It’s true that the benefits of a parent cannot be measured or quantified in any meaningful way. It’s hard to put a price on the emotional commitment and special experience of raising a child as a parent, some of which may not even be realized by the parents themselves until afterwards. But it is undeniable that the experience of parenthood is a rewarding and special time in someone’s life.
Money Problems – Day 4: Making a Budget
Today, I continuing the series, Money Problems: 30 Days to Perfect Finances. The series will consist of 30 things you can do in one setting to perfect your finances. It’s not a system to magically make your debt disappear. Instead, it is a path to understanding where you are, where you want to be, and–most importantly–how to bridge the gap.
I’m not running the series in 30 consecutive days. That’s not my schedule. Also, I think that talking about the same thing for 30 days straight will bore both of us. Instead, it will run roughly once a week. To make sure you don’t miss a post, please take a moment to subscribe, either by email or rss.
This is day 4 and today, you are going to make a budget.
Now that you’ve got your list of expenses and you’ve figured out your income, it’s time to put them together and do the dreaded deed. Your going to make a budget today. Don’t be scared. I’ll hold your hand.
Here are the tools you need:
- Your list of expenses from Day Two.
- Your list of income from Day Three.
- A spreadsheet. I recommend the spreadsheet included in Google Docs, but Excel or the Open Office alternative, CALC, are acceptable substitutes.
Setting up the spreadsheet is dead simple.
Create a column for the label, telling you what each line item is. Create a column to hold the monthly payment amount. At the bottom of column 2, create a formula that totals your expenses. If you are including a bill that isn’t due monthly, use a formula similar to the day 3 income formula to figure out what you need to set aside each month. To figure a quarterly bill, multiply the amount by 4, then divide by 12. To figure a weekly bill, multiply by 52 and divide by 12.
Scoot over a few columns and do the same thing for your income.
Scoot over a couple more columns and set up a total. This is easy. It’s just a matter of subtracting your expenses from you income. Hopefully, this gives you a positive number.
To make this even easier, I’ve shared a blank budget spreadsheet. No excuses. If that simple spreadsheet doesn’t meet your needs, I’ve got a much more detailed version that includes categories. I use the detailed version.
Making a budget may be the most intimidating financial step you take, but everything else is built on the assumption that you understand where you money came from and where it is going. Without,it, your navigating a major maze based on a coin flip instead of a map.
Refinancing Through the HARP Program
HARP Refinance
If you owe more than your house is worth, and want to refinance to today’s low interest rates, you need to check out the HARP program. Millions of homeowners with underwater homes are finding relief in a new version of the Home Affordable Refinance Program (HARP). Refinancing to lower interest rates could slash your monthly mortgage payment or shorten the time it takes to pay-off your mortgage.
The new HARP loosened qualification rules, making it it easier for underwater homeowners to qualify for a refinance. When HARP 2.0 was released in November 2011 you had to work with your original lender. Since March 2012, when Fannie Mae and Freddie Mac rolled out the automated underwriting systems, you can work with any participating HARP lender. That means more competition for your business and better rates for you
HARP 2.0’s Hurdles
There are two series of hurdles you must clear before you can refinance your loan under HARP 2.0. The first set of hurdles concerns the loan itself. The three key eligibility questions are:
- Is the loan owned by Fannie Mae or Freddie Mac?
- If so, was the loan purchased by Fannie or Freddie on or before May 31, 2009?
- The loan was not refinanced under HARP before (some exceptions apply).
If you answer yes to these three questions, then your loan may be eligible for HARP.
Tip: If your loan is a FHA loan, then check out a FHA streamline refinance loan.
The second set of hurdles concerns your finances and property. Fannie Mae and Freddie Mac set up the basic guidelines. There are two basic ways your loan can be processed:
- Manual Underwriting System: Only your original lender (who is also your current servicer) can process a HARP loan through the manual underwriting system.
- Automated Underwriting System: Any participating lender can process a HARP loan through the automated system.
