Getting Started with a Budget

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“THERE WAS A TIME WHEN A FOOL AND HIS MONEY WERE SOON PARTED, BUT NOW IT HAPPENS TO EVERYBODY.” –Adlai E. Stevenson

The latest Retail Sales numbers showed the consumer is still out there spending…but many of our expenditures have gone up right under our noses, without us getting any extra enjoyment out of them. Rising gas prices, increased interest rates for borrowed money, higher minimum monthly credit card payments…expenses are getting higher every day, and it may be crimping our normal monthly spending style. And not knowing where your money is going each month often gives you a general sense of unease when your head hits the pillow at night…and may eventually cause you a major financial hardship.

There are many phenomenal budget programs available for your computer, such as “Quicken” or “Money”, but starting with even a little simple planning can put your mind at ease and allow you to spend, knowing that you have control of your monthly income and expenses. Don’t worry if the word “budget” gets you feeling uneasy and makes your palms sweat – hey, relax. Just think of a budget as you would a healthy diet. You don’t have to starve, but you may just have to cut back on a few tasty expenses to accomplish your goals. And who knows…you may actually be better off than you thought, and can splurge a little. Let’s take a look.

A good budget is written down and includes as much information as possible. Start by determining your current monthly income. Use the net income (amount received after taxes and any insurance benefits are deducted) and anything additional such as part time work, interest, rental, or bonus income. Next, determine your monthly expenses. Obtain and keep a receipt for every item purchased, especially if you frequently use cash for purchases. Receipts should include everything from groceries to Starbucks coffee…even minor purchases can add up quickly. Although you usually need to have some pocket cash on hand, many people choose to use debit or credit cards more often than cash, purely to have a better record of money spent. At the end of the month grab the receipts, your checkbook, and any credit card statements and start categorizing your expenses.

Expenses should be classified into the following categories:

  • Household – this would include rent or mortgage, utilities (gas, electric, water, etc.), cable television, Internet, phone, and any additional items such as a housecleaning service or pool service. This category could also include the many things you frequently buy for your home such as paper towels, cleaning products, plastic baggies, lawn and garden supplies and the like.
  • Food – separate food expenses by groceries and dining. Dining out would include lunch and dinner expenses for every member of the family.
  • Transportation – this would include all expenses related to an auto (e.g., auto payment, insurance, fuel, and maintenance). Additionally, include public transportation, tolls, and parking expenses.
  • Healthcare – include monthly health care fees such as medical, dental, prescriptions, and insurance co-pays.
  • Looking good – all of the items that make you, you. Clothing, shoes, dry cleaning, toiletries, haircuts, manicures, etc.?
  • Entertainment – include all of the “just for fun” items. Movies, concerts, vacations, subscriptions, sporting event tickets, and hobbies.
  • Miscellaneous – include all additional monthly expenses such as banking fees, credit cards, savings, education, gifts, donations…and don’t forget pet expenses.

Need a simple, free, easy to use monthly budget sheet that can be used by you or your children? Just hit this link: Sample Budget

It is important to note, some expenses will vary on a monthly basis and an average will need to be calculated. For example, utilities can change each and every month. To come up with the average, simply add the actual amount paid for twelve months and divide the total by twelve to create a monthly average – and adjust as needed over time. Additionally, any expenses such as insurance premiums that are paid annually should be divided by twelve to create a monthly average as well.

Once all items have been categorized and listed, simply total the income and subtract all of the expenses. The remaining number will clearly determine if you are coming up short, breaking even, or have money left over. If you have money left over, meet with your financial planner and discuss investment strategies that will maximize those extra dollars.

If you come up short or barely break even, it is important to determine areas that you can trim expenses. Look at trimming dining out, entertainment, or looking good expenses. Although it may sting a little in the short run, you’ll know that you are on the path to a great financial future.

If cutting expenses still does not provide enough cash flow to help you sleep better at night, contact me for a complimentary loan and financial analysis. We can work together and decide if a referral to a great financial planner who can help you with your budget is a good fit right now, and there are also many great loan options available, which may help provide the cash flow plan that will put your mind at ease and allow you to build your financial future.

Let’s Review Last Week

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“ONE WAY TO AVOID MISINFORMATION IS TO AVOID PROVIDING ANY INFORMATION.”
St. Louis Federal Reserve President William Poole

And while that may be true, the markets are hoping for a bit more guidance from the Fed, including Fed Pres William “Everyone Into The” Poole.

