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3 Hidden Costs Of A New Home And How You Can Avoid Them

3 Hidden Costs Of A New Home And How You Can Avoid Them

Nobody in their right mind would say that buying a home is inexpensive or cheap. In fact, it’s probably one of the most expensive purchases a person will make in their lifetime. In 2014, the average sale price of a home was $311,400. That’s no mere drop in the bucket for the majority of homeowners, yet, on average, new homebuyers spend $7,400 more in the first two years of ownership than existing homeowners.

The National Home Buyers Association (NAHB) has found that a home purchase has a ripple effect and makes most new homeowners spend more money on average. This begs the question: where are these hidden costs, and how can you avoid them?

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1. Don’t Buy Furniture To Fill Up The Extra Space

A majority of new homeowners buy a house that has more space than where they were living previously. Of course, the natural inclination is to fill up that empty space with furniture. According to the Consumer Expenditure Survey from the Bureau of Labor Statistics and the NAHB, new homeowners spend $5,025 on average on new furnishings. That’s $3,364 more than people who are existing homeowners.

Much of this is spent on bedroom furnishings, specifically mattresses. New homeowners outspend existing homeowners six times when purchasing bedroom furniture. Spending a bit more money on bedroom furniture than an existing homeowner seems logical, though. Sometimes families purchase a new home because they’re adding a new family member and they need more room – with that new family member comes a new bed and new bedroom furniture.

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However, another big-ticket item that new homeowners purchase is a couch, spending $746 more than what an existing homeowner spends. Remember, when you buy a home, don’t feel like you need to go out the next day to purchase brand new furniture. It’s OK to have some empty rooms and space in your new abode, especially if you don’t need to have a guest room or extra sofa right this minute.

2. Don’t Undertake Remodeling Projects Right Away

One of the bittersweet parts of moving to a home is you no longer have to worry about having a landlord, but it also means you’re responsible for the maintenance of your home — and there will be maintenance. Appliances will break down, systems will fail, and you’ll have to foot the bill every single time. According to US News, homeowners will spend between 1% and 4% of their home’s value on maintenance costs each year. However, according to the Bureau of Labor Statistics survey, new homeowners end up spending $4,642 if they purchased an existing home, which is $2,229 more than individuals who already own their home.

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Where does this extra spending come from? For buyers who purchase brand new homes, the $4,275 they spend mostly goes toward remodeling projects (think patios, new driveways, or fences). If you’re looking to save money, don’t start remodeling within the first year of homeownership. If it’s a project you can live without, save up for it over the years.

For new homeowners who purchase existing homes, they spend a bit more than homeowners who have purchased new construction homes, but not by much (only $367 on average). Most of this is spent on repairs and replacements for old and worn-out systems and appliances.

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To combat this extra expense, it might be a good idea to look into a home warranty. Home warranties will cover most systems and appliances in a home if they fail from normal wear and tear (not neglect). Prices for home warranties average between $300 and $600, depending on the level of coverage, with a $60 flat rate fee for a service request to complete the repairs or replacement. The average household opens 1.7 service requests in a year, according to Landmark Home Warranty’s data. That means a home warranty could reduce the amount of money spent on repairs and replacements by more than half.

3. Don’t Buy Brand New Appliances

Many times, homeowners get to their new homes and expect them to be just that: new. Instead, they find used fridges, washers, dryers, and dishwashers and realize that they want to start fresh — they want brand new appliances with their new house. Unfortunately, they spend an average of $2,665 on new appliances in their first year, which is over a thousand dollars more than existing homeowners tend to spend annually. This is ultimately surprising, since most homes come with installed appliances, but many homeowners just want their newer models. New homeowners typically spend the most on new televisions, fridges, washers, dryers, and computer systems.

Although it is really tempting to get new appliances when you buy a home, most of the time these older appliances work just fine, and can work quite efficiently with proper maintenance. By using the appliances that come with the home, new homeowners can save a lot of money in their first year of homeownership. Plus, if the homeowner has a home warranty, their plan will most likely cover the repairs and replacements on a well-maintained system or appliance when it fails.

Featured photo credit: Markevich Maria via shutterstock.com

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Published on September 17, 2018

How Being Smart With Your Money Leads to Financial Success

How Being Smart With Your Money Leads to Financial Success

Achieving financial success is not something that just happens. Maybe if you win the lottery or something, but for the average person like you or me, it comes from a series of small steps you take over a long period of time.

With each step, you form a new smart money habit. And with each smart money habit, you build towards financial independence.

So what sort of habits can you form to get on that path? Let’s take a look at smart money habits you can start today to get you closer to a financially independent future.

1. Avoid being “penny wise but pound foolish”

It’s tempting to try saving a couple cents here and there when buying small items. However, that’s not where the real money is saved. You’re putting in extra effort for something that doesn’t move the needle.

You get the most bang when you’re able to cut down on your bigger bills. For example, finding a lower interest rate for your mortgage could save you $50+ per month. And cutting your transportation bill by purchasing a cheaper car or taking public transportation can provide large gains as well.

