Getting finances in order – whether that’s saving money or paying down debt – is one of the most common New Year’s resolutions each year.
7 Ways to Get Your Finances Under Control
While one third of resolutions fail before the end of January, homeowners – with mortgages and home repairs to contend with – have a lot of incentive to stick to their financial goals. Even a little wiggle room in a budget can be free up funds for home maintenance, paying extra toward a loan principal, or finally taking that vacation.
If that sounds like you, you’ve come to the right place. Here are seven financial goals to help homeowners take control of their finances this coming year.
1. Create or Revisit Your Household Budget
Revisiting your budget should be one at the top of your to-do list for the coming year. It’s the perfect opportunity to update your income and expenses and review your spending habits from last year.
If you haven’t made a budget yet, now’s the time. Making a budget just means subtracting your fixed expenses from your income and then deciding how to allocate the rest of your funds.
Start by making a list of all your home and living expenses. Some amounts are fixed while others fluctuate over the year, so be thorough and calculate averages when appropriate (like for utilities). Be sure to include expenses like:
- Mortgage payments
- Utility costs for gas, electric, water, garbage, and recycling
- Homeowners association or condo fees
- Internet, cable, and phone bills
- Home repairs
- Home and auto insurance
- Home security
- Other loan payments, like car loans, student loans, or home equity loans
- Credit card bills
- Other expenses, like housekeeping, piano lessons, or pet care
To keep track of your expenses and spending, try documenting them in a simple Google Sheet. It’s easy to update from your computer or smartphone.
You can also check out some apps that beautifully display your budget and track your spending. Mint categorizes transactions from linked cards and accounts in a budget you can customize, and You Need a Budget is great for type-A personalities who want to give every dollar a specific job.
And if analog is your style, a handwritten budget is completely fine! Just keep it in a place you can easily access and consider making a copy.
Once you have a full account of your home and living expenses, you can see what non-essential spending you can cut and how much money you have left to put toward savings and paying down debt.
2. Set Up a Fund for Home Repairs
A Bankrate survey found the average homeowner spends $2,000 per year on home maintenance, like small repairs and lawn care. That doesn’t include large repairs like replacing a roof or hot water heater, which can be several thousand dollars on their own.
If you’re like 60 percent of Americans, you may not be able to cover an unexpected expense like that with your savings.
That’s why it’s wise to create a fund to help pay for big home repairs. Ideally, every homeowner would have an high-yield savings account with three to six months’ worth of expenses stashed away. While that may seem like a lot if you don’t have much in savings right now, consistently contributing even $200 a month to a savings account would bring you to $2,400 by the end of the year plus interest.
The average homeowner spends $2,000 per year on home maintenance.
3. Update Your Home Insurance
We recently surveyed homeowners in Florida and found that 40 percent don’t know how much they spend on their home insurance. The kicker? About 36 percent haven't compared their insurance in more than five years.
That is a surefire way to leave money on the table, folks.
Don’t miss opportunities to save money on your home insurance. Take a few minutes each year to compare coverage offerings from multiple insurers before it’s time to renew your policy. Ask providers about their available discounts. You can even consider a higher deductible to reduce your premium.
That said, price shouldn’t be the only deciding factor when comparing home insurance. You don’t want to pay less for a policy that leaves you underinsured. That will force you to pay more out of pocket when a major disaster strikes.
4. Pay Down Your Loan Principal
If you’re like many homeowners, your monthly mortgage payment is likely your biggest expense. So this goal is definitely a stretch goal, but if you can financially swing it, extra principal payments can significantly speed up paying off your mortgage.
In fact, you can trim seven years off a 30-year fixed loan just by making one extra principal payment a year.
5. Pay Down Your Credit Card Debt
Got some credit card debt? You’re not alone. The average US household has $6,849 in revolving credit card debt, and credit card debt has increased more than 34 percent in the past five years.
To pay down your debt, make the minimum payments on each account each month. This is essential – you don’t want to miss payments and hurt your credit score.
When you have extra to put toward paying down your debt, prioritize making payments on cards that have the highest interest rates. If you're struggling to make progress on those cards because of the high balance and interest charges, explore cards that offer a 0% APR on balance transfers. This will usually give you a year without interest charges so you can put more money toward paying off your balance.
6. Take Advantage of Property Tax Exemptions
The average US homeowner pays about $2,279 in property taxes, though that bill varies drastically depending on where you live. Because property taxes can be considerable, it’s smart to take advantage of tax exemptions when you can.
Homeowners in many states can claim a homestead exemption, which means a certain amount of their home’s assessed value won’t be taxed.
For example, homeowners in Alaska who are 65 or older don't pay taxes on the first $150,000 of their primary residence’s assessed value. The Florida homestead exemption reduces a homeowner’s property taxes by $50,000, so a home worth $200,000 is taxed only for $150,000.
Seniors, folks with disabilities, veterans, and energy efficient homes may also qualify for tax exemptions, depending on your state’s tax laws.
The average US homeowner pays about $2,279 in property taxes.
7. Consider an Income Property
With the rebounding housing market and stable mortgage rates, this might be a good year to invest in an income property if you can swing it. You can tap your home’s equity to buy a second home, so long as cash flow is good and so is your credit. You might even make enough off your investment property to help pay off your primary home’s mortgage faster. Just remember to save 40 percent of your rental revenue to cover repairs, utilities, taxes, and insurance.
If buying a second home is not in the cards for you right now, you can explore making extra money by renting part of your home on Airbnb. Just make sure your homeowners insurance will cover the extra risk.