It doesn’t matter whether you bought a dream condo in Miami or a fixer-upper in Denver – investing in real estate for the first time is undeniably exhilarating. There is something unexplainably compelling about owning your home, but it is important to remember that you can lose your investment in an instant due to poor financial handling.

Even if you paid monthly rent, utilities and repairs at your old place, you likely aren’t accustomed to making the right payments for property ownership. While you begin adjusting to your new life as a homeowner, you should also adjust your budget to account for your new expenses to ensure that you can keep your home for years to come.


Recognize Ongoing Costs 

Unless you are exceptionally wealthy and purchased your home outright – in which case, you can probably stop reading now because this post isn’t for you – you will have a monthly mortgage payment. Usually due by the first of every month, your mortgage is by far the most important expense you have as a homeowner; if you stop paying your mortgage, the bank will take possession of your home, and your credit will be forever marred. If necessary, you should let other bills pile up to ensure that your mortgage doesn’t become delinquent. However, with a strong budget, you shouldn’t have to do that.

Typically included in your monthly mortgage are three important payments:

• Principal and interest. This is what most people consider their mortgage payment. Indeed, by paying the principal, you are working to pay down your debt and getting closer to owning your home outright. The interest is just an unfortunate but inescapable side-effect.
• Taxes. You only pay property taxes to state and federal governments once per year, but your bank is collecting the taxes you owe every month. This is to ensure that you have enough money to pay taxes, which prevents the government from seizing the property from you.
• Insurance. Homeowner’s insurance is another cost that is bundled into your monthly payment. Again, banks take control of this payment, so they can be certain you are adequately protecting your/their investment.

In addition to your mortgage, you should have other somewhat regular mandatory costs, like payments to a homeowner’s association and various utilities, like electricity, water, gas, sewer and trash. Plus, like it or not, you will pay for maintenance and repairs on a regular basis. If you aren’t handy and you are rather certain that your home needs much TLC, you might consider acquiring a home warranty; you can read reviews of home warranty plans online to determine whether this option is right for you.

Once you have a list of all your regular home-related expenses – to include payment amounts and due dates – you can begin building your budget. Starting with your household income and deducting necessary expenses, like those listed above, you should end up with an amount that is leftover. You should consider this amount your true income; everything else is already dedicated to keeping your home. With your leftover income, you should devise a budget that accomplishes other financial goals. Obviously, you need to pay for your other needs, like food and other debt repayment, as well as wants, like entertainment and shopping. One approach, called 50/30/20, suggests you devote 50 percent of your income to needs, 30 percent to wants and 20 percent to debt and savings – but as long as you are achieving your goals, you should feel comfortable deviating from this plan slightly.

Plan Big Projects

Ongoing maintenance should only require between 1 and 2 percent of your income, but larger projects, like redoing the kitchen, reroofing, digging a pool and others, require special planning and saving. Thanks to your home inspection, you should have a pretty good idea of your home’s condition; you should use the suggestions in your inspection report to guide your big project plans for the next few years. You might also speak with contractors to understand what your projects will cost, so you can develop a savings plan to help you afford your projects in an appropriate time period.

You should revisit these plans – and your budget – annually to determine if you need to add more projects to your list or revise your saving and spending habits. When you know where your money is going, you can avoid those financial surprises that lose you your dream home.