Monthly Archives: February 2012

Financial Plans…..Kinda

Our ultimate goal is to become debt free.  In the meantime, we have set some smaller goals to get us to the larger one.  This is all part of our elaborate   simple financial plans.  This is just a rough plan and not everything is set in stone although we would like to stick to it.  

Both my wife and I have read Dave Ramsey’s The Total Money Makeover.  While he has an awesome strategy/plan to financial freedom, we just don’t think it is 100% for us.

One part of his plan includes debt snowballing.  This is a really exciting idea that we are going to follow, although not completely.  Dave recommends to take all of your debts (except the mortgage) and put them in order from smallest to largest.  Basically you pay minimum payments on all but the smallest debt, and use any extra discretionary income to pay off the smallest debt first.  Once you pay the smallest one, you take that payment and all of your discretionary income and pay off the next smallest loan, etc.   This can be a rewarding strategy because you can see the progress.  The only thing with this plan that I can’t or don’t agree with is that he recommends doing it with only a $1000 emergency fund.  I’m pretty sure that we would be a little stressed out not having a larger emergency fund so the plan is to do both at the same time.  Debt snowball and save for the EF. 

Here is our loans other than our mortgage.

  • Camper Loan: $7,588.05
  • Student Loan: $3,971.53

While the student loan is less than the camper, we want to pay the camper off first.  The camper loan is at a higher interest rate, and no tax deduction for the interest like the student loan has.  We haven’t decided yet on how much of our discretionary income will go towards debt vs. the emergency fund.  I’m thinking probably a 60/40 debt to EF ratio. Our goal is to have both of these debts gone by years end, along with at least half of our EF funded. 

We will be taking our tax return and putting that right onto the camper which should take a nice bite out of it.  Another thing that we don’t count on in our budget is overtime income.  We decided not to include it because overtime is never guaranteed and I don’t think it is a good habit to rely on it to pay bills.  So we treat it as we never had it, and mostly it goes towards paying debt.  Most of our overtime that we work will go straight to the debt but it will not be budgeted payments.   Another thing we are waiting on including in our budget is our refinance (which is still in progress 😦 )

Once both of these debts are paid off, we plan on finishing our emergency fund before paying extra on the house.  After the EF is fully funded, we want to attack the mortgage and also save for some fun stuff (vacations, toys).  I want to also increase our contributions to retirement accounts, mainly my Roth IRA and start one for the wife also. 

Do you have a plan to meet your financial goals?  How likely are you to stick to those plans?  Do you think you will stray from them?


Save-aholics

I’m always looking for ways to save money.  It doesn’t matter what it is I am always trying to see if there is a cheaper alternative.  Here is the list I came up with that can save a quick buck.

Shop for Auto Insurance:  Shopping around for auto insurance is one of the quickest ways to save cash.  It’s also easy to do without having to pick up the phone.  Go online and search every auto insurance company you can think of and get some online quotes.  Last December I finally did this and saved close to $600/year by switching insurance companies while the coverage remained the same.  You can also bundle your auto and home insurance together for cheaper rates.  If you love your current insurance company you can still save money, just up your deductibles. 

Cable/Internet/Phones:  Depending on your location and your provider, you should be able to bundle all of these together for a cheaper rate.  Some TV providers like DirecTV, bundle services with At&t.  I live in out in the woods, so am kind of limited with the choice of tv providers, but was still able to lower my bill by bundling services.   If you like your services and don’t want to change to a different company, you could still save by bumping down to a lower package.  Really think about it.  Do you really watch all of those channels? Do you need unlimited text and data for your cell phone? I know I could get away with the Discovery channel, ESPN, and CNBC.  We saved about $40/month switching programming last fall.  Every little bit adds up.

Food: Food is one thing I’m not a huge fan of skimping out on.  About the only thing I save on food is packing a lunch instead of eating out.  Figure the average meal when eating out costs $8-$15, that’s a lot of savings by bringing the bag lunch.  The wife is getting pretty good at watching sales and couponing which is awesome, but again we are kind of limited on the savings due to where we are located.  In more populated areas throughout the country, stores have to compete more for your dollar which in turn provides better deals. 

Heating Bill:  Depending on what part of the country you live in, this could be one of your highest bills.  We live in a pretty cold climate, Upper Michigan, so heating can definitely be expensive.  Turning the thermostat down a degree or two can make a big difference.  We can always put on a sweatshirt to stay warm. One of my favorite things is to grab a blanket and curl up on the couch with the wife.

