Beating Broke

A few weeks ago, I asked all of your advice on whether we should refinance our mortgage.  At the time, we had just begun thinking about it and were still working out the numbers.  As you can probably guess from the title of this article, we went ahead and did it.

So, here’s why.  Part of our hesitation was that we plan on being out of our house in less than two years and it would take about two and a half to earn the closing costs back with the saved interest.  I think Financial Samurai hit the nail on the head in the comments of that original post when he asked what % we were sure that we would be moving in the next two years.  And the truth of the matter is that we hadn’t planned on living in the house longer than 4 or 5 years and here we are going on 6 years.  So, yes we plan on moving, but there is a chance that we will end up not moving.  More importantly, I think we can earn back those closing costs a lot quicker by using the saved interest money to pay down other, higher interest, debt.  If we’re paying off debt at 14%, we’re saving quite a bit each month and that will add up fast.

We did a little bit better on the interest than I had thought.  Originally, I had estimated that we’d get about 4.375%, but we actually got in at 4.25%.  Every little bit helps.  Of course, the downside is that will end up paying a bit more than I had anticipated in closing costs.  Which isn’t great, but overall, the math is still very favorable to us.  We also reduced our monthly mortgage payment by about $130 or so.  That’s a pretty good chunk of change that can go towards our other, higher interest, debt.  We’ve got a few more pieces of paperwork to turn in and an official assessment to get before we can truly seal the deal, but all of that shouldn’t have any effect on the turnout.  I’m hoping that we can have it all finished up and we can be paying the lower mortgage payment sometime around October or November.

What about you guys?  Any of you taking advantage of the low rates to refinance your mortgages?

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If you’re ready to make a change and get your finances in order, you need to check out the 31 Days to a Better Bank Balance by my Yakezie friend, Money Crush!

Each post contains a great nugget of personal finance wisdom and a task/step that you can complete that very day to improve your personal finances.  The goal being that at the end of the 31 days, you’ll have a much better hold on where your money is, where it goes, and where it comes from!

Money Crush has already posted the first day today, so go to the link above and get started.  I think you’ll thank yourself for it.

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It wasn’t that long ago that we were talking about how far home sales had dropped (a new record low at the time) and the causes behind it.  It was just announced (yesterday or today) that new home sales have “unexpectedly” dropped another 12.4% to a new all time record low.

To be completely honest, I’m not sure why it was so unexpected that the sales would continue to drop.  The economy is still just as bad as it was.  It hasn’t necessarily gotten any worse, but it certainly hasn’t made any great rebounds either.  I still maintain that anyone who was in a financial situation to buy a new house likely did already to take advantage of the tax credits that were in play until the end of April.  On top of that, there’s still talk of more “stimulus” to the housing industry.  So it’s likely that there are some who are holding out for a new tax credit to show up.  Will that happen?  I hope not, but you just never know.  Another factor may be the still falling value of homes.  The further the prices fall, the more likely it is that you’ll end up underwater on it.  If you can’t get out from under that, it’s unlikely that you’ll be able to sell without a large amount to cover the difference.

I will continue to not be surprised by these “unexpected” drops in sales.  How about you?  Are there factors that I’m not taking into account that might rescue the sales figures?  (Wizards and warlocks don’t count.)

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Invariably, every few months, we get a wave of posts talking about “what would you do if you won $x,xxx,xxx?”  Or, what you would do with a smaller windfall.  And invariably, a majority of the people talk about how they would save the money.  And in some cases they are right.  But, most of the time, they are wrong.

Why are they wrong?  Because they’re looking at saving from the wrong direction.  I wouldn’t save a dime of it.  I would use every last cent of it to pay off debt.  And until I have no more debt, that’s what I would do every time.  Sure, maybe I’d by a few things that I needed, but the rest goes to debt.  Saving in a savings account doesn’t do you damn bit of good if you have debt.

If you have any debt at all, you really should think twice about having any savings at all except for an emergency fund.  Why?  Because, there is no savings account in the world that will guarantee you more interest than what you are paying on your debt.   If you pay off $100 of your credit card debt, you’ve just earned the 19% interest that you would have paid.  You “saved” more with that $100 than you would have in years if you had put it into a savings account.

Don’t fool yourself into thinking you need to have anything more than an emergency fund in the bank.  All the rest is just money that could be making you 19% interest instead of the paltry 1.30% that you’ll get at that high-yield online savings.  When you get rid of your debt, then is the time to start building your savings!

