Becoming a homeowner is an exciting, rewarding, and significant milestone no matter what your age or where you live. Yet, homeownership comes with many new responsibilities with fiscal responsibility topping the list. If you’ve recently purchased a new home, it will be important to set a budget to make sure you can continue making your mortgage payments on time.

Not sure where to start? Here are 5 essential steps for setting a realistic budget as a new homeowner:

1. Understand your income and expenses
2. Learn about new homeowner’s costs
3. Keep maintenance and home projects in mind
4. Identify any new lifestyle changes
5. Don’t spend every penny and keep a cash reserve

Diving into the Top 5

While you likely have calculated how much you can afford, it’s good to start your budget planning with a solid understanding of your income as well as your expenses. This isn’t just your recurring expenses like water, trash, sewer, electric, and cable bills, but your habits when it comes to eating out, buying groceries, shopping for personal items or entertainment. Thanks to online banking, you can easily access your income statements and calculate a breakdown of your spending. Look at the previously mentioned categories and see what your spending and how it compares to your monthly mortgage. This type of exercise can help you determine whether or not there are areas where you can cut back if needed.

Making the transition from renting a home to owning one inevitably comes with increased expenses and a few that probably weren’t on your radar as a renter. The first is homeowner’s insurance and property tax. Calculating your property tax amount (https://www.investopedia.com/articles/tax/09/calculate-property-tax.asp) will be different depending on the size of your home, its appraised value, and the current property tax rate but you should expect it to be a few thousand dollars at least. This tax is also collected twice a year, making it even more important to save for it each month so you’re not hit with a large lump sum payment when you’re not expecting it.

If you were fortunate enough to purchase a move-in ready home that doesn’t require upgrades, this section doesn’t pertain to you. However, many homeowners who are looking to increase their property value invest in homes that could use a little TLC. It can be hard to resist the urge to tackle every project at once, but prioritizing what is most important and which projects will provide the most value will be instrumental in budgeting as a first time homeowner. Make a list of all the projects you want to accomplish, prioritize their importance, and then do a bit of research about what each one will take, its cost, and whether or not you can tackle the project alone or with the help of an experienced contractor. This will further help create a list that you can use to create a realistic budget over the next few months, or even years as you continue to enjoy your new home.

Finally, keep your new lifestyle in mind! In some cases, homeowners move to a more desirable area which will have them going out more instead of staying in and saving and creating a solid cash reserve. It can definitely be tempting to use this money to explore your new neighborhood, but homeownership comes with unexpected expenses, which could be as minor as a clogged sink or as major as a roof leak or burnt out furnace. Having a cash reserve to address these issues as they rise, and they undoubtedly will, ensures you’re a responsible homeowner and that you can protect the investment you worked so hard to purchase in the first place.

Now that you have a few tips for budgeting as a new homeowner, it’s time to get started! Carve some time out to really dig into your expenses and be as honest with yourself as possible when it comes to how much you spend and can afford. In the end, it will help you budget effectively – for now and years to come!