Don’t forget an emergency fund!

Saving up for a down payment on a home is a big task. It isn’t easy, especially if you intend to buy with a complete 20% or more down payment to avoid additional mortgage insurance costs. But your down payment shouldn’t be the only money you’re saving. An emergency fund is one thing that many future homeowners forget to account for when they start saving for a house.

As a homeowner, everything is on you. So if the dishwasher breaks or the shower leaks, you have to pay to get it repaired or replaced. There is no landlord to call to take care of it for you. Sometimes, several things break at once, or a repair becomes a full-on replacement or even a remodel. Over time, the costs of owning a home can add up. According to BobVilla.com, homeowners should save at least 1-4% of their purchase price each year for anticipated home maintenance or upgrades. That’s a chunk of change.

The emergency fund you established when renting may not have been that big because your expenses were lower. You may have only needed enough to cover rent and living expenses for a few months. But as a homeowner, you must now factor in your mortgage, living expenses, and home maintenance costs. When you sit down to do the math, you may need to save up more than you thought! So, what can you do to start building up an emergency fund?

• Start small. Even a small amount put away each month can make a difference. Take advantage of savings accounts with high-interest yields or other savings growth accounts. Work with a financial planner to figure out a monthly budget that helps you build up a small reserve a bit at a time. The money will add up as long as you are consistent with your savings deposits.
• Cut expenses. Owning a home is generally more expensive than renting, so looking for places to cut back on your budget may be difficult. But there are always some things that you can do to reduce your expenses, like eating out less, reducing entertainment spending, or cutting back on discretionary spending. If you haven’t yet bought a home, make sure your projected budget as a homeowner takes into account your savings needs when you’re house hunting.
• Consider a home equity line of credit (HELOC). One of the advantages of owning a home is that you’re constantly building equity. A homeowner’s line of credit can be an excellent tool for emergency expenses outside your savings fund limit. This line of credit utilizes the equity you’ve built in your home and is a fantastic tool for homeowners needing more cash flow.

Building up an emergency savings fund is challenging. The rule of thumb is that you should have at least enough saved to cover three months’ expenses. According to Bankrate.com, only 44% of Americans have that much saved up, and another 25% admit they have no emergency fund at all. We know that times are tough, and saving is difficult, but putting a little away each month for unexpected expenses, which often come as a homeowner, is a smart financial move. So start working on your emergency savings fund today!