Credit Cards:  I have no idea how or even if you can still do this but if you carry a balance at a high interest rate, see if you can transfer it to a lower or preferably 0% card.  The only way I think this is a good idea is if you don’t add to that balance, only transferring to the lower rate to help pay the balance down.   You could also call your current card and ask them to lower your rate, they could say yes.  Same goes with the auto insurance. 

Gas:  One of the hardest ones to save on, because no matter what you have to get to work.  If you have a co-worker that lives close by see if they want to start a carpool.  I do this and though it doesn’t really save me much money on gas, it saves the wear and tear on my vehicle which also lowers my insurance premium for not driving many miles.  If you live close to your work, bike there on days when the weather is good. 

What do you do to save money?  Is there some things that you just won’t skimp on? 


Can You Say Frustration!!!!!!!!!!

Back in late August-early September the wife and I decided that we should look into refinancing our home.  This was a great idea considering our mortgage interest was a little above 6% and the rates at that time were in the 4% range.  This was potentially an awesome savings by refinancing. 

Going back in time: I was deployed back in 05′ to the desert.  After I came home I learned that there were benefits to being a veteran.  One of those benefits was that I was now eligible for a V.A. Loan.  When we decided we wanted to purchase our home I had heard that VA loans were hectic and could take a while to close on.  This was in Aug of 2008.  We were getting married early September and wanted to close before the wedding.  So being a little stressed out at the time we didn’t want the extra stress that we thought a V.A. Loan would produce.  What did we do, we went with the FHA loan.  We rushed into buying without doing the proper research.  We had a buyer’s agent, so we thought everything would be taken care of.   We were way wrong.

Back to the Future: So here we are in August/September of 2011, we had done research on what banks around us that will do a VA loan.  We decided to go with the bank that keeps their loans and doesn’t sell them (this was important to us to keep it local).  While the wife was at work I met with the loan officer and brought all the paperwork to get started.  He started the process and was very good at explaining everything.  Once he had our address, names, DOB, workplaces, and bank account information put into the program he started a search for the home.  This is where it got real fun.  When he found our home he looked at me and asked me if I had the title for the house surrendered yet.  I looked at him with a puzzled look, thought maybe he meant the deed and proceeded to show him the deed in our name.   So to make a long story short…..turns out we never had the title to our house (manufactured homes have titles, normal stick built homes do not).   He said I had to go to the secretary of state office and get the title.

So off to the SOS office I went, I told the lady working my address and she put it in the system.  She then told me that I was not the owner of that title.  At this time I had no idea what to do, I was thinking I just paid about 10x too much for a piece of land and a home that I technically didn’t own even though my name was on the deed.  I asked her who was on the title and she said that it would be illegal for her to tell me.  So not knowing what to do I went back to the bank and talked with the loan officer on how to go about this.  He stated he had never seen this before.  We figured the person who sold us the home would be on the title so we had my buyers agent contact them.  They said they never received a title either.  Great. 

 After some major detective work we finally found the person on the title.  This person agreed to meet me at the SOS office and sign it over to me.  I thought, finally this is going to get done.  We met one day and told the lady what we needed done, she started the process and asked if his wife was here to sign off too.  Turns out, that couple had gotten divorced and is the reason they sold the home.  Both were still on the title.  This refi was dead in the water until both him and her signed the title over to me.  He had no idea where she was and hasn’t talked to her in over 5 years.  The one thing I got from him was her name.  I at least had somewhere to look and he gave me a location of where she MIGHT be.  After a couple of weeks and a couple of awkward phone calls to people of the same name, I finally found the right one.  She met with me and signed a form stating that her ex-husband could sign her name for her.  A week later we were back at the SOS office doing the title transfer.  It got really exciting this time when we were told we couldn’t transfer the title until the lien was off of the title.  What the heck?  There was a lien on the title.  A bank had a lien on the house that I owned, and not the bank that was supposed to be on it.  About a week later the lien was removed (thank God that they actually paid off the house in the divorce).  A week went by as we waited for the duplicate title without a lien on it came in the mail.  The title was transferred and a week after I received it in the mail.  I brought it directly to the bank, where we sent it to our state capitol to finish the “surrendering the title” process.  That took another 2 weeks to finish and finally it was surrendered (surrendering the title means that the house becomes part of the property and cannot legally be moved). This was a process that needed to be done to refinance our home. 

