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Baby Shower Fun

Baby Shower and Thank You Cards

Last weekend was a blast; we had the baby shower and family came in town to help us celebrate. We were so grateful to have our family and friends come together for the special occasion. We’re also grateful for the generosity of everyone and their gifts. It lifts a bit of the burden to have some of the baby gear bought for us.

Besides a few minor things, I believe we have the essentials with the exception of the car seat. We’ll pick that up in a couple of weeks. This weekend will be more laid back. We’re now trying to get our thank you cards done and sent out. It’s not too bad – we just focus on doing 10 each sit down. We hope to be finished by the end of this week.

How about you? What was the favorite part of your baby’s shower?

Personal Finance Carnivals

Personal Finance Posts to Catch Up On

If you have some free time this weekend and want some tips and information for your finances, be sure to read some of these wonderful posts. There are some handy tips this week to help you out.

I hope you enjoy reading them as much as I did. I also recommend checking out my blogroll to pick up some great personal finance blogs to follow. Please also let me know what are some of your favorite blogs that you enjoy reading on a regular basis.

Have a wonderful weekend with your family!

Options to Reverse Mortgages

On the surface a reverse mortgage seems like a good idea.  And it is for some people.  Before anyone gets one they should make sure all options are explored.

What are Reverse Mortgages ?

A reverse mortgage is an option for homeowners age 62 and older to convert their home equity into cash.  There are no loan payments required until the owner no longer lives in the home or stops meeting the requirements of the mortgage.

In addition to the standard loan fees (appraisal, closing costs, etc.), this type of loan requires the borrower pay for mortgage insurance.   The home must also be in very good condition and repairs will be required for any deficiencies.

Alternatives to Reverse Mortgages

My father-in-law could no longer make ends meet after the loss of his wife and her social security income a few years ago.  He opted to get a reverse mortgage, but I don’t think he seriously considered any of these options below.

Shared Housing

Many people moved to shared housing during the recession, but it is also a good way for seniors to decrease living costs and still remain in their own home.  Renting out a bedroom or two would have easily replaced my mother-in-law’s social security check.

For those that don’t want to share living space their home may accommodate converting the basements or one floor to an apartment or in-law suite.

Downsizing

Often seniors can get the financial breathing room needed by selling their home.   They no longer need the space of the family home and it may require more upkeep.  Renting or buying a smaller home would have eliminated the costs my father-in-law occurs keeping up a yard and repair on a 60 year old home.

Other Deferred Payment Loans

Some state and local governments offer deferred payment loans to low-to-moderate income homeowners.  These can usually be used for specific home repairs and modifications.   In California, the CalHome program distributes money through local agencies.

There are programs for property tax deferral although many state and county governments have suspended them since the economic crisis began.  These were generally available to seniors and/or handicapped homeowners and deferred the property tax bills until the home was sold.

After evaluation some homeowners and/or their families will come to the conclusion that a reverse mortgage is the best option to give them extra funds during retirement.  It is recommended to put off getting this type of loan until needed to reduce the interest rate charged and qualify for larger advances.

Would you recommend a reverse mortgage to your senior friends and family?

Photo Credit: bgilliard

How To Budget Successfully As A Couple

As individuals we all have our strengths, weaknesses, passions and different outlooks on life. This especially is true when dealing with finances as we usually prioritise our expenses according to our needs. It is because of our different needs that couples so very often find it difficult to manage their finances together. 

Proper budgeting will lead to successful financial management regardless if you are doing it for yourself or with a partner. But how do couples get to budget successfully?

Be Honest with Each Other

For a relationship to prosper it should be based on honesty and trust. Without these important principles the relationship will not last. When couples become serious in a relationship it is important to be open on all aspects of life, especially finances.

For some this might be a small stepping stone where for others this is a sensitive subject. Perhaps this is because one partner does not work or where poor financial decisions in the past have left the individual with allot of debt. Feeling ashamed, many would rather withhold the information from their partner so to avoid judgment.

Regardless if you do not financially contribute to the relationship, it is very important to be a part of the budgeting process every month. This will help both partners to form an understanding platform, and where different tasks could be allocated to form a well balanced relationship.