Some of you will likely ask “what about retirement savings?”  That’s a gray area.  There are some that would argue that if you don’t get that debt paid off, you’ll end up taking that money out early anyways.  Others would argue that due to the tax benefits of retirements accounts, and the magic of compound interest, you really should be putting money into your retirement too.  My current opinion is stuck somewhere in between.  I think that you should be putting a little into retirement, just so you have something going.  But, I also think that you should keep in minimal until your debt is gone and then ramp it up like gangbusters.

So, what would you do if you won $x,xxx?

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In our house, we have a gas fueled furnace for heat and an electric fueled central air unit.  So, as you can likely deduce, our gas bill is much higher in the winter months and our electric bill is much higher in the summer months.  But, our bill hardly ever fluctuates.  Why is that?  We’ve got both bills set up on balanced billing. It’s a lifesaver when it comes to doing a budget, and it offsets those peak months like the Money Beagle just had.

How does it Work?  It’s pretty simple really.  The gas/electric company takes our bills for the last year and adds them all up and then divides by 12.  That’s our bill for the month.  With the gas company, it adjusts each month, so we’ll see a variation of up to $10 or so dollars each month.  And with the electric company, they adjust once a year so we usually end up with a little bit higher bill (about $20) for one month to make up for any difference and then it’s back to where it was.  I highly recommend it.

Here’s a little anecdotal story to cement the need for such a program.  When I was still in college, I lived with 4 other guys in this awesome old house.  It didn’t have air, so it was warm in the summer.  In the winter, it had a gas fueled boiler that fed those old registers in each room.  The first winter we lived there, our typical gas bill up to that point had been about $200.  Not bad when you split it 5 ways.  Then we had a particularly cold November.  Our bill in December was over $650!  Obviously, it was a bit of a shock to us when our heating bill was more than the rent each month!  Luckily, we were all pretty good friends and a couple of the guys floated the rest of us some money to help pay for the bill.  But, imagine what would have happened if that had happened to a family that was living paycheck to paycheck?  Even if you aren’t living paycheck to paycheck, imagine what that would do to your budget!

And that, my dear readers, is why balanced billing can be such a wonderful thing.  If you’re interested, it usually just takes a quick phone call to the utility company to get it set up.

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As you all know, I’ve been a member of the Yakezie group for quite a few months now.  The first phase of the group was to improve our Alexa rankings by learning to work together, and build each other up.  I’m happy to say that I went from a ranking of about 2,000,000 to just about 213,000 today.  That’s pretty incredible and is only a minor display of the power that the Yakezie group has unleashed.

Yesterday, August 16th, 2010, Phase 2 of the Yakezie plan began.  It’s now time to unleash the collective power we have created on the world at large.  A sharing of the wealth, if you will.  At the center of this plan, is the Yakezie.com website.  It’s a central location for the Yakezie.  It’s a blog, but it’s going to be so much more.  Over the next several weeks, each of the members of the Yakezie will be sharing their story with you.  You’ll be able to find out why they are where they are and what brought them there.  And from there, we’ll begin what the Yakezie is really all about.  We’ll be sharing our knowledge and expertise and using that to selflessly help others through the Yakezie Scholarship program.  It’s not a scholarship program in the same way that you’re likely thinking.  It’s kind of hard to explain, but it’s really quite cool.  You can read more of it in the Yakezie Scholarship section’s initial post.

As you can tell, this is all pretty exciting and it’s going to be a lot of fun to see where it goes from here.  Keep an eye out, there’s going to be a lot of Yakezie action coming up soon.

Also, a big thanks to Sam at Financial Samurai who is the mastermind that brought the Yakezie together.  And also to Chris, the web design mastermind behind the great Yakezie.com site.

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It has been observed that an increasing number of people have incurred debt in the past 2 years. If you’re one of those unfortunate people who have piled up huge amount of debt, then you must take some necessary steps to curb it or your credit score will go down. If you don’t know how to reduce your outstanding balances, then go through this article to know about 8 effective debt reduction tips.

Debt reduction tips

The 8 smart and easy debt reduction tips are given below:

1. Know about your debt: The first tip will be to collect all of your bills and calculate the total debt amount. You should also figure out the interest rate of the loans. Check whether you can afford to make the required monthly payments.

2. Make a strict budget: It is essential to make a strict budget when you’re suffering from debt problems. Budgeting will let you know where your hard earned money goes each month. Write down your income and expenses in a sheet of paper. If you don’t have the expertise to make an effective budget, then take help of personal budgeting software.

3. Live frugally: One of the smartest debt reduction tips will be to live frugally. You can’t imagine the amount of money you can save by living economically. Carry your own lunch box to office, cook your own meals, don’t purchase cold drinks as they are quite expensive, watch movies in your own TV, borrow books and videos from library, and use public transport. If you’re planning for a holiday, then go camping. This will help you save on hotel bills.

