Need to organize our finances

[taubel]

Hi - My husband and I are naturally fairly frugal people - although we do spend a fortune on organic food, shampoos, sunscreens, etc. We make "enough" money, DH has two jobs, I have one part time job, we live fairly well (but simply).

We were planning to purchase a slightly larger house in the next few years. But now, with mortgage rates so low, and housing prices down slightly in our area, we are considering buying the larger house now. I will be working more hours in a year or two, so we will be able to afford the house then - but now we will most likely have to use our savings to make up the extra costs.

Anyway, we have never had any sort of budget down on paper. I have no idea if we have any extra money left over at the end of each month or if we're taking too much from our savings already. It seems to be working out OK (probably pretty even), but I'd like to get a better idea of what money goes in and out.

We have Excel. Could we create our own budget within that or is it too basic? DH is hesitant to use online budget programs, because then others might have access to our financial situation.

What can we do? Thanks!

[dachshundqueen]

Originally Posted by taubel

Hi - My husband and I are naturally fairly frugal people - although we do spend a fortune on organic food, shampoos, sunscreens, etc. We make "enough" money, DH has two jobs, I have one part time job, we live fairly well (but simply).

We were planning to purchase a slightly larger house in the next few years. But now, with mortgage rates so low, and housing prices down slightly in our area, we are considering buying the larger house now. I will be working more hours in a year or two, so we will be able to afford the house then - but now we will most likely have to use our savings to make up the extra costs.

Anyway, we have never had any sort of budget down on paper. I have no idea if we have any extra money left over at the end of each month or if we're taking too much from our savings already. It seems to be working out OK (probably pretty even), but I'd like to get a better idea of what money goes in and out.
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We have Excel. Could we create our own budget within that or is it too basic? DH is hesitant to use online budget prgrams, because then others might have access to our financial situation.

What can we do? Thanks!

If this implies that you are already taking money from savings to get by on a monthly basis, moving to a larger home could be disastrous. Your homeowners and taxes may (probably will) go up, but utilities more than likely will.

The idea that you will be working more in a year or two may or may not pan out depending on the job market - I wouldn't purchase a larger house I know I cannot now afford on that basis that you're stating will be a drain on your savings.

Track your spending for a month or two - every cent. It is highly unlikely that the economy will suddenly turn around in the next two months making it less advantageous to be buying.

Budget: Just use the sum function or bury formulas in the various cells. Easy enough. Tedious to do all the data entry though.

Liz

[cappuccinosmom]

I agree with Liz.

Do not buy a house now with the assumption that you'll have more money later. That is a huge risk. Not worth it. Really not worth it.

Track your money. Every penny. Write it down. Tot it up. See what you're spending in relation to your income. Then look at what needs to be cut, and what you are willing to cut in order to consider purchasing a house and actually being able to afford it.

You do not want to be dependant on savings to pay your mortgage.

[texmati]

We were in a similar situation at teh beginning of the year. We wanted to know if it would be possible for me to SAH.

The good thing of living in the internet age, is that even if you haven't been tracking your budget, *someone* has.

Unless you do quite a few cash transactions, you should be able 'recreate' your financial history by looking at your bank accounts, credit card statements, check written (some banks will have scanned copies of all of these). We ended up going back a year and re-constructing to figure out our 'run rate'. It seemed like it would be crazy overwhelming, but it wasn't so bad when we got into it. It took a lot of the fear an mystery away from making a major decision. We also were sure to do a loooong time period to 'catch' one time things like vacations, medical payment etc.

[heatherdeg]

Originally Posted by texmati

Unless you do quite a few cash transactions, you should be able 'recreate' your financial history by looking at your bank accounts, credit card statements, check written (some banks will have scanned copies of all of these). We ended up going back a year and re-constructing to figure out our 'run rate'. It seemed like it would be crazy overwhelming, but it wasn't so bad when we got into it. It took a lot of the fear an mystery away from making a major decision. We also were sure to do a loooong time period to 'catch' one time things like vacations, medical payment etc.

I agree with all of the posters so far, and want to emphasize the quote above. I think you really need to look at the last 3-6mo worth of spending and really figure out 1) how much of it can be scaled back (and live that way for 3mo before you decide it's do-able long-term); and 2) how much you're spending on everything.

When you get that figured out, you'll then want to talk to an accountant about how the new house will affect your tax liability. Having mortgage interest and property taxes are actually a tax BENEFIT and may allow you to withhold less money for taxes--making more of your dh's take-home pay available to you. So if he brings in (hypothetically) $3,000/month now, maybe having the interest and property tax write-off will increase that to $3,300/mo or $3,500/mo.

