A New Month!

It is the start of another month, and we've not made as much progress as I would have liked.  One big glaring item on our budget is the amount of money that we spend every month just to live in this house.  It is becoming more and more of a burden, and less the dream we thought we wanted.

Our house is undoubtedly our largest expense and our largest debt.  Selling it might bring in enough extra money that we could have a down payment on the next one, and we don't have any issue at all with down sizing.  If we were to try and rent instead of buy, the rental market is so strong right now that we'd almost spend the same as we are now, but we'd be in a smaller house and a "less desirable" neighborhood.  I put that in quotes, because I really don't have a problem living in areas that have houses running in the 50%-75% value of our current house.

The rental market being what it is, it also presents us with a dilemma - do we sell the house, or utilize the strong rental market and rent it out?

Thursday Update: 1 Day Late Edition

This past week, I found out that I was in charge of doing the campaign video for our church’s new building – which should be exciting to do, but is going to require a lot of work – especially since the video will be played the weekend after Easter.  So all intents on getting an update done over here yesterday failed.  I spent most of the evening working on pictures, listening to the theme song, and storyboarding.

But, progress was still made this week.  We haven’t gotten our taxes done yet (they are ready, just not submitted yet), but we did get our first house payment mailed off.  It will be very interesting to see how the next few months play out as we settle into the groove, but I think when all is said and done, we’ll be in a much better position at the end of the year than we were last year.

Once our finances settle down from the move, I’m going to be able to update this blog more frequently, and with better content (hopefully).  In the meantime, be sure and follow me on Twitter (see the link over there <---), and stay tuned for further updates!

Catching Up

Many things have happened since my last “real” blog entry.  I wanted to get some things to settle down and be solid before I really posted anything.

The most significant thing that happened was that we bought a house!  We are very excited about this, but it comes with some trepidation as well.  The monthly payment is well within our means of handling, but there is a lot to a house that isn’t always obvious at the beginning.  The little expenses haven’t really let up since we got in the house, and by now, most of my “extra” savings has evaporated.  This will be a real test of my commitment to only buying things as we can afford them – I put over $1,000 on the credit card this past month, just in miscellaneous expenses (solar screens, blinds, water hoses, sprinklers, curtains, tools, etc., etc., etc.).  Fortunately, I had enough money set aside that none of this will stay on the credit card, but it does squeeze down the amount of money that I had set aside for the pregnancy.

We will get there, but the discipline needs to start now so that we don’t fall back on the credit cards as a means to survive.

I’m hoping to have enough time to sit down in the next few weeks, and get a budget filled out that will be fairly accurate.  As a result of all these expenses and not knowing exactly what our electric, gas, water, and garbage bills will look like, we’ve decided to hold off on getting internet access at the house.  This has been particularly hard on my wife, since many of her friends are spread all over the globe, and online is how she keeps up with them.  On the other hand, it has given us some real opportunities to get things done, rather than spending the time online.

Of course, through the middle of all this, President Obama signed the ARRA into law, meaning that we will qualify for the $8,000 credit as first time homebuyers.  I have mixed feelings about this, because I’m against the philosophy of allowing the government to finance my life, but, at the same time, the money could come in very useful.

We passed the halfway mark for the pregnancy, which serves as a continual reminder that baby expenses are not far off, both birth and ensuing expenses.  In this economy, I am sorely tempted to go back to work with a part-time evening & weekend job to help pay for all of this.

Fortunately, my wife is still working part-time every week, which should allow us to get caught up on everything within the month.

Over the course of the next few days, I’m going to add the mortgage to my debt picture, but I think I’m going to leave it out of my “Overall Debt” figuring, since, although my goal is to be completely out of debt eventually, the current goals are the elimination of the credit cards, student loans, and vehicles.

The Inauguration wasn’t the only change…

I don’t want to bore you with the lack of progress I’ve made against my debt by doing an update – basically, everything has just been stored up in my checking account as we prepare to move on to the next stage of our life.

The pregnancy has a good chunk of change stored away for it, and, hopefully, the extra I’m saving up won’t be needed.  If it is, then that’s what the fund is for.  I don’t know that I’ve ever had as much cash in the bank as I have right now.  I’m not counting very much towards my emergency fund until after the baby is born, just in case the money is needed.  Once the baby is born and all the essentials are taken care of, then I’ll probably move the money to a MMA or something to separate it from my everyday finances.

Our lease is ending on February 28th.  This makes our second year at these apartments, which isn’t a bad deal, but there are several problems that keep recurring that aren’t taken care of, even though we’ve mentioned the problems.  So we are moving.  The question was:  where?  I decided that if my wife is pregnant, we might as well go for a bigger place while we are at it.  Upgrading the apartment size and quality was the least I felt we should do.  Spending more money per month on rent, while slowing our debt progress, is definitely doable, especially considering the amount of progress we have made.  Budgeting the amount for a nicer, larger apartment put us about even with a decent house payment.  This led me, once again, down the path of buying a house.  Sure, we’d end up spending a little more each month, but it would be ours.