4. Keep your card at house: Leave your credit cards at home. If you wish to purchase something, then make payments in cash. This way you’ll be compelled to control your overspending habits.

5. Make money: Find out various ways to make money. In short try to increase your income. Do part-time jobs, give tuitions to students, find a well paid job, etc. If you have a good writing skill, then try writing web articles. Various companies give good money for quality articles. So, this is a great way to earn money.

6. Save money: Making money will not help unless you save it. Save as much money as possible and utilize them towards payments of debts. The more you save, the faster you get rid of debt.

7. Call your creditors: Call your creditors once you’ve saved a reasonable amount of money. Explain your present financial situation to them. Request them to lower the payoff amount.

8. Make payments: Start making payments to the creditors as soon as possible. You should make the minimum monthly payments by all means. If possible, then make some extra payments on the loans with highest interest rates. This will help you eliminate highest interest debts quickly. After eliminating the highest interest debt, you should apply the same tactic to the second highest interest debt.

The last debt reduction tip will be to not borrow money. This is because if you keep increasing your debt, then your problem will increase rather than decreasing.

Jason Holmes is a regular writer with Debt Consolidation Care and is also a contributory writer with other financial sites. His expertise is woven around various aspects of the debt industry and with his e-books he tries to impart to people the different situations and simple solutions to get out of difficult situations. Some of his works include e-books like ‘Credit Score The Quintessential Therapy for a Happy Pocket’, Take Creditors and Collection Agencies to Small Claims Court’ and, My Story- From Depression To a Smile’.

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Freedom! Be your own boss! There are plenty of people out there that will tell you that starting your own business is the only way to go. You can set your own hours, and do what you are passionate about. And, sometimes those things happen.

Eventually, you might be able to set your own hours.  Eventually, you’ll be able to make gobs of money doing what you are passionate about.  Eventually.  Until then, you’ll work long hours and probably not make much money doing it.

As with anything, starting a business can be a very risky proposition.  If you decide to do it full time, you’ll have to leave your job.  Doing it part time is a valid response to that, but then you’ll be working even longer hours than you already do.  And, sometimes, your passion just isn’t profitable.

But, I’m not here to discourage you from trying.  In fact, I’d like to do the opposite.  But, if you’re going to start your own business, do it responsibly.  Know ahead of time that you will likely be working long hours and making less money than you have planned for.  And know ahead of time that a very large portion of new businesses (about 60%) fail within the first 5 years.  I’d be willing to bet, however, that a very large portion of those failed businesses failed because the business owner didn’t do their research and didn’t know what they were getting themselves into.

But you will.

Can you afford the risk of starting a business?  Let’s ask ourselves what we will need financially to devote ourselves to our new business.  We’ll need to have a way to pay ourselves.  You cannot count on the business to make enough revenue to pay yourself with.  You’ll have to have a way to pay for start-up costs.  It’s actually pretty expensive to start a business.

If you’re still in the planning phases, visit your local branch of the SBA, or find a local business incubator, and sit down with someone to discuss your business plan and the costs that will be associated with it.  Those experts do this all the time, so they’ll have a much better understanding of what it will cost you to get running.

Once you have a firm idea of what it’s going to cost you, you’ve got to start saving up.  Plan on saving at least a few months of salary and personal expenses, but I would shoot for at least 6-12 months.  And if you can, start saving any extra so that you can put that towards business costs as they come up.  Again, the business isn’t likely to pay for itself right away.

A solid savings plan will not only help you get your business started properly, it can also do a great deal towards keeping your business operating if necessary.  And having an extra cushion to pay your own expenses will save your sanity while you expend all your energy into your business.

