You are probably aware that the interest you pay on your mortgage and the property taxes you pay are both deductible.
If you go from being a renter to a homeowner, you should expect to pay lower taxes or receive a larger refund come April. But how about boosting your monthly take-home pay to help your monthly budget?
By filing a revised W-4 with increased allowances, you will increase your net pay on each paycheck. You could wait until you file your tax returns in April, but you are essentially giving the government a free loan (well, the government certainly needs it).
Each allowance on your W-4 is worth $3,700. If you add your annual mortgage interest and property taxes, then divide by $3,700, you should get the number of allowances to file for (relating to your home; you may already have other allowances). You can then use a paycheck calculator to estimate what your new net paycheck will look like.
Of course, consult a tax professional before you take the advice of a blogger. Your individual circumstances will differ.
Showing posts with label budget. Show all posts
Showing posts with label budget. Show all posts
Wednesday, October 26, 2011
Monday, October 24, 2011
Free Credit Report (without the song and dance)
We've all seen the commercials on TV for various "free" credit report offers. The truth is, if they are advertising, they aren't doing this out of the kindness of their hearts.
The Fair Credit Reporting Act enables consumers a free copy of their credit report once a year - see details here. The companies that are advertising will get you your credit report for free, but they are trying to sign you up for a monthly monitoring service or other services for a fee.
The FTC's link brings you to AnnualCreditReport.com which is hosted by the three major credit reporting agencies - Experian, Equifax, and TransUnion.
You'll follow through the prompts on the site to fill out your personal information and then you'll have to select which of three agencies to get your report from. Your credit report will show your various outstanding lines of credit. The report will not provide you with your credit score. You'll have the opportunity during the process to sign up (and pay) to receive your credit score.
Getting your free credit report once per year is a good way to monitor your credit, although if there are problems, a once-per-year report may not be timely enough.
If you are planning on looking for a house, you may want to pull your report before you begin. If there are problems, such as fraudulent accounts, they can often take a long time to resolve.
The Fair Credit Reporting Act enables consumers a free copy of their credit report once a year - see details here. The companies that are advertising will get you your credit report for free, but they are trying to sign you up for a monthly monitoring service or other services for a fee.
The FTC's link brings you to AnnualCreditReport.com which is hosted by the three major credit reporting agencies - Experian, Equifax, and TransUnion.
You'll follow through the prompts on the site to fill out your personal information and then you'll have to select which of three agencies to get your report from. Your credit report will show your various outstanding lines of credit. The report will not provide you with your credit score. You'll have the opportunity during the process to sign up (and pay) to receive your credit score.
Getting your free credit report once per year is a good way to monitor your credit, although if there are problems, a once-per-year report may not be timely enough.
If you are planning on looking for a house, you may want to pull your report before you begin. If there are problems, such as fraudulent accounts, they can often take a long time to resolve.
Wednesday, October 5, 2011
8 Step Home Buying Guide
The links below will provide you with a detailed 8 step guide to purchasing your first home. The guide is interlaced with stories about our home buying process as well as tips we've picked up along the way.
Friday, September 23, 2011
Furniture Shopping
Pamela and I haven't owned much in terms of furniture over the years. Dorm rooms and then NYC apartments aren't particularly spacious.
My parents, who live in the tri-state area, have offered to let us take our pick of furniture they have in storage or sitting in a garage.
We'll still be in need of a lot of items, but at the same time, we aren't in any rush. We don't need to have a bed in every bedroom and for the most part, we'll only use two chairs at the dining table (Akina's bowl sits on the ground).
A Few Tips
While you probably don't need help selecting furniture, let me just add a few comments from our searches:
This sofa design was being discontinued. The store had it out on the floor but didn't have any others to sell, so it was doing little more than taking up space. We didn't necessarily want all the pieces, but the store manager gave us a huge discount if we'd take all of it out of the store that day. Soon we'll have a full living room and it'll fit a bit better.
