How to budget after buying a house

It takes a lot of work to make a house a home. You may want to upgrade your kitchen, build a patio, or install hardwood floors. How to budget after buying a house to make that work – and to keep up with your bills and maintenance – can be a delicate balancing act.

Making a homeowners budget

It's easy to overspend without a homeowners budget. After buying a house, most folks need to fix up the house, account for family necessities, stay current on bills, and maybe even save a little for a rainy day. But even with a budget, it can be a challenge to stick to. In fact, 79% of Americans say they struggle to stick to their household budgets. Perhaps that's why 96% of people are stressed about money.

So let's fix that. Here, you'll get tips for creating a reasonable budget and some pointers on how to stick to it. Let's dive in.

1. Analyze your spending

Grab those paystubs, credit card statements, and bank statements, and get ready to take some notes. It's time to really sit down at look at where your money goes each month.

Don't be surprised if you find a lot of non-essential spending in the mix. One survey found adults spend an average of $697 every month on non-essentials; Millennials spend a monthly average of $838 on items some might consider extracurricular.

That's not meant to spend shame! Non-essentials can be a much needed joy, and your budget should account for that. But the key is to know how much to allot this kind of spending so it doesn't get the better of you.

A USA Today report breaks down some of our most common monthly spending habits when it comes to non-essential items:

• Restaurant meals: $209.38
• Drinks: $188.68
• Takeout: $177. 88
• Buying lunch: $173.62
• Rideshares: $96.11
• Cable: $90.57
• Movie streaming: $23.09
• Music streaming: $22.41

You can see there is some redundancy in those expenses, and that might help you decide which of these non-essentials are worth budgeting for and which can be trimmed in the service of helping you live more comfortably.

For example, maybe you can opt for less expensive cable because you rely on streaming services for movies. Or maybe if you plan your work-lunches or evening meals in advance, you might be able to save an extra $50 a month.

Bottom line: Creating a budget is more than just allocating money to major areas of your household. It involves looking at spending habits and deciding which ones you want to change in order to save or put funds to better use.

Make notes on what you currently spend and circle items you want to consider adjusting or eliminating from your monthly costs.

2. Learn the basics of making a budget

When you start your budget, you'll first need to categorize your expenses to see what you absolutely need to spend to keep your household functioning, get to and from work, and pay for food and clothing for the family. It helps to think of these in terms of fixed expenses, variable expenses, and discretionary expenses.

• Fix expenses are things that don’t change from month to month, like your mortgage, insurance, car payments, and certain utilities (e.g., a cell phone or cable bill).
• Variable expenses include things that change monthly, such as your water and electric bill.
• Discretionary expenses include things like impulsive purchases – those amazing new shoes – or eating out because you were too tired to make dinner. As we touched on earlier, these expenses can quickly add up and eat into your overall monthly budget.

Choose the method you want to keep track of your budget: paper, a spreadsheet, or a budgeting program. Then create three columns: fixed expenses, variable household expenses, discretionary expenses. Write down the type of expense in each column with the amount. For variable expenses, add up a few months of bills to get a sense of the monthly average. For example, take three months of eating out (i.e $180, $235, $195), add them up and divide it by three ($203).

Below is an example of monthly expenses and how they might be categorized.

The more detailed you can be with your spending, the easier it will be for you to determine what you can adjust. Notice how coffee is not part of eating out; it’s a category all on its own so you can assess what's necessary and what isn’t. You set the priorities.

Keep in mind that the ultimate goal isn’t to restrict yourself from discretionary spending; it's to understand where your money goes so you can make informed adjustments.

Once you add all the columns up, compare the total to your total household income. This is often an eye-opener for many folks. It isn’t uncommon to see yourself barely operating in the black or to see just how far into the red you go every month, putting the difference on credit cards that grow out of control.

3. Set aside funds for home maintenance or repairs

Part of your budget should also account for home maintenance that don’t always come up every month or every year, but need to be addressed. This is especially important when budgeting for a new home. When something breaks, it often happens unexpectedly, and putting those repairs on credit cards could lead to cumbersome interest charges.

If you can, set aside some funds each month to account for these maintenance or repair costs. To get an idea of what those expenses might look like, take a look at the chart below.

Source: Home Advisor

Look at your bank statements or talk to someone you know who owns a house to brainstorm things that come up during the year that need maintenance. This can help you plan and save up.

4. Plan for the future

Beyond your monthly essentials, make sure you are putting money toward your future. Check your paycheck stubs to see how much you are contributing to retirement. You can put $19,500 in 2020 into an employer-sponsored 401(k) or retirement plan.

If your employer matches some of those funds, that is more money toward your retirement. If you don’t have a 401(k), think about how much you can set aside for your future. You can contribute $6,000 ($7,000 if you are 50 or older) to an IRA. To max that out, you would need to contribute $500 to $584 each month.

Beyond retirement, you may have debt that needs some attention. To pay down debt, try to make payments beyond the minimum, which usually just covers interest charges.

And if you have children, it's probably smart to think about college sooner rather than later. Sallie Mae reports 85% of parents expect that their children will go to college, but only 40% of parents developing a plan to pay for it. Tuition costs vary widely depending on whether your child goes to an in-state public university, goes to an out-of-state university, or attends a private university. The average annual costs of a four-year university range from $25,290 to $50,900 between tuition and other expenses.

If you plan on covering four years of college, take the university costs, multiple that by four years of school, and then divide that number by the number of years you have left to save before your child is college-age.

For example, if you plan on an in-state university for your one-year-old:

[$25,290 x 4 years] / (18-1) = $5,950.59

That’s $5,950.59 a year that you have to save for 17 years to meet today’s college costs. That works out to $495.88 a month. Keep in mind that college costs typically go up and you can also explore investing that money to help it grow faster.

5. Stick to your budget

A perfect budget only works if you stick to it. This is why we made the earlier note about discretionary spending. A budget should still allow you to enjoy life and your new home; it shouldn’t be so restrictive that you feel you can’t do anything.

Remember that you qualified for the house based on your income and existing debt numbers. You’re in a good position to create a realistic budget that allows you to keep the household afloat while you save for long-term needs and enjoy life. But you might not be able to indulge every whim.

This is where setting priorities comes in. All the costs that add up after your monthly expenses (retirement savings, home repairs, college funds) should be weighed against your discretionary spending. It’s one thing if you can do both without any sacrifices, but that isn't the reality for most Americans.

Discretionary spending should not exceed 30% of your monthly budget. Even that can often be whittled down to put money toward better uses. Imagine if you cut your monthly takeout spending in half and used that money to save for an annual vacation.

If you’re spending $177 on takeout and you manage to cut it to $88.50, that’s $1,062 dollars a year you just saved for a vacation.

Once you have your priorities, plan each week so you can see them through. For example, if you’re eating takeout because you get home late after a gym class, plan ahead and cook extra the night before so you have leftovers waiting for you.

Knowing why you are doing certain things with your homeowners budget is often enough to help you stick to it. And don’t beat yourself up if you have a bad week; refocus and get back to the plan. Doing so will put you in a much better position to succeed.