Category: Budget

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Lower Your Mortgage Payment without Refinancing

Refinancing Isn’t The Only Way to Lower Your Mortgage Payment

By now, you have probably heard of refinancing your mortgage. This is where, when interest rates drop significantly, you essentially trade in your old mortgage for a new one. The downside is that it costs you quite a bit of money. You have to pay for an appraisal and fees and closing costs just like you did with your first mortgage. It can result in you having money on hand for needed repairs or debt payoff, and a lower overall payment, which makes it overall a good idea when interest rates are significantly different than they were for your first mortgage. This is a current trend in today’s market.

Recasting your Mortgage

If your current mortgage rate is pretty good, there could still be a way for you to lower your mortgage payment. If you have a large chunk of cash sitting around not gaining much in interest, putting that money to your mortgage might be a good option. First, ask your mortgage holder if they offer what is called a mortgage Recast option, and if they do, ask them if there is a fee. I have Wells Fargo, and they do not charge anything. Recasting a mortgage is when you make a very large principal payment, and as a result, the mortgage lender re-amortizes your remaining balance. This means that the loan length and interest rate stay the same, but the payment gets lowered because you have decreased how much has to be paid off over the remainder of the loan years. For example, I currently owe about $123,000 on my mortgage. I pay $883 per month toward principal and interest, not counting the escrow (taxes and insurance). If I pay a one time payment of $50,000, my payment drops to $374 per month for principal and interest. This means I am obligated to pay over $500 less per month, which can be a life saver in case of hard times later. If I continue to pay my normal payment after making that large principal payment, my loan will be paid off years earlier. Or, I could invest that extra $500 per month, potentially making tons of extra money over time. That same $50,000 is only earning about $20 per month in interest in a savings account right now, so it seems like a good time to consider putting the money somewhere that it can at least save me money in interest.

What to Consider First

I would only consider doing this if you already have a significant emergency fund saved up. If you find that you still have a large chunk of change that isn’t earning you significant interest, it could be a good time to put that money to work. Remember, if money isn’t at least earning enough to offset inflation (at least 2% or more), then it is essentially losing value over time. Better to put it somewhere that either earns you more (investing), or saves you more (decreasing debt).

Take Aways

There is more than one way to change your mortgage payment, if you have significant savings in the bank.

Always make sure you have an emergency fund that is easily accessible before putting large sums of money into investing or recasting a mortgage, or any other endeavor for that matter. Security is essential.

Talk to your financial advisor about where to put extra savings, and consider recasting your mortgage as a possibility that may not cost you anything except the payment you put toward your mortgage.

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Financial Tips for a Merry Holiday Season

The Holidays and Money

Do the holidays fill you with a mixture of emotions, from joy and excitement, to dread and anxiety? If your finances tend to get out of control during the season of giving, you aren’t alone. Even the most disciplined of us can sometimes let the joy of giving override our sense of frugality. People tend to think more in the short term, than what will happen to us later on if we make the wrong decisions now. The fact that monstrous debt is not only a reality for most people in developed nations, but even expected, is case in point. We are given credit cards and told to spend as we will. We graduate from college with mountains of debt. We buy a house above our means because the mortgage company and “keeping up with the Joneses” says we should. Why should the holidays be any different?

Wouldn’t it be great if there was a way to make the holidays less stressful, at least financially? It turns out, there are a few tips that could help, but they take some planning. Like almost everything when it comes to money, looking ahead will get you further than spur of the moment approaches. One idea would be to set a yearly holiday budget. Then, open a savings account and set up automatic withdrawals on payday to be put into that account through the year. It doesn’t have to be much. If you get paid every 2 weeks and put aside $10 each time, by the end of the year you would have over $200. That would sure beat having to take it all out of one check. If you put it into a high yield savings account, you could even have a few dollars of free money (minus taxes) to top it off.

If you are a little more adventurous, and want to make potentially a little more money with your money, you could put that same amount into the stock market in a diversified fund. Use an app like Stash or Acorn, and you would be able to withdraw your money plus earnings by selling the stocks at the end of the year, or even just a portion of them. Beware that whatever gains you make this way do count toward your income for the year, though, and will be subject to taxes. The potential is there, though to make a decent percentage of gain, as the stock market historically makes between 6% and 10% over time.

Another idea is to keep a list of people you like to buy for in your purse or wallet. Throughout the year, as you see gifts that would suit the people on your list, you could buy them one at a time. This would spread the cost over the year, instead of having to put it all on the same credit card at the end of the year and play catch up for the following months.

