Wednesday, July 16, 2014

The Six Tenets of Home Spending List

Ideally, you can afford to maintain your home as needed and, by saving up, you can afford to make periodic upgrades, and to do one room makeover a year. By "maintain your home," I mean that you can and do have routine maintenance performed (ex: yearly HVAC servicing) and can and do repair or replace all items that are unsafe, hazardous or broken (ex: a broken fence). By "periodic upgrades," I mean that you can go beyond maintenance and actually improve your home and thus increase its resale value and livability (ex: tearing down a wall between the kitchen and dining room to create a more open layout). By "room makeover," I mean that you can alter the functionality, comfort-level, and appearance of an existing room. Sometimes, life takes an unexpected turn – for example, if you suddenly had to renovate your whole house to make it wheelchair friendly – and your home spending budget will get blown out of the water. But for the most part, if you buy a house that you can comfortably afford, save up for larger purchases, have a rainy day fund, and be thoughtful with your home spending, then you will be able to do the three things I mentioned above (1. Maintain Your Home As Needed, 2. Upgrade Your Home Periodically, and 3. Do a Room Makeover Periodically).

Here are Six Tenets of Home Spending that will help you to be thoughtful with your home spending:

  1. Have a monthly home spending budget. Some months you will go over it, and others you will go under it, but it helps to have a general goal / target in mind.
  2. Make sure your spending habits are sustainable. For example, top-to-bottom holiday decorating for every holiday is financially unsound - it's better to prioritize one or two holidays a year and under-decorate for the rest.
  3. Track your expenditures and spending categories. So you can see where your money is going, here are some basic spending categories to get you started: mortgage or rent, utilities, education, entertainment, health care, transportation, clothing, food, and home furnishings. Create some additional categories (or subcategories) that are relevant to you, specifically – here are some ideas that might be applicable: books, charitable donations, restaurants, groceries, pets… You can track your spending yourself, or you can let a site like to do it for you. One thing that’s nice about Mint is that it will show you a monthly pie chart that is divided into various spending categories, and you can customize the categories. Knowing how your money is being spent can help you make meaningful decisions about where to cut back on spending.
  4. Accept that everything you can buy is temporary. Nice items, although they do last longer than cheap items, will eventually wear out and need either replacing or repairing. I used to think of home furnishings and upgrades (e.g. new kitchen cabinets, flooring, hardware fixtures…) in terms of creating a nice infrastructure that I could then blissfully forget about. Subsequently, I realized that besides an initial investment cost, everything has an associated maintenance cost and time, a life span, a resale value, and a movability factor. Only once I consider all of these additional factors will I determine if an item is right for me.Take granite countertops for example – they require sealing annually, they last for a long time, they add to a home’s resale value, and I will not be taking them with me if I move / relocate.
  5. Avoid total gut jobs if possible. Frequently on design blogs and in shelter magazines, I see whole-house renovations. While these are great for before-and-after photo comparisons, these are very expensive, and usually not affordable or practical for most people. For example, even if you had saved up $50k to entirely renovate your kitchen, how long are you willing to subsist on takeout food and disposable cutlery? Additionally, doing a top-to-bottom large-scale renovation now will probably look dated in ten years. That’s because tastes change, and because buying everything at one time means that you’ll probably purchase (intentionally or not) things that are trendy / trending at that time. My case in point, the makeovers in reruns of the 2011 season of the HGTV show PropertyBrothers which now look very 2011. Assuming that your house was not the victim of a catastrophic event (like a flood) and that it is structurally sound, try to identify the things that must be replaced and focus on those “mandatory” things first, rather than doing a total gut job.
  6. Try to make double-duty purchases. These purchases fall into more spending categories than just one, just stretching the value of your buck. For example, if your hobby is building things (DIY), then your home DIY spending is both home spending and entertainment spending. Alternatively, if you love going to flea markets (or estate sales, or auctions, or yard sales), then money spent on those trips doubles as part of your entertainment budget. There are endless examples of double-duty items, and they’re not limited to just home spending. For example, to a person who loves to cook, high-quality spices and organic ingredients would count as both food and entertainment. If the food was particularly healthful, I might even include it in my health and wellness category. Generally speaking, you can justify spending slightly more on items if they’re double-duty (multi-category) items.

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