How to create a homeowner’s budget

As a homeowner, monthly spending begins with your mortgage payment: It’s typically your biggest expense and considered by many to be the most important payment — after all, you don’t want to lose the roof over your head, which could happen if you don’t keep up with your mortgage. If you learn how to budget, you’ll be on your way to ensuring you can afford all of the expenses of homeownership and your other bills, plus have a little left over for fun.

The mortgage isn’t the only bill you’ll see as a homeowner. You’ll also face property taxes, homeowners insurance and possibly homeowners association fees. And if your water heater or air conditioner gives out, you’re on the hook for the repair costs.

But here’s the good news: The extra pressure and expenses of homeownership aren’t anything to be afraid of if you’re prepared. If you take the time to learn how to budget as a new homeowner, it will help you monitor your expenses and help ensure your mortgage payment is never late.

The merits of a budget

If you’ve never budgeted — or if you’ve tried and failed — it may sound intimidating. But in its purest form, budgeting simply helps you track money coming in and money going out.

While the thought of watching your every dollar may sound stressful and restrictive, in practice, it can actually turn out to be the opposite. Knowing where your money is going and how much you can afford to spend in each category can reduce stress and give you more freedom.

Here’s why: You no longer have to white-knuckle it to the end of the month. If you create a budget and stick to it, you’ll know exactly how much money you have left over for fun after paying your nonnegotiable expenses. Doesn’t that sound better than avoiding looking at your bank statement and just hoping for the best?

How to budget as a new homeowner

A budget consists of two key factors: income and expenses. To get started, grab some paper and pen, or a create a spreadsheet on your computer. (You can also use this handy budget worksheet offered by the Consumer Financial Protection Bureau.) Start with your income: Enter all of the money that flows in each month, including from work, spousal or child support, investments and any other sources.

Next, list out your expenses. Start with your monthly mortgage payment and any other home-related costs, like homeowners association fees, insurance and taxes. You should also add in some funds for ongoing repairs — according to Realtor.com, homeowners should be budgeting about 1% of the home’s price tag annually for repairs and emergencies.

Now list any other required bills or expenses, like auto insurance, car payments, debt payments, utilities, groceries, childcare, etc. It’s OK if you have to estimate for bills that fluctuate. Total all your expenses — that tells you how much take-home pay you need every month to simply make ends meet.

Then, add in all your current expenses that you pay each month but don’t absolutely need. Think Netflix, Spotify, gym memberships, and household services like lawncare or housekeeping.

Take your new expense total and subtract it from your total household income. If you have anything left, congrats — that’s what you have left for savings and fun. As a homeowner, it’s prudent to put some leftover funds in an emergency fund for those unexpected repairs we mentioned earlier.

If your totaled expenses exceed your income, you aren’t bringing enough in to make ends meet, and that means you need to cut expenses or earn more income.

Another way to tell if your finances are in good shape: There’s a popular rule of thumb called the 50/30/20 rule, which states that 50% of your income should be spent on needs, 30% on wants, and 20% on savings and debt payments. You don’t have to follow this exactly, but it can be a helpful guide.

Cutting costs

If the amount you have left is too little for comfort, or there’s nothing left at the end of the month, it’s time to figure out where to cut costs.

Look at your bank statements from the past few months and highlight the items that weren’t truly necessary. Did you impulsively hit “Buy Now” on Amazon a few too many times? Did you order food delivery when you could have made a few meals from groceries for the same amount? Did you spend more than you really needed on rideshares?

Take a close, hard look at these types of expenses and ask yourself if you can cut some of them out or reduce them. If you’re living really close to the bone and you’re contributing to a retirement account each month, you may even want to consider putting that on hold (temporarily!) until your finances are more stable.

If it feels painful, keep in mind that these bigger cuts don’t necessarily have to be forever. Perhaps at some point you’ll get a raise or pick up a side job, or maybe some of your expenses will drop off (like when a child in daycare starts school or a debt is paid off).

Setting up an ongoing budget

Using the information you just put together, you can create an ongoing budget. There are numerous methods for this; you can put together an estimated budget in a spreadsheet and manually add your spending to make sure you’re on track. There are also digital tools, like Mint, that do a lot of the work for you. They allow you to designate spending categories and their limits, and then automatically track your progress once you link your accounts. Alternatively, some budgeters might prefer to physically put cash aside in envelopes for each spending category, which helps prevent overspending.

Here’s a fun part of budgeting: If you have money left over after your expenses are paid, you get to decide how you want to divvy it up each month. You can just wing it — but it’s wise to have a plan so you don’t just fritter it away.

Will you put a set amount into a savings account each month to be used for future home repairs? Will you contribute some of it to retirement? Do you want to use a portion of it for vacations or clothes shopping? It’s up to you.

At the beginning of each month, it’s smart to sit down and look at your budget, and then make any adjustments for the coming month. If you budget with a partner, do this together.

Think of any out-of-the-ordinary income or expenses ahead. Perhaps a work bonus is coming in. Maybe you have a wedding to attend that month and you want to plan for a wedding gift and a hotel room.

Whatever your extra expenses might be, you’ll need to find a place in your budget where you can offset any amount outside of your normal spending. This ensures you won’t have to rely on credit cards or other borrowing to get you through the month. Maybe that means setting aside less savings that month, or having less money for dining out or shopping. Look at it like a puzzle: Every month you start with a template and move the pieces around depending on what’s happening.

Bottom line

Budgeting isn’t fun, but as a homeowner with a fresh new batch of expenses, it’s a smart move. Tracking your spending can help you plan for emergencies and have the peace of mind that you can afford your lifestyle.