How budgeting can help you save for a new home

Review your financial position

Any budget strategy should begin by taking a detailed look at your current financial position. Here, the most important thing to consider is your current debt position. Almost everyone is encouraged to buy on credit. So most would-be homebuyers will find they already have a number of significant outstanding loans – for example, credit card payments, student loans, a car loan and perhaps other financial commitments, too. What those planning a house purchase must realise is that mortgage lenders will take into account your current level of debt when offering a mortgage. So paying down your existing debt should be your starting point. This will obviously reduce your outgoings on debt repayment and release money you can then use as savings. Even more importantly, your improved financial profile will also gain you a better mortgage rate, which in turn may help you afford a more desirable home. No matter how generous your mortgage lender may be, it is unlikely you would be taken as a serious mortgage candidate if your housing costs were to exceed around a third of your income. So now is also the time to look at reducing some lesser regular commitments – monthly music subscriptions, for example – with a view to converting any non-essential sums back into disposable income you could commit to savings.

Creating a basic budget plan

The budgeting planner magic formula is very simple: Total Monthly Income, less your Total Monthly Expenses = Total Income for Saving. However, it is the detail and accuracy of the information you include in your budget plan which will turn it into a useful budgeting tool. So, to help you create your own budgeting template, let’s run through the three sections it should include.

A) In the case of a working couple, your Total Monthly Income is arrived at by adding together each monthly job income, plus any further income from other sources. This could be pensions, investments, rent income, State Benefits etc.

B) Your Total Monthly Expenses figure is calculated as: Monthly Fixed Expenses + Monthly Flexible Expenses. So this section looks at those Monthly Fixed Expenses. These will include items which cost the same each month, like housing (existing rent or mortgage payments), outstanding loans (any continuing repayments – not loans you have successfully repaid), insurance, transport costs, phone and Internet payments etc.

C) Your Monthly Flexible Expenses will probably be the largest and most varied section. This could include items where the monthly costs may change, such as: food, entertainment, medical costs, education fees, household utility bills, clothing, travel costs, plus any other bills which crop up regularly.

Calculation: So now B + C above = Total Monthly Expenses. Using this figure in your budget plan will reveal your Total Income for Saving – in other words, the amount of income you can use to save up for a deposit on a home of your own.

Budgeting tools and apps

Many banks and other lending institutions may have their own downloadable budgeting template, and most of these will be designed along similar lines to the budget example given above. Budgeting apps are a welcome finance-tech addition for those who wish to make the very best of their finances when saving to buy a home. Among other popular choices the (free) Mint app is a good budgeting tool. Users can customise expense categories, and view their income, expenses, investments, savings goals and more. Mint tracks your savings, runs on both iOS and Android platforms, has some useful calculators, and offers strong security features. Most important of all, Mint users can set up ‘over budget’ alerts and reminders when large transactions are due.