The Balanced Spreadsheet-Financial News, Budget Advice, Debt help, Financial Tips, and other advice

August 26, 2009

To pay down or not to pay down?

Filed under: Goals, Mortgage, Personal Finance — Tags: , , , , , — thebalancedspreadsheet @ 2:47 pm

One of the greatest debates in the financial world today is whether or not to pay off your mortgage early or ride the mortgage out for the full term.  There is very passionate debate in the blogosphere world from both sides on this.  There are those like Ric Edelman who believe in never paying off your mortgage, while others believe in paying off the mortgage ASAP.  If you have read our financials goals summary or the full post you know that my wife and I believe in paying off the mortgage, but only after 15% of our pre tax income is going towards retirement.  This plan is similar to the one Dave Ramsey uses.  Below are some points each side makes followed by what my family settled on:

Reasons to keep the mortgage-The main reason to keep your mortgage and not pay it off is because you can invest your money at a higher interest rate.  While most mortgages are in the neighborhood of 4.5-7%, there are many mutual funds that have a long track record of returns greater then 10% annually.  Instead of paying down the mortgage, just invest extra into these funds and over time you will have more wealth.  Another argument made by people who keep their mortgage is that you get a tax write off on the interest paid on your federal income taxes if you itemize.  So essentially a portion of your interest on the mortgage is being paid by the federal government.

Reasons against keeping the mortgage- To sum it up in one word . . . . RISK!  Finding investments that earn greater returns then your mortgage rate sounds great but what happens if when your investment returns go south and your house value plummets?  If it sounds like I am talking about our current housing environment, it is because I am!!!  In the last few years we have seen housing prices plummet all over the country.  By not paying down the mortgage you could be underwater (you owe more on the house then it is worth) and your investments worth about 60% of what they were two years ago.  You get handcuffed because if anything happens to you like you lose your income due to job loss or have health problems and need to move, you will not be able to move unless you can pull off a short sell.

Reasons to pay down the mortgage-Not owing anybody a dime is a felling that I can only imagine.  Paying down the mortgage is a safe, guaranteed investment.  My paying extra on the mortgage it is essentially like a savings account at whatever interest rate your mortgage rate is.  Since interest rates are currently at all time lows, paying down the mortgage is a better “investment” then a CD or money market account.  For those who struggle savings this is a good tool because it is a lot harder to get the money out in equity in your home then to take out money in the bank to make impulse buys.  In addition, once the house if fully paid off there is increased cash flow.  Mortgage payments makeup somewhere in the neighborhood of 25-35% of take home pay for the average worker.  This freed up cash allows them to make other investment as well as enjoy more things.

Reasons to not pay down the mortgage- Having a mortgage is a good hedge against inflation.  I am not going to explain in detail how having a mortgage can be a good thing during periods of inflation.  Truthful lending explains it a lot better then I ever can.  However this is a really interesting point to ponder because most people feel that will all the government borrowing we have had in the past year that inflation is due to occur.

After taking arguments from both sides and comparing the pros and cons, my wife and I decided that paying off the mortgage will be the best thing for our financial future in the short term and the long term.  Being able to walk through our house while having title free and clear will be a great feeling as well as free us to do save more cash which will in turn create more wealth. 

Coming up in the next few posts I will explain our plan to pay off the mortgage sooner.  That will include an amortization schedule, possible refinancing issues, as well as plans that help you pay off your mortgage sooner such as bi-weekly plan and mortgage acceleration plans.

So what is your opinion of the mortgage?  Get it and keep it or get it and pay it off?  Let me know your experiences below.

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August 21, 2009

Shoppers having second thoughts?

Filed under: News Review, Personal Finance — Tags: , , , — thebalancedspreadsheet @ 5:21 pm

An article today by the AP titled “More shoppers thinking twice in the checkout line” highlights the importance, in my opinion of having and sticking to a budget

They’re [shoppers] leaving sweaters in the dress department, dumping cookies near the grocery cashier and waiting until the last minute to judge needs versus wants. Online, shoppers are consumers are abandoning their virtual carts as they search for better deals.

Customers are asking cashiers to provide a total while they’re still scanning items to see where they stand, or to have necessities like health care basics scanned first, said Dan Fishback, chief executive of DemandTec Inc., a retail technology company. When they hit their limit, they forgo what’s left in the basket.

