Many people would like to be able to create a budget. But it can seem like one of the most difficult things on the planet to accomplish. By understanding how to create a budget, you’ll be more in control of your finances. Use these 3 steps below to make your own monthly budget planner.
1. Create a list of your monthly income.
Be sure to include all sources of regular income, including part-time jobs. Add up your numbers and write them down.
2. Determine monthly expenses.
Make sure to include food, gas, clothing, utilities, and housing costs. If you’re not sure how much these are, just save your bills and receipts for the next month and you’ll have a more accurate idea.
3. Figure out if your monthly income is enough for all of your outgoing expenses.
Are you making enough meet all of your monthly obligations? If not, then consider reducing expenses in certain areas. One of the biggest areas where people can save money is in entertainment and eating out.
Also, ask yourself if you’re really using all of those services that are part of your monthly bills. Do you really watch all of those T.V. channels? How many unread magazine subscriptions do you have around the house? You may be surprised to find out how much extra found money you can come up with.
After you figure out you income and expenses, then it will be easier to create a budget.
Start estimating how much your bills cost during the next month. If you’re not sure, save your bills and receipts for one month to get some solid numbers of how much your spending. Making a budget in an ongoing learning experience will take some time to perfect. Just stay with it for about 3 months and you’ll be in charge of your money. Isn’t that the way it should be?
I had a recent conversation with one of my clients, Mr. Jackson, who is a finance savvy homeowner from Virginia Beach, VA. He asked me an interesting question that I wanted to share with you, because it seems to be a common dilemma for homeowners in many states.
What the best solution for refinancing my first & second mortgages? Mr. Jackson elaborated, “I have an 6% 1st mortgage with a balance of $255,000, and a second mortgage at 14% with a balance of $52,500. We did a 125% second mortgage to pay off some credit cards. If I add the loans together, we exceeded our homes equity, as the property was appraised at $280,000. We are satisfied with the 1st mortgage rate, but we wanted to lower the rate on the second mortgage. A few years have passed since we took out the 2nd loan back in 2002, and importantly our home’s value has increased to about $325,000.” He continued, “Should I refinance the second by itself and try and get a lower rate, or should I refinance the 1st and 2nd mortgage together for one mortgage payment?”
Wow, what a good question. I praised my client for consolidating his credit card debts with a fixed rate loan. He was very satisfied with his monthly savings with the 125% loan and because it exceeded his property value, he did not consider refinancing that loan until neighbor hood housing costs went up significantly. Now that his house has increased its value it appears that his combined loan to value was under 100%. His refinancing options become much greater with the increased equity from the home appreciation.
I asked Mr. Jackson a few questions so I could help him find the best solution. How is your credit? Do you know your credit score? Is there a pre-payment penalty on your second mortgage?
Does your first mortgage have a fixed interest rate?
Jackson answered quickly: 689 credit score no pre-payment penalty after 3 years, and his 1st mortgage is at 6% with a 30 year fixed rate.
Combining first and second mortgages into one loan can be challenging, but sometimes it makes sense financially as well as being practical. In Jackson’s case, the best option was to leave his first mortgage alone, and simply refinance the 125% home equity loan with a 95- 100% second mortgage to lower his monthly payments. So Mr. Jackson was approved for a fixed rate 2nd mortgage. He had inquired about a home equity line of credit, but I reminded him that they have adjustable rates that have been increasing rapidly in the last few years. Since he was paying off long term debt, a fixed rate loan with simple interest was the only way to go. I was excited for Mr. Jackson, because we were able to get him approved for a loan with no pre-payment penalty and we were able to reduce the closing costs, because of his credit score.
Depending on the home equity program, 2nd mortgages may cost you a few thousand dollars in closing costs. Most closing costs are tax deductible and getting the lowest possible rate pays off in the long run. For example, With a 15 year term, you would recover the cost of the second mortgage within a few years, so if you can get 1% or more better paying some closing costs, it would be better than a home equity loan with no points. The lending reality is that most no point no fee 2nd mortgages require credit scores over 700, and the combined loan to value will most likely need to be under 90%.
If you are able to get the second mortgage with no penalty for early payoff, then get that feature with your loan, because if your home’s value continues to increase, then in a year or two, you may find yourself ready to refinance because you are back at the golden 80% combined loan to value. If 1st mortgage rates happen to drop again, then you may find yourself in a great position to finally combine both loans together. If the 1st mortgage rates dropped to the 6% zone, and you still plan to live in your home for many years to come then make the move to refinance. It all comes down to what the rate are doing, when the time comes.