How to Prepare Your Budget for Buying Your First Home

You're going to need more than just a down payment.

With the beginning of spring and more interest-rate hikes coming up, a lot of people are wondering if it’s time to make the jump from renter to homeowner. Of course, making such a move involves much more than browsing real estate listings and cobbling together enough for a down payment.

One of the most important things a first-time homebuyer can do is prepare their budget for this big financial event. We asked our partners and money-savers extraordinaire at Clark.com to share some of their best budgeting tips for people looking to buy a home this year. Here are Clark.com Managing Editor Alex Sadler’s responses, edited for length.

What Tweaks Should People Make to Their Budgets in Preparation for Buying a Home?

First of all, there’s a whole lot more that goes into buying a home than many people realize. I’m actually going through the process right now, and believe me, it ain’t like walking into a leasing office and signing up for an apartment.

When you’re preparing your finances for buying a house, here are a few steps you need to take first.

  • Get your credit in shape: The higher your credit score, the better deal you’ll get on a mortgage. The goal is to get approved for the lowest interest rate possible, so before you apply, make sure your credit is in good shape. [Editor’s note: If you’re not sure where your credit stands, we’ve got you covered. You can get your free credit report snapshot on Credit.com, and it’s updated every 14 days.]
  • Have enough saved for a down payment – and then some: A good amount to shoot for is 20% of the purchase price. If you put down less money, you still may be able to get a loan, but it’ll come with higher monthly payments. Plus, typically when you put down any less than 20%, you’ll need to have private mortgage insurance, which is another monthly bill to prepare for.
  • Prepare for other upfront costs: Home inspection (a few hundred dollars), closing costs (estimate between 2% to 5% of purchase price) and extra cash. Some lenders may require you to have some cash in the bank after the purchase is complete, maybe two to six months’ worth of mortgage payments.

In terms of your monthly budget once you’re in the house, a good rule of thumb is to spend no more than 25% of your income on housing – including mortgage payments, private mortgage insurance (PMI, if you need it), property taxes, homeowners insurance — all the monthly bills specifically tied to the house.

What Are Things Renters Don’t Have to Budget for but Homeowners Do?

Buying a house is exciting, but you need to go ahead and prepare yourself for unexpected expenses — that’s just the reality of owning a home. No more calling the landlord or leasing office to come fix something. Whether it’s a broken light bulb or a busted HVAC, the cost of that repair is coming out your pocket. Basically, you should overestimate how much money you’ll need to cover all of your expenses each month.

Give yourself a cushion to fall back on — cash savings you can dip into to pay for an unexpected repair or to cover your bills in case you lose your job or can’t work for a period of time for whatever reason.

A few other costs that come with owning a home: property taxes, homeowners insurance, disaster insurance required for homes in certain areas, higher bills (utilities, heating, air conditioning), maintenance — any and everything is your responsibility.

The bigger the house, the more expensive every single bill will be. Keeping up with regular maintenance is crucial in order to avoid bigger, more expensive repairs down the road

What Are Tips for Transitioning Your Budget From That of a Renter’s to a Homeowner’s?

Come up with a monthly budget to cover all of your expenses as a homeowner, and start living on that amount now. It will force you to save the money that you won’t have the luxury of spending once you own that house. Send it directly into savings so you don’t give yourself a chance to spend it.

How Can Homebuyers Make Sure They’re Not Biting Off More Than They Can Chew?

Just because you can qualify for a bigger house doesn’t mean you should buy one. The financial risks are extremely serious.

No one plans for unexpected setbacks like job loss, emergencies, medical issues — and if you aren’t prepared financially, one big unexpected event can be devastating not only to your short-term financial health but also your long-term finances. If you can’t pay the mortgage payments, the lender is coming after your house. If you have nothing to save each month, you’re giving up retirement savings and everything else that comes with being financially independent.

Bottom line: Buy less house than you can afford. And even on a less serious scale, you don’t want to live in a house that you can’t afford to furnish, or you can’t afford to take vacations because you have nothing left to spend or save each month.

Image: Geber86

The post How to Prepare Your Budget for Buying Your First Home appeared first on Credit.com.

7 Easy Ways to Lower Your Cable Bill

Watching your favorite shows is the fun part — handing over your money each month to do so, not so much. These 7 ways can help cut down on that expense.

Cable television can be an expensive line item on your monthly budget, especially if you’re looking at giving your finances a fresh start. You may be paying for a long list of channels when you only watch a handful, or maybe your promotional offer just expired and your rates flew up. But you don’t have to be stuck with such a monumental bill. Here are seven ways you can lower your cable TV bill.

