Creating a budget, that leads you all the way home..

Hank Bailey
Hank Bailey
Published on May 3, 2019

Buying a home isn’t as easy as walking up to a lender and requesting a mortgage. You’ll generally need cash for a down payment, unless you’re applying for a VA or USDA loan, yet you’ll need money to cover closing costs typically associated with buyers. That’s lender fees, title insurance, closing attorney’s fees, and other incidental costs to prepare the file for closing.

If you’ll be going with a conventional loan, you’ll typically (but not always) need 20 percent of the loan amount as the down payment. That’s what gets you out of paying PMI or mortgage insurance.

The median sales price of a home in the U.S. is today stands at $240,000. Based on that price, you’ll need to come up with between $8,400 and $48,000, depending on your loan program, just for the down payment.

Those pesky closing costs will vary, but they are typically between 2%-5% of the loan amount.

Unless you are blessed with a stack of cash sitting that’s hanging around, you’ll need to start saving, and that takes considerable planning. A well-though out budget is your road map to achieving your financial goals no matter what they might happen to be!

The Budget

Put it down in writing! Use a spreadsheet, paper and pencil or personal finance software. Financial guru Dave Ramsey recommends the free budgeting software at or try Microsoft Money Plus Sunset Deluxe

Nerdwallet, in their post entitled, Budgeting 101: How to Create a Budget, encourages those wanting to create a budget to divide your income among needs, wants, savings and debt repayment, using the 50/30/20 budget as a guide. They also offer five steps to creating a budget that I’ll share here…

  1. Figure out your after-tax income. If you get a regular paycheck, the amount you receive is probably it, but if you have automatic deductions for a 401(k), savings, and health and life insurance, add those back in to give yourself a true picture of your savings and expenditures. If you have other types of income — perhaps you make money from side gigs — subtract anything that reduces it, such as taxes and business expenses.
  2. Choose a budgeting plan. Any budget must cover all of your needs, some of your wants and — this is key — savings for emergencies and the future.
  3. Track your progress. Record your spending or use online budgeting and savings tools.
  4. Automate your savings. Automate as much as possible so the money you’ve allocated for a specific purpose gets there with minimal effort on your part. An accountability partner or online support group can help, so that you’re held accountable for choices that blow the budget.
  5. Revisit your budget as needed. Your income, expenses and priorities will change over time. Adjust your budget accordingly, but always have one.

At its core, the most basic of budgets includes your income and your outgoing. Income should include all money from all sources.

Outgoing expenses includes not only your fixed expenses, such as rent or mortgage and installment loan payments, but variable monthly expenses (utilities, telephone, etc.). This should ideally include every single penny you spend.

Some spending that is frequently overlooked includes:

  • Money given to charity
  • Dining out (yes, even that smoothie you stop for each morning)
  • Transportation expenses (fuel, insurance, tolls, and parking)
  • Auto maintenance (It’s real so don’t neglect it!)
  • Pets (food, accessories, vet visits)

Create a new Note on your smart phone, while you’re away from home, so that you can quickly jot down the small purchases you make every day. These may include items such as coffee and those all too frequent stops to the grocery store.

The Trial Run

Take that new budget and use it for a month or two and see how it fits and adjust it where necessary. It’s not written in stone so to speak. If you need to make adjustments do so to make it comfortable and work in the real world that you live in with all its variables.

Your budget will show you where you spend your money each week. More important, it will show you areas you can cut unnecessary spending that you can in turn add to your savings towards your new house instead.

One tip that I’ve heard is useful is to open an online savings account in which to build your house fund and forego including a debit card. Without a debit card, these accounts are a bit harder to access than a brick and mortar bank so you’ll be less tempted to raid the account for something less than necessary.

Putting road blocks in the way to make it harder to spend these dollars unless absolutely necessary is a good tactic to keep from spending in those moments you feel the emotional burden to do so!

Choose a fee-free account such as those offered by:

Today’s homebuyer has options out there when it comes to buying a home for the least amount of cash out-of-pocket. Go for one of the low-down payment programs and ensure your real estate agent requests that the seller pay your closing costs!

These two items alone will greatly reduce your cash outlay at closing, and you’ll be in that new home sooner, rather than later.

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