Don’t forget that some people really value the thought of the gift over the cost of the gift, as well. What about making a gift for someone that touches on something personal for them? Dressing up a picture frame with glue and glitter, or special words, with a picture of you and that person together can touch a heart. Think outside the box. Spending time with your mom one-on-one would probably mean more to her than any trinket. There are probably hundreds of ideas similar to this one that wouldn’t break the bank, but would still carry meaning. Isn’t that the true idea behind gift giving, anyway? We want the person receiving the gift to know that we love them, value them, think of them, and want to see happiness on their face. That counts for you, too. The holidays should make you happy, not totally stress you out. Try one or more of these tips, and maybe one will work for you.

Happy Holidays!Resources, Tools and More Continue reading “Financial Tips for a Merry Holiday Season”

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When Saving Money Can Cost You

I am sure it won’t be a surprise to hear that I tend to be a bit conservative when it comes to spending money. If you have read any of my other posts, you probably know by now that I put a lot of thought into purchases-especially those that will cost me a chunk of money. My brain can analyze the purchase to the point of insanity, and in many cases I talk myself out of buying things. Many times, this is a good thing. It decreases the number of times I have buyers regret. I rarely give in to impulse purchases. I save a lot of money by not buying things I ultimately didn’t need.

I have recently discovered the flip side of that coin. There is such thing as being too frugal when it comes to certain things in life. Sometimes saving money can cost you more in the long run. Have you ever bought the cheapest version of something, only to have it break or not work as soon as you got it home? Maybe you talked yourself out buying that tool set you have been thinking about, to have your dishwasher break two days later.

This past weekend, my wife and I thought we would have a nice day at the beach. We took the reliable car that gets the best gas mileage, and off we went. About 5 miles from the town, my car started beeping. It flashed a warning: Low Oil Pressure. We were in the middle of nowhere, on a country road with not another soul or business in sight.

I flashed back to that time a few months ago when I got my oil changed and the mechanic told me there was a small oil leak. They wanted $500 to diagnose the problem, and who knows how much to fix it. Being the skeptic of mechanics that I am, and the person who doesn’t like to spend money without knowing all my options, I declined. I thought I would have someone I knew check it out for me and verify that there was really something wrong before I got it fixed. Well, that person never checked the car out. Now, I was stuck.

I promptly called my roadside assistance company that I have had for over a decade. They are the cheap version of AAA. They cost a fraction of the price. On this day, I found out why. I was about 100 miles from home. The towing that was covered was $100. That probably translates to about 5 miles, after the hook-up fee. I was told I would have to pay the rest when the tow company arrived-a whopping $349! Also, because of COVID 19, the tow company would not allow us to ride in the tow truck, so we would have to find our own way home, with our 120lb dog, to boot. What choice did I have?

I then remembered that my friend happened to be camping in the town that I was now stranded. I gave her a call, and she and her husband came to the rescue. They offered to use their AAA membership, which covered up to 200 miles of towing, plus a rental car and hotel if needed. I asked her what she paid for that kind of coverage, and it turns out it is less than the $349 I was going to have to pay for towing. So, for a lot less than I would pay for one tow, she had peace of mind in knowing that in this type of event she was completely covered for towing and for her own accommodations and ride home. Suddenly, my discount roadside assistance service didn’t seem like such a bargain. My frugality would now cost me a lot more money, and stress.

Take Aways

This was a blatant example of how there can be times that being too frugal can bite you. If you save money, but then have to buy something more than once, or what you bought does not actually provide what you need, then you may not really be saving money at all. You might even create a lot off stress, or get yourself into a sticky situation. Sometimes paying a little more for something will actually be the better bargain. You need to really evaluate your purchase to know if it is something where the cheap version is really worth the initial savings. Although nowadays it isn’t always true because things just don’t seem to be made to last, when it comes to services and some items, sometimes, you get what you pay for.

For helpful products and services, visit my Resources page.

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What’s The Best Way to Pay Off Student Loans?

 

Big dreams, big debt

Many people who go to college do so with the help of student loans. I was one of those kids who couldn’t quite decide what I wanted to be when I grew up, and so I ended up spending many extra years in college, accruing massive student loan debt the whole time. At the time, I didn’t pay much attention to it, because it is not required to make payments on student loans while one is still in school. I sure did notice afterward, though, when the bills started coming in! I had multiple different loans from different companies, including both public and private loans. I had maxed out the amount of public or federal loans that I was able to get and had to get the rest in private loans, which came with even more hefty interest rates. The result was hundreds of dollars per month in bills 6 months after graduation.

Indecision will cost you

I have two bachelor’s degrees because the first one ended up being in a major that really didn’t have much in the way of job prospects without my having to go on to my Doctorate, which I could not do at the time. Unfortunately, I found this out after graduation. I started out paying the loans the best I could, which sometimes meant that I paid one but not another, or none at all. I got farther and farther behind, and because of interest my balances kept going up. My credit took a serious hit.

