Budgeting tips for new owners
Additionally, no matter how new your home is, you will eventually encounter maintenance projects that exceed the typical 1-2% allowance of your budget. For example, large-scale roof repair is expensive, and partial or full roof replacement is even more expensive. Although you only need to re-roof every 20 to 30 years – or before you decide to sell – the project will be much easier if you’ve put some money aside for a while.
Unfortunately, you may also face events that you could not have foreseen. Home insurance will protect the structure of your home and your most expensive possessions, but it is not unlimited. Some homeowners don’t know what homeowners insurance will or will not cover. Here is a non-exhaustive list of what is or is not usually included in a typical policy.
Standard home insurance typically will be cover these:
- Your main residence and any outbuildings on your property
- Civil and medical liability
- Damage caused by fire and smoke
- Extreme weather conditions like thunderstorms, lightning and hail
- Crimes such as theft and vandalism
- Accidents such as falling trees
Standard home insurance will generally be not cover these:
- Earthquakes and floods (although top-up cover is often available)
- Damage caused by termites or other pests
- Valuable jewelry or artwork (although top-up coverage is often available)
- Damage caused by negligence, poor home maintenance or normal wear and tear
Additionally, most insurance policies have nuanced coverage options: liability, cash value or replacement, depreciation costs and more. That’s a lot of information to sort through, but it’s worth making sure your home is fully protected.
Revisiting savings and life insurance
Whenever you have a significant life event, it’s a good idea to review the state of your long-term finances, and buying a home is definitely considered one of those events.
Unfortunately, the world recently received a stark reminder of the importance of emergency savings in the form of a global pandemic. Of course, it doesn’t take a global catastrophe to bring you or your family down — an injury or illness can change your financial situation just as quickly.
Experts recommend keeping an emergency fund with enough money to cover three to six months of necessary monthly expenses. It’s easier said than done, but make sure your emergency fund takes into account all of your new expenses as a homeowner.
Likewise, since your expenses may have increased, it’s also a good idea to consider whether you need to purchase a more robust life insurance policy. Especially if you have a family that depends on your income, it’s a good idea to price some different policies. You might consider looking at policies that only cover the house (i.e. your new assets) and compare them with policies that cover all of your assets together.
Finally, carefully review your retirement plan to see if it will cover your new expenses. For example, if you plan to retire before you have paid off your mortgage, be sure to consider your monthly payments. There are several formulas that can help you figure out how much of your annual income you should be saving based on your age, but whichever one you use, the earlier you start, the better off you’ll be.