How to Check Your Budget

Good lenders always verify a borrowers income. Have you verified your own income? You may know how much money you bring home in a month, but have you every considered where it all goes? That’s the key to budgeting for your home purchase.

Amazingly enough, many people have no idea how much they spend each month. They bring money in. They watch money go out. How much lies in each category is sometimes a mystery. This has led to a national problem with increasing debt (especially on credit cards) and rising foreclosures.

You can avoid this by examining your monthly spending and finances and actually creating a budget. Doing this involves just a few extra steps for one typical month in your life. The result can be a lifetime of savings.

First, you have to track your spending exactly! This is where the budgeting attempt typically fails. With the wealth of PDAs, cell phones which double as PDAs, laptops and the traditional pocket planner or notebook and pencil, there really is no honest excuse for not knowing how much your family spends in one month.

When tracking spending, you cannot just say “Groceries,” “Entertainment,” etc. You need to be specific. If you get to the end of the month and note that you are spending $80 on flavored coffee drinks, you may notice a habit that can generate you some savings for a mortgage.

Use your grocery receipts to track just what you buy at the store and where you buy your food. Comparatively higher cost—and habit forming—items like alcohol or snack foods can quickly add up to a large percentage of your food budget. Movies, eating out, keeping up with the latest fashions, the biggest cell phone or television package—all of these things are expenditures that quickly affect how much you can afford to finance.

When you finish the month, separate the expenditures into two categories—essential and non-essential items. Essential items cannot or should not be eliminated from your budget. Rent, utilities, savings, retirement, basic groceries, insurance, debt payments and such are essential. Various forms of entertainment, comfort groceries and foods, travel, etc., are non-essential. The non-essential items provide you with the funds for a mortgage or a means of paying off debt, if you have the willpower to quit or reduce spending in those categories. Then make the comparison to what you brought home in earnings that month.

A considerable amount of personal freedom comes with knowing exactly how much you can spend for entertainment or other non-essentials while still having a cushion to prevent unnecessary debt. You can build your savings for a future real estate purchase. You can confidently take up a loan for the home of your dreams. That’s the power of knowing your budget.