Taking a Break from Student Loan Payments Without Penalty

I finally went back to college for a degree that would lead to a well paying career, and in doing so was able to skip my loan payments for a while longer. This is called having your student loans deferred. I learned that if you contact the servicer of your loans, there are multiple different types of deferments. You can apply to have loans deferred for hardship for varying lengths of time. The main thing is to communicate with the lender/servicer before you are late or miss a payment. This will save your credit.

How To Refinance Student Debt

After I graduated the second time, I started paying my loans again. I also started doing a lot of research about how to lower my payments, because I felt like I was getting absolutely nowhere and drowning. I found out that I could consolidate my federal loans into one large loan with a fixed interest rate with only 1 payment. I immediately did so. It wasn’t hard, it just took some paperwork. I did some searching online for companies that offered student loan refinancing. At the time, there was really only one program with the federal government that did so. Nowadays there are multiple companies that offer student loan consolidation, so if you decide to go this route, shop around for the best interest rate and time frames. I then only had that payment and my payments for my private loans, because the government did not allow the combination of public and private loans. This still beatthe 6 payments I had before that because the consolidated payment was significantly less than the individual payments had been, and the interest rate was pretty low. One note about consolidation, and that is that if you consolidate loans it may make you ineligible for certain repayment programs offered by the government. One of those is the loan repayment for public service program, which is a way for people to get loans forgiven if they enter into certain professions. Always look into the details of loan repayment programs you may be interested in before consolidating, unless you cannot make the payments without doing so.

The Best Way To Pay Off Student Loans: The Stacked Loan Payment Payoff Method

Since I still had several loan payments, I wanted to pay them off in the most efficient way possible. I did so using a method called stacked pay off. This means that any time I had extra money I would send it to the loan with the highest interest rate first until that loan got paid off. Then, I would apply the amount of money I had been paying on that loan to the next loan in line each month. This drops the balance of the loans much faster than just paying the minimum payment on each one or just paying a little extra on each one. It is also quite satisfying to see loans being paid in full.

During college, I was fortunate enough to get married. My spouse, unfortunately, had almost as much loan debt as I did. We applied the same methods to paying them off, including consolidating them. We decided to maintain our frugal college lifestyle even after we were both working, and we applied all of my spouses income and any extra I made directly to our student loans in the stacked loan payoff method. The result was that we were able to pay off $136,000 in student loans in 7 years, with a combined income of about $80,000 per year.

Takeaways

Before even taking out any student loans, do your best to make a firm decision on what you want to accomplish in college. Taking extra classes or changing majors costs a lot of extra money.

Always communicate with your lenders before you miss any payments or get into financial trouble. Often they can help with deferments or other money saving options.

If at all possible, pay extra each month to decrease the amount of interest you pay on the loans.

Consider consolidation, if you have multiple loans with multiple payments and the payments cause a strain on you.

If you still have multiple loans or debts, using the stacked loan payment method can save time and money by paying the loans with the highest interest first and then applying the payments for each paid off loan to the next loan in line.

It will take time, but you can and you will one day be debt free. In the meantime, there are ways to make obligation feel less overwhelming and more manageable.

For helpful products and services, visit my Resources page.

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Personal Budget Tips

Budget isn’t a Bad Word

Does the word budget make you cringe? Maybe it brings up feelings of constraint, or even memories of past failures. Have you tried to set up a personal budget but then found you couldn’t stick to it? We have all been there. Maybe your past attempts at making a budget were actually just too strict. A workable budget shouldn’t feel like a shackle. It should feel like an accomplishment and a daily, reachable goal. Learning how to create a budget and make a financial plan should make you feel empowered and will help you reach your financial goals.

Start Small

When I was first learning how to budget my money, I started small. I knew how much I made each month, so I took the money I had and divided it up into envelopes. The first one was Rent. Then Groceries. Phone. Gas. Insurance. Household Items. It wasn’t a perfect system. I often had to move money from one envelope to the next. Really, though, isn’t that what budgeting boils down to? It is making a plan that shows you what money you have and where it is going. It is dynamic. You can change the categories and the amounts that go into each one to make it as comfortable as it can be, and according to your goals. Even in this simple manner, it taught me a lot about where my money went.

My next step was to keep a piece of paper in my wallet that kept a running checking account balance. It started at the beginning of the month, and subtracted and added in order all my bills and income, so I would have an idea of what my account should look like if I was on track. It also made sure I didn’t miss a bill. I actually still use this method because I find it is such a reassurance to be able to glance at a piece of paper and see that I am where I want to be each month. My categories have expanded to include savings for emergency and vacation and entertainment, as well as a lot more bills since I own a house now instead of renting an apartment that had all utilities included. I don’t have to use the envelope method anymore because I have a steady income and the amounts that come out of my checking account are pretty consistent.