1. Renegotiate Your Bill

Cable providers know you have many other TV options. As a result, they may be willing to negotiate a lower rate for services. You can call and ask about any current promotions or specials your cable provider is running. You can even hunt around for deals other providers are offering and ask them to match.

When you call your cable provider to renegotiate, you can suggest that you’re considering alternatives, which may result in a conversation with a customer retention specialist, who will do anything they can to keep you as a customer.

“Cable companies spend a lot of time and money making sure their valued customers stay with their service,” said Zoe Meeken, Technology and Money-Saving Specialist for Reviews.org. “They have special sales representatives who have valid offers that can be shared with customers on the verge of ‘cutting the cord’ for online streaming sites or switching over to another provider.”

2. Cut Premium Channels

Premium channels can add to your bill in a big way. You can cut costs by chopping those channels from your cable package. Of course, this is ideal for channels you don’t watch, but if you’re intent on cutting costs, you may have to make friends with another Game of Thrones lover who doesn’t mind company on Sunday nights.

3. Do Without the DVR

Many cable and network channels offer on-demand programming that lets you watch your favorite shows the day after they air. Switching your DVR cable box for a standard box with on-demand service might help shave a few bucks off your monthly bill.

4. Use Bundle Promotions

Many cable providers also offer internet and phone services and will give you a discount if you sign up for a bundle package.

“If you’re paying separately for your phone, internet and cable, it may be more cost-effective for you to bundle,” said Meeken. “Take some time to shop around for a complete package. There’s a decent chance you’ll end up with more for less.”

If you go this route, make sure you crunch the numbers before signing up for a bundle deal to make sure it really saves you money.

5. Find a Different Provider

You can always search around for a better deal with another cable provider. In many regions, there are more options than ever, from satellite service to more localized providers. Find out what’s available in your area and start comparing prices.

6. Switch to Streaming

Streaming services host a wide selection of original programming, popular TV shows and movies, often at a fraction of what you’ll pay for cable. Signing up for several of these services could result in a comparable cost, but sticking to one or two could dramatically lower your monthly TV bill.

7. Use a Digital Antenna

If all you really need is network television, you can get your local channels free using a digital antenna, which these days can provide HD quality programming. If you still need more options, you could supplement this with a streaming service or two.

Looking for other ideas on way to add funds to your bank account? Consider these nine ways to lower your monthly mortgage payment or even these ideas on how to earn extra income from your car without playing chauffeur.

Image: stocknroll

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Your $10,000 Bundle of Joy: How to Budget for Your New Baby

baby-budget

Having a baby is a life-changing experience. Every aspect of your life will change, especially how you spend and save money. A recent BabyCenter survey found that parents should expect to spend almost $10,000 in their first year with baby.

With some forethought and careful budgeting, you and your family can moderate some of the costs associated with the first year of your baby’s life. While you can’t foresee every cost, being proactive will minimize surprises and increase peace of mind and enjoyment when your beautiful new addition arrives.

Giving Birth

Labor and delivery costs vary wildly. Location is a big factor. Where you are in the country and where you choose to give birth (home, hospital or birthing center) can alter your plans and budget.

According to the U.S. Agency for Healthcare Research and Quality (AHRQ), the average cost of a normal (no C-section or complications) birth in a hospital is around $3,200. Add in the costs of pre- and postnatal care and you’re looking at thousands more added to your hospital bill, and this is after insurance. If there are any kinds of complications, such as low birth weight or jaundice, you can realistically expect to pay more.

When you find out you’re pregnant, it’s a good idea to contact your insurance company to find out what kind of coverage you have, and if you have it, what your health savings account (HSA) or flexible spending account (FSA) will cover. If you’re insured through your work, you may want to talk to your human resources department. You will likely have several conversations in their office, especially if you plan to take parental leave.

Taking Time Off

Finding out what kind of family leave your company offers (or doesn’t offer) will affect your budget. It may be surprising, but only about one-third of all working women in the United States are offered any sort of maternity leave. If your company offers leave, find out if you get the full amount or only a percentage of your regular paycheck. This may affect how long you take. If your company doesn’t provide leave, they’re still required to honor 12 weeks, unpaid, under federal law. Fully understanding your own benefits will give you a clear idea of how to create a feasible budget for your growing family.

Budgeting for Baby

Once you have a clear idea of how much money will be coming in, you can begin creating a budget for the months leading up to, and after, giving birth. You may use a “first year” calculator to figure out what you’ll need to save. The numbers may surprise you, so expect to make some adjustments in your spending. Curious about how to start making cuts? Start by figuring out where your money is going now. To do this, you can track your expenses in Excel, or if you’re more comfortable on your phone or the computer, you can try using an app/program like You Need A Budget.

