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

September 29, 2009

How much do I pay in taxes?

Filed under: Personal Finance, Real Example, Simulation — Tags: , , , , — thebalancedspreadsheet @ 7:59 pm

Have you ever wondered how much you really pay in taxes each year?  I was curious and decided to see what my real income tax rate is.  I took what my wife and I had made so far this year and projected our earnings for the fourth quarter of 2009 and came up with our gross income.  I then did a tax projection and came up with the following:

09-29-09 How much do you pay in taxes

 

 We are in the 15% Federal tax bracket, but due to itemized deductions, 401(K) contributions and the Making work pay tax credit, we will pay about 7.5% of our gross in federal income taxes.  Our Social Security and Medicare taxes are blow their rates of 6.2% and 1.45% respectively due to health insurance premium deductions.  Even though property taxes are not tied to income, I included them anyways because they are a tax.  Unfortunately I do not keep all my receipts (I am not that much of a nerd. :)) though out the year to add sales tax in my calculations. 

The 22.45% tax means we worked until March 23rd to pay all our taxes for the year.  According to research done by the Tax Foundation, we beat Ohio’s average by 19 days (April 11th) and the national average by 21 days (April 13th)!

This post is not mean to be a pro-tax or anti-tax post.  It is just meant to be fun to see how much you really pay in taxes each year.  If you work for an employer most of your taxes are already taken out of your paycheck before it even gets to you and it is easy to forget to check how much you pay each year.

September 25, 2009

Cash For Clunkers not such a great deal after all?

Filed under: News Review, Personal Finance — Tags: , , , — thebalancedspreadsheet @ 12:37 pm

William Jeanes wrote an amusing but thought provoking article on AOL Autos titled “Cash for Clunkers Buyers suffer Buyer’s Remorse, won’t save fuel”.  It is based on research done by CNW Research of Bandon, Oregon.  I wholly recommend reading the full article, but here are some of the highlights from it:

“more than 17 percent now harbor “some” doubt or “serious” doubt about letting a government subsidy convince them to go further into debt.”

“The significant revelation of the CNW survey, however, is that under normal conditions only 6 to 8 percent of new-car buyers suffer the shouldn’t-a-done-that syndrome.”

Yikes!

“The actual C4C numbers were an average loan length of 49 months and an average payment of $317”

That is a total payment of $15,533

“CNW surveyed drivers involved in the purchase of the first 239,000 C4C vehicles. The average intended annual mileage was 10,894, up from the actual clunker mileage of 6,162. For those of you without a calculator falling readily to hand, that’s nearly double.

But what about that miles-per-gallon improvement we were promised? Well, we got it. The average fuel economy reported by C4C buyers rose from 16.3 mpg for Old Dobbin to 24.8 for the new carriage.”

That is about 61 extra gallons a year by my calculations.  Meaning consumers will pay about $130-$150 more in gasoline a year.  So people are going into debt over $15K on average to pay more in gas each year?

“Three revealing line items in a separate CNW survey noted that the drain on the family coffers would be offset by reducing the pay-down of credit card debt, deferring home improvement and removing money from non-targeted savings.”

Double Yikes!

As always there are two sides of every story.  Dave Ramsey as always has an entertaining review on his website.  It hit me though when reading this article that I do not think our country really has not learned anything from this recent recession.  Going into more debt at the sacrifice of savings and paying down existing debt is not the way to go long term.

Anybody else have any thoughts on this issue?

September 24, 2009

Should I Refinance? Part II-The Final decesion

Filed under: Excel fun, Mortgage, Personal Finance, Real Example, Simulation — Tags: , , , , , — thebalancedspreadsheet @ 8:03 am

I would like to wrap up today my series of posts on refinancing with the decision on whether or not to refinance my $90,435 6.1% mortgage. You first might want to first ready my thoughts on why we are paying our mortgage down quickly, why to refinance and the reasoning behind refinancing with a 15 year 4.75% fixed loan.