Below is a rough ranking of stores in terms of the pricing of items they sell (cheapest to most expensive):
IKEA - everything you'd want in one location with low prices
Brooklyn Flea - we haven't had a chance to go, but friends have come home with great pieces at great prices
Bob's Discount Furniture - the ads might be a bit on the cheesy side and you might be reluctant to shop here. Pamela didn't even want to stop the car but I convinced her to check it out with me. What a great store! Big selection and very low prices. The store we visited near Paramus, NJ has a complementary cafe. Pamela fell in love with a recliner with massage controller... maybe next time.
West Elm - a personal favorite of ours
Crate & Barrel - speak to a sales rep about a "Homebuyer Coupon". You fill out a form which needs to be approved, but you are then granted a one time coupon for 10% off.
Restoration Hardware - most of the items here are a bit above our range.
Ethan Allen - a high end store with quality products and prices that reflect
Drexel Heritage - high end, lots of customization options
Stickley, Audi & Co. - high end, lots of customization options
There are a lot more options out there including other chain stores and Mom & Pop type stores. Heck, you can even make your own furniture. Have fun, but don't break your budget!
My parents, who live in the tri-state area, have offered to let us take our pick of furniture they have in storage or sitting in a garage.
We'll still be in need of a lot of items, but at the same time, we aren't in any rush. We don't need to have a bed in every bedroom and for the most part, we'll only use two chairs at the dining table (Akina's bowl sits on the ground).
A Few Tips
While you probably don't need help selecting furniture, let me just add a few comments from our searches:
- Make a priority list - you can go without a tea cozy for longer than you can go without a place to sit while you eat. This also goes back to proper budgeting.
- Find furniture you like even at stores you can't afford - lower priced retailers will likely carry something similar. You can also use key words from a high end retailer's description of its product to help you search online. This seems particularly true about lighting fixtures.
- Measure - "Measure twice, (purchase) once"
- Move in, then purchase. There isn't much of a point in loading up on bulky items that you or movers will have to haul. Also, once you are in your home, you can better understand the space you have to work with.
- Buy on sale - A couch is not a phone or an iPad - technology hasn't evolved making last year's products obsolete.
- Sign up for the store's credit card - you could spend thousands of dollars on just a few items. Store credit cards will often offer a discount or some sort of rewards currency for future purchases. These cards often have very high interest rates, so I would advise you to purchase, get the rewards, then pay off in full. *Warning* Don't sign up for new credit cards while your mortgage process is ongoing - lenders really really don't like that.
 |
| Akina likes the couch! |
Below is a rough ranking of stores in terms of the pricing of items they sell (cheapest to most expensive):
IKEA - everything you'd want in one location with low prices
Brooklyn Flea - we haven't had a chance to go, but friends have come home with great pieces at great prices
Bob's Discount Furniture - the ads might be a bit on the cheesy side and you might be reluctant to shop here. Pamela didn't even want to stop the car but I convinced her to check it out with me. What a great store! Big selection and very low prices. The store we visited near Paramus, NJ has a complementary cafe. Pamela fell in love with a recliner with massage controller... maybe next time.
West Elm - a personal favorite of ours
Crate & Barrel - speak to a sales rep about a "Homebuyer Coupon". You fill out a form which needs to be approved, but you are then granted a one time coupon for 10% off.
Restoration Hardware - most of the items here are a bit above our range.
Ethan Allen - a high end store with quality products and prices that reflect
Drexel Heritage - high end, lots of customization options
Stickley, Audi & Co. - high end, lots of customization options
There are a lot more options out there including other chain stores and Mom & Pop type stores. Heck, you can even make your own furniture. Have fun, but don't break your budget!
At Least Some Good News
We are still trying to resolve this whole issue about not having a place to move our stuff or stay, we did get some good news.
Our mortgage broker called to let us know we would be getting a lower rate!
We had locked in a 4.5% rate early in our process, although we decided to "sell" 0.25% to the broker who would then fund a large portion of our closing costs.
Our rate now moves down to 4.25% (and that includes the 0.25% we are still selling).
This is great news! Using the Mortgage Rate Comparison tab, we will now be saving more than $100 per month for the next 30 years.
