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If you’re thinking about buying a property, you may wonder how much you should pay for a new home. After all, that can impact the size (and type) of mortgage you apply for.

The truth is, though, your mortgage is just one piece of the puzzle when deciding how much to spend on a home. To figure out what you can realistically afford, you need to understand all of your potential housing costs, including what may seem like unexpected costs that crop up when you own a property. That way, you can truly prepare for how much money it will take to cover your expenses as a homeowner.

So, are you in the club of those who are wondering, “How much home can I afford?” Then read on for four important tips to help determine whether a home will suit your budget. Given how big an expense homeownership can be, you will likely want to be well armed with information before you start hitting the open houses and making bids.

1. Calculate Potential Housing Costs

If you’re calculating how much you should pay for a new home, it can be an important step to write down all potential costs connected with buying a house and then paying the monthly expenses. This list can include:

•   Down payment

•   Mortgage payment

•   Property taxes

•   Homeowners’ insurance

•   Mortgage insurance, if applicable

•   Closing costs.

Since the mortgage payment is typically a big-ticket budget item, it can be a good move to check out a few different options (say, fixed-rate vs. adjustable-rate; 15-year vs. 30-year terms) from a few lenders and at a couple of different amounts to get a handle on what that cost is likely to be.

Also, you may want to also make a list of:

•   Expected repairs

•   Planned updates/renovations.

Don’t forget about ongoing costs. It may be tempting to leave this out of your initial budget, but it’s unlikely you’ll find a place that won’t require some changes. These estimates could be a factor in your budget and your decision about what to buy. For instance, you’ll want to prepare for such expenses as:

•   Utilities. If you’re moving to a house from a small apartment, you could be paying considerably more in, say, heating and cooling costs.

•   Landscaping or other maintenance of your property beyond the house.

You’ll also likely want to make your new house a home, and there is nothing wrong with that as long as you’ve budgeted for the estimated expense. In other words, include the following in your calculations:

•   Moving costs

•   The cost of new furniture and furnishings (curtains, hardware, the works).

Although these latter expenses aren’t part of your required monthly housing payments, they’re worthwhile to keep in mind.


💡 Quick Tip: Buying a home shouldn’t be aggravating. SoFi’s online mortgage application is quick and simple, with dedicated Mortgage Loan Officers to guide you through the process.

Estimate Your Future Housing Costs

Need help figuring out these costs in more detail? The home affordability calculator below provides additional insight into how much it costs to purchase a home and the expected monthly payment associated with being a homeowner, including insurance costs, property taxes, and closing costs.

2. Determining What Is Paid Up Front

Now that you have an all-encompassing list of what you think a potential property might cost, both for a monthly payment and possible expenses, you can divvy up those costs into two categories: upfront costs and monthly costs.

Upfront costs include things like the down payment on the home and other fees such as closing costs and paying for home inspections. Monthly costs are your recurring mortgage payment, property taxes, and insurance(s), which may be rolled into the mortgage payment or paid separately. There are also other possible expenses you may pay down the line for furniture, repairs, renovations, etc.

This will help you get a handle on how much cash you will need to spend when getting a mortgage and becoming a homeowner. And it will also tell you what it will look like to keep your home up and running, month after month.

As you consider how much you should pay for a new home, know that it may be wise to have a cash buffer as you go into homeownership. In other words, don’t clean yourself out when buying a home. You don’t want to risk overdrafting your bank account, and you need to be prepared for how inflation could cause your expenses to tick up.

Recommended: What to Know About Getting Preapproved for a Home Loan

3. Look at Monthly Costs in Terms of Your Budget

Now that you have an idea of what your monthly housing costs could be, you can begin to fit those into your overall budget.

There are different budgeting methods, but most involve knowing and balancing your take-home pay, the cost of your “needs” and “wants” each month, and how much you are putting towards savings.

As you evaluate your projected homeowner figures, you want to ask yourself:

•   Do the numbers work, leaving you with some room to breathe?

•   Are you able to save for other financial goals, such as retirement?

•   Will you be able to maintain your current quality of life, or will you have to make cuts to accommodate your new housing expenses?

•   What do the numbers look like if you were to buy a somewhat more or less expensive home? (This can help you, especially if you are interested in a house that winds up in a bidding war and potentially selling for over the asking price.)

Overextending yourself in order to purchase a home is not recommended. Living paycheck to paycheck and worrying about money after you buy a property could take some joy out of your new nest.

