My New Blog

Creating a budget is an essential part of the home buying process. A large percentage of people don’t know what their monthly expenses are and that creates a huge problem that usually reflects on their bank statements. A person making $60,000 per year with $200 in savings is a major cause for concern. Writing down all monthly expenses and monitoring how much money is coming in and how much is going out will help you realize what you can truly afford. This will also allow you to establish some savings for a rainy day as illustrated in the table below. One of the easiest ways of establishing a budget is to create a table with three columns as shown on the example below: (1) your expenses (2) your existing budget amounts and (3) new budget amounts.

First, you want to list all of your monthly expenses in your first column and be very detailed. Go through your bank statements over the last 6 months, average the amounts then annotate it in your table accordingly. Be careful not to list the amounts twice if they’re already being deducted on your paychecks (ex: health care and taxes). In the second column, write down the appropriate amounts for each expense item and total the amounts at the bottom. For the third column, you will want to find ways to reduce expenses in one way or another. Some items can be reduced by simply switching to a new provider or reducing the coverage or package such as (Cable TV) to better compliment your new budget. Other expenses will have to be reduced by changing your

Table 1: This is an actual budget created for a client

spending habits and your mentality about money. This includes shopping, eating out, weekend activities, and/or reckless spending.

Once you get your budget down packed and you’ve successfully reduced some costs, it’s now time to figure out how much money to allocate to a separate savings account such as an Orange Savings Account by ING Direct. This account will be strictly for purposes of buying a home. Why allocate this money to a separate bank account? If you keep your savings amount in a place where you can easily view it and access it, the chances of you spending that money for purposes beyond buying a home are inevitable. Transferring that money to an outside account will keep it out of your debit cards reach and it will require additional steps to view and access. I strongly believe in the phrase out of sight, out of mind. ING Direct has an automatic transfer feature that will automatically transfer from your regular checking account a certain amount (however much you desire) every month regardless of your situation. How much should you transfer every month? That depends on how soon you want to buy your home. In the example provided this couple was very motivated and determined to buy a home ASAP and for that reason they set their monthly transfer at $1,000 per month. This account will be designated for the purpose of a down payment or for other funds relating to the purchase of your new home.

It’s also a good idea to create an emergency fund which is usually kept in the same bank but at a different account such as a Money Market Account. The objective for this account is to keep it separate, but easily accessible.

Vacation FUND: In my opinion vacations are very useful to keep us sane, sort of speak. Vacations create memories, and they help us create stronger bonds with our family. On top of that it keeps stress levels down, helps us stay motivated and gives us something to look forward to during our everyday hustle. I like to designate a small amount of money to this fund and try to take at least 2 vacations per year. Not just a weekend vacation, but a major, out-of-the-ordinary 3-10 day adventure or excursion; something that will keep the family talking for years to come.

Now that you’ve created your new budget, I bet you feel a lot more confident about buying a home. Follow your new budget carefully and next thing you know you’ll be in escrow ready to start your next chapter in life. Post your newly created budget on your refrigerator or somewhere where you can constantly keep an eye on it to keep you on target and consistently motivated.

Are you lost and need direction with your personalized budget? You can request a consultation to establish your personal plan of action.