Thursday, September 22, 2011
Mortgage Rates and Calculations
If you follow the financial markets, you may have heard that the Federal Reserve took action to help the economy recently. One part of the plan is to help keep mortgage rates low. In fact, mortgage rates have hit lows not seen since 2009.
So Where Are Rates and Where Have They Been (and Where Are They Going)
I've mentioned on several posts where you can go to check mortgage rates. These include Bankrate, Mortgage News Daily, or even the website of you local bank.
To get a sense of where rates have been recently, Mortgage News Daily puts together a chart here.
Rates are low and it is a great time to take out a mortgage, but I don't think you need to rush. In order to spur the economy, and also to allow the government to refinance its own debt (a significant portion of which come due in the next few years), I believe rates will stay low for quite some time.
So now that you've got a sense of where rates are, how can you use that to figure out how much you'll pay each month?
Spreadsheets You Can Play With
I've created a spreadsheet with an Comparison tab and an Amortization tab. Click here and you can make a copy of this spreadsheet for yourself.
The highlighted and bolded cells are the ones you should look to change.
The Comparison tab is built for just that purpose - you can play around with different purchase prices, down payments, interest rates, and mortgage terms. This can be very helpful in your budgeting. Once Pamela and I had made an offer, we used this spreadsheet to see how much our monthly payment would go up if we raised our offer by $5,000.
Once you have an offer accepted and you know the purchase price, you can change the interest rate cells to see how your monthly payment will changed based on the rate you get.
The Amortization tab shows you how your monthly payment will be split over the life of the loan. You'll notice that early in the loan, you'll be paying a lot more interest. As the balance of the loan goes down, those interest rates shrink and more of your payment goes towards paying down the loan balance.
The Additional Payment column is really insightful. How quickly can you reach 20% equity or pay down your loan completely if you can add $100 to your monthly bill.
So Where Are Rates and Where Have They Been (and Where Are They Going)
I've mentioned on several posts where you can go to check mortgage rates. These include Bankrate, Mortgage News Daily, or even the website of you local bank.
To get a sense of where rates have been recently, Mortgage News Daily puts together a chart here.
Rates are low and it is a great time to take out a mortgage, but I don't think you need to rush. In order to spur the economy, and also to allow the government to refinance its own debt (a significant portion of which come due in the next few years), I believe rates will stay low for quite some time.
So now that you've got a sense of where rates are, how can you use that to figure out how much you'll pay each month?
Spreadsheets You Can Play With
I've created a spreadsheet with an Comparison tab and an Amortization tab. Click here and you can make a copy of this spreadsheet for yourself.
The highlighted and bolded cells are the ones you should look to change.
The Comparison tab is built for just that purpose - you can play around with different purchase prices, down payments, interest rates, and mortgage terms. This can be very helpful in your budgeting. Once Pamela and I had made an offer, we used this spreadsheet to see how much our monthly payment would go up if we raised our offer by $5,000.
Once you have an offer accepted and you know the purchase price, you can change the interest rate cells to see how your monthly payment will changed based on the rate you get.
The Amortization tab shows you how your monthly payment will be split over the life of the loan. You'll notice that early in the loan, you'll be paying a lot more interest. As the balance of the loan goes down, those interest rates shrink and more of your payment goes towards paying down the loan balance.
The Additional Payment column is really insightful. How quickly can you reach 20% equity or pay down your loan completely if you can add $100 to your monthly bill.
Conflicts of Interest
There are a few inherent conflicts of interest that you will likely run into during your home buying process. I think it is useful for you to be aware, although hopefully you won't run into any bad situations. You should interview as many real estate professionals as possible and rely on the advice of your friends to find someone who is trustworthy.
Your Realtor (Buyer's Agent)
The Realtor only gets paid a commission if you purchase a house. So, like any other salesperson, you should have some skepticism if you aren't finding anything you like, but the Realtor is pushing you to reconsider. A good Realtor will help you to understand if your expectations aren't realistic. A bad Realtor will pressure you to move forward on a house that you are only luke-warm about.