Closing Costs-With refinancing the first question is, how much are the closing costs going to be associated with the refinance? Refinance closing costs can kind of be tricky to determine. The best I can find is a refinance closing cost calculator from Freddie Mac’s website. It estimates my closing cost to be approx $1,687 before tax savings. That means I need to have savings greater then that for a refinance to be a good financial decision.

6.1% vs. 4.75%-After I calculate my closing cost I am now ready to run the simulations. While keeping the same $2,218.10 principal and interest payment as my accelerated monthly payment , I come up with the following amortizations schedules:

6.1%
4.75%

When comparing the two schedules, the gross interest saved is $2,772 ($11,142.75-$8,370.58).

After tax savings-The $2,772 is pre-tax however. Because mortgage interest can be written off your federal income taxes as an itemized deduction, paying less mortgage interest means paying more federal income taxes. Now no one knows what tax rates will do in the future and I am not trying to predict what congress will do . I am using a 15% tax rate which is the bracket my wife and mine’s are in for 2009. When adjusting for taxes I find that I would approx save $696 by refinancing. The breakdown:

Total Interest saved

Total Interest saved

Breakeven point-I then found out that my breakeven point would be after the 24 month mark, which would be September 2011.

refi after tax breakeven point

refi after tax breakeven point

 

The Final Verdict-So is it worth it to refinance to save a grand total of $696 but only if I stayed in the condo more then 24 months would I see any return?  In the end my family decided against refinancing.  The savings simply was not worth the time it would take back to recoup my costs.  If we were not planning on paying down the mortgage as quickly as we are, then refinancing would probably make more sense.

Even though we did not end up refinancing it was still worth it to run the simulations and figure out what the best option was.  I hope you found the mortgage series worthwhile and educational.

September 23, 2009

Should I Refinance? 4.375% w/ 1 point v. 4.75%

After discussing our plan to pay down the mortgage, discussing my families accelerated mortgage amortization schedule, and things to consider before you refinance, I am now finally ready to run a simulation on whether or not to refinance!

What Refinance should I take? After looking at my current lender’s website, I narrowed the following two options as rates to consider: 15 year fixed @ 4.375% with one point and a 4.75% with zero points.

4.375% with 1 point vs. 4.75% Comparison-As noted before, points or “discount points” are essentially prepaid interest paid by the borrower to the lender at closing.  In my case I would pay $903 ($90,345 balance multiplied by 1%) upfront at closing if I choose the 4.375% with 1 point.  When I use Bankrate’s Mortgages calculator for the two options I will came up with the following numbers:

Full 15 year refi comparison 09-22-09

I will pay $36,147 at 4.75% compared to just $33,023 at 4.375% and with the $903 points paid up front a total of $33,926.  That’s a before tax savings of $2,220.  After looking at the schedules however it will take 34 months before 4.375% becomes profitable.

Paying extra-However as noted before, we are not planning on keeping the mortgage for 15 years as we are making significant extra principal payments each month.  How do you calculate which mortgage is better in that situation?  What if we continued paying the same amount we are paying a month at our current rate (6.1%)?  We are currently paying $2,218.10 a month in principal and interest (Taxes and Insurance excluded for convenience).  I ran the simulation on both rates and came up with the following:

Refinance 4.375%

Refinance 4.75%

Some interesting things came up.  First I found it interesting that both notes would actually end up being paid off in the same month, June 2013.  And second you would actually come out ahead by going with the 4.75% refinance!  The breakdown:

Agrresive refi comparison 09-22-09

It is amazing that the lower interest rate never comes out ahead under the scenario because of the prepaid interest points and the fact that huge payments are lowering the interest each month.

After doing this comparison I pretty much ruled out the 4.375% with one point refinance. I do not know if we can keep our aggressive monthly payment when we have children. I also do not know if we will be staying in the condo for more then 34 months. So right now any refinance would be at the 4.75% with no points. Tomorrow I will do the ultimate simulation: Should I refinance or not?

September 19, 2009

US Net Worth grows in 2Q. What can we learn

Filed under: Net Worth, News Review, Personal Finance — thebalancedspreadsheet @ 11:23 am

I ran across this article from the A/P titled “US Net worth grew in 2Q for first time since ‘07”. It is based on data from the Federal Reserve and I noticed some interesting facts and figures:

Americans’ wealth rose this spring for the first time in nearly two years, with stocks and home values gaining as the recession faded.