Keep in mind that lenders are free to have stricter qualifying rules than the basic Fannie and Freddie requirements.
When shopping for a HARP loan, here are some of the main points to look out for:
- Credit Score Requirements: Fannie and Freddie have no minimum FICO score requirements. However, each lender has its own credit score requirements, so if you are denied by one lender, keep shopping.
- Income Requirements: Your original lender can approve a loan with no debt to income ratio (DTI) requirement. However other lenders must qualify you based on your DTI. The rule-of-thumb for a HARP loan is a 45% maximum DTI.
- Timely Mortgage Payments: The HARP program allows for no late mortgage payments in the last 6 months and one late (30 days) payment in the preceding 6 months. However, some lenders do not allow any late payments.
- Investment Properties Qualify: You can refinance a second home or rental property under HARP 2.0.
- Fees: Lenders are not consistent in the fees or the interest rates they charge for HARP 2.0 loans. Some lenders charge a few hundred dollars for HARP 2.0 loan fees, and others charge thousands. It pays to shop around, so you can compare interest rates and fees.
- Condos: While HARP guidelines for condos are tricky, many more condo owners will qualify for a loan under HARP 2.0 than under the first version of HARP.
Applying for HARP
First, go to the Fannie Mae and Freddie Mac Web sites to learn if either owns your loan and whether they bought your loan on or before May 31, 2009. If so, you can contact either your current mortgage servicer or shop around with the many lenders who are offering the HARP 2.0 loan.
If your application is rejected, ask for the specific reason why. If you applied with your original lender, find out whether the lender used the manual or automated system. Request manual underwriting if your original lender turned you down based on automated underwriting, as it may result in your loan being approved.
It pays to shop for HARP 2.0 refinance. Many homeowners report one lender will reject their application, but another will offer them an attractive refinance. Second, lenders are not consistent in their offers. As mentioned, closing costs are all over the map. Interest rates vary, too.
Summary
HARP 2.0’s rules are technical. Each lender creates different overlays. If you believe you qualify for HARP 2.0, be persistent! The rules that are in place today could very well be expanded in the future. This is one instance in life where shopping can be the solution to your problem.
Dolly Parton’s Car Crash and the Importance of Insurance
America’s country sweetheart, Dolly Parton, was in a car accident recently. Although she was only a passenger in this minor fender-bender, she still suffered some injuries requiring a quick hospital visit and rest. The offending driver did not stop as he was supposed to and struck Parton’s vehicle. Parton surely has auto insurance, and hopefully the offending driver has coverage as well.
Every month, you pay a premium toward your coverage balance. Coverage varies by state, from hospital bills to repairing damaged street items, like guard rails. People with expensive cars pay higher premiums while inexpensive cars have lower amounts. Some buyers only purchase the bare minimum of coverage, called comprehensive. This coverage does not help in the Parton crash because it typically covers vehicle damage from objects, like flying rocks, rather than a collision situation.
How Much Does That Part Cost?
Repairing a vehicle after a car crash can lead to astronomical figures. A simple dent in the bumper may warrant an entire part replacement costing thousands of dollars. The offending driver in Parton’s accident is at fault. His insurance should cover Parton’s insurance deductible and any other expenses that arise. If he is not covered, she could technically sue him for damages, although there may not be many funds to pay out.
Those Medical Bills
Coupled with a car repair, Parton and her driver also went to the hospital. The offending driver uses his auto insurance to cover their medical bills. Any bills generated from the driver or passenger’s injuries goes directly to the offending driver’s insurance. If he is not properly covered with this policy feature, he must pay for the bills out-of-pocket. With medical bills costing thousand of dollars, he probably called his insurance agent right away to see if his policy has that coverage.