In late December 2011 we locked in on a 30 year VA loan at 3.75%.  This will save us approx. $400 per month on our house payment.  The appraisal was done by a VA certified appraiser about the middle of January and sent to the bank.   The bank decided there weren’t enough comparable property sales in the area and turned the appraisal down.  Another step in the wrong direction for us.  We are now waiting patiently for a sale that happened Monday to be approved as our third comparable for our appraisal.  If it is finally approved, we can quickly close on our refi.  This would make us very happy, but yet with what happened so far during this process I am doubting its going to be approved.  I know we can get a refi done somewhere else  if this doesn’t go through, but am hoping this gets done with the current bank we are dealing with.  If it does go through, we are going to celebrate like no other. 

P.S. This has nothing to do with our credit scores as they are excellent, nor does it have to do with our house payment in relation to our monthly income.  I wrote this mostly because I want people to be diligent with doing their research before making a big decision, like buying a home.  Not saying that if I would have done better research it would have prevented this from happening, but a little extra knowledge never hurt anyone.  So please, research as much as you can and read the fine print on everything. 


A Roth IRA Home Purchase Savings Account?

I like to read about all types of investment accounts be it a college savings plan, an IRA, 401 or any other type you can think of.  So when I opened my Roth IRA (not funded yet) I came upon an article explaining that there is a side benefit of an IRA.  You can use Roth IRA contributions to buy your first home!!!   There are strict conditions when it comes to doing this, but it can be a good way to save for a retirement and a home at the same time. 

I am not saying this would be a good idea for everyone.  If a person is in their 40s-50s I don’t think it would make as much sense (I’m not a financial expert) because your earnings potential after withdrawing a big sum of money would set you back for a while.  I suppose it all depends on how much you have in the account, but depending on how much time left until retirement it could make a dent in your retirement plans.  I do however think that if a person was in their 20’s and they decide this might work for them, it would be an awesome way to save for both at the same time. 

I will try to explain it in a simple way.  The first requirement is that you have to be a “First-Time Homebuyer”.  This is where it gets interesting.  Does that mean that because you have owned a home in the past that you don’t qualify?  Nope.  The definition of a first-time homebuyer means that you haven’t owned a home for the past two years.  A second requirement is that you must use the money to buy or build a home within 120 days of the withdrawal. 

 Now to decide which way you want to go, a Traditional IRA (tax deferred, or before taxes contribution) or a Roth IRA (income tax-free, or after tax contribution).  There are more limits going with the Traditional route than going with the Roth.  The biggest limit is that you can only withdraw $10k penalty free over your lifetime to build or buy a home.  Your spouse can also do this.  The other problem that runs with the Traditional IRA is that the withdrawal will be taxed, because when you contributed the money it was tax-deferred.  To me, that pretty much knocks that option off the table.  So lets take a look at the Roth IRA option. 

With a Roth IRA, you can withdraw your contributions any point in time (penalty and tax-free) if you need them.  Key word Contributions, not the money made from your investments, only what you contributed.  Say you maxed out  your contributions ($5000) each year for 10 years, that would be $50k that you contributed to the account.   You can take up to $10k more (which would be drawing from the earnings and not contributions), but that also has some stipulations.  One being you had to of had the account opened for 5 years or more starting from the first year you made your first contribution. If you had the account opened for more than 5 years from your first contribution, then you would pay no penalty and the $10k would be tax-free.  If the account was opened for less than 5 years, you would still be able to take the additional $10k out without the 10% early distribution tax, but the $10k earnings would be taxable at your current tax rate.  So for an account that has been opened for 10 years (and max contributed every year), you would be able to take your contributions out, $50k+$10k for a total of $60k tax and penalty free.  Keep in mind though that the additional $10k is a lifetime limit for each person for first-home purchases and cannot exceed that $10k.  Another awesome thing about this.  Your spouse can also do the same thing with his or her Roth IRA.  So after 10 years you have the potential to drop $120k as a down-payment on your new home. 

