You might know what it takes to run your own home; paying the bills, doing the shopping, cooking the meals and cleaning up. If you pay rent you may also be pretty good at making a budget and living within your means. However, do you really know what it costs to own your own home? Before you decide to buy your first home spend some time “playing house” and find out if you have what it takes.

The best way to prepare yourself financially for the weight of home ownership you should find out exactly what it will cost you to be a homeowner and then practice “spending” that money each month. You’ll work out your balance sheet (income vs expenses) and stick to your budget, spending what money you actually need in your current circumstances and then put away the rest as if it was going toward the cost of owning a home. For example, lets say you spend $2,500 each month but owning a home will increase that amount to $3,500 a month. Spend your regular amount and then put an additional $1,000 away to see what kind of impact this kind of monthly spending will have on your life.

Step one

Start with your income. Be exact. How much money do you really bring in each month after all the taxes and deductions? This is what you have to work with. If you have a salary this number will probably be easy to work out. If you do piece work or rely on commission (in part or entirely) do your best to figure out what you can reasonably expect to earn on an average month.

Be honest with yourself. The worst thing that can happen is you overestimate your income and end planning for a home you can’t actually get approved for.

Step two

In order to get a good idea of what your finances may look like as a homeowner you’ll next have to find out what all your bills will be. Here’s a good list to start with.

-mortgage
-home insurance
-HOA fees
-property taxes
-utilities (gas, water, power, sewer, garbage removal)
-consumer debt (credit card, car payment, student loan, line of credit, etc.)
-other home expenses (furnishings, repairs, emergencies, maintenance, etc.)
-consumer expenses (internet, netflix, phone, gas, car/life/health insurance, groceries, savings, and all other spending)

This is not an exhaustive list of expenses. If you have other expenses not included here make sure you include them in your own calculations. The key is to account for every outgoing dollar.

Mortgage

The best way to find out how much a mortgage will cost you is to get a pre-approval. This application will give you a good idea how much mortgage a lender will likely loan you. With that number in mind you can then budget how much house you want to buy and calculate what your monthly mortgage payments will be.

Home insurance, HOA fees, property taxes, and utilities

Many of your expenses will stay the same after you move into your new home. Things like your cell phone and grocery bills are not likely to change. But it can be difficult to gauge how much your utilities are going to cost. What you spend to heat and power a 2 bedroom apartment is nowhere near what you’ll be paying for a 3 bedroom starter home.

The best way to get this information is to first decide what kind of home you want to live in and then start talking to people who live in a similar home. You can talk to people you know personally and then you can go to some open houses. Check out homes for sale that are similar to what you hope to buy and find out what the owners have paid in the last 12 months for their utilities and other expenses related to the property.

Consumer debt

Do you know, down to the dollar, how much consumer debt you have, how much interest it accumulates, and how long it will take you to pay it all off? Find out! This kind of debt includes things like credit cards, student loans, lines of credit, car payments and so on. If you can pay off as much of this debt before you take on a mortgage, all the better. Decreasing your debt-to-income ratio will increase your ability to get approved for the mortgage you want.

Other home expenses

Other expenses many new homeowners anticipate are things like repairs, maintenance and emergencies. You’ll also need to consider buying new or more furniture and other furnishings, especially if you move into a home bigger than the one you’re already in. Experts agree that homeowners should plan to spend annually 1% of what they paid for their home. If you spent $400,000 on your house you can reasonably expect to spend $4,000 on your home each year keeping up with buying new appliances or tools such as a lawnmower, paying for a new fence or roof, renovating, or doing damage control if a pipe bursts or you end up with a crack in the foundation.

You may not end up spending this money every year, but eventually it will catch up with you so you’ll need to plan to put aside any unspent money for the future.

Consumer expenses

Chances are you don’t track every dollar you spend each month. You probably have a pretty accurate idea about how much you spend on regular bills like your cell phone, internet, and insurance each month. Get the exact number and write it down. You might have a rough idea what you spend on gas, groceries and “pocket money.” But you need to get an accurate estimation. Spend 3 or 4 months tracking every dollar you spend and you’ll get a realistic idea of how much money you spend. Once you have this information put it into your balance sheet.

Lay it out on paper

Once you have all your numbers in place you’ll be able to see pretty quickly on paper whether or not you can truly afford to own a home. If the numbers show you that home ownership is out of the question, try moving things around to make it work. Decrease how much “pocket money” you allow yourself. Downsize the type of home you want to buy. Consider what you can do to increase your income or decrease your employment expenses (like health benefits or pension contributions.) Opt for a cheaper cell phone plan. Trade in your vehicle for one with a smaller payment, or go green and invest in a transit pass or bicycle.

If being a homeowner is what you want, find a way to reasonably make it work.

Put it into practice

Once you have your numbers working on paper it’s time to put your theory to the test. A plan is all well and good but you’ll never know if it’ll actually work until you put it into action. Lets say you typically spend $2,500 a month on living expenses but owning a home will bump that up to $3,500. Continue spending that $2,500 each month but put the extra $1,000 away. As mentioned earlier, if you don’t have $1,000 to put away after all your existing expenses then make some changes so that you can.

Doing this will give you a good idea of what it will actually feel like to designate that kind of money each month to being a homeowner. Try it for 3-6 months. If you find you can manage it without scrambling to make ends meet each month and you can honestly say that you can live this way for the long-term, you’re probably ready for the financial adventure of home ownership!