Clean House Before You Buy A House: Take Control Of Your MoneyApril 29, 2015
Between paying off debts and day-to-day living expenses, sometimes it’s difficult to keep an eye on the coming and going of your finances. But, if you’re looking to buy a home anytime soon and are saving up for a down payment, knowing how much is coming in and where it’s going out is critical.
It’s a fine line to walk—money management, but with a little help, you can walk it confidently.
Track Your Spending And Create A Budget
Creating a budget requires that you know where you money goes each week and every month. It will also keep you on track to live within your means, and then some. Whether you track and set your budget through your bank’s online tools, fancy apps, or simply with pen and paper, knowing where your money goes and setting a budget is the first step along the path.
- Remember, your budget should be based on how much is deposited into your bank account—take home pay, not on how much you earn pre-taxes.
The Basics: Housing, Food, And Transportation
Have you ever wondered how much you should allocate to housing, food and transportation? MyMoneyCoach, a website supported by the Credit Counselling Society (a non-profit charitable organization who helps Canadians with debt and money problems) offers some budgeting guidelines. Remember these are guidelines—so your situation may vary—but will provide you with an idea on, and the upper limit of, where your money should be going.
- Up to 35 per cent of your paycheque will likely go towards housing. This includes more than just your rent. This also includes things like your contents insurance (tenant insurance) and utilities like heat and hydro (if not included in your rent).
- No more than 15 to 20 per cent of your pay should go towards transportation. Take public transit or taxis? What you pay for it will come out of this budget line item. Own your own car? Then you’ll have to factor in gas, car insurance, maintenance and parking.
- About 10 to 20 per cent of your pay should go towards food: groceries, personal care and baby needs.
- Five to 15 per cent should go towards debt payments like credit cards, loans etc.
- Five to 10 per cent should go to savings (remember to pay yourself!)
- Another 5 to 10 per cent should go towards personal and discretionary items like entertainment, recreation, eating out, hobbies and the like.
- Five per cent should go to non-essential utilities like your home line, cell phone, cable, and internet.
- Three to 5 per cent should be set aside for clothing.
- And, finally about 3 per cent should be expected for medical stuff, like health insurance premiums or over-the-counter cold medicines.
The guidelines offer up a well balanced approach to how you may want to spend your money. It remembers that you need to live a little, and have a little fun, while also paying for the necessities including debt repayment and savings (which, yes, is a necessity.)
What’s Your Budget Telling You?
If your income isn’t satisfying all your needs (including what you need to be saving for your down payment and retirement), then there really are only two options.
- Reduce your expenses
- Earn more income
Listening to your budget and making the necessary changes will help you along the path of good money management, and get you that much closer to reaching your home ownership goals.