Starting A Budget
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Housing Category

More Than Rent Or Mortgage
When you are starting a budget for housing costs you want to consider more than just your rent or mortgage. You need to consider all of your costs related to running your household for a month. That includes water, gas, electric, sewer, trash collection and phone costs, to name a few.

Maintenance Too!
There are other housing expenses that you need to consider when planning or starting a budget. You cannot neglect your maintenance costs. For example, a water heater will last about 15 years. How old is your water heater? How much do you anticipate it will cost you to replace it? Go ahead and get some bids for planning purposes. How much time do you have left before you will probably need to replace it? Divide the expected cost by the expected time left, in months, and you will have the amount that you need to save every month in order to be able to purchase a new water heater without going into debt.

An Example
Here is an example: Let's say that a new water heater is going to cost me $1,200 and I can expect to need to replace it in three years. Dividing $1,200 by 36 months gives me about $34 per month that I will need to set aside to be able to pay for that water heater in three years. Of course the sooner I start planning for that event the less that I will have to set aside every month. For example if I started saving for that next water heater immediately after installing the new one, I would only need to save about $7 per month. I might want to revisit the expected cost every couple of years and I may need to go up a little as water heater prices increase, but I will be will on my way to saving for what I know will come about eventually.

Free Money - - - For The Banks
The example that I used for the water heater also applies to putting new shingles on your roof, repainting or putting new siding on your house, as well as replacing your furnace and air conditioner. All of these are major expenses that are easier to handle when you start planning early for them rather than going into debt to finance them. The interest that you pay is just free money to the banks. I am confident that you could put that money to better use than the banks.

How Much Is Too Much?
Your housing category should not exceed 40% of your net spendable income. When you are starting a budget, if your housing expenses do exceed 40% of your net spendable income you should seriously look at downsizing your home as it is generally not sustainable from a budgetary standpoint and leaves you no margin. You would be much better off if your housing category, everything it takes to run your house for a month including maintenance costs, was around 32% of your net spendable income.

Don't Set Yourself Up For Foreclosure
This is an extremely practical guide for buyers, and in particular first time home buyers. Often buyers will go in, encouraged by the banks, to buy as much home as they can possibly afford. When you look only at the mortgage costs and ignore the maintenance costs you will be setting yourself up for foreclosure. That is one of the things that increased the pain of the mortgage crisis in the United States of America.

Prepare For The Future
When you go and buy a house you need to consider how much you will have to set aside each month for maintenance costs so that the funds will be available when you need them and you will not need to use debt, and pay interest, for those costs. Starting a budget for your housing costs before you buy the house is the wisest move.

A Good Deal?
That brings up another point. Some companies will advertise six months or a year is the same as cash. Meaning that if you pay off the whole amount in the given time frame you won’t pay any interest charges and you get to buy now and pay later. WHAT A DEAL!!!

WRONG!!! It is a trap.
They are counting on you not paying the full amount on time and when you don’t, you are also paying all of the accrued interest on the unpaid balance from the date of purchase.

Prepare For Emergencies
I have used these deals in the past and I have paid on time so I didn’t pay any interest charges. I also had the money in the bank to cover the cost if I needed to. The reason that I chose to use the one-year same as cash deal was that if I had paid it all upfront it would have wiped out my savings and I would not have had an emergency reserve.

Don't Be Clever
I thought that I was being clever, using their money to gain me interest; but, for a year I had this debt hanging over my head. I was presuming that some disaster wouldn’t cause me to need that money I set aside and cause me to use that money in other ways. It is just not the best way to go. It is a very risky way to handle finances. Be brighter than me when you are starting a budget and save up for your purchases and make sure you have a reserve