 

The Federal Reserve said net worth grew by $2 trillion to $53.1 trillion in the April-to-June quarter. Net worth, or the value of assets such as homes, checking accounts and investments minus debts like mortgages and credit cards, rose nearly 4 percent from the first quarter, the Fed said.

 

The increase in the second quarter was led by stock portfolios, according to the Fed report. The value of Americans’ stock holdings rose 21.6 percent from the first quarter, the first increase in two years.

Net worth also was boosted slightly by higher home prices. The value of real-estate holdings rose 1.8 percent, according to the Fed report. That was the first gain since the final quarter of 2006.

The report showed that total household debt — including mortgages, credit cards, autos and other consumer loans — stood at $13.7 trillion in the second quarter. That’s down slightly from $13.8 trillion in the first three months of this year. It suggests that households are trimming debt, but doing so slowly.

This shows how volatile net worth really can be. The total net worth increased by $2 trillion while debt only decreased by $.1 trillion, meaning most of the increase was due to assets increasing value such as stocks and homes, which are two things you can not really “control”.

It is good to see stocks re-gain some of their value after their depressing drop last fall and winter. Seem to me that those who did not panic and sell their stocks at the bottom and instead rode out the downturn and actually bought more share are reaping their rewards.

The moral of the story to me is that even when you do things right financially, in the short term it might not always turn out well. But in the long term it will lead to financial growth and prosperity.

September 18, 2009

Five things to consider before you Refinance the mortgage

Filed under: Personal Finance — Tags: , , , — thebalancedspreadsheet @ 8:31 am

As mentioned yesterday, I am going to discuss the possibility of refinancing my primary residence. Before I go into the details I first want to discuss the reason to refinance as well as some things to consider before you refinance.

Reason(s) to Refinance-To lower your interest rate is really the only reason to refinance. Lowering your interest rate will obviously cause your payment to decreasing, thus increase cash flow if desired. However, lowering the payment period (IE from a 30 year to a 20 year mortgage) without lowering the interest rate is unnecessary. Instead just pay off the longer term mortgage like the lower term mortgage and you will pay it off in the same time you would without the closing costs.

Things to consider before refinancing:

1. What is my breakeven point? This question could be rephrased as, how many months will it take to recover my closing costs? Since all closing cost are either paid up front at the time of the refinance or rolled into the new mortgage, you will want to know how many months will it be before the lower payments make up for the closing costs. To determine your breakeven point, take your closing costs and divide them by the difference between your old payment and new payment. That number is the number of months it will take you to break even on your refinance.

2. How long are you planning to stay in the house? If you are planning on moving in the next 12-24 months and your breakeven point is 36 months, then it would be unwise to refinance.

3. Am I getting the best rate on the market? Do not simply refinance with your current lender just because you get something in the mail from them offering you a lower rate then what you already had. Check websites like Bankrate and Lending Tree and see if you can get a better rate elsewhere.

4. What kind of loan am I getting? I do not recommend anybody get anything except a fixed rate loan. Especially in the 4.5%-4.75% world we currently live in. Adjustable Rate Mortgage (ARM’s), Interest only, and Balloon Mortgages might offer a lower interest rate initially but are more risky over the long term and can adjust upward. Why not lock in a low interest rate now with mortgage rates at the lowest they have been in 40 years? Another thing to look at it how many points am I paying? Points are simply prepaid interest that is paid at closing. 1 point means that you will pay 1% of the loan value upfront at closing. Points will then lower your rate, but unless the difference in rates is significant (.375-.5%) it might be better for you to pay no points and not prepay the interest.

5. What is my home’s current value? This is important to know before you start the process because due to the housing bubble popping, many homes are now underwater. This makes it virtually impossible to refinance your mortgage unless you can bring a large sum of $$$ to the table at closing to bring the loan amount to what the house is worth.