With big purchases on the horizon, it might also be a good time to check your credit score. You can see two of yours free on Credit.com.

Once you’ve figured out where your money is going, you can create a budget with savings in mind. More importantly, start that budget before the baby is born and stick to it. If you’re spending more than you’re earning (or saving), you can start cutting unnecessary expenses like cable or magazine subscriptions. You may also want to consider things like limiting your travel and avoiding eating out too often. Packing a lunch instead of ordering a sandwich can add up quickly. (Want more ideas for smart spending habits? Consider these 50 ways to stay out of debt.)

Buying for Baby

Buying furniture and supplies as you prepare your home for your little one is where a lot of families tend to blow their budgets. First-time parents are often unsure about what and how much they will need to care for their newborn.

Before you build a registry or go on a shopping spree, have an honest conversation with your partner, yourself and other parents about what’s truly necessary.

You may also want to bring a friend or relative who is already a parent on your registry trip – they will give you the lowdown on strategic purchases and can assist your internal debate between that fancy baby Jacuzzi or $10 plastic tub. That doesn’t mean you can’t splurge on something adorable you love. Just call a splurge a splurge, save for it and buy other things more affordably.

Don’t buy anything without seeing what your friends or family members are willing to lend or give you for free. Some babies grow so quickly they never get the chance to wear their newborn outfits or onesies. The same can be said of furniture like gliders or high chairs – parents may discover that their kids prefer their car seats or booster chairs. Buying gently used clothing, furniture and supplies can save you a lot of money over time. Also, consider registering or purchasing gender-neutral clothing and equipment. If you plan on having more children, you won’t feel pressured to buy new things.

Lastly, if you’re planning on using day care or home care, the sooner you can start interviewing centers or home care candidates, the better. Some have an admissions process, waiting lists or deposits so if you have a certain person or location in mind, schedule your visit well before your due date. With this sort of prudence and planning, you’ll feel more confident about bringing your baby home.

Image: KQconcepts

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Can Refinancing to a Higher Mortgage Rate Actually Lower Your Debts?

Are you handling your debt the smartest way possible?

Your ability to save money can become compromised by the financial obligations you are paying in your life. If you have a mortgage and other consumer debts, it’s easy to stay the course, pay your monthly bills and rely on credit cards for emergencies. But taking action — namely, refinancing your mortgage —  could actually help you get better control of your cash flow. Allow me to explain.

The nuts and bolts of a good financial plan includes having “preferred debt,” which includes debt that is tax-deductible (a mortgage) and has no consumer obligations that are non-preferred (i.e. credit cards, student loans, car payments, etc.). Non-preferred obligations will compromise your ability to save money.

Consider the following scenario:

John Borrower has a mortgage of $300,000 with an interest rate of 3.875%. His mortgage is a 30-year fixed rate loan and his monthly payments are $1,410.71. John also has a car loan of $10,000 with an interest rate of 6% and a monthly payment of $500. His credit cards total $8,000 with an average interest rate of 16% on which he has to pay $400 per month, for a total of $2,310.71.

John Borrower has a great credit score because he always carried a small balance on his credit cards, has never missed a payment, and his credit history is squeaky clean. However, John’s car just broke down and he needs a new transmission that will cost him $3,500. Unfortunately, John’s mortgage payment and other obligations take up a majority of his income and now he has very little money saved up.

What does John do? He turns to his credit cards and goes further into debt. He is reluctant to make any changes to his financial burden. He has a great interest rate on his mortgage, but is he really getting ahead financially?

A Better Approach to Debt

There is a more proactive approach John can take that will be more consistent with having a strong financial foundation that will not only make him more creditworthy, but will also give him the ability to save and plan for the future.

The first thing to look at is all of John’s interest rates. True, his mortgage rate is low but the weighted average of his interest rates on all obligations is quite high. His interest payments alone take up a lot of extra money. Let’s look at the math:

Debt Balance Interest Rate Monthly Interest Payment
Bank of Bank Mortgage $300,000.00 3.875% $968.75
Car Lots Mega Car Loans $10,000.00 6.000% $50.00
Credit Cards (BULK) $11,500.00 16.000% $153.33

The total amount John owes in debts is $321,500, which includes his new credit card debt of $3,500 from the new transmission. If you multiply John’s amount owed by each individual interest rate and add it together, John is paying a total of $14,065.00 in interest alone each year.

Broken down: ($300,000 x 3.875%) + ($10,000 x 6%) + ($11,500 x 16%) = $14,065.00

Dividing the yearly interest paid by the total amount owed ($14,065 / $321,500) results in John paying an annual average interest rate of 4.375%.

