How To Budget For Your First Home
Monday, May 29, 2023
Are you thinking about buying your first home but need help making sure you've done all you need to do when it comes to budgeting? Look no further, we've got you covered!
Establish A Starting Point
First, you will need to figure out what kind of home you would like and what neighbourhood you would ideally be located in. Have a peek online to see how much those homes go for and figure out if you need to reconsider anything such as your location or the type of home you are looking for to meet your budget.
Break Down Expenses
Plan an evening between you and your spreadsheet. You will need to break down every piece of information you can on your current financial picture. This means jotting down your savings, mandatory monthly expenses, debts, investments, discretionary spending and anything else you think is important. The more detailed this plan is the more realistically you can create a plan to buy your first home.
Create Your Plan
Once you have broken down all of your expenses you will now need to subtract that number from your total monthly income. If that number is positive - congratulations! You are spending less than you make and are on the right path to buying your first home. If the number is negative, you will need to readjust your spending structure to ensure you have savings left over each month to protect you when buying your first home.
Put Your Savings In A Savings Account
For the savings you are putting aside each month towards the down payment of your home, it would be prudent to put this in a savings account that earns interest. Alternatively, you can also consider an investment account. Keeping your savings in a low-risk investment account will allow it to grow faster than a savings account. The main difference between these two accounts is that a savings account keeps your money liquid, while a low-risk investment account is not. Therefore, only consider the low-risk investment account if you have a solid chunk of time to save before you plan on accessing your money.
Home Buyers PLan
One thing many Canadians consider is the best of both worlds - putting their savings into an RRSP. With an RRSP, Canadians are able to withdraw up to $35,000 early without paying withholding tax by way of The Home Buyer Plan, as long as you are using the funds to pay for your first home.
First Home Savings Account (FHSA)
There is a new vehicle to save for your first home tax-free, The First Home Savings Account (FHSA) allows you to contribute up to $8,000/year tax-free, up to a Lifetime limit of $40,000.
Make Savings Automatic
Once you have opened up your investment, savings, RRSP or FHSA account make sure that a part of your paycheck each month automatically gets deposited there. This prevent you from overspending and dipping into your savings, because that amount instantly is not available to you and is going towards your first home.
Buying your first home is an exciting experience. We hope this guide was a great starting point to get you on the road to your first home. If you have any further questions, please feel free to reach out either to us or a trusted financial advisor.
Thank you for reading today’s BLOG!
Sales Representative / Team Leader
The Brian Kondo Real Estate Team
Re/Max Hallmark First Group Realty Ltd.
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