Where does all the money go?
The first thing to do is to look at your budget. Make a list of all your outgoings and see exactly how much money you can expect to be paying out each month. It may even be worth doing this before you've found your dream home to make sure you don't overstretch your finances early on. It's a good idea to set up a simple spreadsheet or budget calculator to help you keep track of your spending. Include regular monthly payments like loans and credit cards, the weekly food shop, commuting costs, as well as the smaller expenses that all add up at the end of the month - such as newspapers, your morning coffee, magazines and takeaways. And don't forget to factor in the television licence, any subscription television costs, broadband, mobile and landline bills.
By setting a budget from the start, you can see how much money you have available at the end of each month for all those house-related expenses such as your mortgage payments, buildings and contents insurance, life insurance, council tax, and utility bills. If you’re moving into a flat or a new build, remember to include any homeowners’ association fees (also known as 'service charges' or 'ground fees').
Now you know exactly how much money goes out each month, it's time to work out what you've got coming in. Simply make a note of all your income in a new column of your spreadsheet, and remember to include your salary, any tax credits or benefits you may claim. Subtract your total monthly outgoings from your total income to find out what disposable monthly income you have available. If you find you have very little or no disposable income i.e. your outgoings exceed the money you have coming in, you’ll need to go through your budget carefully to identify any areas you can make cutbacks or compromises. You could consider shopping around for a cheaper energy supplier, doing the weekly food shop at a discount supermarket, or car sharing with a work colleague.
When buying a home with a partner, it may be a good idea to open a joint bank account for your monthly outgoings and set up direct debits to keep all your bill payments in one place.
Pay back your debts as soon as possible
It’s important to try and repay any high interest debts you may have, such as your credit card or overdraft as soon as possible. It might seem like a financial strain for the first few months, especially when you begin making your mortgage payments on top of your other outgoings. But simply making the minimum monthly credit card repayment means you are only paying off the interest and not the balance. This will end up costing you more in the long run.
When borrowing money from friends or family, make sure you set up a realistic repayment schedule you’re both happy with, which will allow you to pay the money back in a reasonable period of time without causing financial problems.
Carry on saving for a 'rainy day'
As a first-time buyer, there’s a good chance you’ll be using much of your savings for the deposit and additional costs associated with purchasing a house.
That doesn’t mean you should get out of the saving habit as it’s really important to have some money to cover unexpected expenses.
Whether you’ve bought a new build or have taken on a fixer-upper, sooner or later you will have up-keep costs, such as a broken boiler or a leaky roof, and it’s better to be prepared by having something in reserve to cover the cost of repairs.
You might find it useful to set up an easy access savings account so you can start building a fund for those unexpected expenses. You can put away money each month and you’ll be able to access it as and when you need it. Easy access cash ISAs also give you this option, without having to pay any tax on the interest you earn.
With a little forward planning and a good idea of your budget, you’ll be able to move in knowing all your finances are in place – so you are fully ready to enjoy living in your new home.