If John were to refinance his current mortgage at that average 4.375% interest rate, something really interesting would happen to his payments. John is currently paying $2,310.71 each month in debt payments while interest is being accrued on his debts. By combining his debts under one mortgage at the higher 4.375% interest rate over a 30-year fixed-rate term, his monthly payments, interest included, would drop his payments from $2,310.71 to $1,605.20 each month.

Say what?

If John refinances his mortgage for the purpose of debt consolidation, his average interest rate does not change AND his monthly payments are lowered. Of course, because John is already cash poor, he’ll want to roll his closing costs into his mortgage refinance to keep his out-of-pocket expenses down. Suddenly, John Borrower is saving $705.51 each month. John can take that money and invest it or start a vacation fund. He can also put it to the side in case something else on his car breaks down. Regardless of his plans for the savings, the fact is that he is saving money and gaining control of his cash flow.

Having low rates and high rates on multiple forms of debts probably means you are going to be paying a higher rate of blended debt on all of your preferred and non-preferred obligations over time. The reality is that you can save through consolidation and fixing on one lower rate. It might be higher than your current lowest rate, but as John discovered, he could save money by increasing his lowest rate and combining his debts.

What’s Your Ideal Scenario?

The ideal financial scenario for any borrower is to have a single mortgage payment with no debt obligations and to have at least 6 to 12 months of savings (“reserves”) to be used as “back up.” This financial platform increases your borrowing power and is optimal for having a choice and control over your funds. (You can find more tips on how to determine how much home you can afford here.)

If you are thinking about taking out a mortgage or making some financial adjustments in your life, it’s a good idea to first check your credit scores to see where you stand (you can get your two free credit scores, updated every 14 days, on Credit.com.) Next, work with a mortgage lender who has the skill set and ability to really investigate your debts and can show you the real breakdown of your debts and what you are paying over time. You might end up realizing how much control you are missing out on by having payment obligations in an ongoing debt cycle. The numbers might astonish you.

Looking to a new abode? Be sure to avoid these mistakes first-time homebuyers make.

Images: andresr

 

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7 Ways to Save at Macy’s

Sure, you've seen the Thanksgiving parade, but you've also probably shopped at Macy's. And if you do so regularly, these tips can help you save at Macy's.

Macy’s is a very popular department store chain throughout the country, with around 870 stores and a full online retail business to boot. Macy’s sells a wide range of fashion products and accessories ranging from everyday casual wear to high-end jewelry. They even sell home appliances and furniture. So, chances are, you’ve headed there to make a purchase.

But if you walk into the store, grab something off the rack and pay for it immediately, you might be leaving too much money on the table. Here are seven ways you can potentially save big at Macy’s.

1. Shop Macy’s One-Day Sales

Macy’s regularly runs one-day sales throughout the year. Predicting a one-day sale is no exact science, but they can happen as frequently as once per month. One-day sales typically fall on Saturdays, with a sale “preview” on Friday. Clearance items are often marked down even further and shoppers can multiply those savings with coupons.

2. Use Macy’s Circulars

Instead of tossing out your junk mail right away, you may want to check for Macy’s circular catalogs. They often contain deals on marked-down merchandise and coupons for specific departments or cash off your overall purchase. You can even hop online to check for local-specific deals at your Macy’s — all you need to do is enter your zip code in on the Macy’s website and you can also find online catalogs. 

3. Sign Up for Emails & Text Alerts

By signing up for Macy’s email and/or text alerts, you can be the first to know when sales and events occur. Plus, Macy’s often offers discounts just for signing up. Right now, Macy’s is offering 15% off your first purchase when you create an online account and sign up as an email subscriber. 

4. Download the Macy’s App

Not only can you shop on this app, but you can also enhance your in-store experience. By enabling in-store messages on your phone, you can unlock deals as you peruse Macy’s. You can also scan barcodes to check prices, read reviews and check out additional size or color options. And if you decide to order from the app, Macy’s offers 25% off your first app order. 

5. Cash In Your Plenti Rewards

Plenti is a free rewards program that offers points rewards good for discounts at Macy’s and other participating stores, including AT&T, Exxon, Rite Aid and Expedia. Once you’ve signed up, you can earn points for purchases and redeem those points for discounts. For example, 1,000 Plenti points can be redeemed for $10 off your Macy’s purchase.

6. Consider a Macy’s Credit Card

Macy’s has its own credit card (read our review of here). In fact, there are two versions: The Macy’s Store Card, good for in-store and online Macy’s purchases, and the Macy’s American Express Card, which can be used anywhere that accepts American Express. Cardholders can earn a number of benefits, including “Star Pass” discounts, annual 10% savings from August to December, and surprise discounts at the register. The American Express card also earns Plenti points.