Now I am certainly all for focusing on needs and not wants in addition to spending what is in your limit.  But with that being said, shouldn’t you have an idea of what you can afford before you get into the store?  Having a budget allows you to do that.  When my wife and I sit down at the beginning of each month and do our budget, we know then exactly how much we are going to spend of food, clothing, entertainment, etc.  Some may say this is constrictive, but I say the opposite!  I find that knowing how much you are going to spend before the month begins frees you and allows you to enjoy your purchases and not wonder in the back of your head if you can really afford this or not.  Overall I think it takes discipline to be able to say no at the checkout, but it takes even more discipline to create a budget and stick with it.  And discipline is the key to financial success.

August 19, 2009

401(K) Contribution Increases

Filed under: News Review, Personal Finance — Tags: , , , — thebalancedspreadsheet @ 1:26 pm

I found a refreshing article on CNNmoney about the increase in 401(K) Contributions in the 2nd Quarter of 2009.  The article is a week old which I know makes it ancient history, but I want to highlight a few points.

“For the first time in a year, more workers increased the amount of money they put into their 401(K) accounts during the second quarter than decreased their contributions, according to a report issued Wednesday by a retirement fund manager.”

There can be many reasons for the decreased contributions during the past year, mostly fear by investors of putting their money into the market when it is nose-diving, paying down debt, or fear of job loss.  However, I think this is a great time to be putting more money into a 401(K) right now.  The markets are trading around 6 year lows, meaning that you might never be able to buy funds at these lows prices again.  You can kind of say the market is on sale right now so buying low means buying more shares.  Also in the short term, the markets have increased sharply.  Since March 9th the Dow Jones, Nasdaq, and S&P 500 are up 40.8%, 54.1%, and 46.3% respectively!

“Fidelity said the average 401(k) account balance rose 13.5% in the second quarter to $53,900. The increase was primarily driven by the rally on Wall Street, but higher worker and employer contributions also contributed to the rise, the company said.”

After about a year of double digit losses this was refreshing to see.  It was great each month when I was doing our net worth to actually see our 401(K) in the black for the month!  Personally, when you combine the increase in Wall Street and the contributions to my account, my 401(K) experienced about a 33% increase in the second quarter.

“Workers who maintained a long-term point of view are being rewarded with a nice recovery in their account balances,” said Scott David, president Fidelity Investments workplace investing division.”

I think this is a great quote.   By definition investing is having a long-term point of view.  Although my returns made my 401(K) look like a 201(K) the past year and a half, I know I have at least 30 years until I will need to use my money.  This perspective allows one to be able to be calm through this economic turmoil.

August 14, 2009

The Balanced Spreadsheet’s Financial Goals

Filed under: Goals, Personal Finance, Real Example — Tags: , , , , , — thebalancedspreadsheet @ 2:27 pm

“If you aim for nothing you will hit it every time.” ~ Unknown

I believe that setting personal financial goals are a very important part of life.  As the above quote states, those that have no financial goals usually have financial hardship and strain as well as a difficult time creating wealth.  Today I would like to list our seven personal financial goals and talk a little bit about them.

1.)   Stay out of Consumer Debt-Currently this goal is being achieved.  We do not have credit cards, student loans, car payments, or any other misc debt.  It was great to start our marriage off with out any consumer debt.  We are committed to save and pay cash for all our future cars.  I know that makes us strange and will probably exclude us from ever using cash for clunkers, but I think in the long run that is a good thing. 🙂

2.)   Invest 15% of our income into retirement accounts-As with goal #1, this is being achieved as well.  15% of our income each month is going into 401(K) and ROTH IRA’s.  We feel like this is a good amount and since we are young (27 and 30 respectively) and have to leave it alone for at least 30 years this will give us more then enough of a nest egg when we are ready to retire. 

3.)   Pay off the mortgage ASAP-This goal is still about 4-5 years away but we are getting close every month!  Currently we owe a tad over $92,000 on the mortgage.  All extra money is going toward the mortgage payment and we are currently paying around $1,750 on principal each month.  Paying off our mortgage will put us in a great cash flow position and will make us totally debt free!  With the additional cash our goal will be to invest more into our retirement accounts as well as save up for some rental properties.  I personally can not wait until this day come to fruition.

4.)   Stick to a zero based monthly budget-Obviously judging from the title of this blog you know I believe in a balanced spreadsheet. 😉  Also, if you have read the very first post on this blog you know that we currently do have a zero based monthly budget.  However the budget is constantly changing as new expenses come up.  I feel like my earnings are going to continue to increase so I know that we will be able to continue to balance each month, but that does not mean that there will not be any hard decisions.  A zero based budget to me is key because it forces you to spend everything on your spreadsheet before the month begins.  I usually find that budgets with cushions in them usually do not work as well because the cushions usually get blown on unnecessary stuff by the end of the month.

