.

In Conclusion

Personal finances can be a daunting subject, but taking the time to plan, prioritize, and save, will make a huge difference in your personal life. Deciding when to purchase a home-- and for how much-- is largely determined by your personal budget. We are all very familiar with the term “house poor”, most people massively regret spending their entire monthly budget on a mortgage. Do the work, run the numbers, set goals, and then when you do decide to purchase a house you will be more than confident that you are making the best financial decision for yourself. 

Post a Comment