How to budget when you're buying

Posted on Monday, March 2, 2020

Of course, our homes are likely to be the biggest asset we’ll ever own. We all know it. So, it’s vital for our financial (and mental) well-being that we get this big decision right - or as close to ‘right’ as possible. Key to it all is planning and preparation. The most important part of all is our budget. The last thing we want is to fall head-over-heels in love with a house we can’t afford.

Here are five tips to help you plan your house-buying budget -

1.     Organise

Before you even begin to plan your budget, take time to know your way around your paperwork. Make sure those finances are organised. Don’t rush. One evening, just set aside an hour or so and get all those financial ducks in a row.

You’ll need to have bank statements and recent credit card bills lined up, as well as your household bills and details of any savings accounts, plus any other financial documentation.

2.     Calculate your income

Do this by combining your regular earnings with any savings and investments you may have. Don’t only consider your monthly earnings. Remember to add any other occasional sores of income too, such as dividends from shares.

If you have basic IT skills, use a computer spreadsheet. This will make it much easier to separate different incomes and make any edits that you need. Calculate the totals for each income stream. Then add them up to get a yearly earnings figure.

3.     Work out your outgoings

Once you’ve calculated how much you earn, you need to work out how much you spend each month. Go through all your bank statements, utility bills, credit card bills and any other expenses. Add everything up. Don’t hazard a guess. It’s amazing how wrong you can be … and usually on the wrong side. We almost always underestimate our expenditure.

Don’t forget those little extras, which usually turn out not to be so ‘little’ after all - birthday presents, meals out, car costs, and holidays. Then there’s Christmas.

Use your spreadsheet to calculate your total annual expenditure. Then divide by 12 for your monthly amount.

4.     Compare the two lists

Once you’ve calculated how much is coming in and how much is going out, it’ll be time to work out how much s left. Simply take your monthly expenditure away from your income.

All being well, you’ll finish up with a positive number - a negative figure means you might need to think again about the whole home-buying project - but not necessarily. It could be that you just need to make some lifestyle changes.

5.     Create your Budget Plan

It’s time to create a budget plan. Usually, this entails cutting back on expenses - sometimes items that you thought you’d never be able to live without. Some costs won’t be possible to cut, but most can be. Look at all those outgoings that can be easily tweaked - for example, doing without that daily cup of coffee on your way to work. £3.00 a day - 5 days a week - 48 weeks a year. £720! Just for coffee?

Take a look at your energy bills too. Maybe switching tariffs will save you money. Shop around for your home and car insurance. Implement these changes for several months before you go hunting for a mortgage. Make sure you can stick to your new thrifty plan. If you can, great. If you can’t, then it’s back to the drawing board to re-examine where you can make savings.

Your trusted property partner

At Privilege Homes, we’re the West Midlands’ premier estate agent for luxury homes. We’ll be your trusted partner in all matters relating to selling your property - fast and for the right price.

Why not get in touch and find out for yourself?

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