Determine Your Individual Financial Status

It is therefore very important that couples declare their current financial positions to their partners before tying the knot or when living together. It will ensure that couples don’t blame each other later in life should their relationship be going through a rough financial patch. It is each individual’s right to know how their partner has managed their own finances in the past. Some individuals will prefer to combine their finances while others want to keep their own accounts separate. Financial transparency in a relationship is therefore important to ensure that proper budgeting is done each month as a couple.

3 Real Life Scenarios

The following three examples are based on true stories and just highlight the importance of honesty and budgeting in a relationship.
The first example is about a very close friend who got herself into short term debt over a couple of years, and before she knew it she could not handle the repayments anymore. She made the right decision to swallow her pride and seek debt counselling. A proactive step in my opinion, and she will soon regain her financial freedom with sacrifices she had to make. She had been honest with her partner when the relationship became serious and together they are working towards settling both their debt before marriage. 

The second true story is regarding a friend who finally met and married the woman of his dreams. She is a successful individual in the corporate world, but too has managed to get herself into short term debt over a couple of years. Because their financial status was not discussed in depth, he only realised the severity of her debt after marriage. He felt cheated as he too was now responsible for helping to settle her debt. As you can imagine, this is the basis of their arguments as he blames her for their financial problems.

The third example is of someone I know who had been married for nearly 15 years. It has recently surfaced to only a few close individuals, excluding her husband, that she has committed fraud later in their marriage in order to have some financial relief each month. Finances and budgeting became her sole responsibility after so many years, and she could not bear tell him the truth of her financial problems. Instead she is trying to hang onto her marriage and avoid judgement from him but now has gotten herself deeper into trouble.

In order to ensure a healthy relationship with your partner you will need to be frank and upfront about your current financial status. If the partner judges you more than providing the necessary support then the relationship is doomed in anyway.

Determine Goals Together

When a couple’s financial status has been declared, both individuals should advise on their financial goals, both long and short term. With this in mind individuals can try to accommodate and work towards achieving their goals. This might include deciding on how to settle current debt, obtaining a student loan, purchasing a home, vehicle etc.

Set Priorities as a Team

List your financial priorities and goals from most important to least. If there is current debt that needs to be settled, do a little more investigation and determine which debt has the highest interest and which debt is the least. You will save money in the long run by settling high interest debt first, but if this is a large amount and you have smaller debt elsewhere, it might be better to settle the smaller debt first. When the smaller debt is paid, ensure you add this monthly saving to the repayment of high interest debt.

There will definitely be a difference in what you deem as important compared to your partner, but this is where negotiation and compromise are important.

There are, however, certain aspects that one needs to prioritise even though it may seem as a grudge purchase. Insurance is deemed a grudge purchase because you pay for something you might not benefit from for a long period of time. However, should the inevitable occur, having insurance, whether life insurance or asset insurance will provide peace of mind by providing financial relief.

Compromise

As with any aspect in a relationship, compromising in the financial arena is just as important. We know we all have different needs and operate on different reward bases. You might find it satisfying to save most of your income each month where your partner might feel that he/she simply needs to spend money more frequently on entertainment or retail shopping. Negotiate and discuss on how you both can compromise on the matter in order to attain a happy medium. Respect each other’s opinions.

Share The Burden

Debt will be settled sooner rather than later when both partners are motivated and committed to repay it. Not all debt is unmanageable, but if you realise that it has become too much, it might be a good time to see a financial adviser or a debt counsellor. This is a refiner’s fire process and when working as a team will only strengthen your relationship.

Compile a Budget

The information provided above is the start to successful financial planning. Now you need to draw up an official budget on paper or a computer spreadsheet. Excel works well for this purpose and can be adjusted accordingly without having to start over each time. On the left of the spreadsheet list your income on top and financial obligations beneath it.

In the next few columns list the current and following few months next to each other. From here, under each month put the totals of your monthly expenses next to each category on your left. After this is done you can add up your expenses and deduct it from the income in order to determine your net financial status.