This conflict can also come up after you've had your offer accepted - perhaps you discover something during the inspection that makes you consider walking away. If you walk away from the deal, the Realtor's time to that point could be considered "wasted". A good Realtor, of course, will be happy to help you look for a new house.
The buyer's agent also gets paid a percentage of the sale price. It is in your best interest to pay the lowest price possible, but this does not help your Realtor. Consider this when you are placing an offer on a house. If you are a first time home buyer like I am, you'll probably rely heavily on your Realtor's advice. If you feel strongly about what you want to bid, but your Realtor thinks you should go higher, take this advice with a grain of salt. Consider the extensive budgeting and spreadsheet work you have done and don't let anyone push you into a house you cannot afford.
Your Banker / Mortgage Broker
Your banker / mortgage broker's job (I'll just refer to this person as a broker) is to generate business for his/her firm. He is trying to make the most profit off of you as possible, without scaring you away. Your best defense here is to shop around. You can speak to multiple brokers and you can compare what they are offering on Bankrate.com.
Now, just because Bankrate says you should get a 5.00% mortgage but your broker is offering 5.15% doesn't mean he is trying to take advantage of you. Rates on Bankrate are quoted using the most basic parameters (zip code, purchase price, % down, range of credit score). Some lenders on the site will also show a rate such as 5%, but they will charge substantial fees.
Brokers earn money in two ways - fees and selling your loan. Fees are pretty straight-forward - they'll charge you an application fees, processing fees, bank appraisal fees, etc. If your broker doesn't work for a major bank, there is a good chance that they will not hold your loan. In this situation, their goal is to charge you as high of an interest rate as possible (without you going elsewhere). They are then able to sell that loan to a major bank which, for example, is happy to buy a 5.15% 30 year loan if you have a 800 credit score, when they know that would usually be priced at 4.75%.
It might not be a "conflict" but I think it is also important to make clear that once you've started down a process with a broker, it is difficult to change. Over the past few years, new legislation has been introduced that requires brokers to provide a "Good Faith Estimate" or GFE which should detail all the costs of your mortgage. Pay close attention to this, ask lots of questions about what each item means, and ask what numbers could change. As you get closer or reach closing, make sure these numbers don't change.
Your Lawyer
You should actually feel pretty safe here. Your lawyer gets paid whether you complete a deal or not. The only conflict that could arise might be if your lawyer and your Realtor or broker have a close relationship. If you are being charged hourly, of course they have incentive to bill you for more hours.
Your Inspector
Again, not much to worry about here. He/she gets paid either way.
The good news is that Realtors, brokers, lawyers, and inspectors find a lot of business through referrals so it is most definitely not in their interest to treat you unfairly. They also could face serious consequences for treating you unfairly. It is up to you though to seek out real estate professionals you can trust.
Bad Home Buyers and the Real Estate Professionals Who Hate Them
From their point of view, there are a few bad behaviors that will leave them frustrated and less willing to help you:
Your Realtor (Buyer's Agent)
The Realtor only gets paid a commission if you purchase a house. So, like any other salesperson, you should have some skepticism if you aren't finding anything you like, but the Realtor is pushing you to reconsider. A good Realtor will help you to understand if your expectations aren't realistic. A bad Realtor will pressure you to move forward on a house that you are only luke-warm about.
This conflict can also come up after you've had your offer accepted - perhaps you discover something during the inspection that makes you consider walking away. If you walk away from the deal, the Realtor's time to that point could be considered "wasted". A good Realtor, of course, will be happy to help you look for a new house.
The buyer's agent also gets paid a percentage of the sale price. It is in your best interest to pay the lowest price possible, but this does not help your Realtor. Consider this when you are placing an offer on a house. If you are a first time home buyer like I am, you'll probably rely heavily on your Realtor's advice. If you feel strongly about what you want to bid, but your Realtor thinks you should go higher, take this advice with a grain of salt. Consider the extensive budgeting and spreadsheet work you have done and don't let anyone push you into a house you cannot afford.