💡 Quick Tip: You never know when you might need funds for an unexpected repair or other big bill. So apply for a HELOC (a home equity line of credit) brokered by SoFi today: You’ll help ensure the money will be there when you need it, and at lower interest rates than with most credit cards.2

4. Considering Unexpected Costs

Being a homeowner can be wonderful and rewarding, but it can also be expensive and, at times, exhausting. Roofs leak. Hot water heaters fizzle out. Gutters need cleaning.

You may want to set proper expectations regarding not only how much homeownership will cost in terms of the typical expenses, but also in terms of the full universe of maintenance and potential costs. Budget accordingly.

Next, you might want to consider what could happen in the event of a job layoff. Even great employees can lose their jobs, so have a plan in the event that this happens. And how would you keep up with costs in the unfortunate event of illness?

If you have no plan for how to make a mortgage payment in the event that you or your spouse loses work, you might not be quite ready for homeownership. You may want to build up your cash reserve before diving in.

For instance, most financial experts recommend that you save three to six months’ worth of expenses in an emergency fund in case of a job loss, health emergency, or other financially difficult events.

Those funds can be vital to see you through a tough financial moment. And if you do have this amount of money set aside (good job!), don’t be tempted to raid it for, say, your down payment or other costs related to buying a home. It’s a very important bundle of cash to have on reserve.

Recommended: How to Shop Around for a Mortgage Lender

The Takeaway

Buying a house can be a huge rite of passage and a big part of adulting. As you contemplate owning your own home, it’s important to be sure you understand both the upfront and ongoing costs of homeownership and know how they fit into your budget. In addition, understanding the unexpected expenses that may crop up can be a wise move.

A key part of your calculations will be checking your mortgage options and how much that will cost you every month. This can be one of the big recurring costs to budget for.

Looking for an affordable option for a home mortgage loan? SoFi can help: We offer low down payments (as little as 3% - 5%*) with our competitive and flexible home mortgage loans. Plus, applying is extra convenient: It's online, with access to one-on-one help.

Photo credit: iStock/Tijana Simic

*SoFi requires Private Mortgage Insurance (PMI) for conforming home loans with a loan-to-value (LTV) ratio greater than 80%. As little as 3% down payments are for qualifying first-time homebuyers only. 5% minimum applies to other borrowers. Other loan types may require different fees or insurance (e.g., VA funding fee, FHA Mortgage Insurance Premiums, etc.). Loan requirements may vary depending on your down payment amount, and minimum down payment varies by loan type.

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SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.

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Money management can be complex, but what if the best, smartest advice could fit on one little index card? That’s the idea behind the financial index card. It’s a concept that the researcher who popularized the idea that the most effective strategies could be summarized on a small piece of paper, whether you pin that to your fridge, carry it in your pocket, or keep it next to your laptop.

Here, you’ll learn the story of that financial index card and what exactly is written on it. The advice written on it could help build your money smarts and build your wealth.

The Story Behind the Financial Index Card

The financial index card got its start In 2013, when Harold Pollack, PhD, a social scientist at the University of Chicago, posted a photo of an index card online. On the card, he said, was the only financial advice anyone ever needed to know.

He created the card after interviewing personal finance writer Helaine Olen. During their talk, Pollack jokingly claimed that all the necessary info about good money management could fit on an index card.

Pollack’s off-the-cuff comment — at the time he hadn’t actually produced this index card — generated a lot of audience commentary with investors wondering what his advice would be. Pollack grabbed an index card, wrote down nine tips, snapped a photo, and posted it online.

The nine simple tips on the card resonated with the public and the photo went viral. In fact, the concept was so popular that Pollack teamed up with Olen to write a book, The Index Card: Why Personal Advice Doesn’t Have to Be Complicated.

The Financial Index Card’s Advice

Here is a rundown of the nine tips Pollack offered on the original card and an explanation of what each one means to help you better understand the value of the financial index card.

1. Max Out Your 401(k) or Other Employee Contribution

A traditional 401(k) is a retirement plan that offers various investment options and is often offered via your employer – but note that not all employers offer 401(k)s as a benefit. Sometimes your employer will make matching contributions to your 401(k) as well.

What makes 401(k)s particularly useful are the tax advantages that they offer. You can fund 401(k)s with pretax money.

Contributions can be taken straight from your paycheck before you pay any income tax, which in turn lowers your taxable income and potentially your tax bill that year. Keep in mind that when you later make withdrawals from your 401(k), you will owe income tax.

But once in the 401(k), your money grows tax-deferred. Your employer will likely offer a number of investment options for you to choose from, such as mutual funds or target-date funds.

The more money you can put into your 401(k), the more money you have at work for you. If your employer offers matching funds, aim to at least save the minimum amount to max out the match if you can.

