Your home is more than just a place to live, it’s an investment in your future. As one of the most reliable sources for building wealth, your home is the Swiss Army knife of savings tools. While it provides shelter, it also provides long-term financial opportunities that can improve your life. Learn three long-term savings strategies that homeowners can use to leverage their home as a source of financial freedom.
1. Invest in Home Upgrades That Pay You Back
Owning a home comes with several non-negotiable expenses, and one of them is utility bills. To live in a fully functioning, safe, and habitable home, power, water, and waste services are a given. What’s not a given is how expensive they have to be.
Your home’s location largely determines what type of utilities you have access to. In rural areas, homes often feature their own well and septic systems, which can flatten monthly bills. However, maintenance, repair, and replacement responsibilities fall on the homeowner.
One broad opportunity available to homeowners across the country is solar installation, which can result in major long-term savings. Solar power has come a long way since its inception, and it’s more affordable than ever, especially with leasing options. Across the board, homeowners using solar panels save an average of $1,500 annually on their utility bills. Plus, homeowners can qualify for tax credits and rebates from federal and state governments and even their electric utility.
The obvious upside to solar installation is the savings, but what a homeowner does with those savings matters, too. An extra $125 invested in the market for 25 years at a 6% return will net over $80,000. This big payout can help cover a large future expense like a child’s college education, or it can boost your retirement savings.
2. Budget for Maintenance and Improvement Costs
When you think about your monthly living expenses, it’s easy to skip over the potential expenses versus the hard costs. However, most experts recommend saving between 1% and 4% of your home’s value each year for maintenance costs. On a $250,000 home, this means you should be saving between $2,500 and $10,000.
If these numbers have your jaw scraping the keyboard, you’re not alone. But sticker shock at this recommended range doesn’t mean you shouldn’t strive to budget strategically. Many people skip this advice and hope for good luck, turning to credit cards or loans when the furnace goes out.
Instead, determine a manageable amount to save for both rainy-day and Pinterest-worthy improvements. If the recommended amounts are out of reach, don’t despair. Set up an automatic transfer to your linked savings account on your payday to meet your biweekly savings goal. Label your savings account with a name that’s motivating like “Home Emergency Fund” or “New Kitchen.” This can cement the purpose of the fund, deterring the temptation to dip into it for other uses.
Set yourself a rule that requires you to deposit “found” money, like rebates, into this account. Use shop-through sites like Rakuten for regular purchases and home improvement items to get the best benefit. These rebates are returned to you in cash, not as coupons, so they can grow your savings significantly. Dedicate a portion of your tax refund toward this account, too.
3. Monitor Interest Rates and Area Home Values
Rising interest rates have been making headlines over the last year, and they should be top of mind for you, too. When interest rates are high, the financial benefit of staying in and investing in your current home increases. When they’re low, homeowners are in a better position to leverage their assets for their financial gain.
As you pay down the balance of your mortgage, you’re increasing the equity in your property. If you have a traditional loan, you may not be paying private mortgage insurance. However, if you are, it’s important to monitor your home’s value in proportion to the amount you owe. Generally, PMI premiums fall off once you reach an 80/20 loan value, but they’re tied to the loan’s original terms.
If your home value has increased significantly due to inflation and market conditions, it’s worth requesting an appraisal. You’ll need to pay for the appraisal yourself, which typically costs a few hundred dollars. However, the small upfront investment may give you the data you need to get your lender to cancel your PMI. Use the amount you save each month to boost your savings and investment balances.
Sometimes, it makes sense to refinance your loan for a better rate, which isn’t likely under current market conditions. However, you can put yourself in the best position to qualify for great rates when they do become available by maintaining good credit. Pull your credit reports quarterly to ensure the data the major reporting bureaus have on you is accurate. Keep revolving credit use low, pay your bills on time, and avoid opening new accounts unless it’s necessary.
Growing Your Biggest Appreciating Asset Is Worth the Effort
Owning a home is a big responsibility, but with thoughtful planning, it can pay you back in spades. Beyond providing safety, shelter, and a place to make memories, your home can also transform your family’s financial standing.
If you’re a long-time homeowner, learn more about today’s tax credits and home improvement rebates, many of which have changed significantly. Keep tabs on opportunities related to homeownership and leverage your wealth-building asset to its fullest extent. When you do, your home will do more than put a roof over your head.