It is a fact that individuals with such spreadsheets better manage their finances because it is visually compiled into an organised layout. Discipline in compiling and discussing each month’s budget is the next important step.

Thoughts on Couples and Budgets

In order to budget successfully as a couple, each partner needs to respects each other’s views open-minded. Compromise is key, including discipline to draft and discuss a monthly budget each month. Here is to the success of proper financial management! 

This article was written by Timothy Ng. You can read more of his work at http://www.creditcardfinder.com.au/ where he has a number of comprehensive guides including a guide to joint credit cards.

Photo Credit: Juliana Coutinho

Buying a House – Run the Numbers!

Owning a home is a dream of some people, but there are many that either feel like it’s impossible for them to achieve it. I will say up front that I don’t think home ownership isn’t for everyone. If you’re not willing to put in the legwork and run the numbers, it can be a huge financial and emotional burden.

If you’re really intent on buying a home, taking the time to get a financial plan in order can be a huge step in helping you reach your goal. It can also provide you a way to make home ownership a relatively enjoyable experience.

Keeping Total Housing Costs 30% or Less

When we first were married we had a desire to own a house at some point in the future. At the time however, we knew that we weren’t financially or emotionally ready for the big responsibility. We focused on handling that first before we even gave serious thoughts to house hunting.

The biggest financial preparation was getting into the mindset of living off of one income. Even though we’ve been a two income couple, we felt that living simpler and below our means would help us reach some of goals quicker. At the time, they included:

  • Having a decent size emergency fund.
  • Pay down high interest debt (like my car loan)
  • Have some savings set aside for a house down payment.
  • Have wiggle room in the budget to go on some vacations and eat out a bit.

It would’ve been impossible if we tried to do it all while having our day to day budget be based on both incomes. I was an intern at the time, so it made sense to us to base the family budget on my husband’s pay. We’ve done our best to keep to this system.

When we were looking at a house to buy, we also made the choice to focus on only one income. For us, it meant that we  focused on keeping the numbers based on net pay, not gross income. While we could’ve looked at more houses in “our price range”, we decided to stay within our self imposed limits. It gave a us measure of comfort, knowing we were having a bit off buffer with our finances.

Another reason for us to be conservative was our goal to have a reasonable interest rate with our mortgage. We knew that in addition to the down payment we’ll put down, the lenders were looking at a couple of other numbers to determine the interest rate they offered.

Debt to Income Ratio

Having a high amount of debt can ruin your chances of getting a loan. Lenders want to know that you can make these payments for years down the line and your debt to income ratio is one thing they analyze.

Your debt to income ratio is calculated by simply taking all your debt (student loans, credit cards, car loans, etc) and dividing that amount by your income.  You want to make sure your ratio is lower rather than higher. If your debt to income ratio is higher than 36%, you could have a hard time qualifying for a mortgage.

Loan to Value Ratio

Another reason to take your time and build a down payment is the loan to value ratio and how it affects your chances of getting a mortgage. The loan-to-value (LTV) ratio is basically the mortgage loan amount you’re hoping to get divided by the appraised value of the property you’re considering to buy.

Your Other Financial Goals

This is important becuase lenders and real estate agents don’t figure this into their calculations. Your lifestyle will be affected significantly unless you plan accordingly.

What If You Really Want to Buy a House?

Buying a house can be a great financial and personal goal to have if you prepare ahead of time. You have basically have some options to look at carefully before you make a final decision.

  • Be patient and wait a bit until you buy your house. Give yourself more time to have a bigger down payment. This will lower your mortage loan amount you’d need. Prices could stay lower than normal with unemployment problems continuing.
  • Focus on getting a starter home. You can still buy a home, but you might consider getting something a bit more inside your price range, so you have bigger amount of wiggle room. If you’re buying your first home, a starter home can a better option. You may upgrades years down the road or you might find you like the house and stay.
  • Go for the home. If you’re in a position to get the home you want, that’s great. Just make sure you double check it is something within your budget. Otherwise, consider the first two options.

Our Essential Housing Expenses

If you’re thinking about being a home owner, here’s how our current housing costs break down to give you an idea of what to expect:

  • Mortgage         $ 661.57
  • Escrow  *         $192.18
  • HOA Fees        $112

Total                             $965.75

*Our escrow account takes care of homeowners insurance and property taxes.