Saving for your future merits a spot on the financial index card because it’s such a vital part of planning ahead, achieving your money goals, and building your net worth. What’s more, stashing away cash for tomorrow can also help reduce money stress.

2. Buy Inexpensive, Well-Diversified Mutual Funds

Here’s the next bit of advice from the financial index card: It’s about buying mutual funds. A mutual fund takes a pool of money from investors and buys a basket of securities such as stocks or bonds. They are an important tool investors can use to diversify their portfolios.

Diversification is a way to help reduce risk in your portfolio. Imagine that you had a portfolio that was only invested in one stock. If that company does poorly, your entire portfolio may suffer. Now imagine that you invested in 100 stocks. If one of the stocks does poorly, its effect on the portfolio as a whole will likely be much smaller.

Investors may choose to invest in a target date fund, which holds a diverse selection of stocks and bonds. Investors may use these funds to work toward a goal a number of years down the line.

Say you will retire in 2050, you may choose a target date fund with a provider called the 2050 Fund. As the target date approaches — aka the date at which you’ll likely need your money — the asset allocation inside the fund will typically shift to become more conservative.

Mutual funds typically charge fees to pay for management costs. The fees may take a bite out of your eventual return. Consider looking for target funds that charge lower fees to minimize the amount that you’ll end up paying.

This investing advice can help you grow your wealth and meet your long-term financial goals.

3. Don’t Buy or Sell an Individual Security

Buying and selling individual stocks can be tricky. It’s difficult to know how an individual stock will behave, and choosing stocks can take a lot of time and research. It may be easier for investors to use mutual funds, exchange-traded funds (ETFs), or index funds to gain exposure to many different stocks.

Investors who are interested in adding individual stocks when managing their portfolio may want to consider their overall asset allocation and diversification strategy to be sure that the stock is the right fit.

4. Save 20% of Your Money

Here’s the next bit of advice on the financial index card: Save 20% of your earnings. This saving tip from Pollack dovetails nicely with the popular 50/30/20 budget rule. This rule states:

•  50% of your income should be used to cover your needs, such as car payments, groceries, housing, and utilities.

•  30% of your spending should be used to cover your wants, such as eating out, vacations, or hobbies.

•  20% is the money you save, which can go toward paying down debts, building an emergency fund, or stashing cash for retirement.

Another formula for saving that some experts recommend:

•  Put 12% to 15% toward retirement

•  The remaining 5% to 8% goes toward paying off debt and building an emergency fund.

You can keep track of your savings with various mobile and online savings and budgeting tools. (Check with your bank; they may offer some.)

If it’s not possible for you to save 20% of your income (perhaps you live in a place with a very high cost of living), then save as much as you are able.


💡 Quick Tip: Did you know that opening a brokerage account typically doesn’t come with any setup costs? Often, the only requirement to open a brokerage account — aside from providing personal details — is making an initial deposit.

5. Pay Your Credit Card Balance in Full Every Month

Credit cards can be extremely convenient, whether you’re renting a car or buying a new refrigerator with all the bells and whistles which you couldn’t otherwise afford.

However, if you start to carry a credit card balance from month to month, your credit card debt may quickly spiral out of control. The average annual percentage rate, or APR, for credit cards currently tops 20%. This rate represents that amount of interest that you’ll pay on the balance of your credit card.

What’s more, many credit cards only require that you make a minimum payment each month — less than the balance you’re carrying. But think twice before making these minimal payments. You can continue to accrue interest, and the time required to pay off the entire amount of debt can be lengthy.

To avoid being sucked into this spiral of revolving credit, follow the financial index card’s advice. You might consider trying to spend only what you can truly afford each month on your credit card and paying off your balance in full, if possible.

6. Maximize Tax-Advantaged Savings Vehicles like Roth, SEP, and 529 Accounts

A 401(k) is not your only option for tax-advantaged accounts. If you’ve earned income — and even if you already have a 401(k) — you can take advantage of setting up an IRA account. Here are some details:

•  Contributions to traditional IRAs are made pretax and then grow tax-deferred. Contributions to Roth IRAs are made after-tax and grow without being taxed.

•  Withdrawals from Roth accounts, when meeting specific criteria, are not subject to income tax.

•  Small business or self-employed workers can take advantage of SEP IRAs, which allow employers to make contributions in an employee’s name.

•  A 529 plan is a tax-advantaged account that helps people save to cover qualified education expenses, such as college tuition. These plans are sponsored by states, state agencies, and educational institutions. Contributions to 529 plans are made with after-tax money.

However, savings inside the account grow without being taxed and qualified withdrawals are not subject to tax. Contributions are not federally deductible, but some states allow deductions on state income tax.