So that’s what we’ve decided.  We are buying a house.  The house has been located, and the interest rate has been locked (5.25%).

I understand that buying a house while in debt is unacceptable to most PF bloggers, but I also feel that there was more to the equation than simply finances.  It was time to begin thinking a little further into the future, and not be so focused on the present that I end up aggressively paying down debt vs. doing what I feel is best for my family.  Don’t get me wrong – a majority of the time, the aggressiveness I’ve shown in paying down debt has been the best thing for our family.  I just feel that the priorities have shifted a bit with the pregnancy, and I’m adjusting our lives to re-align around those priorities.

I know that in this single blog entry, I’ll lose most Dave Ramsey fans – and I know that this is not something that he would do – in fact, he would rail against it.  That’s ok – my purpose of this blog is first of all to have a history of what has happened in my debt-reducing life, and this is part of it.  Of course, I’ll have to add another row on my debt reduction scheme, but, in the end, I feel that my family is better served by this than by spending about the same amount of money on an apartment and having nothing to show for it.  (The mortgage will actually be less than I what I could get an apartment for – the taxes and insurance put me about $100/month more expensive than the apartment  With the tax deductions and exemptions that I’ll get, it might end up being about the same.)

So that’s the big news of the past few weeks.  We have another two and a half weeks until we close, and at that point, we will really have a lot to do.

“Playing House”

There was a guest post today over at Get Rich Slowly.  I love that blog, because there’s always good content there.  Anyway…

The post had to do with the process of preparing to buy a home.  Eventually, I would really like to own a home, and my wife would like to see us move into a home sooner rather than later, but the preparation has to be there as well.

One of the things that stuck out from what Jim had to say was to “play house”.  Set aside what you think you can afford every month and live off the rest, sticking that amount in a savings account to help with the down payment.  That way, you can tell whether or not you can actually live with the payment before taking the plunge.

I’m doing that, in a way, right now.  Except that rather than socking it away in a savings account, I’m using the money to hit the debt.  Plus everything else that we get, everywhere we can scrimp, all of it is going against the debt.  I think, however, once the credit cards are paid off, I will be adjusting my strategy just a bit.  I think I want to increase my emergency fund, and begin the process of saving for a down payment on the house.  Of course, I still want to attack debt with intensity, but I think that ridding ourselves of credit card debt is the main goal, and the other debt, while not “good” debt, isn’t as harmful/detrimental.

What do you think of the plan?  Am I looking at the debt (other than credit cards) with too kind an eye?  If you currently rent, at what point (if any) do you plan on buying?  If you own, did you “take the plunge” at the right time?

Weekend Update

My entire purpose of this blog is to track my progress out of debt, especially in consideration with the income that I had starting out.  True, my income has increased since I started my climb, but the debt is still there – only one of the four major debts that I have is over 50% paid off.

And then there’s the house.  It is an absolutely wonderful looking house.  One that would serve our needs possibly for the rest of our lives.  We would be able to pick the colors, the layout, everything.  It is a shiny new object that flashed its smile so beautifully that it captured the heart and ideas of my wife, and gave me a fever.  Unfortunately, the cure was not simply more cowbell.

My readership, though small in number, can be quite eye-opening.  First, Jim posted his thoughts on the news.  And I was taken back.  I really hadn’t opened my eyes to see what I was actually saying.  Then I turned to another reader and directly asked for their opinion – what they would do in my shoes.  Of course, I realize that perspectives are different, and that I might not take the same course of action that someone else might, but there is strength in numbers.  There is a certain validity to multiple people holding the same opinion.  Not that it is necessarily right, but it certainly carries more weight.

Then there is the hesitance of the man who would make money from the transaction, the lender.  If he is hesitant to grant the loan, and he has a vested interest in selling the loan, then I should allow that to weigh in.  His reluctance seems to be in stark contrast with his own goals.

I even went to two other lenders, one with a specific mortgage company, and one who basically shops mortgage companies, and both informed me that the deal was doable, but not, perhaps the wisest move I could make.

As long as nothing goes wrong, and nothing big happens for a while, we would be fine with the loan.  Or if our emergency fund was sitting around $10k higher than it is, we would be fine.

So I signed the note that canceled the deal.  We may or may not be out our $500 earnest money check, and we may or may not be able to go back in January and work a deal.  Most of it will depend on how much progress we can make.

The important thing is, the advice of my readership to take another look at what I was doing helped me out of an emotional decision.  Sometimes these mistakes are costly, but better $500 now than a foreclosed home later.

So, Jim, David & Miss Kate, thank you.  Thank you for your thoughts and your willingness to speak up.

The News

Well, on Sunday, we went and signed the builder’s contract to get started on the house we’ve selected…  We filled out a prequalification worksheet for the builder’s suggested mortgage company, but then I also had a couple of lenders that I wanted to get involved into the mix, just to have several different eyes looking at it.

