Managing Money

The foundation for preparing to buy a home is good money management skills. This includes setting goals and developing a spending plan, using credit wisely and the importance of good credit, building savings, and developing relations with financial institutions. Creating a record keeping system will help you have all the information together that you need when applying for loan. All of the money management skills will help you to determine your financial readiness to buy a home.

Making Your Money Work

As you work through this Making Your Money Work section, you will learn how to talk with others in your family about money, and how to set goals that the family agrees to work toward. You also will do a net worth statement to determine where you are now, and develop a spending plan in order to plan income and expenses to meet your needs. Another important part of this section is finding ways to save on expenses and making saving a part of your spending plan.

Using Credit

Credit is a way of using future income to buy the goods and services you want today. Credit can be a valuable financial tool or a way to get into financial trouble. If you have borrowed money, have charge accounts or have automobile or home insurance, you have a credit history on file. A good credit history takes time to build but is a very important part of successful financial management. This section includes types of credit, managing credit and understanding credit reports.

Building Savings

Saving money is an important part of building your financial future. Saving is important to provide funds for emergency expenditure, to afford a home, education investments or other products that will help improve your financial security and to gain peace of mind. Most individuals and families can find money in their budget to save. Savings grow through the phenomenon of compound interest. Money may be saved in a savings deposit account or by purchasing non-deposit products through a variety of financial institutions.

Selecting Financial Institution

It is important to develop a relationship with a financial institution such as a bank, credit union or savings bank. Reasons to keep your money in a financial institution include safety of your money from theft or other loss and convenience as you can get your money quickly, easily and at a lower cost than using other businesses to cash your checks. Money can be kept in checking or savings accounts. Most financial institutions are insured (FDIC insures banks and NCUA insures credit unions) so that if for some reason the financial institution closes and cannot give its customers the money, the insurer will return the money to the customer. Also, building a relationship with a financial institution will establish a record of paying bills, can help you save money and can facilitate the process of getting a loan.

Creating a Record System

Record keeping is probably not your favorite thing to do, but it is important. And once you keep the papers, having a good system for storing them can save time, money and effort. Organized record keeping makes it easier to find information on a day-to-day basis and provides security for hard to replace important documents. It also makes it easier for someone in your family to take care of business for you and assures that you have the information you need when you get ready to file your taxes or apply for a loan.

Determining Readiness

Determining if you are financially ready is a first step in considering whether you are ready to buy a home. Owning your own home has benefits and challenges. Some benefits are the pride of homeownership and the equity that you build in your home over time. Also, many people prefer to live in a home they own or are buying and want something they can pass on to their family members. There are challenges as well, such as the responsibility for property maintenance and upkeep.