It may seem easy to get one of these store credit cards just to get a discount or two. But there’s a lot of important financial impacts to consider before filling out that application, like if you shop there frequently enough to warrant adding this plastic to your wallet and if your budget can handle having this card. You’ll also want to think about if your credit scores can get you a credit card that would be better for your habits or not. (Don’t know? That’s an easy fix: You can take a look at two of your scores for free on Credit.com.)

7. Price Adjustments

Macy’s offers price adjustments that are good for ten days from the date of purchase. If the price of your item drops within ten days, Macy’s will refund the difference. So if the item you just bought goes on sale, you’ll still be able to reap the benefits.

Note: It’s important to remember that interest rates, fees and terms for credit cards, loans and other financial products frequently change. As a result, rates, fees and terms for credit cards, loans and other financial products cited in these articles may have changed since the date of publication. Please be sure to verify current rates, fees and terms with credit card issuers, banks or other financial institutions directly.

Image: mizoula

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Why Everyone Loves the Zero-Sum Budget

How would you like a budget that lets you spend literally every single dollar you have? That’s exactly how the zero-based budget operates, and it’s growing increasingly popular as a tool to help people save more and spend less.

The concept of zero-based budgeting has actually been around for several decades. It was developed in the 1970s by Peter A. Pyhrr, who worked as a manager at calculator-maker Texas Instruments in Dallas, Texas. At the time, the budgeting method caught on as a popular way for businesses to budget but eventually went out of fashion.

Today, zero-based budgeting is having something of a renaissance, not as a business accounting tool but for helping people manage their personal finances.

How Zero-based Budgeting Works

The goal of zero-based budgeting is to ensure you don’t spend any money that you don’t have to spend. The method gives you an opportunity to review each dollar in your budget and assign amounts to spending categories so that you can get a picture of where all of your money goes each month.

“There should never be any money ‘left over’ because a zero-based budget includes expenses such as ‘investments’ and ‘savings’,” says Scottsdale, Ariz.-based Certified Financial Planner Alexander Koury.

The goal is simple: income – spending = 0

How to Follow a Zero-based Budget

List all of your net monthly income

To kick off your zero-based budget, figure out exactly how many after-tax dollars you have coming in every month (you could track your earnings biweekly, as well).

If you’re a salaried worker with a steady income, it’s fairly simply to predict your earnings. If you do contract work or your income is irregular, you may want to average your income for the past three months to create a starting point, then adjust it accordingly.

List all of your sources of income to get your total income for the budgeting period. That number will be your starting point.

Track your past spending

A benefit of the zero-sum budget is that it “helps create awareness of all outflows and expenses,” says San Francisco-based financial planner Catherine Hawley.

In short, you’ve got to know where your money is disappearing to every month.

When you become fully aware of where all of your money goes, you can discover where you’ll need to control your spending.

Start by listing all of your fixed expenses for each period. Those are expenses that you know you will need to make each period. For example, in a monthly budget you may have rent, utilities, and subscription services listed as your fixed expenses.

Next figure out where you spend your flexible dollars. Try an app like Mint to easily categorize your expenses. Or do it the old-fashioned way with a spreadsheet or pen and paper. Koury recommends pulling your past 12 months of expenses to locate and categorize your purchases.

Create your budget

Once you have your income and expenses calculated, it’s time to throw it all together and zero out your budget.

“Budgeting is the foundation on which financial planning is built. Without having a budget, it is difficult if not impossible to grow and create wealth,” says Koury.

Take your income for the budgeting period and subtract your fixed expenses. Hopefully, you’ll still have money to play with, because next you’ll need to decide how much you want to “spend” on savings and long-term goals like retirement.

“When you list out your expenses, put yourself at the top of the expense list. You are the most important, and you always want to pay yourself first,” says Koury.

Fixed expenses and savings (paying yourself) should always come first on your budget. If you still have money left over, don’t let it sit in your account without a purpose. With a zero-sum budget, every dollar you earn should have a job. Otherwise, it’s easy to lose track of those dollars. Go back to the beginning, when you listed out your spending categories. A trend probably emerged, showing you where you spend the most. Maybe it’s eating out with friends, or buying toys for the kids. Designate a certain amount you’re allowed to spend out of your total budget to those categories. Once you set a limit for spending there, you’re less likely to go overboard.

If you get paid bimonthly or biweekly, you may want to create two versions of a budget — one for the first half of the month and another for the second half of the month to accommodate for bills for fixed expenses due at different times in the month.