With rates being as low as they have been in years, now is a great time to refinance. Has anybody got any other suggestions or recommendations to consider before refinancing?

Early next week I will post my analysis on whether or not I should refinance my 6.1% mortgage based on my amortization schedule that I’ve calculated.

September 17, 2009

Expedited Mortgage Amortization Schedule

Filed under: Excel fun, Mortgage, Personal Finance, Uncategorized — thebalancedspreadsheet @ 10:56 am

Way back when I discussed the topic of whether or not it was wise to pay down the mortgage or not, I promised that I would post our current mortgage debt situation.  Well almost a month later I finally have gotten around to it!

A few notes first:  I purchased my current residence in August of 2006 for $118,500 on a 30 year fixed note at 6.10% with no money down.  Unfortunately I had the foresight to buy at the top of the housing bubbleL.  Putting no money down is definitely not the way to go, as less then two years after getting the mortgage, the condo was under water.  The last year and a half I have been making extra payment to get back to having some equity.  As I mentioned in my latest net worth update, I have the house valued at $95,000 which maybe is a tad conservative, but I would have rather underestimate then overestimate. 

Currently our payment with insurance and taxes is $999.24.  We are currently adding $1500.76 per month extra in principal payments, for a total monthly payment of $2,500.

Mortgage Amortization Schedule-Word Format

As you can see from the spreadsheet, we are really making some headway toward completely paying off the mortgage!  Our current balanced is a tad over $90,000.  November’s payment is highlighted in light green because that is the first month we would have equity in our house after realtor fees if we had to sell ($95,000 sales price less 7% realtor and listing fees).  Based on our current payment schedules our mortgage would be paid off on June 1, 2013.  That would mean the total length of the mortgage would be 6 years and 9 months!  Obviously this is assuming that my wife stays employed that long.  One of our financial goals is for her to come home once we start having children.  We plan to have children before 2013 so our payment schedule will probably be slowing down.

Tomorrow I will look into the possibility of refinancing to a lower rate.  Currently rates are in the mid to high 4% range, but is it worth it to pay the closing costs  if you are only going to keep the mortgage a few more years?

September 14, 2009

Net Worth History

Filed under: Excel fun, Net Worth, Personal Finance, Real Example — thebalancedspreadsheet @ 3:18 pm

I added a net worth history side page.  It’s updated with information starting back in June ’08 to the present along with an area graph as well as some back history.  I am not posting it to brag about or show off.  It is just simply a way for me to track our progress and see where we have come from and where we are going.  Comments are always welcome.

September 1, 2009

August ‘09 Net Worth update (+6.96%)

Filed under: Net Worth, Personal Finance, Real Example, Uncategorized — Tags: , — thebalancedspreadsheet @ 12:40 pm

Another net worth monthly update.  We had another good month, mostly due to an increase in retirement accounts as well as a triple mortgage payment.

August '09 Net worth

August '09 Net worth

Cash-Cash decreased slightly.  This is mostly due to contributions to my Employee stock purchase program (ESPP) as well as paying an additional $1,450 on the mortgage.  Currently we have a nice cushion but some of that is going towards a trip and possible IRA funding down the road.  

ESPP-Nothing new to report here, as another $1,667 was taken out of my paycheck and will be used to buy company stock at the end of the quarter which is September 30th.

House-Good news!  Two condos sold in our complex this month.  Both sold for more then the $95,000 I have on our balance sheet.  I think we have hit the bottom of the real estate market.  With that being said I am still leaving the condo valued at $95,000 for now.  I would rather be conservative then jumping the gun.

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) then I normally do.  Starting in September, instead of contributing 9% of my paycheck to the company 401(K), I am only contributing 6% which is the company match.  The extra 3% will now be going to my ROTH IRA. The wife and I did each open up a ROTH IRA for 2009.  We only contributed $250 each, but will contribute more before the year is up.

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

Mortgage-A reduction of approx ~ $1,750!  I discussed in a post our decision to pay down the mortgage pretty as quick as we can. It is really cool to see the principle reduced by big chunks every month.  At our current rate, we will pay the mortgage off on July, 2013.

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