Almost everyone loves the idea of owning their own home or condo; it seems to almost be part of our DNA. When most people consider home ownership they’re thinking almost in a romantic manner driven be emotions rather that practicality. Who doesn’t want to be able to decorate however they want, have back yard BBQs with friends and have a piece of the American Dream. It’s alright and even normal for first time home buyers to get caught up in this “romance” as long as they think through the entire home buying process and realize all the expenses that come with home ownership. These are expenses that most renters don’t even consider and may even be entirely unaware that they exist.

A lot of ads that feature homes for sale list PI (principle and interest) as the monthly mortgage costs but may leave out the TI (taxes and interest). Your total monthly payment will be PITI so be familiar with that term and don’t believe that the payments listed in the paper will be your actual payment. It will depend on your loan, interest rates, and credit; you may not be able to get such a low payment.

In addition to PITI, you will have housing maintenance costs. These are costs that you will have to cover during the term of your home ownership, in most cases they amount to about 1% of your homes value, so if you buy a $225,000 you need to set aside $2,250 a year for expenses. These expenses include long term projects like remodeling the kitchen and baths and putting on a new roof. Short term expenses may be landscaping, a new air conditioner, and plumbing repair. These expenses are an unavoidable part of homeownership that most people are unprepared for. If you try to cut corners and not maintain your house, it can lead to even more problems in the long term – a leaky roof may cause mold or a dated kitchen can make a house unsellable.

If you’re buying a brand new house, appliances may be included in the sale, but sometimes they’re not. If you have to buy a refrigerator, dish washer, microwave, stove, washer and dryer, this is a huge expense. In addition to major appliances you may need to buy window coverings. This may seem like a small expense, but decent widow coverings for a whole house may cost a couple thousand dollars. Of course, you can buy cheap and then upgrade as you go along, but that’s just an added expense down the line.

One of the most fun things to buy is furniture. Most people moving from an apartment already have some furniture but in most cases you’ll need a lot more for a house. This is something you can buy as you go, but in the case of young buyers who have lived with parents or roommates, be prepared for the expense of furnishing a house. Not only sofa, beds, and electronics but all the little things you take for granted like dishes, towels and a vacuum. You’d be amazed how quick these things add up.

You need to pay to get all your utilities turned on – electric, cable, gas, water, and trash. If you have an outstanding bill, guess what, no electricity. Make sure that your accounts are current and that you have no outstanding balances. You’ll also need to have homeowners insurance that covers you for crime and fire. If you need insurance for flood, tornados, and other natural disaster you can expect to pay more.

When it comes to saving money, most people do the obvious such as eat out less, skip the $4 morning coffee, and watch more movies at home rather than pay $12 per person at the theater. These small steps can yield big results in the long run, that $4 cup of coffee just twice a week is a yearly expense of $416 a year. I’m sure most people are already cutting back on these extras so I want to cover some overlooked ways to reduce expenses.

Vehicle Insurance

If you’re like most people, you’ve probably had the same auto insurer for a number of years and just pay the bill on automatic pilot – this is a big mistake. For example, if you bought your car new you probably got full coverage which includes collision coverage so that if your vehicle was totaled in an accident you could replace the vehicle and comprehensive physical damage coverage which pays for damages done to your vehicle due to flooding, theft, or other natural disasters. Well, fast forward 3 years and that same coverage might not be necessary, as your cars value has decreased.

It is even a good idea to shop around for general liability insurance at least once a year. Call your current agent and discuss the fact that you are shopping around for lower rates and see what suggestions to your policy they suggest and then call other agencies to do some comparison shopping.

Health Insurance

Between health insurance, home insurance and vehicle insurance probably the most expensive is health insurance if you’re over the age of 40. Since rates and coverage varies wildly you need to shop around at least once a year. With the upcoming Senate hearing and a possible government takeover of health care, look for health insurers to become even more competitive, a savvy shopper could potentially save hundreds of dollars a year.

Pay Cash for Everything – The Las Vegas Effect

For some reason there seems to be a psychological difference between paying cash and using a credit card. Even a debt card gives the illusion that the money isn’t real. You’re one step removed from the feeling of real cash coming out of your pocket. If you think this isn’t real, consider the fact that casinos exchange your money for “fake” money or casino chips. Why do you think they do this? It’s because removing people away from the idea that they are losing real money promotes more gambling which equals more money for the casinos bottom line.

So, after you have decided how much money you can afford to spend on nonessential like eating out, movies, clothes, and entertainment put that amount of money into your wallet, divide the money into weeks or for the entire month, whatever works best for you. I promise that if you pay cash for everything, absolutely no credit or debit, you’ll find yourself rethinking a lot of your purchases.