5.)   Have my wife stay at home with the children full time-If our first 4 goals are being completed, this will be a slam dunk.  We do not know when we will begin a family but this is something that my wife and I both want and we are thankful that by following our goals we are able to accomplish it.

6.)   Continually increase our giving-My wife and I love to be givers.  It is something we do not because we are required to, but by choice because it just opens us up emotionally and spiritually to great things.  We enjoy giving to our church, non-profits, and individuals in need.  As our wealth increases and our debts decrease we hope to be even BIGGER gives then we are now!

7.)   Start my own business-The thought of being my own boss is something that has always appealed to me.  I have always been good with numbers and have a passion for financial counseling.  I am thinking something along those lines but time will tell.  Being able to do give financial guidance full time is a long term goal of mine.

Well there are our seven financial goals.  I would encourage everyone to create and follow your own financial goals.  It is exciting to see to chart your progress and see how far you come along.  Also by creating goals you will be creating a long term plan and vision for your financial future.

What about your financial goals?  Are they similiar?  Different?  Please leave a comment below.

August 13, 2009

Debit rewards up, while credit rewards down

Filed under: News Review — Tags: , , , , — thebalancedspreadsheet @ 8:12 pm

I came across this article today titled “Rewards Shift”. It is an interesting article focusing on the increase in debit card reward program usage while also noting the decrease in credit card reward program usage. This is good news to me personally because I am a big proponent of the debit card and do not use credit cards. Currently I have a reward checking account with Charter bank out of New Mexico that pays 4.01% APY provided that I use my debit card 13 times a month. It will be interesting to see in this current economic climate if this will continue. Debit card use is on the rise so it would be nice to see the banks offer some sweet offers to gain your business.

August 11, 2009

The decision to work less hours

Filed under: Real Example — Tags: , , , — thebalancedspreadsheet @ 2:55 pm

After much discussion, my wife and I have decided it would be best for my wife to cut back on the amount of hours she was working!  Currently she was working full time at 40 hours a week; in addition, she was also working a lot of evening hours as well.  Considering that I am an early bird and go into work at 7:00 in the morning, some nights we would hardly see each other at all. After talking it over with the owner of the business, my wife and he decided on a 35.5 hour work week starting this week. While 4.5 hours a week might not sound like much, she will also be going in to work earlier in the morning, meaning we will have more time to spend with each other in the evening.  We are really excited about this.

In terms of financial impact, there will not be a lot of change. Since ultimately our goal will be for my wife to stay home full time when we have children, we have a budget based on my income alone.  So overall the financial impact will be small, we won’t be able to save as much as we wanted to, but overall having a better home life where my wife and I can connect and spend more time together FAR outweigh any financial loss. It has truly been a blessing that we have each had full employment in this down economy, and the only way we could think of doing this is because we have a set financial plan where we are debt free except our mortgage and have our emergency fund full funded. I can not help but think of how many people want to be able to cut back on hours, but simply can not due to credit card debt, car payments, and huge mortgages.

August 1, 2009

July ’09 Net Worth update (+9.29%)

Filed under: Excel fun, Net Worth, Personal Finance — Tags: , — thebalancedspreadsheet @ 10:01 am

We have a real good month this month as our net income increased over 9%!  This was primarily due to the stock market recovering and the sale of some company stock.

 

Networth July '09

Networth July '09

Cash-The huge increase this month was due to the sale of some company stock in the Employee stock purchase program (ESPP) and the fact that we only made the minimum payment on our mortgage this month.  Currently we have a nice cushion but some of that is going towards a trip and possible IRA funding down the road.  

ESPPAs previously noted, our ESPP account was depleted to buy stock on June 30th.  That stock was sold on July 7th and put into our cash reserves.  The July amount equals one month’s pay that will be used to buy stock at the end of the third quarter.

House-Nothing new on the housing front as there has not been a condo sold in our development since March.  I am tracking this monthly as similar condos in other developments have sold but I really do not feel comfortable in trying to do comparative sales at this point.

Retirement-Nice to see our retirement accounts rebound.  Most of that is growth as I did not contribute any more to my employers 401(K).  The wife and I did each open up a ROTH IRA for 2009.  We only contributed $250 each, but will probably contribute more before the year is up.

Pension-Same contribution as last month.  This amount should stay steady until November or December.

Mortgage-Since last month we paid almost $9,000 in principal to remove PMI, we decided this month to just pay the minimum payment to build our cash fun a little.  Next month we will go back to making triple mortgage payments (!) in order to pay down the mortgage faster.

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