The following post is by MPFJ staff writer, Melissa Batai. Melissa is a freelance writer who covers topics ranging from personal finance to business to organics to food. She blogs at Mom’s Plans where she shares her family’s journey to healthier living and paying down debt.
My husband and I have been married nearly 14 years, and throughout our entire marriage, we always rented. We lived in the suburbs of Chicago and simply couldn’t afford to buy a house or pay the property tax, which could range in price from $10,000 to $20,000 a year depending on the home and neighborhood. Mind you, I’m not talking about fancy homes but rather homes that were 1,500 to 2,000 square feet homes 75 to 100 years old.
When we moved to Arizona this summer, we were finally able to afford to buy a home. We debated whether or not we should purchase a home because we weren’t in perfect soon-to-be-homeowners shape. We didn’t have a nine month emergency fund. We still have student loan debt to pay off.
In the end, though, we decided to buy a house. We’re both happy with the decision, even though we both feel a bit like tight rope walkers since we don’t have a large emergency fund yet.
However, one surprising result of home ownership is that it has made us more financially responsible.
Let me clarify that we weren’t financially irresponsible before. We always pay our bills on time and have a great credit score.  However, we’re not savers by nature.
I have to admit, when we rented, always in the back of my mind was the thought, if my husband lost his job and we got desperate, we could always break the lease and move somewhere cheaper. Sure, breaking a lease does have some financial penalties, but they’re finite. When we made the decision to own a home, well, we also lost the possibility of an easy out.
Perils of Earning a Variable Income
My husband is a post-doc researcher, and I’m a freelance writer. As you know with freelancing, some months are great, and others, well, others are painful because not enough cash is coming in. In Chicago we used all of our money–my husband’s income and mine–to meet our bills and responsibilities. During the months where my income was small, our budget was insanely tight. I hated the wild swings in income and the budgeting difficulties that go with it.
When we moved to Arizona and bought a house, we decided to do things differently.
Making the Decision to Live on One Income
Since my income varies so wildly, we decided once we bought the house to try to live on my husband’s income alone. We slashed expenses and are now living on the tightest budget we’ve had since we were newlyweds. We still couldn’t make it work to live entirely on my husband’s income, but now my income is only making up 12% of our monthly budget versus the 25% it used to.
What We’re Doing with the Extra Money
Depending on the month, this type of budget can leave us with quite a bit of surplus or just a small amount. Since we’ve bought the house, I’ve been very busy with work, so we’re careful to manage the surplus wisely.
Created a $1,000 emergency fund. Our first order of business was to create a liquid, $1,000 emergency fund. We did this within the first month of owning our house. (Moving cross country and paying for the down payment for the house nearly wiped out our meager savings.)
Grow a 9 month emergency fund. We put the bulk of the extra money in a savings account. This is where we are growing our emergency fund until we reach nine months of living expenses.
Put aside money for home repairs. I’ve heard horror stories about big home repair bills that people just didn’t have money to pay. My husband and I planned, once we bought a house, to set aside money every month for home repairs. We’re doing that now.
Our first week in the home, our water heater went out and flooded part of our pantry. (Welcome to home ownership!) Luckily, we had a home warranty, and our realtor hired her contractor to handle the water damage pro bono. Still, we had to pay nearly $400 out of pocket. I know this is small change compared to some home repairs, so we’re diligently setting aside money every month for the unexpected. This is money outside of our emergency fund.
Put aside money for home improvements. Our house was built 18 years ago, and while it’s fine on a functional level, there is definitely room for improvement cosmetically. Our realtor mentioned some fairly inexpensive updates we could make such as painting the kitchen cabinets white (the cabinets have never been updated, and in some places the coating has completely worn away leaving the wood exposed), replacing the outdated light fixtures, and painting the living room (which is sponge painted in shades of brown a la the 1990s). These repairs won’t cost more than a few thousand dollars, if that, but we’re setting aside the money every month so we can pay out of pocket rather than using credit. Of course, having had all the changes made before we moved in would have been easier, but I’d rather be patient and financially responsible.
Save for annual expenses monthly. Another strategy we’re using is to save for annual expenses monthly. For instance, our HOA dues are $300 a year. Each month, we set aside $25, so when we get the bill, we simply clean out the designated savings fund and pay the HOA fees with no impact to our budget that month.
Contributing to our retirement fund. My husband and I have always benefitted from employer matches. When I was the primary breadwinner for 10 years, I set aside 8% of my salary for my retirement fund, and my employer matched it, giving me 16% of my salary per year saved for retirement.
Now my husband is the primary bread winner. He’s contributing 7% of his salary, and his employer is matching it. Even better, his new employer immediately vested him, so even if he leaves the job in less than five years, he’ll be able to walk away with his employer’s contributions.
We have never contributed more than 7 to 8% to our retirement (not including the employer’s match), but now that we’ve tightened the budget so much, we’re starting to invest a small amount in our Roth IRAs. Though the amount is small, the important thing is that we’re taking the step to invest in a Roth. As my husband’s salary increases, we’ll contribute more.
Since we finally took the leap to buy a home, we’ve become even more financially responsible. Unlike renting, there is no easy out from home ownership. Buying a house has caused us to seriously tighten our budget and set aside more for savings than we ever have before.
This first year, while we’re growing our savings will be financially tight, but the rewards are worthwhile.
How about you all? What do you think? Do you think home ownership can make people more financially responsible? Or do you think owning a home can more often lead to financial ruin, especially if the new homeowner does not have his finances in order and a large emergency fund? What is the minimum emergency fund you’d recommend someone have before they buy a home?
Share your experiences by commenting below!Â
***Photo courtesy of http://www.flickr.com/photos/jwthompson2/139445633/in/