The Bond market and home loan rates were fairly tame for the bulk of the week, but had picked up a little steam on Thursday following the US Treasury’s auction of $13 billion in five-year notes that afternoon. The Treasury auction showed strong foreign demand and heavy buying by large institutional investors – and anytime demand is strong, pricing moves higher; so as Bond pricing moved higher, conforming home loan rates improved.

Then along came Friday, when the Bond market and home loan rates gave back the ground they had previously gained. What happened? Things started off well on Friday morning, when the important, inflation-measuring Personal Consumption Expenditure (PCE) Index arrived inline with expectations. The Report indicated that inflation appears to be under control which is good news for inflation hating Bonds and home loan rates.

But on Friday afternoon, a parade of Federal Reserve speeches provided some contradictory comments that spooked the markets – apparently not taking Fed President Poole’s advice that sometimes no information is good information. San Francisco Fed President Janet “Always” Yellen raised her voice on inflation, renewing worries for a Bond market that hates inflation. Bond prices and home loan rates worsened in response, losing the ground they had gained the day before…and ending up quite close to where they began the week overall.

BOND TRADERS HAVE CERTAINLY BEEN WORKING FOR A LIVING, WITH ALL THE ACTION OF LATE…AND THE WORKLOAD IS SURE TO PICK UP IN THE COMING WEEK WITH THE ARRIVAL OF THE HIGH IMPACT JOBS REPORT. ALL THIS TALK OF JOBS AND WORKING MAKE YOU YEARN TO CALL YOUR OWN SHOTS AND JOIN THE RANKS OF THE SELF-EMPLOYED? IF SO, DON’T MISS THIS WEEK’S MORTGAGE MARKET VIEW.

Forecast for the Week

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The month’s most important Report is about to be released… That’s right, and notice the whispers about this Friday’s monthly Jobs Report. Remember last month’s Jobs Report arrived as quite a surprise… economists were expecting around 110,000 new jobs being added for the month, but were shocked and demoralized to see a net LOSS of 4000 jobs! Remember that a weak economic read of this sort hurts the Stock market, but causes the Bond market to improve… and as Bond pricing improves, so do conforming home loan rates. And last month’s surprising miss meant that home loan rates improved by .125% on the day of the Report alone.

So what’s in store for this Friday? Last month’s surprise means that the release of this upcoming Jobs Report will draw even more attention than normal. How many jobs were created last month…or not? And will last month’s ugly number be revised higher…or lower still? Rest assured that Friday morning at 8:30am ET, traders, economists and investors will be glued to the financial news – and Bonds and home loan rates will likely react in turn. Another weak number will result in Bond pricing moving higher and conforming home loan rates moving lower, especially if no major revisions are made to last month’s weak number. But if the tables turn and show surprisingly strong job growth, Bonds and home loan rates will likely worsen on the headline.

Bonds continue to fight a battle at the tough 200-day Moving Average. If the news of the week helps Bonds remain above this line, that will be good news for home loan rates, as the 200-day Moving Average will act as a “floor of support”. But if the news causes Bonds to fall beneath this line in the sand, it will be bad news for home loan rates, as the 200-day Moving Average will then act as a “ceiling of resistance”.

The Mortgage Market View

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The American Dream

Have you ever dreamed of owning your very own business? Many Americans dream of being self employed, and they do so for many different reasons. Some simply wish to be their own boss, while others want the freedom and flexibility that self-employment may provide, and still others simply want to do what they love. In fact, according to a recent Money Magazine article, almost two-thirds of Americans dream of starting their own business. So would you be surprised to learn less than 2% ever take the plunge and actually do it?

There are some sobering facts – according to the Small Business Administration, around 33% of businesses will not make it past a year and only 44% make it past the fourth year. In addition, most new businesses will not earn profits until at least the third year.

But here’s the potential reward – according to the Federal Reserve’s most recent Survey of Consumer Finances, the average income of a self employed individual was twice as high as the average wage earner, and the average net worth of self employed individuals was over five times greater than the average wage earner.

If you are in the majority of Americans who would like this dream of self-employment to become a reality – let’s take a closer look at some smart steps towards making this dream come true.

Important Considerations. Starting your own business is an exciting and sometimes stressful proposition. There are a few important strategies and assessments that should be considered as you determine if you should start your new venture.

