What does it mean to be a homeowner? This could mean owning a place to call your own, settling down, building memories, growing a family, becoming part of a community and even investing in your family’s future.
Another part of being a homeowner means that you’re investing in your personal financial goals. There are many financial benefits to it such as accumulating home equity rather than losing money in renting.
“How do I prepare for homeownership?” To provide a simple answer to that, we suggest becoming financially stable first before buying a home.
Here are 10 suggestions for how to become finally stable and prepare for homeownership:
1. Live Below Your Means
A good rule of thumb is to spend less than you earn. Living a lifestyle that you can afford can help you develop financially healthy habits.
Do this by tracking your monthly expenses, setting a monthly budget, lowering your bills (food, transportation, living, downsizing if needed), prioritizing your savings (build an emergency fund, savings and retirement) and make it a habit!
2. Start a Retirement Fund
Starting a retirement fund should ideally start in someone’s 20’s, typically when one earns regular paychecks after leaving school. By investing in your retirement now, your money has time to grow! Your money will compound by generating growth on itself each year.
3. Focus on Your Credit Score
Lenders use credit scores to assess an individual’s risk and how likely someone will repay a loan on time. A higher score can help you get a lower interest rate on future investments such as your home.
Do this by paying your bills on time, keeping balances low on credit cards, paying off debt, keeping unused cards open and only applying for new credit accounts if absolutely needed.
4. Save Money for Emergencies
Having an emergency fund or multiple ones can help protect you and your family from the unexpected such as car repairs, unplanned trips, unexpected illnesses or job loss.
By having backup funds, you’ll be able to pay for big expenses if they arise and not need to pull money from a retirement account. Doing so should be your very last resort because you’ll end up paying penalties.
Being able to pay cash for emergencies will help protect you in the long run.
5. Create a Debt Pay-Off Plan
The 2019 Consumer Debt Study by Experian averaged that most Americans carry an average of $90,460 in personal debt. Debt amounts are at an all-time high and rising. (Debt Reached New Highs – Experian, March 9, 2020)
What does this mean for those reaching for financial stability? Debt can affect someone’s personal financial stability greatly. Not all debts are equal, especially when comparing high and low-interest rates. They work against a debtor and numbers can increase greatly if debts aren’t paid off in a timely manner. It’s best to know how much you owe today, create a debt pay-off plan and work to eliminate your debts altogether.
6. Don’t be Impulsive
Be direct with your money. Yes, it can be more convenient to eat out and more fun to buy ‘the next thing,’ but this can quickly and easily drain your finances. Once you start monitoring your spending, stop impulse buying and balance your expenses, you’ll see how much you can save!
When you start to become more financially stable, you’ll be able to invest. You can put down deposits on investments such as a new vehicle, a house or even towards stocks, your community businesses and other real estate.
8. Budget & Plan
Tracking your expenses and setting a budget is a great way to help you spend money on the right things and save money!
Once you become more financially stable, you can factor in your potential mortgage, escrow, utility bills, water, electric, house insurance, etc and how these numbers will play into your budget once you buy a home.
It’s suggested that your mortgage or rent shouldn’t make up more than 30% of your monthly budget and at least 10-15% gets put away into savings and retirement, then from there, put money towards things that are most important to you.
9. Invest in Your Health & Wellness
Financial stability involves responsibility! Being financially responsible means investing in your health and wellness too. It’s important for your overall health because avoidable health issues can turn into costly bills later on. Protect yourself and your pockets by maintaining a healthy lifestyle!
10. Become Confident in Your Future!
Having a goal to prepare for homeownership by becoming financially stable is great! Although it’s important to stay on track, sometimes it’s difficult to stick with a plan exactly. Unexpected things and issues arise, so don’t be discouraged if your plan doesn’t go as anticipated. Stick with things! Don’t forget to treat yourself occasionally, have a backup plan and become confident in your future!
By considering and implementing these 10 suggestions, you’ll work to become financially stable, confident and hopefully a homeowner!
We also want to share 3 worksheets to help you along your path to financial stability and homeownership. Open the links to save and export for later.