Budgeting for first time Homeowner
I'm in the process of closing on my first home. I'm looking for budget setup feedback, and pro's and con's for each method.
There are 3 things that we are budgeting for now
- Closing Costs
- Home Furnishings
The first two categories feel like true Savings categories where I'll save for these items, but they can be hidden once those costs get incurred. On the other hand, I feel like Home Furnishings beyond initial furniture purchases could be an ongoing budget category. I created a Master Category for Closing Costs, with subcategories for the individual items that make up Closing Costs.
- I've seen two approaches to non-recurring categories. I can either categorize all closing costs to a generic closing costs category as the closing costs come in and delete all the individual subcategories, or I can categorize everything to the subcategories and just hide the whole Closing Costs category. Is there pro's/con's to each method?
- Am I better off being more general about the whole thing, or specific? Part of me feels like we'd benefit having more specific subcategories within each budget. So we can for example budget for "Living Room Couch", etc.
- How specific is too specific? We will have a variety of items for each person. Electrician, Plumber, etc. I'm leaning towards having general subcategories for each of them under Renovations, and not having line items for each individual item they will do. I.E. Install lights in bedroom etc.
- How do we handle the home furnishings category go forward? Do I ignore the averages when thinking about recurring home furnishings items that we will want to budget for monthly?
Thanks in advance!
Here are my categories related to housing:
Mortgage - if I were buying a new house, I personally would just lump all closing costs and fees into this category to keep it simple. Once you purchase your mortgage I'm not sure what the point would be of keeping track of those items separately, but maybe people doing a lot of real estate transactions would want to track something like that.
Property Tax (paid twice a year, but I bundle both payments in one category)
House Maintenance -- this is for ordinary things like plumber, getting a repair person out for the dishwasher, dealing with raccoons in the attic, a new furnace, etc. I keep $500 in there.
Keep the House Standing -- an emergency fund that is a bit higher than my homeowner insurance deductible.
Household & Furniture
Trees & Garden & Outdoors
then I have smaller categories for specific renovations & repairs I want to do. I haven't been able to actually do any renovations, but when I do, my plan is to create a bigger category "Renovations" and then move the funds from the more specific category into either my Maintenance category or Renovations category before I spend it. So for instance, I'm saving up for a furnace, but when I buy the furnace & have it installed I will move those funds into "House Maintenance" so that that's what shows up on the report. I find the specific category helpful to motivate me to save, but in my reports, I don't need a line item for something I'll purchase once every 20 years. In the memo associated with House Maintenance, I did start listing all the major maintenance things that the house will need and when it will need them, just for keeping track.
You will probably just adjust as you go. I don't break out plumber/electric/etc because I don't need help, at the level of my budget, making sure that I'm not paying too much for those things. I am intrinsically motivated not to pay too much. So I just lump it all together. But if you had a lot of ongoing expenses in each of these, I could see breaking it out.
Congratulations, it's pretty exciting to get a house! I hope you have lots of fun with your house and with your budget!
I separated closing costs into actual costs for closing versus prepaid items like interest, property taxes and insurance. But no granular than that.
We have a general Home Improvement Category for the wants, and a Home Maintenance & Repairs category for the needs.
If I was doing a major overhaul of a room, I would have a renovations category for that. But something like installing lights would go under my home improvement, and we'd pay for it when we had the money.
Ongoing maintenance and repairs costs are about 1-2% of the value of the home depending on the gae of the home, lower in VHCOL areas, possibly higher in VLCOL areas. That should be separate from major renovations or home improvements.
Don't forget about things like yard costs and pest control.
you have a need, I.E. a TV broke,
I would use the contingency savings (Technology Replacement) category to deal with the unexpected. Right now, we'd have to move money from another contingency savings category because we thought home/car maintenance might come up first, but that's Rule #3 for you.
you have a working TV, but are saving up to replace it.
I would have a specific category to save for this in the Wish Farm group (look up that YNAB blog post). When it's time to spend, I'd categorize the purchase to the Technology Replacement category and move the money from the Wish Farm category to support the purchase.
I can't answer all of these for you specifically because we didn't really do things the normal way (NEEDING to find a home and not having the funds prepared for it put us in a really different situation. We purchased our house with almost nothing out of pocket, and nothing saved up... I don't recommend this method!).
BUT what I can say is that whatever you plan and prepare for is not likely how it's going to end up going. AND you can always change your categories and organization later. In my experience you'll spend way more when you move in on all sorts of things you had no idea you needed (we need a piece of furniture HERE NOW to make this room work, there's no shower curtain and we threw ours out, can't handle the lack of organization in the closet, we have more doors than we had before and don't have enough door mats and we're tracking mud in the house!) but you will need them anyway. So keeping a category for the 'things we had no idea we'd need' that can be applied to anywhere that you want in the moment is helpful. And creating a wish farm for the house is also a really great way to prioritize saving up for things that you know you're going to need or will want to do. I've included some essentials in the wish farm list before, because it just made sense to leave the money piled up there.
Best of luck - and enjoy your new home when you get there! It's exciting, and feels so amazing to have something that's really YOURS.