Pros and Cons of Zero-based Budgeting

Pro: You know where your money is going.

The best part about a zero-based budget is that you’ll know exactly what you are spending you hard-earned money on. At first, your spending habits may surprise you. You may be shocked that you spent more on dining out than on groceries last night, or that your shopping habit has gone a bit overboard.

“The main reason people use zero-based budgeting is to control their spending habits in the face of impulsive behavior,” says Dr. Constantine Yannelis, an assistant professor of finance at NYU Leonard N. Stern School of Business.

When every dollar you earn is assigned to a task, you are able to visualize and rationalize your budget each period. You can see how cutting back in certain spending categories will help you to reach your financial goals.

Con: A zero balance requires a lot of discipline.

If this is your first attempt at budgeting, you may want to ease into it, as it requires you to be very disciplined.

“[The budget] may become too strict, just like a diet, and if one gets off track even for a bit, they may stray from using it and they may go back to their old ways,” warns Koury.

Unfortunately, the budget that creates a place for every dollar doesn’t leave much room for error.

“The chief pitfall of zero-sum budgeting is that it can decrease flexibility, and if adhered to strictly, it can lead to artificial constraints on what individuals may purchase,” says Hawley.

Don’t be too hard on yourself. It may take a couple of budget cycles for you to get used to your new budget and to adapt it to your lifestyle.

Pro: If you stick to it, you’ll see results.

This budget is not for the commitment-phobic. The zero-balance budget is an exercise.

“It is a very results-based approach to creating great results,” says Koury. “The more disciplined you are in your approach, the more effective the results can be. If you have specific goals, then you would want to use this approach.”

Dr. Yannelis says the zero-balance method is also good for new budgeters because “it provides a commitment device for individuals with difficulty meeting their spending and savings objectives.”

Con: This may not work well for emergencies.

The zero-balanced budget is pretty strict, so “it may not work well if people have unpredictable spending needs due to health issues, children, or other life events,” says Dr. Yannelis.

To combat this, you’ll want to make sure to contribute to an emergency fund each period and to make sure you have insurance coverage for all of the important things — health care, disability, life, home, auto, etc. You can’t predict when an emergency will cost you financially, but it’s better to have cash stashed so a small emergency with the kids won’t interrupt your budgeting goals.

Pro: You can track progress toward your goals.Using this budget — especially when you use it with a budget-tracking tool— can help you see the progress you are making toward your savings and debt repayment goals. If you can stick to the contribution you make each month, you can more easily predict when you will reach your goals.

Mark that date, and stay as close to your budget as possible to reach your goal by it. If you happen not to spend all of your money in a particular category, it has to go somewhere. You can contribute the extra funds to your savings or debt payment goals to beat your target date.

Con: You may be “overdoing” your needs.

The zero-balanced method can get very detailed since you need to track the route of each and every penny.

“It can be more detail than some people need. For some it’s enough to carve out long-term savings and live off the rest,” says Hawley.

Koury says the method works better “for those that are diligent about their finances and are analytical.”

If you make more than enough money, you might not care or feel the need to make a super-detailed budget.

“Some people just like knowing they put a certain amount of money in their savings account monthly, and they spend the rest,” says Koury.

Tools to Help You Master Your Zero Balance

EveryDollar and EveryDollar Plus

EveryDollar is the budgeting app created by personal finance guru Dave Ramsey, who popularized the zero-based budget for personal use. You can use it on your desktop or smartphone.

The app automatically creates eight spending categories that cover the basics of most budgets, but you can create budget-specific custom categories, too. It also lets you set up “funds,” which are saving accounts. This lets you set aside money for an emergency fund or other savings goal. The app also sends you tons of reminders to stay on top of your goals.

In addition to the basic version of EveryDollar, there is a premium version called EveryDollar Plus that can be connected with your bank account to pull in your transactions automatically.

You Need a Budget (YNAB)

You Need a Budget — aka YNAB — is budgeting software that’s also available for desktop and mobile devices. The company’s mantra, “Give every dollar a job,” describes its zero-balance foundation.

It prompts you to assign the money you have to a budget category. When you have one month’s worth of expenses fully funded, you can start budgeting funds for future months.

YNAB will cost some money to use. The platform offers a 34-day free trial, after which you will have to pay either $5 a month or $50 a year. Students can get 12 months of YNAB budgeting for free, after which they’ll be eligible for a 10% discount for one year.

The post Why Everyone Loves the Zero-Sum Budget appeared first on MagnifyMoney.

How To Talk To Your Kids About Student Loans

Student loans are much more of a reality for kids today than they were for their parents and other previous generations of college students. The cost of education has risen so quickly that in 2014 almost seven out of 10 students graduating college had loan debt—nearly $29,000 each, on average.

