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Budgeting by purpose rather than category

Most of the time we think about our family budget in terms of categories: a certain amount of money set aside for the electric bill, a certain amount for groceries, some for gas, and of course, the biggest one is usually your home mortgage.

When you’re working out a budget to build your new home on your land, it makes sense to put that in the home mortgage budget category. But as you dream about your new home, how big it is, and what you want in it, it’s very easy for the wish list to overwhelm your budget. If that’s happened to you, you’re not alone.

One of the greatest things about working with families who want to build on their land is that we learn great lessons from them. One of those lessons is to think about budget in terms of purpose rather than category.

What does that mean in practice? Here’s a quick story that illustrates how a different way of thinking about budget can make your dream home come to life.

We recently worked with a family who, like everyone, has a limited budget. When we added up their initial wish list, we were right on budget. But they had been thinking about adding a two-car garage as well. They had planned to build a shop later but wanted to know the cost to go ahead and add that garage space to the new home design. The garage would add about $17,000 to the overall price of the home, which put them over budget.

However, after talking though the purpose of the garage space, we realized having the garage would allow them to cancel a monthly self-storage rental. In the long run, cancelling that extra storage expense would more than cover the extra mortgage payment from adding the garage.

By thinking about the monthly budget in terms of purpose rather than category, the family ended up using the storage budget to pay for storage in their own garage. They’ll write the check as part of their mortgage (category), but the money will pay for the garage storage (purpose). And, they’ll get the benefit of paying the storage rent to themselves, since they own the new space.

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