Beating Broke

Personal Finance from the Broke Perspective

How We Used the Proceeds from the Sale of Our House

By Leave a Comment

 

We Used the Proceeds from the Sale of Our House

This summer has been a crazy one. We found out in May that my husband would likely get a new job 2,200 miles away from our home, and in June, he signed the contract for the new position. We sold our house, bought a new house, and drove four days across the country to settle in our new area. Thanks to the housing shortage due to the pandemic, we made a nice profit on our old home. Here’s how we used the proceeds from the sale of our house.

About Our Old House

Our old house had almost doubled in value from when we bought it eight years ago. When we listed it, the house sold in three days, and we had six offers, two of them for over asking. The couple we picked also waived their right to an inspection, which saved us money.

About Our New House

Our new house is slightly larger than our old house and cost 8% more than our old house sold for. Unfortunately, the property taxes are three times higher. (Yes, property taxes in Arizona, where we moved from, are affordable.)

We wanted to find a smaller house that cost less than our house in Arizona. However, we only had a week to look for a home in our new area. Unfortunately, many of the places on the market were less than desirable, with moldy tubs and awkward layouts. Or, a few were in highly desirable areas and went well over asking; we had no desire to pay that much.

How We Used the Proceeds from the Sale of Our House

I would have liked to have put all of the proceeds from our house into our new home so we would have a smaller monthly payment, which is especially important in this high-interest rate environment. However, both our financial planner and mortgage broker talked us out of this.

Instead, we used the proceeds from the sale of our house this way:

Seventy percent for a 20% down payment on our new house and to cover closing costs.

We Used the Proceeds from the Sale of Our House

Six percent to increase our emergency fund. This allowed us to grow our emergency fund from one month of expenses to 2.5 months.

Four and a half percent for home improvements. While we didn’t pay over asking for this house, we did pay the list price. The house has some issues like mold on the wood window in one of our kids’ bedrooms, which we will need to replace before winter comes. We also need to replace a leaky, cracked sink and a few other items.

Six percent to increase our car replacement fund. We’ll need a new car within the next year or two. (Our current vehicle is 18 years old.) So, we added to this fund.

Two and a half percent to cover moving costs. We had to pay for our hotel rooms and food as we journeyed across the country, as well as other miscellaneous expenses.

The rest is unassigned for now. We’ll see how we need to use the remaining money, whether for college tuition, increasing the emergency fund further, or buying other household needs like a snowblower.

Final Thoughts

We tried to use the proceeds from the sale of our house as responsibly as possible. As a result, we were able to put 20% down on our new house, and we were able to bulk up many budget categories that put us in a more secure financial position.

Read More

3 Lessons I Learned When Looking for a New House

Should You Create Sinking Funds Before You’re Debt Free?

When the More Expensive Option Is the Frugal Choice

What to Do with a Sudden Large Sum of Money

By Leave a Comment

Sudden Large Sum of Money

For years, my aunt and uncle helped their aging relative, Dottie. They didn’t receive any financial assistance for the five to ten hours a week they spent maintaining Dottie’s lawn, cooking her meals, and driving her to doctor’s appointments. They put in that time, week after week, because they loved her and wanted to make the remainder of her life more comfortable. However, my aunt and uncle were in for a surprise when Dottie passed away. They discovered not only that Dottie had a small fortune, but that she had left all of her money to them. My aunt and uncle raised a large family and had always lived on a bare-bones budget, yet suddenly, they had inherited a sudden large sum of money.

My aunt and uncle’s situation was not unique. Many people fall into a large sum of money through inheritances, insurance settlements, gambling, or other ways. If this happens to you, what should you do with the money?

Do Nothing for a Few Months

The best thing to do is nothing. Yes, you heard me. Take the money you received, put it in a bank account, and do nothing with it for a few months to a year. Take time to get over the shock of your good fortune. Take time to plan out how best to use the money.

If you don’t take the time to let the money sit, you may blow it on all of the things you’ve always wanted but could never afford—a new boat, a vacation home in the mountains, nights out at fancy restaurants, etc. Take the time to get used to having so much money before you do anything with it.

Consult with a Financial Advisor

You may also want to consult a financial advisor and see what she recommends you do with the money. However, choose carefully. Some financial advisors are paid based on the products that they sell you, so they may push products that aren’t the best use of your money so they can also benefit from your windfall.

What to Do with a Sudden Large Sum of Money

After you’ve taken a few months to set the money aside and get used to the idea of having a fatter bottom line, you are ready to decide what to do with the money.

Set Aside a Portion to Spend

Sudden Large Sum of Money

If you receive a large amount of money, the first thing most people want to do is spend it. Go ahead and spend some of it, but first, decide what amount you will use frivolously. Maybe you decide on 5% of the money.

Take that 5% and have no guilt buying what you want. Whether that is expensive meals out, or a vacation, or a new car, enjoy the money guilt-free. But, stop spending after that and make wise choices with the remaining funds.