Using Credit Cards Responsibly

Once I was able to have a credit card, I began to use it to help me budget. I paid all my recurring monthly bills directly out of my checking account, using the methods I above. The rest of my spending when on a credit card that I paid off at the end of each month. I still use this method today. I like this method because it means that I don’t have to carry cash or worry about not having enough at the grocery store, and it also automatically categorizes my spending. I can just go to my credit card company website and it will show me how each transaction was categorized and show me overall spending categories. This feeds right into my next topic, budgeting software.

One word of caution before the software topic though, and that is that credit cards should only be used if you are able to pay them off every month, or for emergency purchases that you could not afford otherwise. They can help your credit if they are used wisely, but can be a black hole of debt if they are not paid off each month, as interest will accrue and your balance with skyrocket. Check out my pages on credit and debt to read more about this.

Budgeting Software

An invaluable tool for me once I could afford a computer and internet was budgeting software. There are a number of different ones out there, many of which are free. I personally love Quicken, Personal Capital and Mint. They take a little while to set up, maybe a couple hours depending on how many accounts you have, but they are an invaluable way to keep track of your money. The great thing is that you can see a snapshot of each account, the transactions that have come into and gone out of each one and their current balances. This includes your checking, savings, investment accounts if you have them, and credit cards. At any given moment you can look and see if you are spending more than you are making. It is also a great way to make sure no one has gotten a hold of your account information and is making unauthorized purchases, because you can see them all. I have caught many a fraudulent charge this way, and was able to call my credit card companies and get the charges written off and a new card sent to me.

One of my favorite features of Mint, other than it being a free app, is that there is a place in it where you can set up a goal. Say you want to save for a vacation, or pay off a debt. You can set up a goal in Mint, and each time you move money into an account set up for that purpose (a savings account usually), it will log it and keep a running total showing you how much progress you have made. There is also a lot of information on Mint.com about financially related topics. It has an area that shows you ways to save. You can see trends in your spending, like what categories you tend to spend the most in. There is a budget tab that allows for you to see if you are meeting your budget goals or adjust specific category amounts. You can even see your current credit score.

Quicken is a full service finance software. It isn’t free, but it is quite comprehensive. It has all the features of Mint, and more. It allows you to customize many of it’s features, including things like spending goals. It provides bill reminders and can forecast your account balances based on upcoming bills. It is also linked to TurboTax, so if you are using the two together, taxes become quite simple.  Quicken has different subscription options, including ones for small business and investing. I used Quicken to help me manage my money when I wanted to pay off my student loans, and I met my goal. I don’t think I could have done it without it.

Personal Capital is another free app that works similarly to Mint. It shows a snapshot of all your accounts, with the added ability to connect you directly with one of their financial advisors, if you so desire. I find that it synchronizes easier than Mint at times, as Mint seems to not always update each account when I sign in. It does not have a goal set-up feature, but is a nice, simple app for tracking your spending and cash flow.

Tips about Budgeting

One thing that I feel is important is a simple tip: Always budget based on less than what you actually make. Don’t try to budget every penny you make. This would set you up for failure. Some months you may not make as much money, or you may have an unexpected expense. If you had budgeted every bit of money you brought in, you would instantly be in a budget shortfall. That can lead to feelings of inadequacy or failure, even despair. Rather, by budgeting always for less than your actual expected income you give yourself a little buffer. Then, you are setting yourself up for success, because most likely you will find that you still have a little extra money at the end of the month, or at least didn’t fall short. Even if you end up spending every penny because you just don’t make much money in relation to your bills, budgeting this way sets the stage for savings later as your income increases.

On a similar note, it is a great idea to overestimate your spending as well. If a bill is not exactly the same every month, then try to put aside more than you think it will really cost for that category each month. If you find at the end of the month that you consistently have left over money you can adjust how much you put aside, or put it into savings. It is a lot better to expect a big bill and end up with a small one than the other way around. If your bills don’t equal your income, remember to account for Fun Money. It is important to feel like you have some money that is just for your own enjoyment. Once in a while it is ok to give yourself a little reward. Just be sure it doesn’t happen so often that it gets you off track.

Takeaways

Budgeting doesn’t have to be scary, or feel too restrictive. It should be a way for you to learn about yourself and your money habits. It is a tool to help you reach your financial goals. It is dynamic and changes as your needs change. A good budget is a way to invest in yourself, and it is an accomplishment in itself.

Set yourself up for success by setting your budget based on less money than you actually make, and higher bills than you actually pay. Save whatever is left after a little reward for yourself and you will meet your goals.

For helpful products and services, visit my Resources page.

