How Much Savings Should I Have After Buying a House?

How you handle money becomes important after buying a home.
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You need to have your ducks in a row to buy a house, which usually means you need some savings for the down payment. Many people stop saving after they buy, but saving money should be a lifelong process or a practice that lasts up to retirement. You don’t necessarily need savings immediately after purchasing a home. How much you should have in savings or whether you have any savings at all depends on your overall financial picture.

Carrying Debt

If you have debt such as credit-card debt, it is usually wiser to pay it off before you start saving. If the interest you are paying on the credit-card debt is more than the interest you receive from savings, you would be losing money to put extra Benjamins in savings instead of using them to pay off your debt. Once your credit-card debt is paid, you can then start saving. The exception to this is if your employer matches contributions to your 401(k). Don’t pass up that opportunity because the free money pays a 100 percent return on your investment.

Emergency Cash

If you will only be comfortable by having a savings account, even if you are in debt, go ahead and put some money away. When the economy is depressed, for example, many people feel more secure having an emergency fund, notes Sarah Place, CEO of Place Trade Financial. Save enough money to get you through six to 12 months of expenses. A good way to do this is to set up automatic deductions from your paycheck to your savings account.

A Combination Approach

Paula Langguth Ryan, author of “Break the Debt Cycle -- for Good!” recommends you take a balanced approach to savings if you have debt. To build good habits, Ryan says to pay something toward the debt and to put some money in savings. That way, when the debt is paid, you will have a savings account that you can continue to build on. If you don’t get into the savings habit immediately after purchasing your house, you might fall into bad habits of continually reaching for your credit card to pay for emergencies. You could easily stay in credit-card debt if that happens. To use the balanced approach, save between $500 and $2,000 total that would serve you in case of an emergency. Once you have an emergency savings fund, put all your extra money into paying off debt.

Home Equity Line of Credit

After you have some equity in your home, you might qualify for a home equity line of credit. If you don’t have a savings account, you could use this revolving line of credit for your expenses. You need to be careful with a HELOC because if you can’t pay it back, you could lose your home. It is not wise to use a HELOC for vacations, impulse buys or daily living. A better approach would be to use one for home improvements, medical bills or education.

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