You just made the biggest purchase of your life. You’re excited, but a little panicked. How can you recover financially? Buying your new home most likely drained your bank account, so how do you get your finances under control after such a large investment?
We’re here to help. We compiled a list of financial tips new homeowners can use to recover and get back on their feet financially. Some of these tips can help instantly, while others will take time. Integrate some of these tips into your finances, and your budget will be back on track in no time.
Rebuild Your Emergency Fund
One of the first financial steps to take is rebuilding your emergency fund. You may not be able to contribute large amounts right after buying your home, but start adding to it immediately. You never know when an emergency is going to strike, so it’s smart to be prepared.
According to financial experts, you should have three to six months’ worth of expenses saved and accessible. The sooner you start building that fund, the faster you can relax knowing you are covered financially. When you have extra money, put it in your emergency fund. Have spare change? Throw it in your emergency fund. Someone give you money for a birthday or a holiday? Stash it in your emergency fund. Find $10 in your jean pocket? You guessed it: emergency fund.
Any contribution helps, regardless how small. What’s crucial is creating a habit to contribute to your emergency fund regularly. And don’t touch it! Make sure it’s off limits. Unless, of course, it’s an emergency.
Create a Budget — and Stick to It
Another financial tip that will help almost immediately is creating a budget and sticking to it. Buying a home changes your financial situation; so, even if you already had a budget, make a new one.
Perform a financial audit to determine your new budget. Make a list of all of your expenses, whether it be bills, groceries, date night money, daily coffee, gas money etc. Now, separate the list into two parts, one for the essential expenses and another for the optional expenses. For example, your energy and mortgage bill are necessities, but your daily coffee at Starbucks isn’t.
After completing the audit, you will most likely find you have extra expenses you could afford before buying your house that you no longer can afford. Cut the unnecessary spending out of your budget. Doing away with this excess spending is crucial to getting your finances under control.
Use an App to Track Your Finances
Financial apps for your phone allow you to organize your finances, including your debt, your savings, your bills, etc. You can even set up certain apps to alert you when an upcoming bill is due. Many apps also include visualizations, such as pie charts, to illustrate your expenses and revenue. Some apps even allow you to create savings plans and strategies to help you manage and save your money.
There are also ways you can automate your savings. For example, you can look into apps like Qapital. Qapital allows you to sync your bank account and set up “round up” purchases. For example, you can customize the app to round up to the nearest $5 every time you make a purchase. If you made a purchase for $12, the app would then round the purchase up to $15, and the extra $3 dollars would be set aside for your savings account. You could save money without realizing the money is even leaving your account.
Another savings method is the 50/50 trick. For everything you earn, you take half of it and put it in your savings. You may not be able to afford the entire 50/50, so customize it to fit your financial situation. You could make a commitment of 40/60 or even 30/70. Making a commitment is going to help you consistently save money without breaking the bank. Consult your budget, decide how much you can afford to put aside, and stick to that number.
Invest in a Home Warranty
Although it may seem like an additional cost at the time, in the long run, investing in a home warranty is going to save you a lot of money. A home warranty will cover the majority of systems and appliances in your house, and many home warranty companies even allow you to customize your own plan. If anything goes wrong with a system or appliance in your home, you’re covered, and you don’t have to tap into your emergency fund for a new refrigerator if it stops working.
Switch to Cash
A recent study shows people using credit cards spend 12-18 percent more compared to when they use cash. With this in mind, consider switching to cash, at least for your smaller purchases. For example, if you need to go to the store, withdraw a certain amount of money so you’ll only have enough for the essentials and you won’t be tempted to get unnecessary items.
You could also consult your budget and decide on a mini cash budget for yourself each week, major bills and gas money aside. Maybe give yourself $10 a week for coffee or a Friday night movie. Once your $10 is spent, you’ll have to wait until next week’s cash budget. This could really help if you find yourself getting carried away with your credit card and swiping one too many times.
Consider the Snowball Method
Recovering financially after buying a house means getting your savings under control as well as your debts (if you have them). Consider using the Snowball Method to manage your debts. The Snowball Method is a strategy to help decrease your debt by paying off the smallest debt first and then rolling that payment amount over to the next smallest bill once the first is paid. The Snowball Method can help you pay your debts faster.
If you don’t have debt, consider using the same method for your excess spending. For example, if you downgrade your cable TV to a cheaper plan, decreasing your bill to $50 instead of $100, then the $50 that you are now saving every month can be put towards another bill, even if that means paying extra. You can get ahead in your bills or you could commit the extra money specifically to one bill, such as your mortgage. Then, you could pay off your house or another expense more quickly than you had previously planned.
Get a Side Hustle
With the added stress of a new mortgage payment, you may be looking for additional sources of income. A temporary option, or permanent depending on your situation, could be getting a side hustle. There are endless options for possible side hustles, but a few common ones include renting out your basement or selling unwanted belongings on eBay.
This extra income can allow you to build your savings and ease your stress about money. The side hustle doesn’t have to be forever; you could get a side job just to pay off a loan, or you could find that you enjoy it. Some people don’t even need side hustles but decide to do something anyway to make double payments on their mortgage, saving thousands of dollars in interest.
Set Reasonable Goals
A final note of advice for recent homeowners is to set reasonable goals for yourself. If your goals are extreme, you are going feel like you failed. Instead of going overboard, sit down with yourself and decide what is reasonable and what isn’t. Make sure to challenge yourself, but don’t make impossible goals.
This is just a start to recovering financially after buying a house. If you make a plan and integrate ideas like these into your financial plan, your money situation will continue to get better.