Luckily, Parton’s accident was not severe, but ongoing injuries can slowly siphon funds out of the offending driver’s account. If Parton has whiplash, for example, she may need multiple visits to a chiropractor or other specialty doctor. Each visit should be covered by the offending driver’s insurance. Because she has good insurance coverage does not mean that her policy should pay out. The party at-fault always pays for both car repairs and medical bills. With treatment that takes several weeks to a few months, the offending driver’s insurance rates will typically jump next policy year.
Someone Has To Pay For It
Depending on the insurance company, an accident on your record causes your premiums to rise. You are now considered a risk to the company. It is possible that you will cause another accident incurring more cost. Insurance companies must weigh their risky customers with their good drivers. Hopefully Parton recuperates quickly so the offending driver’s rates do not remain high for several years.
You may not think of auto insurance as a top priority, but the reality of Parton’s fender-bender shows everyone that accidents happen at any time. Even celebrities must cover their vehicles with good insurance to protect their assets.
Answer: How Much Term Life Insurance Do I Need to Buy?
From a question posted here:
Thank you for all your help in my previous question. After meeting with the agent, I’ve decided on term life insurance over whole life. But I am still not sure how much term life I should buy. Should I buy as much as I could afford or some specific amount?
My answer(edited a bit):
That question is far too open-ended.
Are you married? If yes, are you the primary breadwinner? Do you have children? Investments? Savings?
Here’s my situation:
I am married, with three children. I have the primary income.
We have a mortgage, a car payment, and some consumer debt.
I added up all of the debt as my base level of term life insurance. My family will not be burdened with debt if anything happens to me.
To the base level, I added 5 years of my net income. Without changing a thing, my family will be supported exactly as is for 5 years if I die. They won’t, however, have the same level of expenses, due to the base level of insurance paying off all debt. All of my living expenses also evaporate. For example, there will be one car sold, one less mouth to feed and body to dress, etc.
I figure with the lower expenses and no debt, my insurance will support my family for 10 to 15 years if my wife manages the money right. If she continues to work, it should last almost forever.
How do you figure the “right” amount of life insurance?[ad name=”inlineright”]
Money Problems – Day 2: What’s Going Out?
Today, I continuing the series, Money Problems: 30 Days to Perfect Finances. The series will consist of 30 things you can do in one setting to perfect your finances. It’s not a system to magically make your debt disappear. Instead, it is a path to understanding where you are, where you want to be, and–most importantly–how to bridge the gap.
I’m not running the series in 30 consecutive days. That’s not my schedule. Also, I think that talking about the same thing for 30 days straight will bore both of us. Instead, it will run roughly once a week. To make sure you don’t miss a post, please take a moment to subscribe, either by email or rss.
On this, day 2 of the series, you need to gather all of your bills: your electric bill, your mortgage, the rent for your storage unit, everything. Don’t miss any.
Go ahead, grab them now. I’ll wait.
Did you remember that thing that comes in the plain brown wrapper every month? You know, that thing you always hope your neighbors won’t notice?
Now, you’re going to sort all of the bills into 5 piles.
Pile #1: These are your monthly bills. This will probably be your biggest pile, since most bills are organized to get paid monthly. this will include your credit cards, mortgage(do you rent or buy?), most utilities and your cellphone.
Pile #2: Weekly expenses. When I look at my actual weekly bills, it’s a small stack. Just daycare. However, there are a lot of other expenses to consider. This stack should include your grocery bill, gas for your car, and anything else you spend money on each week.
Pile #3: Quarterly and semiannual bills. I’ve combined these because there generally aren’t enough bills to warrant two piles. My only semi-annual bill is my property tax payment. Quarterly bills could include water & sewer, maybe a life insurance policy and some memberships.
Pile #4: Annual bills. This probably won’t be a large pile. It will usually include just some memberships and subscriptions.
Pile #5: Irregular bills. The are some things that just don’t come due regularly. In our house, school lunches and car repairs fall into this category. We don’t have car problems often, but we set money aside each month so our budget doesn’t get flushed down the drain if something does come up.
Now that you have all of your expenses together, you know what your are on the hook for. Next time, we’ll address income.