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Rob Stretch is the founder of VAbenefitblog.com, a new blog that keeps veterans aware of their benefits. Follow us on Twitter also @vabenefitblog.
One surefire way to save plenty of money on a mortgage is to take advantage of one of the three government-sponsored mortgage options, whether it’s a VA loan for veterans and active duty service members, an FHA loan for first time homebuyers, or a USDA loan for lower income individuals.
One key advantage to these programs over traditional mortgages is their flexibility and their financing terms. VA, FHA, and USDA loans all have a variety of down low payment options, and the VA and USDA programs provide zero down payment options as well. Each program also provides the ability to roll closing costs into the loan. These concessions spell good news for your budget and you can avoid having to save large amounts of money for your closing date, which can often be a stumbling block for many potential homebuyers.
It’s worth noting also that each government loan has very stringent requirements regarding how much of your income can go to your new mortgage. The limits are designed to protect buyers and not allow them to take on too much of a mortgage payment for their income. Each program permits a maximum of 29% of the borrower’s income to go to the mortgage (a total of 41% of the borrower’s income can go to the mortgage and additional debt). This information can be helpful for your budget and can give you a good idea of how much of your income can go to other places and how much needs to be reserved for housing.
As with any other large purchase, review your budget for several months before making the decision about your home loan. Consider using computer-based budgeting software that has the ability to break your spending into categories – this will help you see where your money is actually going and can help you pinpoint places that you can reduce your spending. Ensuring that you have the funds each and every month to make your new mortgage payment will make the whole process pain-free and pleasant instead of stressful, and can also give you great insight into your financial goals. Thankfully, government-sponsored loan programs can help you work towards these goals by saving you considerable amounts of money throughout the life of your loan and are a great choice for budget conscious families.

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Everybody makes mistakes.  It’s just how quickly you discover them and if you recover and learn from them that makes the difference.  Make a mistake and ignore it, and you’re likely headed for disaster.  Learn from the mistake, and avoid making it again, and you just might save yourself.

Recently, while catching up on our budgeting, we noticed a pretty large discrepancy in what the bank said we had (or didn’t have as the case may be), and what our budget said we had.  I’m used to some difference, but it’s not all that much normally.  This time, we’re talking about a very large difference.  Our budget said that we had nearly $2000 left over from the month of June.  Our bank?  Said we were nearly overdrawn.  Something was seriously not right.

And we had to figure out what.  I’m no accountant.  I don’t do math well (I took Trigonometry in college 5 times before I passed it.) and I am horrible at accounting math.  I’m a computer guy.  Computers are good at math, I leave it to them.  Unfortunately, as I was soon to learn, they are only as good as the data that you feed them.  And boy oh boy have I been feeding them some fun numbers.

Here’s what’s been happening, as best as I can figure.  As part of my payroll, I have child care flex taken out of my check.  Each month, about $400 is taken out of my check.  Each time I pay my daycare, I send in a form to HR and they reimburse the amount that I’ve taken out of my check.  So, at the end of the month, that $400 has been reimbursed back into my account.  Because of the way this works, I decided (when we started using the program) to not enter either transaction into my register or my budget.  My reasoning was solid.  A debit followed by a credit makes, essentially, a non-transaction.  Or so I thought.

Some of you may already see the problem.  Some may need this extra bit of information.  In determining the amount of income we budget for, we use the gross pay amount from my check.  Why is that important?  Well, let’s say, to keep the numbers easy to use, that I make $1000 a check.  I add $1000 to the income column on my budget.  From that $1000, my employer takes out $200 for the Child Care Reimbursement.  Now I have $800.  I then pay my daycare $200.  Now I have $600.  My employer reimburses the $200 to me.   I am back at $800.  That’s how the accounting should have been done.

Now, let’s take a look at why the way I was doing it was wrong.  I get paid $1000.  I put that in the income column of my budget.  I pay my daycare $200, but because that amount is reimbursed, I don’t enter it into the budget.  I also don’t enter the reimbursement or the initial withholding into my budget.  With no transactions, my budget still says that I have $1000 in income that I can spend.  When I really only have $800.

Of course, I’m using some simple round numbers, but you can see why that would be a problem.  Especially if it’s been building that way for at least the entirety of this year.  If I’ve been padding my budget-able income by $200 a check ($400 a month) for 7 months, that gives me $2800 in income showing that I don’t actually have.  And that is why my budget and my bank statement were so very far off.

Whoops.  Luckily, it didn’t cost us much to find the problem.  Unfortunately, we don’t have that much money just lying around.  Especially since we’ve been overspending by $400 a month.  So, we have to cut back as far as we can and watch our expenses until we can manage to bring that deficit back to $0.  Not any fun at all.  But, that’s the price you pay for a mistake.  At least we learned from it (enter all transactions, no matter whether they zero out or not), and will recover from it.  It’ll just make life a little bit harder for a while. But, if we hadn’t caught it, it could have bankrupted us.  It could have, essentially, cause our financial ruin.

The only thing that saved us is doing a budget and keeping track of our money.  Which is yet another reason that I advocate so strongly that you keep track of your money.  Even if it’s only going so far as balancing your account statements at the end of the month, you’ve got to know where your money is going.  It may save your financial life.

What mistakes have you made in your search for financial independence that set you back?  Or, maybe, that cause a bit of a windfall?

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