I haven’t gotten the information to the lenders I’ll chase down on my own, but I got a call yesterday from the one the builder suggested.

Apparently, right now, we wouldn’t qualify for the house, because our DTI (debt-to-income) ratio is too high.  About 8% too high, to be exact.

I think he’ll put the prequal through anyway, but we basically have to eliminate our credit card debt (at least the highest balance card), and have several thousand in the bank by the time we close, or we’ll have trouble getting the loan.

So, over the next 4 months, I’ve got to make $12,000 worth of progress towards debt elimination/house savings.

As noble a thought it was to go ahead and get the lower balance credit card knocked out, apparently the way the higher balance card (American Express Blue) reports my debt obligation is inflated.  Right now, they are reporting my monthly minimum at over $350 (about 5% of the existing balance) vs. what my minimum payments actually is (about 2% of the existing balance).  This is unfairly inflating my DTI, and is the major source of the problem.

So, in order to rectify this, I will be slowing to minimums on my lower balance card, and start attacking the American Express as much as possible.

Also, to help this process along, my wife and I will more than likely be putting in applications at various retail stores in the area for extra work.  If we can really push here in the next few months and make the progress that we need to make, the sacrifices that we make now will be completely worth it.

Also, I’ll be talking with the other two before the week is out, and game plan with them.

I pretty much know now what has to be done.  The thing left to do is actually do it.

How much money does it take to be “rich”?

I heard this question posed on the radio the other day, and have been thinking about it pretty extensively since.

Some of the responses were “cute” answers:

• One dollar more than what I owe to others
• Money doesn’t determine rich, circumstance determines it.  As long as you are surrounded by those you love and are comfortable, you are rich.

Some of the responses were what one would expect:

• $1 million dollars in the bank
• $500,000 invested with no debt

Richer than me is simply having no credit card debt.  But what does it mean to be truly, and more importantly, achievably rich?

First of all, I think rich means that I have no debt.  To clarify further, I would own dependable vehicles, have no credit card debt, and have 6 months to a year’s worth of expenses in the bank.  I think that would be baseline rich, as in, just barely making it to the category of rich.

To carry the idea further, I would have investments that would eventually be able to take care of basic expenses from the interest earned on them.

Everything on top of that just gives fullness to the richness…  :-)

If I had to put a dollar to it, if I was given $200,000 tax-free, I would achieve the “baseline rich”.  Another $500,000-$1,000,000 would take care of the rest of that.

So, how much money does it take to be “rich” to you?

Federal Housing Tax Credit for First-Time Home Buyers

I found this website yesterday, and have been looking through it to find out more about this credit, and it really has a lot of information available.

One of the most interesting things that I found was located at question #21 of the FAQs:

Is there any way for a home buyer to access the money allocable to the credit sooner than waiting to file their 2008 tax return?

and the answer is:

Yes. Prospective home buyers who believe they qualify for the tax credit are permitted to reduce their income tax withholding. Reducing tax withholding (up to the amount of the credit) will enable the future home buyer to accumulate cash by raising his/her take home pay. This money can then be applied to the down payment. Buyers should adjust their withholding amount on their W-4 via their employer or through their quarterly estimated tax payment. IRS Publication 919 contains rules and guidelines for income tax withholding. Prospective home buyers should note that if income tax withholding is reduced and the tax credit qualified purchase does not occur, then the individual would be liable for repayment to the IRS of income tax and possible interest charges and penalties.

Basically, all I have to do is adjust my W-4 to an insane exemption number, and I’ll get a portion of the money without having to wait on filing my taxes next year.  This will give me a good jump-start (roughly $2,000-3,000) to apply to closing costs, down payment, moving, etc.

My current plan is to adjust my W-4, and take the excess out of my account, and store it in a savings account.  This extra money won’t go against debt, but it won’t be spent, either.

What do you think?  Would you take the exemptions and start building up a down payment?  Or would you pay down debt?  Or would you leave things as is, and just take the entire credit at tax time?

Housing Assistance Tax Act of 2008

I want to go over one of the provisions of this new bill, but I’m going to skip over most of the bill, because it doesn’t really affect me.  Be sure to give it a good read to catch those parts…

I.  Assistance for Home Buyers and Home Owners

Refundable first-time home buyer credit

If you are a first-time home buyer (which I would be), and you make your purchase between April 9, 2008 and July 1, 2009, you get up to a $7,500 tax credit (not deduction, credit – very important difference here), to be repaid at the rate of up to $500 over the next 15 years.  This assumes that your AGI is under $75,000 or $150,000 filing jointly.

Basically, you get up to $7,500 in interest-free loans.  So, for instance, I could take advantage of this deal and completely be out of credit card debt by the time I get my refund.  That frees up over $200/month in minimum payments, and about $400/month in debt reduction (if I were to quit the snowball).  That creates a lot of space.  A LOT.  This is something that I’m thinking about very seriously…