For us, we would plan as if we didn't have that extra money and bank it for emergencies and new-home-ownership costs (a mower we didn't need before, the dryer that dies in the first year... stupid stuff that adds up FAST and can become credit card debt that never goes away). But you should know if that exists for you or if something about your current situation makes it a wash.

The other thing is, the mortgage companies are STILL approving people for more money than they should realistically be spending. The burden is on YOU to determine what you can carry each month without assuming that "the mortgage company won't approve me if I can't afford it". That is, even now--after all the foreclosures, etc.--blatantly false. We were approved in July for a mortgage burden that was beyond ridiculous. Same thing in spring of 2008 when the market was already tanking and foreclosures were already rampant. If you're putting less than 20% down, be sure to find out how PMI will affect that monthly payment and how much the loan amount will increase (they've recently changed these rules and percentages).

But if you are currently dipping into your savings right now, you're not likely to be ready to buy unless the amount of your mortgage, taxes, insurance and possible PMI is going to be less than whatever rent plus renter's insurance you're paying now. And if you'll be buying a house that's bigger than where you are, you'll have utility increases, too.

We spend money on food like you do, too. You MIGHT decide to eat mainstream food or make some other kinds of sacrifices to afford buying now (maybe only buy organic for the "top 12" most pesticide heavy foods, for example). But you won't have any idea what you need and therefore what you might need to do to get there until you track it.

And again--LIVE WITH ANY CHANGES FOR 3 MONTHS before deciding it works long-term. By then, you'll know if you can TRULY live with it or if it's just not possible.

[taubel]

Thanks for everyone's insight! It's very helpful. I did a quick list of our income (take-home pay), and then all of our expenses. We do have a couple hundred left over each month. Of course, this seems to all (that's what I need to figure out) get sucked up to buy new clothes, car repairs, birthday presents, etc.

I am also going to do what a few of you suggested and track down our expenses from the past year. It is all online - we hardly ever use cash.

I will need help to figure out tax implications of a larger home. Say we sold ours for $200K and bought a larger one for $275. Our taxes would go up almost $200/month. Our mortgage would obviously go up, BUT we would get a lower rate than we have now (almost a full point lower).

I don't think the utilities would go up substantially, since our house has no insulation and already costs a lot to heat. And we're only thinking about buying a house that's 200 to 300 square feet larger than our current one.

And then of course there would be more interest and taxes to write off, so wouldn't we get a larger tax refund?

Is there any way to figure out the tax implications ourselves or should we just speak with a professional?

Thanks!

[heatherdeg]

Actually, if you currently own a house with a smaller mortgage but higher interest rate--depending on how far into that term you are, your interest write-off may be the same as a higher mortgage with a lower rate. And I would estimate the utilities to be the same. You hope to buy a house that heats and cools more efficiently, but you really never know.

I would speak to a professional about the tax implications. The actual payments on a mortgage are something you can figure out (PMI included) with online research. I'm not sure I would attempt to figure the income tax situation.

And really, the goal is not to get a bigger refund. It's to change your withholding so that you get that refund money every month to help you pay your bills or put in your savings account (or emergency fund). We usually check with our accountant in the end of June--giving him the last June paystub and talking about what's going on for the year so that he can tell us if we need to change our withholding for the rest of the year. We aim to get back no more than $1,000/year. It makes our accountant nuts, but I can't shell out for taxes at the end of the year. BUT, it also means that we don't put things on the credit card all year because too much money is being taken out of dh's pay.

I would also seriously track your food spending. I used to co-host a family finances board and this was CONSISTENTLY the one place people thought they knew what they spent and were REALLY stunned when they tracked it for a few months... and not in a good way.

Clothing, gifts, car repairs, household stuff, family activities, vehicle licensing/renewals, animal stuff (licenses, vet visits, grooming, boarding)... these are all things that we budget for and have direct deposited to a separate account since they're not regularly-occurring expenses. And it took us a few years to really nail the numbers on.

[sanguine_speed]

Originally Posted by taubel

Thanks for everyone's insight! It's very helpful. I did a quick list of our income (take-home pay), and then all of our expenses. We do have a couple hundred left over each month. Of course, this seems to all (that's what I need to figure out) get sucked up to buy new clothes, car repairs, birthday presents, etc.


Thanks!

These items should be contained within a working budget. If you have no budget for car repairs, clothes, gifts, then you don't really have a budget (unless you don't have a car, run naked, or never give gifts).