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How to Pay Your Mortgage Off Early

 

Mortgages are Massive Debt

For most people, their mortgage is the largest debt they will ever have. It takes up the majority of their income each month, and a lot of that money is spent directly on interest. Mortgages are large loans, which accrue compound interest each day. They are set up so that for many years, most of the payment you make goes to that interest first, before it ever touches the principal. The principal is the original amount you paid for the house. Most also include payments for property taxes and home insurance, and sometimes mortgage insurance as well. This is why you can make payments that amount to thousands of dollars a month, but your principal balance may go down only slightly. Seems like treading water, doesn’t it?

Mortgages are Good Debt

The good news is that mortgage debt is considered “good debt,” meaning it builds credit, rather than hurting it. The value of your house most likely will go up over time, so the amount you owe will become proportionally less than the house is worth. This is where the idea of having equity comes in. Equity is that difference between value and debt. If you wanted to, you could refinance based on the new higher value of your house and use the extra money for things such as home improvement or paying off “bad” debts, such as credit cards and cars. Many people do this in order to save on interest if the new interest rate is lower, and only have one monthly payment. Mind you, they are only saving on short term interest, as the interest they will pay over a 30-year mortgage after refinancing could end up being substantially more than they would have paid if they paid off their credit cards on their own. As a house builds equity, there are other options, such as taking out a home equity loan, otherwise known as a 2nd mortgage, to pay for those things mentioned above. This gives you a second payment every month. If you don’t want a specific amount of money, a home equity line of credit that works similarly to a credit card with a rolling balance could also be used. So, mortgages have some advantages, due to the fact that they are secured by real property that builds value. This is why it is important to make sure when you buy a house that you are getting a good deal. If you pay too much, and the house actually becomes worth less (as has happened before with housing market crashes), you will not have access to these loans and lines of credit, and the mortgage will become negative debt (referred to as upside down). This is unusual, but can happen if you buy at the peak of the market, when prices are highest.

Conventional Advice

Given those advantages, most finance advisors and coaches will tell you not to prioritize paying off your mortgage over paying other debts. The idea is that if your house is valued higher than your mortgage, you could theoretically sell it at any time and not have that debt. This is true.

How to Payoff Your Mortgage Early: If you are like me and can’t stand compound interest (unless it is building it for myself)

This article is for those that have decided that they want to pay off their mortgage early anyway. I am one of those people. For me, the idea of owing so much money causes me a great deal of stress. I don’t like the idea that as long as I owe that money, I don’t really own the house. Plus, it represents a lot of my monthly income. I also despise the idea of compound interest when it is compounding my debt and not building my portfolio, like it does in the stock market. I feel that it just is not fair to charge people interest over and over on the same money, and then make them pay the interest before the loan balance. It really makes the cost of the house astronomical, even when you think you are getting a good deal. My own house cost around $200,000, but if I pay that over 30 years, I will pay another $200,000 in interest. In my mind, that is like paying 100% interest! Even though the bank calls it 3.75%, the way it is compounded and paid sure adds up. A straight 3.75% on $200,000 would only be $7500. Now, that would be fair! However, it isn’t the way the banking system does it. Fair or not, if I pay my mortgage over 30 years, I will effectively pay double for my house.

I don’t want to pay $400,000 for a house worth $200,000. Even now that the value of the house has risen, I don’t want to pay that much extra in interest. The value doesn’t matter that much to me because I am not planning on selling the house. It is just a number on paper. This is why I have made it a priority to pay my mortgage off early.

Specific Ways to Accomplish Your Goal

There are a few different ways to do that. The first and simplest way to shave years off your mortgage is to split your mortgage payment so that you pay half of it every 2 weeks instead of paying it all once per month. Because of the way interest compounds and the number of weeks in a year, you will actually end up making an extra payment per year and saving yourself a lot of interest. When I switched, my mortgage was reduced by a whopping 6 years! All it took was a call to my mortgage company to change how I made the payments. Now they come out every time I get paid, which is pretty convenient.

Another way to pay your mortgage off early is to send any extra money you have directly to the mortgage principal. You have to be sure that you specify that the extra money goes to principal, or the mortgage company could just send it toward your next payment or interest, or escrow and it wouldn’t help your balance decrease. By sending money directly to your principal, the amount of your loan that is earning interest is reduced, and so is the amount of interest you will pay. You will find as you do this that more and more of your regular payments will start going toward principal as well. It is a good idea to talk to your mortgage company first, to find out if there are any limits on how many extra payments you can send, or instructions on how to make sure the money goes to principal before sending any extra payments.

I tend to send my extra payments at the end of the month, when all my money budgeted for the month is accounted for. I can plainly see what I have left over and send it straightaway. In the past, I have also sent extra payments on payday, if I got more in my check than I had budgeted for in the first place. I also sent any bonuses or pay raise money. These days, because of the COVID pandemic, I am only sending the extra money I make each check, and not leftover money at the end of the month. I am putting that money into savings, until things seem a little more stable. Eventually, the pandemic will be over and I can send a large lump sum to the mortgage, which will still reduce my interest and the amount of years I have to pay. In the meantime, I have the money if I need it. It is also in a savings account that is earning a little interest, as a bonus.

