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How to take care of your household budget? A guide for mortgage borrowers

How to take care of your household budget? A guide for mortgage borrowers

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If you’re reading this article, you’re probably planning to apply for a mortgage, or you’re just about to pay it off and feel a little short of money. Whatever your purpose for visiting our website, this article should be helpful. From this post, you will find out, among other things:

How much should I be saving?

It has been known for a long time that money is saved much more easily when the whole process has a purpose. This could be the equity contribution needed for a mortgage, a car, a renovation or an overseas holiday. Whatever your needs, you should estimate the amount you will need to meet them. Without this, determining the amount you will need to set aside is basically impossible.

How much should I be saving?
How much should I be saving?

In percentage terms, around 10-20% of your family’s total budget should go into a savings account. These are theoretical assumptions, of course, and the real amounts will vary drastically. After all, it is difficult to expect a married couple earning £50,000 a year to be able to accumulate as much as a couple whose income exceeds £100,000, although it may be that higher incomes do not translate into more money in the account at all.

Our calculations show that the average Extend Finance customer needs around £18,000 to cover the deposit, any mortgage origination fee and other ancillary costs such as broker and estate agent services, solicitor and building surveyor fees. When asked how long it took to raise this amount, our interviewees declare that it took them around six to 12 months to prepare. This therefore translates into £1,500 to £3,000 each month. It’s a large amount of money, but against the odds, a determined couple is able to achieve this goal. How?

Step 1: Visualise your expenditure

The fundamental problem with our finances is not that we buy expensive things that ruin our budget. Instead, we’re spending hundreds of pounds on little things that don’t improve our comfort level, but do affect our level of financial security. Think to yourself, when was the last time you looked at your transaction history? We are almost certain that you will find many purchases in it that you don’t even remember about.

Step 1: Visualise your expenditure
Step 1: Visualise your expenditure

For this reason, before you start planning your budget and savings plan, analyse your transaction history. Divide your expenses into categories such as food, household costs, transport, education and entertainment. The more of these, the more detailed your overview will be.

Step 2: Set aside a budget for unavoidable living costs

No one expects you to give up eating out or sit with the lights out. There are expenses that you have to pay on a regular basis and it’s hard to argue with them – a good example is rent, which you have to pay until you realise the dream of owning your own home. For this reason, your budget should include, for example:

  • Tuition fees for your children’s school;
  • Monthly house rent;
  • Insurance premiums;
  • The amount of any loan or lease instalments;
  • A certain amount that you will spend on food, electricity, water or gas.
Step 2: Set aside a budget for unavoidable living costs
Step 2: Set aside a budget for unavoidable living costs

Of course, it’s worth considering whether you can spend less – maybe it would be useful to do an insurance review to see if you’re overpaying, or to plan your shopping better? Most families throw away some of their food because they simply buy too much of it.

Step 3: Reduce unnecessary expenditure

As we have already mentioned, a big threat to your budget is small expenses that are not necessarily reasonable. Consider whether you’re using all your subscriptions, and if so, whether you’re able to use a cheaper plan. Maybe you don’t need to buy food out of the house as often, or are you able to forgo coffee bought from a café?

Step 3: Reduce unnecessary expenditure
Step 3: Reduce unnecessary expenditure

Statistics show that the average Brit spends around £2,100 a year on holidays. While we don’t have statistics on the spending of families with children, we can assume that spending will be noticeably higher. It’s clear that when planning to take out a mortgage, it makes sense to forgo a holiday – by doing so, you’ll get much closer to your desired goal!

Step 4: Get rid of consumer debts

Ultimately, a mortgage should be your only financial commitment. Credit cards and other forms of consumer borrowing not only reduce your creditworthiness, but also make your budget shrink in real terms, because, obligingly, a certain amount disappears from it. Buying by instalments is certainly convenient, but it significantly increases the cost of living, as you have to cover the interest rate.