Your Banker / Mortgage Broker
Your banker / mortgage broker's job (I'll just refer to this person as a broker) is to generate business for his/her firm. He is trying to make the most profit off of you as possible, without scaring you away. Your best defense here is to shop around. You can speak to multiple brokers and you can compare what they are offering on Bankrate.com.
Now, just because Bankrate says you should get a 5.00% mortgage but your broker is offering 5.15% doesn't mean he is trying to take advantage of you. Rates on Bankrate are quoted using the most basic parameters (zip code, purchase price, % down, range of credit score). Some lenders on the site will also show a rate such as 5%, but they will charge substantial fees.
Brokers earn money in two ways - fees and selling your loan. Fees are pretty straight-forward - they'll charge you an application fees, processing fees, bank appraisal fees, etc. If your broker doesn't work for a major bank, there is a good chance that they will not hold your loan. In this situation, their goal is to charge you as high of an interest rate as possible (without you going elsewhere). They are then able to sell that loan to a major bank which, for example, is happy to buy a 5.15% 30 year loan if you have a 800 credit score, when they know that would usually be priced at 4.75%.
It might not be a "conflict" but I think it is also important to make clear that once you've started down a process with a broker, it is difficult to change. Over the past few years, new legislation has been introduced that requires brokers to provide a "Good Faith Estimate" or GFE which should detail all the costs of your mortgage. Pay close attention to this, ask lots of questions about what each item means, and ask what numbers could change. As you get closer or reach closing, make sure these numbers don't change.
Your Lawyer
You should actually feel pretty safe here. Your lawyer gets paid whether you complete a deal or not. The only conflict that could arise might be if your lawyer and your Realtor or broker have a close relationship. If you are being charged hourly, of course they have incentive to bill you for more hours.
Your Inspector
Again, not much to worry about here. He/she gets paid either way.
The good news is that Realtors, brokers, lawyers, and inspectors find a lot of business through referrals so it is most definitely not in their interest to treat you unfairly. They also could face serious consequences for treating you unfairly. It is up to you though to seek out real estate professionals you can trust.
Bad Home Buyers and the Real Estate Professionals Who Hate Them
From their point of view, there are a few bad behaviors that will leave them frustrated and less willing to help you:
- Home buyers who are unwilling to sign paperwork saying they are represented by a specific Realtor
- Home buyers who think house hunting is a fun way to spend their weekends but have no real intention of buying (and don't say so)
- Home buyers who get too excited, make offers, but then realize they can't afford the house
- Home buyers who get cold feet and try to create ways to get out of a deal
- Home buyers who try to negotiate with a seller on the side to reduce the purchase price on paper - this can lower the loan amount you need or could allow you to pay with income you haven't declared, but a lower purchase price means less commission for the Realtor and can raise red flags with your broker and lawyer
- Home buyers who drag their feet in getting paperwork to their broker, but then dump a pile of documents on them and get frustrated at the turnaround time
Wednesday, September 21, 2011
Financial Budgeting Tips
The following blog is a more detailed view into financial budgeting. Whether you are making a large purchase (a house!) or taking a deeper look at your savings, these tips could be helpful for you.
Becoming "House Poor"
A classic piece of advice when buying a home is to avoid being "house poor". This is the situation where you spend all your money to get the house, but then end up with an empty home because you can't afford to buy anything.
I am a bit torn on this concept - the advice is sound, but I think it really depends where you are in life. Buying a home is a long term commitment andI think you need to think about both sides of the coin.
You didn't spend enough
You bought a house that you can somewhat easily afford. You are paying off your mortgage and saving a substantial amount each month or maybe paying down the mortgage at an accelerated rate. You also have plenty of money for surprise repairs and you get to go on vacations. You aren't stressed about your monthly budget. Sounds great, right?
The downside is if you bought a smaller home in order to save money. Your family might be growing and you don't know where they will all fit. What if you bought in a less desireable neigjborhood? Are you concerned about crime or maybe don't get along with your neighbors? Are the local schools decent or will that become a problem? A lower priced house might prove to be more difficult when it comes time to sell.
