Money Management Tips to Keep in Mind as a Homeowner

One of the most exciting steps in many adults' lives is transitioning from renter to homeowner. Experts encourage first-time homebuyers to have a plan in place that will save time and maximize their budget. Home ownerships comes with many additional expenses that most renters do not have. Most first-time homeowners know this at least on a surface level but do not fully appreciate it until later. With that in mind, let us explore some money management tips that every homeowner should consider.

Budget for Home Maintenance and Improvement

Ongoing maintenance is a fact of life as a homeowner, an itemized monthly budget should have an amount dedicated to it. There are two schools of thought when it comes to how much: either 5% of your income per month or 1% to 2% of the home's value annually. If you need to start at a lower amount, do so, but always be working toward the higher amount.

You may not need that money every month, but rather than spend it elsewhere, save it and ideally in an interest-bearing bank account. There will be big costs eventually, such as a new roof. Perform all maintenance as needed, including small jobs. Procrastinating will only lead to higher costs down the line. Over time, you will build up enough money to begin investing in improvements. Those projects including repainting, kitchen remodeling, bathroom remodeling and so forth.

Create a Rainy Day Fund

The general rule of thumb is to have enough money in savings to cover six months' worth of expenses. Many experts recommend getting to three-month mark as soon as possible. You can then build up to the six months as it makes sense for your unique financial situation. Once you get to that point, the next step experts recommend is creating a rainy day fund for home maintenance. The value experts typically recommend for the average homeowner is $10,000. This amount is enough to cover most emergency repairs and system replacements.

Hire Qualified Contractors and Avoid Low Bids

Some people have a lot of skill when it comes to home maintenance and can save a considerable amount of money doing it themselves. That is not most homeowners, however. In fact, studies show that the average homeowner ends up costing themselves more in the end through DIY repairs. When it comes to your home, you should find skilled contractors you trust and pay them for a job well done.

Avoid the allure of a low bid. Money can be tight as a new homeowner, but find other ways to save. Schedule three or more estimates for any sizable job. This will give you a clear picture of what a fair rate is for labor and materials. Low bids are more trouble than they are worth generally. Possibilities include poor workmanship or an unfinished job.

Keep Receipts and Get Professional Tax Help

Your federal tax return will likely become a lot more complex as a homeowner. It is usually good practice at this point to hire a professional. A good accountant can save you more than you pay in their fee. You should also get in the practice of saving receipts related to all home maintenance and improvement. Write any notes on the back of the receipt that your accountant may need to know about. You may be surprised at how many of these expenses are deductible.

Monitor Utility Bills and Energy Usage

Energy costs are a major component of home expenses. You can keep a handle on what you are spending by tracking those expenses month to month and year. Sudden spikes can often be the first sign you have an HVAC or water heater issue, for example. It can also reveals areas of inefficiency and where you may want to improve your home.

What to Avoid as a Homeowner

Financial experts recommend first-time homeowners avoid draining their savings. Of course, houses are expensive, and that can be easier said than done. Still, rebuilding your savings should be a budgeting priority. Not making it a priority is one of the most common new homeowner mistakes. Another common mistake is getting caught up in do-it-yourself projects. Many new homeowners not only overwhelm themselves but spend a lot on equipment and supplies that they will never use.

The Bottom Line

With home ownership comes great freedom but also significant financial and maintenance responsibilities. Having a plan in place will help you keep your family and home safe while avoiding the common pitfalls that have undermined so many first-time homeowners over the years.

Written by Taylor McKnight, Author for LoneTree Wealth Management