This means discussing student loans needs to be a key part of family discussions on college. The earlier these talks happen, the better. I know this first-hand, as my eldest daughter is a college freshman this year.

Affordability is key

The conversation about how student loans work can include talks about what your family can afford in terms of college. At one end, a family may decide that they will find a way to pay for the best colleges to which their college-bound student is admitted—no holds barred. Even if both parents have to get second jobs, they will pay for their child to attend the most prestigious college to which he or she is accepted.

In our family, the chat was quite different: We told our daughter what we could afford and invited her to apply to colleges that were reasonably within our budget range. There was no sense in having her look for her “College Charming” and then tell her we couldn’t afford it.

We also talked early—during her sophomore and junior years in high school— about student loans and the importance of limiting them as much as possible. Why? Heavy student loan debt can be a tremendous burden on new college graduates. It can limit their choices of jobs because they often must earn enough to pay off their debt, especially if they can’t count on financial help from parents or other family members. In the long run, significant student loan debt, like any other debt, might also delay or limit the borrower’s ability to buy a home, start a business, or even begin a family.

How much is too much?

Syndicated author and radio talk show host Clark Howard suggests students not take out more in student loans (in total over four years of college) than the entry-level salary they can expect to earn their first year after college. If the student expects to earn $30,000 in their first job, that number should be the ideal student loan limit in total. (College students can estimate entry-level wages in their field with online tools such as salary.com.) Of course, seeking advice from financial aid consultants might be helpful (if pricey), and many colleges offer financial aid resources.

Learning about loans

The U.S. Department of Education requires students to enroll in online counseling when they first take out federal student loans. Sitting through it with your student may provide opportunities to help explain the concepts covered, such as accruing interest and repayment rules.

The repayment calculator was a huge eye-opener for my daughter, as she was able to see what her student loans could cost her in actual monthly payments. Making the loans real is a great way to discourage overborrowing.

More things for students to consider

Emphasizing a few key factors may be helpful to your student in understanding the essentials of college loans. For instance:

  • Personal expenses. Loans aren’t intended to cover personal expenses. Your child could cover pocket money by working during college, even if that’s just five to 10 hours per week.
  • Quitting college. If your student leaves school or drops down to less than part-time status, there is only a six-month grace period before your son or daughter must begin paying back federal student loans.
  • Credit score. Paying loans on time and as agreed to helps your student keep his or her credit score healthy, which is important when attempting to rent an apartment, get a car loan and much more. Credit reports are available for free one time each year at annualcreditreport.com.
  • Declaring bankruptcy. It’s very tough to walk away from unpaid student loans. Even if other debts are discharged during a bankruptcy, you will usually remain responsible for any federal student loans. Again, this underscores the importance of not overborrowing.
  • Charging college expenses. Using credit cards is not a good choice for paying for college. A close relative of mine charged his entire senior year of college on credit cards. As you might imagine, the interest rates make paying back the loan amount incredibly challenging.
  • Private student loans. These loans should be considered carefully, and perhaps only as a last resort. According to Howard, private student loan interest rates may be much higher than federal loans, and a student often has little flexibility on repayment plans. Like other school loans, private loans are not usually discharged during a bankruptcy. Students short on money might be better off attending a less expensive community college for their first two years to satisfy many general education requirements. Others might consider working more hours and attending school part-time if necessary. Borrowing from family members such as grandparents might be another option.

 

Post-college plans and opportunities

We emphasized to our daughter that paying off student loans should be her first priority after college. Our family places a high importance on living free of debt, and she’s getting the message that student loans are no exception to this rule. We are encouraging her to plan on “living like a student” for several years after she graduates so that she can put every dollar possible toward paying off her student loans.

Depending on your graduate’s line of work, he or she may also want to look into student loan forgiveness programs. Many teaching and public service jobs offer this as a benefit to encourage college graduates to work in underserved communities.

As Mary Hunt, author of the book Raising Financially Confident Kids, wrote: “It’s not as if student loans and big credit card balances are mandatory graduation requirements. … It is possible to graduate debt-free, but it does take a lot of work. And you’ll have to buck a financial system that encourages students to take the easy way out by diving into a lifetime of debt.”

 

5 Home Maintenance Tasks That Can Save You Money

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Home maintenance can be time consuming and expensive and, as a result, may be one aspect of homeownership you tend to avoid. But there are some easy and cheap DIY tasks that can actually save you money and time in the long run. By spending a weekend performing some simple maintenance tasks around the house, you could reduce your bills or avoid costly contractor fees in the future.

