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Financial Tips for New Homeowners

So you bit the bullet and purchased that home you wanted? What now? What should you be thinking about going forward?

For many people their home is their biggest asset for most of their lives. You need to maximize the use of that asset and preserve that asset.

Repair Budgeting: Your house besides the mortgage, insurance and taxes will also require you to spend a chunk of change on maintenance. Many people will skimp out on this area thinking it is a waste of money if something isn’t absolutely needed. Not a good idea. A good home owner is one that is actively monitoring their house, making repairs before they are needed, improving things before they fall apart. In the end it can prevent much more expensive disasters. You should have in your budget anywhere from .5% to 2% of your home’s value (depending on how crazy the prices are where you live) in repairs and a reserve for long term items like roofs, and water heaters, and air conditioners. Even though you may not have a major repair for many years, you should be saving for that now, because it is going to happen, don’t let it derail your finances when it does.

Learn to be Handy: Most people don’t like this advice, either they feel inadequate, are easily frustrated, or have a bit of a superiority complex. Maybe back before youtube you had some what of an excuse for not making your own minor home repairs, now a days though there are no real excuses. Anyone is capable of clearing a drain, fixing a leaky faucet/toilet, replacing a door lock, etc. etc. Just by learning the simple stuff will probably save you $1000 a year in random repairs, give you a sense of accomplishment, and put a twinkle in your significant other’s eye.

Renovation & Add ons: Most people have spending problems, the nice part about owning a house is spending money on your house isn’t always a complete waste of money (like that new TV or pair of shoes that you really really want). If its done strategically and thoughtfully it can actually be an investment, and enjoyable (well at least when its done). For example, depending on the neighborhood and housing values, adding on to a house can put money right into your pocket and you get the benefit of having more space, win win! But of course before spending $100k on anything do some real research on it first.

Paying down or Cashing out: This is a very complex subject for many. The standard financial advice is, “debt bad, no debt good”. I think in a very general sense that is true but its more complicated than that. Your house is a giant inflating asset in normal times, in 10 years your going to have paid down your mortgage and the value of the house will most likely have gone up a bunch. You now have a tool at your disposal, your equity, use it wisely. If you choose to keep paying down your debt then in 30 years part of your retirement solution will be in place (no mortgage payment), and that’s a great plan! BUT, you can also use that equity to do something useful and productive. You can borrow against that equity, usually at a low rate with tax advantages and do something good for your financial future. The problem with this advise is most of the time when people do this they buy a boat and new truck… that isn’t going to improve your financial future, but how about if you did that addition we mentioned above… win win win! You could take that equity and buy an investment property, you could try building a business… As long as that payment you are adding is easily covered in your budget the overall risk is fairly low, with a lot of potential upside.

Trading Up: Its pretty common for people to move a few times, buying bigger and bigger houses as they get older and have more disposable income. I think this is something to think twice about, or at least factor in these thoughts. A bigger house means more maintenance, more taxes, more insurance, more mortgage interest, its going to be a long term drag at least on the expense side, though appreciation may make up for that. If you or your kids (if you have them) have any connection to your neighborhood this moving will sever that connection, its one reason I think many neighborhoods are deserts of social interaction, having a tight knit neighborhood is an incredible blessing. A bigger nicer house may mean more isolation for those in the house, when everyone has their own space they aren’t forced to interact, which is nice in the moment but costly in the long-term. A bigger nicer house may also mean your kids are super comfortable at home, and decide, “man why would I ever leave this awesome place!” Maybe its your goal to trap your kids forever at home with you, but most parents are hoping for fully functioning adults eventually. A bigger nicer house is also a very outward indication of your financial status, which for some may be a positive thing, but there are a lot negatives. Those around you may expect certain things from you because of your status in their eyes. There are other reasons, but the idea is that moving on up isn’t a slam dunk either financially or socially.

Neighborhood Economics: The weird thing about houses is that a lot of their value has nothing to do with their physical structure, but with where they are and the neighborhood they reside in. By buying a home you take on a certain responsibility to the neighborhood. If you don’t keep your house looking good you are literally stealing from all your neighbors. If several of your neighbors decide not to care then your neighborhood can literally enter a downward spiral in value. Don’t be part of the problem, but part of the solution, there is such thing as an upward spiral as well. Put some care into aesthetics, it doesn’t need to be expensive pavers and up lighting, just trimming your grass and making sure your paint isn’t pealing is sufficient. Ya it seems dumb, it shouldn’t matter but in the end it does, a lot more than you may think.

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