Owning a home
means saving for
the unexpected
These days, more and more people are recognizing the importance of self-care when it comes to physical and mental health. After all, how can you look after and provide for the needs of your loved ones if you aren’t well yourself? The same idea holds true when it comes to your family’s financial wellbeing, especially for individuals and couples who own their own homes.
Buying and owning a house is the biggest investment most people will ever make — both in terms of expense and long-term security for themselves and their families. It’s a permanent place for you and your loved ones to live and grow and a safe, stable place that you can make your own. It’s also the key to financial stability and wealth creation. And since U.S. homeownership has increased in recent years, including among Black, Asian American, and Hispanic populations, as well as single women, it’s more important than ever to stress smart budgeting as a form of financial self-care for homeowners.
50% of your income should go to...Necessary (Non-discretionary) Expenses.
And since U.S. homeownership has increased in recent years, including among Black, Asian American, and Hispanic populations, as well as single women, it’s more important than ever to stress smart budgeting as a form of financial self-care for homeowners.
30% of your income should go to Discretionary Expenses.
20% of your income should go to Debt Payments/Savings.
For more on how to build and stick to a stronger budget
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Homeownership is now one of the most rewarding parts of adulthood and the American dream. But owning your home is more than just swapping a lease for a mortgage. Being a homeowner changes the way you spend your money. You must now account for a monthly mortgage payment, property taxes, insurance, and utilities. You also need to plan and save for eventual upgrades and repairs, not to mention any unforeseen rainy-day emergencies that can — and will — pop up.
There are many practical and relatively simple ways to shift your mindset when it comes to staying on top of your household budget.
Building Your Budget
There’s no one right way to build your homeowner budget. That said, there are few methods that have proven to show success for many owners in many different situations. One effective example is known as the “50-30-20 Rule.” Imagine your total income being divided into three buckets.
Of course, this ratio can be adjusted to fit your specific circumstances, but for first-time homeowners, the 50-30-20 Rule is a good place to start. There are other proven budgeting strategies, as well. Here are just a few:
• Envelope Budget — This is a simple strategy of setting a spending limit for each expense. For instance, put a cap on how much you want to spend on groceries or eating out or shopping each month and set that amount of money aside in an envelope. When the envelope is empty, you’re done spending for the month.
• Reverse Budget — Also known as a Pay Yourself First Budget, this low-maintenance strategy prioritizes spending in different categories. Decide how much to pull from your net income each month for savings and other top priorities. The remaining budget is for bills and other regular costs.
• Spend Less Than You Make — And for extremely low maintenance, it’s also helpful to sit down, compile your expenses and make sure you’re not spending more than your takehome income. Simple as it sounds, assuring that you have a cushion each month adds up and helps ensure your immediate comfort and long-term financial security.
It’s also always a good idea to develop a habit of consistently putting money away. One way to do this is to set long-term savings goals based on your income. Most bank accounts offer automatic recurring transfers that will set aside a certain amount from every paycheck deposit, or you could simply do this with the cash you have on hand.
And it’s also wise to consistently check in on your finances. You don’t have to hang on each and every transaction, but it’s good to know how much you’re making, how much you’re spending, and how much you’ve managed to save.
Learn more ways to put you on the path to a stronger home budget at www.fanniemae.com/financialwellness.
50-30-20 Rule Basics:
First, there are the Necessary (Non-discretionary) Expenses. These include all expenses that you absolutely need to survive or to be financially stable, like the mortgage payment, utilities like electric and gas, Internet, your minimum payment on loans and credit cards, groceries, car payments or transportation costs, and health insurance. According to the 50-30-20 Rule, 50% of your income should go to Necessary Expenses.
Next, 30% of your income will go toward Discretionary Expenses. These are the luxuries you want, but don’t need, like eating out, traveling, shopping, streaming service subscriptions and other entertainment, and any hobbies you might have.
The remaining 20% of your paycheck should go toward Debt Payments. This is essentially a savings account you build to reach your financial goals. You make debt payments as you pay back borrowed money and interest.