Now after 10 years if you decide owning a home is not what you want to do, you still have a pretty awesome start to retirement.  If you decide to use this as a home savings account, then even after you withdraw your contributions and the extra $10k, you still have money left in your retirement account with plenty of time to make up for the distribution you took, assuming that in those 10 years you had gains (lets hope you did).  I don’t know about you, but for me it kinda  sucks paying interest on a mortgage.  On my mortgage of $734, approximately only $250 of it goes towards the principle every month, the rest is interest at 6%.  (Although I am in the process of refinancing and lowering that rate to 3.75%)  The point is, for those that decide that this is what they want to do, you will save a crapload of money on interest paid by sacrificing some of your retirement earnings potential. Which with 30 years left until retirement, you have a chance to make that up. 

So why did I write about this when we already purchased our first home?  Because I think that it could help some people out and give them another tool to save for their home.  I wish I would have known about this prior to buying our home.  Not that it would have stopped us from buying, but it would have gave us something else to think about. 

Does this sound like it can be a good tool to use for the younger generation?  Would you consider this if you are middle-aged (40-50) ?

P.S. I am not at all a tax professional, this is just my observations and understanding from what I’ve researched.  You should always consult with your accountant and investment manager prior to making a big decision like this.   Information in this article was found at http://www.irs.gov/pub/irs-pdf/p590.pdf specifically page 51 and 62.


Our First Budget

To a point, this is our first budget.  In reality, we kind of had a budget before just nothing was written on paper.  While both of us see the importance of a budget (its nice to see where the money is actually going) we both are also pretty responsible and feel like we don’t need a piece of paper telling us where to put money.   Here is our budget, I will explain it and why some things are missing. 

click to enlarge

 After Tax Income: Pretty straight forward.  Both the wife and I get paid bi-weekly.  We took the average of her paycheck, and the average of my paycheck (from a couple raises ago) and this was the total.  The reason why I averaged my paycheck from a couple raises ago is because on our prior non-budget budget, we were putting the extra on the house payment or into savings.  Essentially acting like I never had gotten the raise.  We also do not count any overtime that either of us work, because we always use it to either pay down debt or to do something fun. 

Investments: I left this one blank because the totals change quite a bit.  Between what I put in and the match I get it equals 10% of my income.  The wifes equals 20% of her income.  The total number of our retirement accounts is in the END of 2011 column.  After our debt is gone (other than the home) I plan on contributing more, especially to my Roth IRA that I haven’t funded yet. 

Actual Take Home Income: Self explanatory.

Expenses:

The home mortgage.  This is something that we are working on changing with a refinance.  Hopefully this will be done for the next months budget and be at $760 instead of $1,033.  Part of the raise that I didn’t list in our take home pay goes towards paying an extra $100 on this.  So the real number is $1,133. 

The camper payment is one of our loans that we have a goal of paying off this year.  You can see the total owed on it in the Debt section.

Student Loan: This is what is left from the wifes student loans, this is another one of our goals to pay off this year.  Total is in the Debt section.  I luckily had no student loans due to my enlistment in the Army. 

Utilities include electric and our natgas payment.  This is about our average total bill for both

Car Insurance, Cell phones, Cable and Her car are all expenses that do not change at all, pretty much the same amount every month.  I should explain that she does not actually have a car payment.  She paid that off over a year ago and just continues to pay it to a separate part of her savings account for when we need to buy another vehicle.

Auto/gas changes every month, but this is the average.  This bill might be lower during the spring/summer/fall due to her driving my car instead of her gas guzzling SUV.  I only have to drive a mile everyday to get to my carpool, so it makes sense for her to drive the better gas mileage one when the roads are good.  I would rather pay the extra money in the winter and have her drive the 4×4. 

Totals: Our total Income-expenses leaves us with an extra $1,165 every month.  Of course this number changes because we do not budget for random stuff like eating out or going on dates.  The realistic number should be around $1k. 

End of 2011: This is our balances on Jan 1st, 2012. 

End of 2012 Goals: I really didn’t know what to put here.  I know we want about a $10k emergency fund, but we are going to pay off the camper and student loans first before we fully fund it.  Also after our home is refinanced we are going to be moving to one bank account (we are both on each others accounts already) but we would like to have everything in one so its easier to track. 

Assets and Debts: Both of these are self-explanatory. 

