Post by Erica Minutella
If you’ve been looking to buy a new home, but aren’t sure where to start when it comes to saving for your first big purchase, you might find the tips in our latest interview of use. We talked to John R. Oliver, a personal private wealth manager from Executive Wealth Management, LLC in Brighton, MI, on ways that you can begin to think about budgeting your expenses.
Erica: Can you start off by telling me about your background in finance?
John: I’m a personal private wealth manager, so basically I work for small business owners, entrepreneurs, families, people that are getting ready to retire. Oftentimes our role is needed at certain points in a person’s life. The-day-to-day work is about meeting new people, and creating new relationships.
Erica: What are some “Budgeting 101” tips you can give to young people looking to save for their first big purchase – like a new home?
John: The first thing should be to get a big picture – write it down. The main thing I do is work in buckets. They’re working on the first bucket right now – the cash flow bucket.
- Write down necessity expenses. Necessity includes car, transportation, utilities.
- And then protection – life insurance policy, car insurance.
- And then pay yourself – I consider that a necessity – at least 5 if not 10 percent. That could keep you from buying a house sooner than you want to but it’s that important.
- And then whatever you’re outgoing debt would be – if you’re paying credit cards for instance – put the minimum down at least.
- Also include an emergency fund. Your emergency fund should be about three to six months of your necessity expenses.
That would be the smallest number that you could live month to month. After that it’s free rain, every dollar past that point – you’ve filled up your bucket. After that it’s investing and or larger purchases in the next two to four years.
And then more important is to actually start. Most people don’t get to that point. Maybe they’re 22-25, and they buy a house. And then they haven’t started a 401k yet because they bought a house. Next thing you know you’re 29, you just wasted seven years. Cross off the first home purchase and work on the next bucket: a Roth IRA, or a vacation, or making sure you have enough for entertainment and gifts, or if you have a lot of kids Christmas. Anything you need to budget within the next one to three years. If you do this, this is a way you can live and budget long-term.
Erica: What would you recommend in terms of seeking a loan?
John: It’s up to them, if they want to find one of those loans that’s at three percent, or if they want to go to 10 or 20. I’m a proponent of at least getting 10 percent of what I need to put down on a house. How much is 10 percent of 150,000 dollars, for instance? You can save for that in a number of different ways. You can be really inexpensive and cheap based on your budget and save that in a year. It may take you 3 years.
Erica: Are there additional resources that people can turn to if they’re feeling overwhelmed?
John: Don’t hesitate finding someone to help you. Work with a financial planner, especially when you’re young. I’ll work with a younger professional because in the long-term I know they’re going to be great clients. I like seeing their lives change, like when they get a career promotion which I really love.
But if you do it alone use one of the apps, like EveryDollar, Mint.com. You can use Google Docs or an Excel spreadsheet. If you work with an advisor you might be able to use their apps or software.
Try to automate as much as you can. Auto-paying bills, investments, and savings goals will make the goal happen on time without any emotional changes.
Erica: Is there anything that people should think about when buying a new home, that typically they forget to pay attention to?
John: A lot of times when it comes to purchasing a house they don’t think about the taxes and the location. I have a friend who was looking for a house recently and he was looking in this area and the taxes were $2000, and then another was $5,500. So always take into account taxes when you look for a new home.
A tip would be to make sure you work with your advisor, make sure they’re working together with your realtor and your mortgage rep. They’re going to be able to lay down the plan so you don’t forget any of this stuff. That’s with buying anything big. Make sure you have your team in place. You can work with these people for free. You can have an advisor, they might not give you a ton of time initially because you don’t need it. If you’re within a one or two year timeline of buying a house, reach out to your mortgage rep and say tell me what I need, because it’s about credit, too. And then a realtor, if you’re even a year away, make sure your realtor is involved. Because they might find a deal on a house you need to jump on. It’ll give you an idea of what’s out there.
Erica: Are there any good online resources that people can turn to for more info?
John: Facebook Groups could be interesting to keep on top of trends and do background research. It’s a free resource. The moderators are pretty good.
There are forums like Reddit and financial forums. Search for forums in your industry. For instance, there’s a financial forum just for doctors that’s really big.
Using Twitter in general is a good resource just to get financial news, and to search things. If you’re a prospective home-buyer, go and follow Zillow and realtor groups and you’ll get a good feel of what’s going on.
Also, investopedia.com, which starts from general finance and advances to in-depth investing strategies.
You can also follow me on LinkedIn and Twitter @agilejro, where I regularly share financial advice and tips!
If you have additional questions on first steps to take when planning for your first home purchase, reach out to Christina Briglia, Realtor anytime at [email protected] or 267.231.5484.