You have just made the single biggest purchase of your life, “Congratulations”
Things will need to change you will have to visit your Financial Advisor and set up some very different goals. From your previous meetings with your Financial Advisor or from reading my blogs you know that you have to visit your financial advisor once a year after your plans are in place or when there are any major changes in your life. Like having a baby, getting a promotion, buying a home or anything that will affect your family unit in a big way. Since buying your home falls under this category you will need to change your existing goals. These changes are all good.
Let’s begin; you had most of your savings going into your House Account, your Registered Retirement Savings Plan, an emergency fund, your Vacation and Birthdays and holiday account. You will change some things drastically and some you will modify others will stay the same.
As a home owner here are list of things that you will be required to pay monthly:
1. Mortgage payment which will be much more than rent
2. Hydro/ electricity
3. Home heating
5. Property Taxes
6. Fire Insurance on your home
7. Mortgage Insurance (optional)
8. Property Maintenance/Condo Fees
These are the payments which you did not have to make when you were renting or living with family.
Where are these funds coming from? Well your house savings account will decrease drastically since you now own your home and no longer need to save for purchasing a home most of the funds going into that account will be applied towards the mortgage payments, electricity, home heating, water, property taxes, fire insurance and property maintenance or condo fees. That is a huge amount of money and maybe you did not save that much monthly in your house account.
The other areas where changes will happen will be taking some off your Registered Retirement Savings Plan not all but some, cutting back on the vacation account and the birthday account. If you did your home buying plans by following guidelines you were given prior to purchasing your home then your changes in the smaller accounts should be minimal.
The forbidden account the one you should not touch is your emergency account. The funds in that account should total 12 months of your new living expenses. If your total monthly expense is 2,100.00 that means you need to save $25,200 in your emergency account. When you reach that number you may then change the amount going into that account, and apply it to savings for bigger and better things.
If you took funds out of your Registered Retirement Savings Plan to use towards the purchase of your new home, your financial advisor will inform you that two years after moving into your new home you will be responsible to replace one fifteenth of the funds you took out of your RRSP to apply towards the purchase of your home. To be able to do this you will have to continue making contributions into your Registered Retirement Savings Plan. This account will be modified but not drastically changed.
Monthly Payments; I recommend that you make your mortgage payments and your entire household bills on the same cycle that you receive your pay cheque. If you make your payments this way your cash flow will be more manageable. When you pay your mortgage payments Bi-weekly or weekly you end up making one extra monthly payment which will help you own your home sooner.
At this time you are thinking it might be easier to stop saving money all together because of having so many more monthly payments. Gear down take a deep breath and continue to do your savings the same way before you owned your home with major or minor changes but saving you must. It is also advisable to automatically make your savings on the same frequency as your bills. In this way you will guarantee that you are paying yourself first.
You have just begun a new journey in your financial life you are a home owner now, a big purchase, you owe hundreds of thousands of dollars and you still need to watch your spending. Guess what, you must not do, use your credit cards to make purchases for furniture and other items that you can purchase for cash later by saving for that particular item. At this time you do not need to have revolving credit which requires a 3% – 5% monthly payment, in addition to your other monthly payments, do not be tempted to go on a household item shopping spree. Slow down and check your revised plans again go slowly you will be able to save to make some of your larger purchases without paying any interest.
Relax and enjoy this part of your journey, you made a smart plan and now you are reaping the rewards of a SMART plan that was well executed. Congratulations and Good Luck.
Tessa- Marie Shillingford is the author of Controlling the Debt Monster. She is Personal Financial Planner, with a designation from the Institute of Canadian Bankers, and a Financial Counselor certified by the institute of Canadian Banker. She is presently a Program Facilitator of Financial Literacy at JVS Toronto. Tessa- Marie was employed by TD Canada Trust for twenty years in the retail section of the bank. During her tenure at TD Canada Trust she held various positions interacting with customers of the bank. As a Financial Advisor and Manager of Financial Services she led a group of Financial Advisors in helping customers of TD Canada Trust successfully manage their finances. Details of her book… Controlling the Debt Monster, can be found at http://www.controldebtmonster.com