So, look at your recurring expenses such as housing, transportation, and insurance, and see where there’s wiggle room. It’s a much better use of your time than trying to pinch pennies here and there on smaller purchases.

2. When you want something big, wait

Impulsivity can get you in trouble in most aspects of life. Finances are no different.

It’s human nature to see something and want it right then and there. It starts as a kid in the checkout line at the grocery store, and it continues on through adulthood.

We get an idea in our head of something we want, and it’s hard not to go out and get it right then.

A good example is wanting a new car. Perhaps you’ve had your car for several years. It’s crossed the 100k mile mark. Maybe maintenance is due, and you’re annoyed that you need to replace the timing belt or purchase new tires.

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So, you get the itch.

You start digging around online, and you realize you could trade in your current car for something newer and more exciting… all for a few hundred bucks a month. Then you get obsessed.

Here’s where you have to take a step back.

Your newfound obsession is clouding your judgement. Rather than giving into the impulse, wait it out.

Set a timeframe for yourself. Maybe you come back to the decision three months down the road. See if the obsession lasts.

It might, but often, a funny thing happens. Often, you forget about it. And often, you find that the new car wasn’t a need at all.

The impulse faded. And you just saved yourself a ton of money.

3. Live smaller than you can afford

You finally get that big raise. And you want to celebrate – and why not?

You’ve been looking forward to this forever. And after all, it was all due to your hard work.

That’s fine, splurge a little. However, make it a one-time deal and be done.

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Don’t get caught in the trap that just because you’re now making more money, you should spend more.

Too often, people get more money and feel like they that gives them the means to buy a bigger house, a bigger car… you know the drill. Resist.

The fact is that living smaller than what you can afford is one of the fastest ways to build savings.

But if you constantly upgrade as you begin to make more, then you’ll never get ahead. You’ll just build up more debt along the way and have just as little wiggle room as before.

4. Practice smart grocery shopping

Food… it’s one of the biggest portions of any budget. And if you’re not careful, it can be one of the biggest drains on your wallet.

But luckily, there are a few things you can do to ensure that you stay smart with your money when buying groceries.

Create a grocery budget

Set a strict weekly grocery budget. When you know how much you can spend on groceries, you can then plan your weekly menu around it.

Once you know what all you need, you can go shopping and keep a running tally as you shop to ensure you’re on track.

I tend to do this in my head, rounding for each item. However, writing it down as you go would probably work best for most people.

Make a list… and never deviate

Never go to the grocery store without a list. If you go to the store with a ballpark idea in mind, you don’t have a true ide of what you need.

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You’re not well-researched. You don’t know what the sales are. As a result, you’re going to make decisions on the fly.

These impulse decisions will lead to overspending, which will derail your grocery budget.

Eat before going grocery shopping

It’s also important to eat prior to going to the grocery store. Hunger is a powerful force.

If you’re shopping on an empty stomach, everything is going to look good. In particular, you may find a lot of ready-made, processed snacks will look enticing.

After all, you’re hungry now and that food is easily available. So subconsciously, you may lean towards those items.

Unfortunately, not only are those items typically less healthy, but they’re likely more expensive. You pay for convenience.

However, when you eat prior to shopping, then you’ll shop with a clear mind. Your hunger won’t cloud your judgement, influencing you to make poor decisions like a cartoon devil resting on your shoulder whispering in your ear.

This makes it much easier to stick to your grocery plan.

5. Cancel your gym membership

Now that you’re all set on your food, it’s time to get smart about managing your budget in terms of physical fitness. And let’s begin by avoiding the gym. The gym bill, that is.

The average gym membership costs around $60 per month. That’s $720 a year.

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Yet, two out of three gym memberships go unused. That means two-thirds of people who have a gym membership are literally giving away almost a thousand bucks a year. It’s crazy!

I recommend seeking an alternative. One good alternative is to look into fitness streaming services.

Streaming services allow you to stream hundreds of workouts like Insanity and p90x, right in your own home for around $10-20 a month. That’s $40-50 less a month than the average gym membership.

Of course, then there’s the free option. The internet is full of free workouts that you can do on your own with minimal or no equipment.

For example, there’s the Couch to 5K program, that I personally used a decade ago to ease myself from couch potato to running my first 5K race. If I could do it, anyone could.

Then there are free resources like reddit that have limitless information on workouts. The Fitness subreddit has done all the research for you, populating workout tips and detailed workout routines for anyone to use in their wiki.

There are several routines that require no equipment. And you can join in on the subreddit to become part of the community, making it easier for those seeking comraderie and encouragement in their fitness goals. All for free.

It’s baby steps… And baby steps can start now!

I’ve never met anyone that can’t stand to be a bit smarter with their money. And on the flip side, anyone can get smarter with their money. But remember, it doesn’t happen all at once.

Begin by fighting your impulses. Prepare for the week and be smart at the store. And cut monthly expenses like gym memberships that are overpriced and you probably aren’t getting your money’s worth out of anyway.

The devil is in the details. And the details can change your lifestyle and prep you for a financially independent future.

Featured photo credit: Unsplash via unsplash.com

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