Like 401(k)s, these tax-advantaged accounts allow you to supercharge your savings and can make your money work harder for you.

7. Pay Attention to Fees and Avoid Actively Managed Funds

The next point on the financial index card focuses on investing decisions. Actively-managed funds are run by portfolio managers who are trying to find ways to beat market returns. This requires time and manpower, both of which can be expensive.

Actively-managed funds pass this expense on to investors in the form of fees. Investors do have an alternative in index funds, which try to match the returns of an index, such as the S&P 500. They do so by buying all or nearly all of the securities included in the index.

Managing this type of fund takes less time and effort and is therefore typically cheaper than active management. As a result, index funds often have lower fees than actively-managed funds.

The potential to outperform the market may make actively managed funds sound pretty tempting. With an index fund you’re likely not going to do better than the market; the funds are actually aiming to mirror the market.

Understanding this difference can help you assess whether paying fees to go after better-than-the-market results is worthwhile for your financial management.

8. Make Financial Advisors Commit to the Fiduciary Standard

To understand this strategy on the financial index card, it’s helpful to first understand your terms. A fiduciary standard refers to the duty of financial advisors to always work in their customers’ best interests. That may seem like a no-brainer. Wouldn’t all financial advisors do that? Yet, there are myriad opportunities for conflicts of interest to arise in relationships between financial advisors and investors.

For example, advisors may be paid a commission when their clients invest in certain funds. If advisors don’t disclose that information, clients can’t be sure the advisor is suggesting investments because they’re the right fit for their portfolio or because the advisor is paid to use them. Advisors adhering to a fiduciary standard disclose conflicts of interest or avoid them altogether.

Since Pollack’s index card made waves in 2013, the U.S. Department of Labor has tried to issue regulations that all financial advisors maintain a fiduciary standard when overseeing retirement accounts.

The Fifth Circuit Court decided that this ruling was an overreach and shot it down in 2018. In 2023, the DOL put forth a proposal to revive the rule, but as of writing, no changes have been implemented. However, until it is (if ever), investors can ask their advisors whether they adhere to a fiduciary standard, and if they don’t, ask them to commit to doing so.

Another option: Investors may turn to fee-only vs. fee-based advisors, who accept fees from their clients as their only form of compensation. Fee-only advisors by definition operate under a fiduciary standard.

9. Promote Social Insurance Programs to Help People When Things Go Wrong

A rising tide lifts all ships. This final tip on the financial index card is about supporting social programs like Social Security, Medicare, and the Supplemental Nutrition Assistance Program, which help keep the population healthy as a whole — financially and literally.

You likely already pay into programs like these through Social Security and Medicare taxes. These are taken straight out of your paycheck if you’re employed, or if you’re self-employed, you pay them yourself. (And even the savviest of investors may need to fall back on government support.)

The Next Financial Index Card

In 2017, Pollack acknowledged his financial tips were directed toward people of at least middle class means, so he came up with a second index card. This time, he focused more on the needs of those who had a lower income or more financial obligations.

The second financial index card included these points:

•  Set and pursue financial goals that excite you.

•  Follow a budget and track your spending.

•  Pay cash or by check rather than by credit card or payment plan whenever possible.

•  Save consistently, and build a financial reserve.

•  Make sure you are receiving all pertinent public benefits.

•  Make good use of your tax refund and/or your EITC.

•  Don’t buy any financial service/product endorsed by any celebrity.

•  By cheap index funds rather than individual stocks.

•  Invest in your 401(k) if you have access to one.

•  Work with a financial coach.

•  Protect yourself from fraud and abuse.

•  Look into a credit union, even if you have been unbanked.

Start Investing With SoFi

The financial index card is a simple concept, but it can be helpful to many people. Although Pollack’s advice covers a lot, there’s only so much you can fit on an index card. Tips like setting specific financial goals, simplifying your finances, keeping track of your spending (not just your savings), and setting a realistic budget, are also helpful in establishing and maintaining financial wellness.

As always, if you’re struggling to manage your finances, it may be a good idea to speak with a financial professional. A financial index card can help, but marshaling additional resources may not be a bad idea.

Ready to invest in your goals? It’s easy to get started when you open an investment account with SoFi Invest. You can invest in stocks, exchange-traded funds (ETFs), mutual funds, alternative funds, and more. SoFi doesn’t charge commissions, but other fees apply (full fee disclosure here).

For a limited time, opening and funding an Active Invest account gives you the opportunity to get up to $1,000 in the stock of your choice.

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SoFi Invest encompasses two distinct companies, with various products and services offered to investors as described below: Individual customer accounts may be subject to the terms applicable to one or more of these platforms.
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Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

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