You stretched your budget
You bought a great home in a great area. You love your neighborhood and are proid to show off your home. You also think you won't have trouble selling down the line.
The downside - you are embarassed to have an expensive home but have cheap furniture. You have extra rooms in your house that you don't need and they remain as empty as the day you moved in. You aren't able to save much money, much less go on vacation. You are concerned that if the car breaks down or some surprise pops up, you may have difficulty paying for it. This kind of stress can really weigh on your family life.
There isn't an answer to which one is better, but I would recommend that if you are younger and think your income and family may grow, you should probably stretch a bit. If you aren't in that camp, do you really want to spend your next 30 years stressing month to month about the effect a flat tire might have on your finances?
Great Resources for Budgeting
I would highly recommend that you sign up for a free account with Mint.com. By entering your credit card, banking, and other information and passwords, Mint will automatically pull your monthly statements and help you categorize. And don't worry, Mint uses the same encryption technology that your banks use so it is just as safe.
The real value here is that you can track your spending in as little or as much detail as you like. The site also provides charts to show the breakdown or how your spending has changed from month to month.
I've always been a bit fanatical about tracking my spending as well as my assets and liabilities. I have an excel spreadsheet that I've updated every paycheck for years with this information. While this has become more of a habit now than a valuable resource, I would recommend putting this information on paper and calculating your net worth.
Broadly, your net worth is the value of your assets minus your liabilities.
Monthly Budgeting Tips
The most important part about budgeting is putting together an actual monthly budget. I've accomplished this using Google Docs. I recommend Google Docs because it is a simple interface that is accessible anywhere, even on your phone, and it's free.
The key to good budgeting is making fair estimates. This is where a site like Mint can come in handy and you might be surprised. I thought, for example, that I probably spent $15 a month at pharmacies. These trips were often because I needed something specific or was sick, but it was hard to remember how frequently I would make these mundane trips. I would buy some contact lens fluid, toilet paper, Nyquil, etc., and be way over my budget every month.
Budgeting Walk-through
I put together a spreadsheet which you can access here. It's a little bit rudimentary but hopefully it can help you get going on a budget of your own. If you are signed into your Google Docs account, you should be able to click File then save a copy to your own directory which you can then edit.
I'm going to run you through some of the categories and inputs into my spreadsheet to help you through a real life example.
Becoming "House Poor"
A classic piece of advice when buying a home is to avoid being "house poor". This is the situation where you spend all your money to get the house, but then end up with an empty home because you can't afford to buy anything.
I am a bit torn on this concept - the advice is sound, but I think it really depends where you are in life. Buying a home is a long term commitment andI think you need to think about both sides of the coin.
You didn't spend enough
You bought a house that you can somewhat easily afford. You are paying off your mortgage and saving a substantial amount each month or maybe paying down the mortgage at an accelerated rate. You also have plenty of money for surprise repairs and you get to go on vacations. You aren't stressed about your monthly budget. Sounds great, right?
The downside is if you bought a smaller home in order to save money. Your family might be growing and you don't know where they will all fit. What if you bought in a less desireable neigjborhood? Are you concerned about crime or maybe don't get along with your neighbors? Are the local schools decent or will that become a problem? A lower priced house might prove to be more difficult when it comes time to sell.
You stretched your budget
You bought a great home in a great area. You love your neighborhood and are proid to show off your home. You also think you won't have trouble selling down the line.
The downside - you are embarassed to have an expensive home but have cheap furniture. You have extra rooms in your house that you don't need and they remain as empty as the day you moved in. You aren't able to save much money, much less go on vacation. You are concerned that if the car breaks down or some surprise pops up, you may have difficulty paying for it. This kind of stress can really weigh on your family life.
There isn't an answer to which one is better, but I would recommend that if you are younger and think your income and family may grow, you should probably stretch a bit. If you aren't in that camp, do you really want to spend your next 30 years stressing month to month about the effect a flat tire might have on your finances?
Great Resources for Budgeting
I would highly recommend that you sign up for a free account with Mint.com. By entering your credit card, banking, and other information and passwords, Mint will automatically pull your monthly statements and help you categorize. And don't worry, Mint uses the same encryption technology that your banks use so it is just as safe.