Of course the numbers will be different for everyone, but it’s good to get an idea of what actual people are paying. Some may note we don’t include home repairs that may come up from time to time with our calculations. We have done is set aside savings which includes covering such expenses. It’s a new community and so far we haven’t had to make any big repairs. Additions such as adding ceiling fans to the rooms are done on a cash basis, we plan ahead for the small projects and save money up for the purchases.

Currently our housing expenses have been steady. The only big purchase we had to make since we bought it was the washer and dryer set. We bought those used off of Craigslist and they had served us well. Once they both stopped doing their washing and drying properly (2 cycles sometimes), we bought another set with savings we had set aside.

Thoughts on Buying a House You Can Afford

How did you how much mortgage you could afford? Did you rely on the estimate from the lenders or did you run the numbers yourself? Did you receive any pressure from your real estate agent to get a more expensive house? If so, how did you cope with it?

If you’re a home owner, what kind of mortgage did you get and why?

Photo Credit: Images_of_Money

Net Worth Review: May 2011

It’s the beginning of the month, which means it’s time to examine last month’s finances. With June here, we’re inching closer to the arrival of our baby girl next month. I think it’s hitting us a bit more that we need to stay focused on our finances now. Once our daughter’s here, we’ll be spending our time and energy getting adjusted as parents and getting to know. Being prepared now will give some peace of mind with the transition (baby expenses!) coming up.

Our Spending Habits in May

Boy, oh, boy, we spent some money in May. Here are our 3 biggest expenses last month:

  • Home (Mortgages, Extra Payments, HOA Fees, etc): $1,140.75
  • Food (Groceries, Restaurants, Etc): $482.87
  • Bills/Utilities: $361.30

As you can see, housing is our biggest expenses between the essentials and the extra principal payment we send in. I’m happy that our food bill decreased significantly this month.

Checking & Savings

We transfered some money from savings to checking and after my husband pointed out some inefficiencies, we’re going to make some changes with the accounts. Hopefully with next month’s review I’ll be able to point out the increase with our savings and a steady buffer in our checking account.

Retirement Accounts

We’re still not planning on making any changes to our retirement contributions this year. We really want to focus on more immediate goals of getting ready for the baby. I can’t anticipate the future, but I believe once we have some idea of how we’re going to handle our finances as parents, we’ll look at our retirement accounts and contributions.

My husband’s 401(k) has steadily been going up and it’s bumped up our assets a bit this month.

Our Cars

The automated deposits are coming along as planned and if everything continues as it has this year, we should reach our goal of socking away $5,000 more into the car replacement fund in 2011.

Both cars seem to be doing well. We’ve had no repairs to do, we just need to take care of our fluid levels on the vehicles. In case you’re wondering how I calculate the vehicles’ values, I used Kelly Blue Book. Every quarter I’ll update the values to account for depreciation.

Student Loans

Nothing exciting or new, we’re just chugging along with the student loan payments. Payments have been automated so it’s been relatively easy to keep up with them; we just confirm payments have been made each month. We switched the payments from the end of the month to the middle of the month to break the expenses between our deposits.

House and Mortgage

The mortgage payments are chugging along. As part of our usual routine, our automated extra principal payment (now $175) was sent in on the 15th of the month.

When deciding on how much we were going to send in to our lender, our main focus was creating something sustainable and had some impact with the mortgage.

Here’s where we stand today with the mortgage:

  • Total Loan Amount: $110,890.76
  • Interest Rate: 5.00%
  • Loan Term: 30 years, fixed rate

Our goal is to pay off our mortgage way before we retire.  Right now our timeline is about 15 years, instead of 30 years. Once accomplished, we’d love to be able to direct that money into other interests and goals of ours down the road.

Monthly Summary

Here’s our net worth from the spreadsheet:

Net Worth (as of May 31, 2011): $52,389.44 (+$1,634.68)

Your Net Worth Update

How are you doing with your finances? How are you doing in 2011 so far?

Photo Credit: borman818