There are other strategies out there to payoff your mortgage early using home equity lines of credit and other such things, but I am not an expert on those, and so I will not address that. What I do know is that if you send any extra money you have to your mortgage principal as often as you can, your balance will go down, you will pay less interest, and you will pay your mortgage off sooner. If you are like me, knowing that someday I won’t have a massive mortgage payment gives me a lot of peace of mind. I will always have to pay taxes and insurance, but it will still be a substantially lower payment each month than I pay now, and it won’t be just giving the bank free money in the way of outrageous amounts of interest.

As a side note, this strategy is almost the same as the one I used to pay off my astronomical student loan debt. See my blog post on Paying off Student Loans for more information.

Take Aways

Mortgage debt, though considered “good debt” is a very large one. It is possible to pay less interest and pay your mortgage off early by sending any extra money you have directly to principal each month. Even splitting your payments so you pay every 2 weeks instead of once a month will save you a lot of money in interest. Every little bit counts, so send what you can when you can if paying off your mortgage early is your goal.

For helpful products and services, visit my Resources page.

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How to Save Money on Insurance

Yesterday was my birthday, and also the day that my 16 year old son got his driver’s license. That meant that I had to add him to my car insurance. When I called my agent, who I have used for years, except for one 6 month period where I found cheaper insurance elsewhere, she told me that because he has good grades (3.0 GPA), he would get a discount. Instead of being $135 more per month, it would only be $95 more per month. Whoa! That’s a lot of money. I immediately began shopping around. This post is about how to save money on insurance, which I ended up doing after a lot of time and energy.

Shop Around

When I say I shopped around, I mean it. I went to the website of every car insurance company I could think of and tediously put in all our information to request a quote. Then I went to all the ones that showed up on my Facebook feed and did the same thing. Most of the quotes came back in the same ballpark as my original company. Some services where they have you input your information and it is supposed to automatically compare multiple company quotes didn’t really work. Some ended up only giving me a list of websites to go to. Others ended up wanting me to call them. Who has time for that?

Compare Coverage Side by Side

What is important to do is to make sure you are comparing apples to apples, so to speak. By that I mean making sure you are asking for a quote that includes the exact same coverage as the one you are comparing it to. Otherwise, you could end up buying less than, or more than, you actually want or need. Insurance has to meet your state minimum, but it also needs to provide for the reason you are purchasing it-enough coverage in case of catastrophe. The last thing you want when you get into an accident is to find out that that cheap insurance you bought didn’t cover what you thought it did. You could end up on the hook for a ton of money in damages. Often, you will see advertisements saying things like, “pay $3 per day for car insurance” that sound initially very enticing. Read the fine print before you buy, though, because often they are lacking what you really want in your insurance. You have to decide what amounts and types of coverage you really need or want, and then compare the prices for those coverages side by side.

Buy Direct if Possible

Another thing to know is that many websites you run across for insurance are actually insurance agents or affiliates. What that means is that if you purchase through them, they will be earning a percentage of your premium. That can also mean that you pay more than you would if you bought directly from the company. Always compare, compare, compare before you buy. That was how I ended up saving myself tons of money. I ended up buying directly from an insurance company online. I combined my auto and home insurance, which is a common way to earn a discount. The interesting thing about this one was that my home insurance itself is about $150 more per year now, but because the auto insurance saved me about $1,000 per year, I still came out way ahead. If you are looking at combined offers like this, you have to be able to look at the bigger picture to see how your wallet will be affected overall. If I had given up just because the home insurance quote was a little higher, I would have ended up paying so much more than necessary between the two.

It took me two full days of shopping, but in the end I ended up getting the coverage I need for a fraction of the price. I feel like it was time well spent. There is nothing as satisfying to me as knowing that I did my research and got the best deal for my money.

Take Aways

Make sure you take the time to really compare different companies when looking for insurance. Try going to the company’s direct website first.

Choose your coverage wisely. You want enough insurance to cover a devastating event, but you don’t want coverage you don’t need. When comparing companies’ quotes, make sure their coverages match so you are comparing like to like.

Don’t stick with one company out of sheer, blind loyalty. It is a good idea to check around every 6 to 12 months to make sure you are not overpaying.

For helpful products and services, visit my Resources page.

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How to Save Money

Saving Money: What’s That?

Many people don’t think about saving money at all, or feel like they don’t make enough to be able to save. The truth is, when it comes to saving money, even a little bit counts. Just like investing, starting early, and doing it regularly can really add up over time and make a big difference in the long run. There are a lot of ways to save a little bit, and if you do so regularly, you could end up with a nice amount in your savings account. The following article discusses how to save money, even if you aren’t making a ton if it.