1. Fixing Leaks

Leaks don’t seem like they should cost that much. After all, it’s only a few drops of water at a time. But according to the Environmental Protection Agency, an average household’s leaks can annually waste more than 10,000 gallons of water and artificially inflate a water bill by 10%.

Fixing leaky faucets and toilets can cut back on the wasted water. It’s environmentally friendly and it saves you money. Win-win.

2. Cleaning Gutters

Your gutters are an important home protection system. When it rains, gutters carry water off and away from your home. If your gutters and downspouts are clogged, water builds up on your roof and collects around the foundation of your home. Over time, this can lead to leaky roofs, sagging gutters or even flooded basements. At this point repairs become expensive.

You can prevent this damage by cleaning your gutters of leaves and other debris at least once a year (more frequently if you have overhanging trees). All you’ll need is a few simple tools which may include a ladder, gloves and a hose. It could also pay off to check gutters after strong storms.

3. Replacing HVAC Filters

Your HVAC system circulates air throughout your home and regulates the internal temperature. Unless you live in a moderate climate, your HVAC system most likely uses more energy than any other home system or appliance.

HVAC systems use air filters or screens to prevent larger dust particles from clogging up the works. When these filters become dirty, air flow is reduced and the system has to work harder. Luckily, these air filters are fairly cheap and easy to swap out. You’ll want to switch them out every few months (more frequently if you have pets or a large family).

4. Maintaining Smoke Detectors

Early detection of smoke or a fire could save your life. It could also save your home and your property — for instance, if something starts smoking in the oven, you have a shot of preventing a major fire before it even occurs.

Don’t wait for the telltale “beep” to service your smoke detectors when they’re low on battery life. Instead, check your smoke detectors regularly, ensuring they work properly, and replace batteries or the unit itself when needed.

5. Programming Your Thermostat

When you set and forget your thermostat for long periods of time, your home could be working hard to heat or cool itself while no one is there. When you’re asleep or away from home, you can save money on energy costs by reducing your HVAC system’s workload.

It’s difficult to remember to manually set your temperature before you leave the house. Programmable thermostats can be set around your schedule, and reduce the amount of wasted energy spent cooling or heating an empty house.

As you take steps to repair things around your home, make sure you’re doing so in a way that keeps you on budget, as it isn’t worth going into debt over. You can see how doing DIY projects are impacting your financial goals, like maintaining a good credit score, every 14 days for free on Credit.com.

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3 Ways to Stick to Budget When You Don’t Have a Steady Paycheck

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It’s difficult enough to balance your budget with a steady income, but can be really stressful when you aren’t making one. Here are some helpful tips to manage your budget when you don’t have a steady paycheck.

1. Know Your Income-to-Expense Ratio

Understand how much money you have coming in and how much is going out. If you have to, sit down and gather all of your expenses from the past three months to help you get started. Write down your net pay (take home pay) and then how much you’ve been spending on essential and non-essential expenses. If you are spending more than you are earning, then you might want to cut back a little. If you stick to a steady budget and have a good financial balance, then you won’t ever find yourself scrambling for money when your bills come in and you’re between jobs.

2. Stick to the 50/20/30 Rule

The 50/20/30 rule consists of fixed expenses, goals and discretionary (flexible) expenses. You want to dedicate most of your take home pay to your fixed expenses – regular bills, groceries, car payments, etc. You might want to put the next 20% of your paycheck toward your future goals. Do you have any upcoming events that are costly? For example, you might be planning a wedding in the next year or two. You want to make sure your goals and budget run in parallel tracks. If your goals ever change, then you will find yourself going in and adjusting your budget. Don’t let both of these crash as it will only put a large dent in your wallet.

The golden rule is to put 30% of your net-pay towards discretionary or flexible expenses. This could be eating out, hobbies, going to the gym, entertainment, etc. I recommend trying your best to never reach that 30% mark. If you always are spending 30% or more of your pay on non-essential items, you may lose track of your spending and find yourself in debt in the future.

It’s also a good idea to keep your credit card balances low as higher debt ratios can have a negative impact on your credit scores. You can see how your spending is affecting your scores by checking your two free credit scores, updated every 14 days, at Credit.com.

3. Have an Emergency Fund

Maintaining a financially stable life on an irregular income can be difficult. You never know when you might be in transition or out of a job for a short time. Try to always have a back-up option. An emergency fund can help you stay prepared for unexpected expenses. Even if you know you will always have money coming in, you never know when a large, unexpected expense will come up. An emergency fund will help you stay on top of your finances and always prepared for the unexpected.

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10 Halloween Decorating Ideas That Won’t Break the Bank

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