When to take the plunge on 3 big financial decisions

If you're gearing up to hit larger financial milestones, these tips help gauge your readiness.

A Realtor showing a home to a young family

You're employed, you're paying bills and putting away some of those earnings — you're covering all the basics. So if you're gearing up to hit some larger financial milestones, here are tips to help you determine if you're ready to make these first-time financial decisions.

Buying a house

First things first: Do you have enough money saved for a down payment? You don't have to put down 20 percent, but you should aim for 20 percent or more of average housing costs in your area to avoid paying for private mortgage insurance. If you've set that amount aside and have been preapproved for a mortgage loan, then you're on the right track.

But before falling in love with your dream home, it's important to understand what you can — and can't — afford. In addition to a mortgage payment, your monthly expenses may include property taxes and insurance, which vary by location.

These can add up to more than you might think: According to the Insurance Information Institute, home insurance premium costs average more than $1000. On top of that, you'll want to factor in maintenance costs and desired upgrades.

Buying a car

Buying a car also requires more than being able to cover monthly payments. If you've saved up for additional costs, including fuel, insurance premiums, routine maintenance, and repairs, you're almost ready for car ownership.

Next step: Do your research. First, find a car that's financially reasonable — the monthly total of all of your household's car payments shouldn't exceed 20 percent of your household's take-home pay. Then make sure your desired car won't rapidly depreciate in value (resale value) and is well-suited to your driving needs.

Purchasing life insurance

A life insurance policy can help support your loved ones financially when you're gone. It isn't just for married couples with children, either: If you have dependents of any kind, you may be ready to consider life insurance. Before committing to a policy, decide whether term or whole life insurance is best for you.

The information in this article was obtained from various sources not associated with State Farm® (including State Farm Mutual Automobile Insurance Company and its subsidiaries and affiliates). While we believe it to be reliable and accurate, we do not warrant the accuracy or reliability of the information. State Farm is not responsible for, and does not endorse or approve, either implicitly or explicitly, the content of any third party sites that might be hyperlinked from this page. The information is not intended to replace manuals, instructions or information provided by a manufacturer or the advice of a qualified professional, or to affect coverage under any applicable insurance policy. These suggestions are not a complete list of every loss control measure. State Farm makes no guarantees of results from use of this information.
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