Trimming the Spending

The first way to save is: don’t spend. When you think of each purchase before you make it, ask yourself if you really need it, or if it will really increase your happiness for more than the short term. Is it a cup of coffee that is way overpriced, and you could make one at home for a fraction? Is it a subscription service you have had for a long time, but rarely use, or could give up without really missing? Do you need all those premium channels, or would a smaller subscription to Hulu or Netflix work just fine for your TV fix?

Try not to give in to fads. Just because the newest iPhone has come out doesn’t mean you have to have it. Is your phone working just fine? How about your watch? If so, reconsider upgrading or buying an Apple Watch or other such items that cost a lot of money. Most cell phones are smart phones these days, and the high price tag on some brands just doesn’t seem justifiable in most cases.

Shop Around

Have you shopped around and found the best price? Many times, you can save a lot of money on necessary purchases by checking out more than one vendor. Take car insurance-they say that you should be shopping around for car insurance every 6 months to make sure you are getting the best deal. Doing so could potentially save you hundreds of dollars. There are even services out there to do it for you. Buying brand names rarely pays for itself these days, as most things are made with the same cheap parts, so look for the generic version first. If you try it and do not like it, or find it is actually not as well made, then buy brand name the next time (if there is one). Most of the time you will find the generic to be just fine, at least for small ticket items. If you are buying larger items, do your research to find out which brand is best and buy that one, in hopes that it will be a one time purchase.

Saving a Little Each Time Means Saving a Lot Over Time

Regularly putting aside a small part of your income, before you spend anything, can add up to a lot of money over time. If you do it consistently, and always before you see the rest of your paycheck, you will never really miss it. For retirement, this can be in the way of a workplace 401k or 403b (which you should be participating in if it is offered, at least enough to meet the company match, if there is one), or an IRA if your workplace doesn’t offer it. Set it up so there is an automatic withdrawal each payday. You should also be aiming for an emergency fund that covers at least 3-6 months of expenses, ideally. Putting this money into a Money Market or High Yield savings account where it can be accessed if needed, but earns a little more interest than your regular savings account is a good idea. You don’t have to put in a lot from each paycheck, but a little each time will add up, and you will be grateful for it if and when you need it.

Money Pits

Try not to eat out very often. Restaurants are expensive. They have to cover a lot of overhead to serve you the same food you could make at home for a fraction of the price, and have leftovers. Try setting a goal to eat out rarely, be it once a month, or whatever is realistic for you. Then, make your own meals at home, and resolve to eat your leftovers. Wasting food is dumping money in the trash. Watch how fast your savings will grow if you put the money you would have spent in restaurants straight into your savings account. You will be amazed! The same goes for planning your meals ahead of time, and then going into the grocery store with a list and a plan. You will save money by not buying extra items each time you go in, and perhaps being able to use some of the ingredients for multiple meals.

If you haven’t set up a budget so you can see where your money is going, make a goal to do so as soon as possible. Knowing where your money is going is the first step to saving. Then, pick the category of spending that is the highest, not counting bare necessities like mortgage and regular groceries, utliites, etc. See if there is any way to trim from that category, like the restaurants example above. For us, the money pits are almost always eating out or shopping at Walmart. If we go into WalMart without a list and the willpower to stick with that list, we will always spend way more than we plan.  Making a list ahead of time is a tool we use to hold ourselves accountable.

Take Aways

Saving money doesn’t have to be hard. Making thoughtful purchase decisions and committing to setting up automatic savings will both go a long way toward having money when you really need it. Always shop around for the best price, and don’t throw money in the trash by wasting what you have bought, either by buying one time use things you didn’t need, or not eating leftover food you already made.

For helpful products and services, visit my Resources page.

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How to Decide Whether to Buy Something

Anytime my wife and I go shopping, the difference in our purchase decision-making processes becomes very clear. Hers goes something like this: “Ooh! That’s cool. Can I have it?” Mine tends to be a bit more convoluted.

Whenever I am contemplating making a purchase, a lot of different things go through my head. Admittedly, I am a finance nerd. It is my hobby and my passion, so this comes into play. I’m not saying my mental decision tree is the best one, either, but it does seem to work for me, in that I rarely regret purchase decisions.

How To Decide Whether to Buy Something: My Perspective

First, I ask myself if it fits in my budget. If the answer is yes, it could if I want it to, then it goes to, “how many hours of work will it take me to pay for it?” I value my time and effort, and so I like to know in real work terms how much something costs me. I work 36 hours per week. At least half of those hours are already accounted for in necessities, like the mortgage, food, gas, etc. Obviously, if it is a need, then my decision tree is shorter. That leaves 18 hours a week for me to spend on other categories, unless I want to put in overtime (which I do not). I think of it like a financial pie. There is only so much of it. I have to decide if I want lots of little slices, or one big one. If something costs a significant portion of those hours, If it costs even more, the decision would never be made on the fly. I really have to think about whether it is worth it or not. I think of what I have to give up in order to have this, and if I feel it is a fair trade. I am not rich enough to have everything I want.