We chose to add a section here that includes our net worth.  As you can see, it is in the red right now.  $88,715.20 to be exact.  Our end of the year goal is to get this down to $55k or better.  I am hoping with our refinance and working some extra overtime we can blow this goal out of the water.  Why did we choose $55k, I have no idea.  It just seemed like a cool number to me at the time.  I will be updating this budget about once a month to track our progress of our goals.

Are our goals pretty reasonable and realistic?  Is there anything that you think I am missing on our budget that I need to add?  Is your budget just a rough guideline our do you stick to it religiously?

SIDE NOTE: Special thanks goes out to Ninja over at Punch Debt In The Face for hooking me up with the budget template.


Are We Bankrupt?

I don’t even know where to start on this topic.  I see so many similarities between what is happening in Greece and what we are doing here in the United States.  Those similarities are not good ones either.  Let’s take a look at the debt of the U.S.  http://www.usdebtclock.org/   Crazy huh!  How can we as a nation look at this and not be scared for our future.  I read not long ago in this article, http://www.factcheck.org/2011/07/fiscal-factcheck/ that for every dollar the government spends, 36 cents of that is borrowed money.  The number is up to .42 in other reports that I have read.  What in the heck is going on?  How are we going to pay that money back and why are we spending so much?

My opinion on those questions, is that politicians are only worried about the almighty vote.  All of them, both republicans and democrats.  Why can’t they just do the right thing and cut some of the spending.  Yes it will anger some taxpayers but they have an obligation to see this country succeed.  Don’t get me wrong, I’m all for helping out the elderly and children.  The people who are actually disabled and cannot work.  I’m also for the true idea of welfare.  The idea that it was just a crutch until that person could get back into the workforce.  Let’s face it, there are a lot of people scamming the system.

I also believe we should have a strong, fully supported military force.  I am and always will be a strong backer for the military, I am a veteran of the armed forces.  Seeing that I have a little experience in that field, I believe we could cut our defense spending by quite a bit without it effecting our soldiers and their safety.  If anyone has ever worked a government job, you know how much waste there is, how outrageously high they pay for things.  I’m not talking about cutting soldiers pay either.  I believe they do not make enough for the job that they do.  I’m talking about a toilet seat that costs $100, or a pair of gloves that costs $50 when those same gloves could be purchased for $10.  The government leases vehicles for insane amounts of money instead of straight up buying them.  My sleeping bag I was issued was valued at over $300, I loved that sleeping bag but there is no way in hell I would ever pay that much for it.

I swear there isn’t any common sense in the government these days.  I truly wish there was an amendment in our constitution that required us to have a surplus or balanced budget.  There is no reason for us to be running a deficit.  It’s not going to hurt us right this second, but for our children and grandchildren, that is another story.  I fear for them.  I don’t believe others should have to pay for our mistakes, but that’s exactly what is going to happen.

Take a look at all of the entitlement programs in our country.  Look at how much we give to other countries.  Look at what is happening in Europe, specifically Greece.  Are we really that far away from the same thing happening here? What do you think? Should our country be required to have a balanced budget?  Are we that ignorant to think we couldn’t go bankrupt?


Debt: Why I Hate It

Debt is something that 99.9% of people will have at some point in their life.  I’m not sure of the exact number, but a lot of people retire while still in debt.  That doesn’t make any sense to me.  I wouldn’t want a house payment when I am ready to stop working.  My goal is to have my house paid off in less than 10 years, which would put me at 37 years old.  This would mean that I have that extra income each month to invest with for the next 20-30 years.

The probability of me actually investing every cent of our mortgage payment after it is paid off isn’t really that high.  My wife and I will probably use some of it to travel, to purchase new toys, or just to do whatever we want.  Sometimes experiences are worth way more than the actual money itself.  I personally have a long bucket list, including a multitude of different things.  Money saved from having no debt will help pay for most of those.  The wife and I also plan to eventually start a family, and having little debt is one of my goals when that time comes.

The biggest reason why I hate debt:  I hate OWING people money.  It doesn’t matter if it is the bank, or a personal friend/family member (although I haven’t ever borrowed from a friend or family member).  I just hate owing money.  From here on out I plan on not taking another loan out ever again.  Is this feasible?  I’m not sure.  You never know when something might pop up.  This would be a reason for having an emergency fund though.

Does anybody hate owing people money?  What are some ways you plan on getting out of debt?

P.S. I think on the weekends I will start doing some small posts about random stuff.