The real value here is that you can track your spending in as little or as much detail as you like. The site also provides charts to show the breakdown or how your spending has changed from month to month.
I've always been a bit fanatical about tracking my spending as well as my assets and liabilities. I have an excel spreadsheet that I've updated every paycheck for years with this information. While this has become more of a habit now than a valuable resource, I would recommend putting this information on paper and calculating your net worth.
Broadly, your net worth is the value of your assets minus your liabilities.
Monthly Budgeting Tips
The most important part about budgeting is putting together an actual monthly budget. I've accomplished this using Google Docs. I recommend Google Docs because it is a simple interface that is accessible anywhere, even on your phone, and it's free.
The key to good budgeting is making fair estimates. This is where a site like Mint can come in handy and you might be surprised. I thought, for example, that I probably spent $15 a month at pharmacies. These trips were often because I needed something specific or was sick, but it was hard to remember how frequently I would make these mundane trips. I would buy some contact lens fluid, toilet paper, Nyquil, etc., and be way over my budget every month.
Budgeting Walk-through
I put together a spreadsheet which you can access here. It's a little bit rudimentary but hopefully it can help you get going on a budget of your own. If you are signed into your Google Docs account, you should be able to click File then save a copy to your own directory which you can then edit.
I'm going to run you through some of the categories and inputs into my spreadsheet to help you through a real life example.
- Income - obvious, but I would suggest putting your income and your spouse's income on separate lines (we'll get to that later)
- Individual Expenses - I split individual expenses into separate sets just as I did with incomes. I think this is a smart, fair, and open way to budget with your spouse, as you don't want to be in a situation where you can't support your bills with your income and are instead borrowing from their income. Our expense line items include: shopping, golf (yes, I have a real weakness), trips, credit cards, and work-related. Credit cards are a tough one - if you pay minimums, you end up suffering the most. You'll probably be better off using monthly savings to pay down this type of debt first.
- General / Household Expenses - these are a set of expenses that can generally be viewed as "shared". These items include groceries, restaurants, gasoline, car payments, insurance and other cash expenses. Some of these are set amounts each month while others can be harder to estimate. One month you'll do a lot of cooking, the next will have more restaurant trips, the next might include a special (expensive) dinner. Again, this is where Mint can help you come to reasonable estimates.
So how does it look? Are you surprised by how much your budget tells you that you are spending or saving each month? Do both partners contribute and spend fairly?
If you've really sharpened your pencil to come to your savings amount, I would take that monthly amount and multiply it by 12. I think that yearly amount is a fair representation, while the monthly amount tends to be very volatile. I would also note that you should keep in mind whether you tend to have a tax bill or receive a tax refund after you file. Owning a house does provide additional tax benefits, but I've always thought of this, in terms of budgeting, as a happy surprise I'll hope to see come May or June.
The second tab in the spreadsheet "Cash Flow" is something I used a lot as we were approaching the date our down payment was due. Even if you know you are saving money each month, it may be important to know how much cash you'll actually have on the 13th of the month. To use this, I entered a long list of expenses on the dates that they are due.
The second tab in the spreadsheet "Cash Flow" is something I used a lot as we were approaching the date our down payment was due. Even if you know you are saving money each month, it may be important to know how much cash you'll actually have on the 13th of the month. To use this, I entered a long list of expenses on the dates that they are due.
Keep in mind that your monthly budget will be volatile when thinking about how much you can afford to spend on a house. A volatile month of spending can't lead to you missing your mortgage payment.
Lastly, it's a very good idea to pull your credit report in this process. You can do it once per year for free through the government - be careful of ads you see on TV as these companies are simply providing you what the government is offering you, but they will try and upsell you on monthly monitoring services.
Lastly, it's a very good idea to pull your credit report in this process. You can do it once per year for free through the government - be careful of ads you see on TV as these companies are simply providing you what the government is offering you, but they will try and upsell you on monthly monitoring services.
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