Next, I ask myself if this is the best price I can get. Have I shopped around? Usually, the first place I see something isn’t the only place I could find it, and may not be the best value.

A strong factor for me is also how long I am going to have and use this item, if it is a physical thing. Is it well-made? Is it made to be used more than once or a few times? Will I just have to buy another one in a short period of time, or is it something I can use over and over for an extended period?

Last, how much enjoyment will it actually provide? How fulfilling of a purchase will it be? Will my interest wane, or will I use it every day? Is this something I have always wanted, or something I just saw and thought would be fun? Will I just want the next version of it, and the next after that? Will it make a lifelong memory that I can cherish, even if it doesn’t physically last? If what I am purchasing is something that creates an experience, I put a lot more weight on how much enjoyment it will provide, because a memory can last forever, unlike physical items. Things that bring me and my family together are always worth more to me than another piece of clutter, no matter how pretty or high tech it may be.

The One Week Rule

A good rule of thumb advocated by many financial professionals is to hold yourself to the one week rule for optional purchases. Anytime you find yourself wanting to buy something that you don’t really need, make yourself wait a week before buying it. If you still really want it at that point, and you still have the money in your budget, then you can buy it. This gives you time to really think about why you want it, and how it can add value to your life. Many times, you may realize that you didn’t really want it that bad afterall.

Take Aways:

Deciding whether to buy something or not should rarely be a split-second decision, unless whatever it is is small and/or necessary. The larger a purchase is, the more of your financial pie it is going to consume. Thinking of the money you make each paycheck in this way can help you realize that it is a finite amount, and you only have so many slices. Make sure that each slice is used in a way that it can be enjoyed as long as possible. Just taking the extra time to think about your purchases can help you avoid costly mistakes.

How do you decide whether to buy something? Do you tend to be an impulse buyer, or do you have other criteria that you use to decide? Have you ever regretted buying something, and wish you had evaluated the purchase more beforehand? I would love to hear your stories.

For helpful products and services, visit my Resources page.

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When Should I Refinance My Mortgage?

By now, you have probably heard about the historically low mortgage interest rates that are being offered. There is a lot of buzz about refinancing your mortgage now to cash in on these low rates. People are asking, “When should I refinance my mortgage?” The answer is, it depends.

First, you have to know what the difference is between your current mortgage interest rate and the new one. Is it significant? Mortgage rates have been pretty low for several years now, and if you have one that is only slightly higher than current rates, it may not actually make sense to refinance. Why not? Well, it costs money to refinance, so you have to take that cost into consideration. You will probably be required to pay for an inspection so the bank can determine how much equity you have in your home (how much more it is worth if you were to sell right now compared to what you currently owe). Plus, there will be a fee. That fee can vary greatly, and can add up to thousands of dollars. Even though it gets financed into the mortgage, you will still be paying it, and the interest on it. Plus, depending on what terms you choose, you could be extending your mortgage term,  thus paying more interest over time. If you are choosing a 30-year term, you will be starting over.

Before you make the decision about refinancing, use an online calculator to see how much doing so will cost you. Think about the reason for your refinance. Is it to consolidate all your debt, by taking a cash out and paying off all your other debt besides your mortgage? If so, would doing so lower the amount of money you are forking out each month? Are you just trying to get a shorter term on your mortgage, by changing from a 30 year to a 15 or even 10 year term? Your payments could stay close to what you pay now if the interest rate change is significant, while the amount of time decreases. You would save a lot of money in interest if this is the case. Are you refinancing because you want money to improve the house? That could pay for itself when you sell, but you would have to carefully consider how much you would be paying for it over the loan term vs if you just saved up or didn’t do it at all. Will you really get more for your house because of these improvements? If the improvements are necessary, like a new roof or plumbing, then it could make sense if you don’t have access to that kind of cash any other way, and now would be the time to do it with rates this low. The best case scenario would be to consolidate your debt, refinance to a shorter mortgage term, and have a lower monthly payment, with a low initial fee. If you find a deal like that, it might be the perfect time to refinance.

Take Aways

Refinancing your mortgage is a big decision. It can affect how much you pay each month, and how much you pay over time for your house. It can make sense, if your other debt payments can be rolled into it, thus creating one monthly payment. Using a calculator to determine how much that debt will cost you over the term of the loan will help you determine if it is a good idea, or not. Always do your research beforehand.

Have you refinanced your mortgage? What made you choose to do so? Are you happy you did it? Still have a question? Please comment below.

For helpful products and services, visit my Resources page.