Step 4: Get rid of consumer debts

Those paying off consumer debts may ask at this point how they should get rid of them if they have no savings. The answer is very simple – do not take on any more debt and pay off their existing debts as soon as possible. This process can take a while, but loans reduce your creditworthiness anyway, so you just have to grit your teeth. By reducing your debt you will make your budget more flexible, and this will result in more opportunities to save cash and greater financial freedom.

Step 5: Remember your comfort

By raising money for your own contribution, you will be saving intensively for many months or maybe more than a year. That’s a lot of time (full of work and sacrifice) so you should definitely plan a reward system for yourself. For example:

  • In return for putting aside a certain amount of money (e.g. £1,000), set aside a certain amount to spend on going out to a restaurant, party or cinema;
  • Once you have exceeded a larger amount, such as 1/4 or 1/3 of your target, think about going on at least a short holiday. There are plenty of options for a relatively inexpensive trip to help you recover.

Step 6: Use effective tools

A highly motivated and disciplined person can plan their household budget without using any tools. However, if you value convenience, it is worth thinking about the additional facilities offered by both your bank and external companies.

Step 6: Use effective tools

The first tool you should test like your bank’s app – many of these institutions offer automatic categorisation of expenses. While it is difficult to plan your future spending in this way, it is a good way to check that your budget is realistic. If you’ve planned to spend around 15% of your income on transport and it’s actually 30%, clearly you need to take another look at your financial capacity.

It is also worth using Excel and other office programs. With these, you can create tables to record your expenses. Many people will appreciate the ability to create simple graphs, which illustrate phenomena much better than numbers.

If you want the highest level of professionalism, you can specifically download apps that are dedicated exclusively to saving money. In our experience, Mint, YNAB and Acorns work extremely well, but there is enough competition on the market that you are sure to find the perfect product for your needs.

Step 7: Talk to your mortgage broker

As a firm, we do not provide financial advice – we specialise in mortgages and insurance, so we suggest our clients visit a relevant organisation, such as Citizens Advice, if necessary. However, this does not mean that we are unable to help.

Step 7: Talk to your mortgage broker
Step 7: Talk to your mortgage broker

As a mortgage broker, we can work out exactly how much you need to save to buy a particular property. Your budget needs to be created with a clear goal in mind, and the lower the amount you plan, the more likely you are to persevere with your resolution.

How will buying a property in the UK affect my household budget?

Buying a house involves incurring a very large expense, but we can assume with a very high degree of probability that it will not lead you to financial ruin. This is because your living costs will not change drastically. If you are currently living in a rented house, you will, after all, have to pay the landlord.

How will buying a property in the UK affect my household budget?
How will buying a property in the UK affect my household budget?

In the long term, a mortgage can be very helpful. With each instalment, the house will belong to you more and more, and with the help of regular overpayments, after just a short time you can be completely free of this obligation. Just think, when you retire, you will no longer have to pay anyone for your own four walls. That’s a really good perspective on old age 🙂

Summary

As is well known, a mortgage is a major challenge for anyone who decides to take it out; after all, we are quite heavily dependent on it for the entire duration of its repayment. This process is not only felt by us, but also by our household finances, which should be constantly monitored by us during this process.

In today’s article, we have outlined what steps are worth taking to most effectively

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Think carefully about securing other debts against your home. Your home or property may be repossessed if you do not keep up repayments on your mortgage or any other debts secured on it.

Your Home (or property) may be repossessed if you do not keep up repayments on your mortgage or any other debts secured on it. Conveyancing services and some forms of Buy to Let mortgages are not regulated by the Financial Conduct Authority.

Your Home (or property) may be repossessed if you do not keep up repayments on your mortgage or any other debts
secured on it.

Your Home (or property) may be repossessed if you do not keep up repayments on your mortgage or any other debts secured on it. Conveyancing services are not regulated by the Financial Conduct Authority.

Extend Finance nor The Right Mortgage Limited can’t provide advice regarding Personal Pensions, Pension planning or investment planning advice. You must seek independent financial advice from a suitably qualified professional financial adviser who may charge you for advice.

Wills, Will writing, Trusts and Trust planning are not regulated by the Financial Conduct Authority.

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