Pay Down Debt

One of the best ways to use a sudden large sum of money is to pay down or pay off your debt. After you pay off debt, you can start with a clean financial slate. Then the money you make every month will be used for the present and the future, not servicing money you spent in the past.

Create an Emergency Fund

How’s much is in your emergency fund? If you have nothing saved or only a thousand dollars or two, use your windfall to bulk up your emergency fund. Experts recommend saving six to 12 months of expenses in an emergency fund. If you have a steady, reliable job, go for the lesser amount. If you’re a freelancer or have a job that may get cut when the economy stalls, save enough for 12 months.

Invest

After you pay down your debts and bulking up your emergency fund, consider investing. This is one of the best uses of the windfall because you’ll continue to earn money through investing, making your windfall grow.

Contribute to Your Retirement

Getting a sudden large sum of money can make your financial future brighter when you contribute to your retirement accounts. However, the government limits how much you contribute to your retirement each year. Depending on how much money you receive, you may not be able to use it all by contributing to your retirement, or you will have to space your contributions over several years.

Buy a House

Sudden Large Sum of Money

If you don’t own a home, now might be the time to buy one. However, even though you have a sudden large sum of money, don’t buy your house based on that money. Instead, buy a house that you would have been able to afford before you received the money. This assures that you won’t spend more than you earn. Use your newfound money to put down a hefty down payment.

By choosing a house you can afford based on your salary, you’ll be able to keep and maintain monthly payments on the house even if you lose the money you just inherited. (Sadly, many people who receive large windfalls end up broke a few years after.)

Contribute to Your Children’s College Funds

Another option is to contribute to your children’s college funds. When it’s time for your child to go to college, the money will be there waiting. You can contribute to a 529, or if you want to save money for your child without earmarking it for college, you can contribute to a Uniform Gift to Minors Act (UGMA).

Final Thoughts

When you come into a sudden large amount of money, you have many decisions to make. Take a few months to a year and do nothing. Wait for the shock to subside. Then, choose from one to several of the above options when deciding what to do with the money. Choose the options that will best serve you and your family. And don’t forget to earmark a small percentage of the money to spend and enjoy.

Read More

Declutter Your House Like You’re Moving and Make Some Cash

Beware These Financial Pitfalls When Choosing a College

Money Management Tips for College Students and Their Parents

What the Pandemic Has Taught Me About Our Spending

By 1 Comment

The pandemic has changed our American way of life.  More people work from home now.  Kids go online to complete their schooling. Many of us are wearing masks now.  And, our month or two quarantined at home has given us time to reflect on what are life used to be like. . .and whether or not we want to fully go back to that life.  I’ve spent some time considering what the pandemic has taught me about our spending.

What the Pandemic Has Taught Me About Our Spending

What the Pandemic Has Taught Me About Our Spending

Sometimes you get complacent in life and just do things the way that you’ve always done them.  This pandemic has allowed me to look at our finances with fresh eyes to discover what we did well and what needs improvement.

My Bargain Shopping Was a Boon to the Family

What The Pandemic Has Taught Me About Our Spending
Photo by gemma on Unsplash

I used to drop by the grocery store three or four times a week, scouring the store for clearance mark downs.  I bought probably 1/3 to ½ of our weekly food this way.  I used to worry that I was spending too much money shopping this way, but now I see how much I was really saving us.

Since the pandemic, I’ve relied on grocery store pick up, which means paying full price for everything.  Our grocery bill has shot up by 30%.  When the pandemic is over, you can bet I’ll be back to stopping by the store a few times a week to pick up the bargains.

We Drove Around Way Too Much

What The Pandemic Has Taught Me About Our Spending

Before the pandemic, we were a busy family with three kids.  We spent our time, like many American families, in the car driving from activity to activity.  Gas was a large line item in our budget, especially since our town is very spread out.  We easily spent 2 to 2.5 hours in the car a day, dropping off and picking up a child from school, taking another child to therapy, going to horseback riding lessons, gymnastics lessons, religious education lessons.  On and on.

Since the pandemic, our gas consumption has dropped to nearly nothing.  I’ve bought gas for my vehicle twice in three months; my husband hasn’t had to buy gas at all.  We find we’re happier with more time at home.  Whenever things are more normal, we don’t plan to be as busy, which means less gas consumption.

Our Emergency Fund Is Not Large Enough

We’ve been working on building our emergency fund from a tiny $1,000 to a six-month emergency fund.  When the pandemic hit in mid-March, we had a two-month emergency fund.  While that’s certainly better than a $1,000 emergency fund, I really wish it was larger.

We’re lucky that my husband was able to keep his job and work from home, but he did get a pay cut.  While we have rearranged the budget to accommodate the pay cut, we won’t be able to grow our emergency fund like we had previously.  And, depending on the way this pandemic rides out, we’re both aware that he could lose his job next year.  I’d feel much more confident if we had a bigger cushion.

Final Thoughts

These three are what the pandemic has taught me about our spending.  I’m quite sure when this pandemic is over, our family won’t go back to the way things were.  I think we’ll drive a little less and try to save even more.

How has the pandemic changed the way you look at and spend money?