Write a Business Plan. While it may not be easy or fun to do, writing a business plan should be one of the first items to be completed as you move towards opening your new business. By writing a thorough and comprehensive business plan, you are not only forcing yourself to think through and analyze the wide array of potential costs and challenges, but you are also preparing yourself to seek outside investors or bank financing, which will require a well written business plan before they consider financing in your new venture. The Small Business Administration has a wonderful site, full of information on business plan writing, including many sample plans covering a wide range of business types.

Think About Insurance. A very important item to take into account before starting your own business is medical insurance. If possible, switch your insurance coverage to your spouse or significant other. Another short-term solution would be to consider taking advantage of COBRA Insurance. COBRA generally allows you to keep your current coverage for 18+ months after your termination date. After COBRA expires, you would then need to seek out your own medical insurance, which can be very costly for self-employed persons. One helpful idea is to look to join a group of other self-employed persons in order to obtain a better, group coverage. One organization that is working to fill this need is the National Association for the Self Employed, or NASE.

Do Careful Financial Planning. Any new business will require a potentially substantial amount of money for startup costs. Additionally, unless you can start your new business while maintaining your current job, you will need to have sufficient reserves to support yourself/family during the early startup months/years when cash will be extremely tight.

Be careful in particular if you are heavily financing your new business with credit cards. While it is an easy source of capital, it can immediately put you in a tough cash flow position, and more importantly it can hurt your credit or otherwise make it harder to access new credit.

Many businesses fail due to a lack of cash flow. Remember, that a great concept and potential business cannot overcome a lack of funding. You may want to check with your mortgage professional to discuss potential strategies to use your home’s equity to help fund your new business or potentially improve your cash flow.

Consider Physical Health and Mental Support. It may not seem like a terribly important item to think about when starting a new business, but your health and ability to work long hours is an important consideration, as most startups require many long hours to get off the ground. Additionally, having the emotional support of your family and friends is critical in order to stay motivated and positive. Finally, your ability to deal with stress will be an important factor in the success of your business.

If you’ve always dreamed of owning your own business, hopefully these tips and ideas whet your appetite for taking the plunge, working for yourself, and living the American Dream.

Special Market Update

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The long awaited Fed decision arrived with a bang! The Fed surprised many economists and traders with a half percent cut in both the Fed Funds and Discount Rates. Stocks soared higher and enjoyed their largest gain since 2003.

What does the Fed cut mean? Rates on consumer debt, car loans, and Home Equity lines will all benefit. But because Home Loan rates are tied more closely to inflation, it is not uncommon to see less of a reaction…or even an opposite reaction in mortgage rates.

The Fed cut also hurts rates of return on investments, which gives foreign investors less incentive to invest in US securities. This has sent the Dollar much lower against the currency of most major foreign countries. This makes foreign goods more expensive for us to buy, which adds to inflation pressures.

Overall, the Fed cut is good news for the economy, but may nudge inflation a bit higher.

Breakdown, Takedown

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“BREAKDOWN, TAKEDOWN…YOU’RE BUSTED!” —Bob Seger

That classic 80′s lyric aptly describes the market last week, as the Stock market suffered a breakdown, analysts got a takedown, and many investors felt they were busted as Stocks sold off hard on Friday. Why? The result of a super lousy Jobs Report number on Friday morning. US job growth in August was actually negative for the first time in four years, with a loss of 4,000 jobs. And the shocker was that analysts had expected somewhere close to 110,000 new jobs to be created !

But while Stocks suffered on the news, Bonds benefited, meaning that home loan rates on conforming loans improved by .125% to .25%. Additionally, the dismal Report also means the Fed is almost guaranteed to make a cut to the Fed Funds Rate at their upcoming meeting on September 18th, to help stimulate a sagging economy. And in fact, their cut now may be a .50% cut, rather than the .25% that has been speculated.

This action would help stimulate business at large, with less expensive costs to borrow – and also help consumers as well. The Fed Funds Rate impacts many other borrowing rates, such as Home Equity Lines, credit cards, car loans and the like.

Labor Day Market Update

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This morning, a tame inflation reading via the Personal Consumption Expenditure Report, or PCE, was released by the Commerce Department’s Bureau of Economic Analysis. The important Core Personal Consumption Expenditure for July was reported at 0.1%, which was less than expectations of 0.2%.

The closely watched year-over-year Core PCE remained at 1.9%, which is still within the Fed’s target zone of 1 – 2%.

With President Bush set to speak about proposals to aid borrowers hardest hit by mortgage problems and Fed Chairman Ben Bernanke speaking this morning, we are waiting to gauge the market reaction.

Happy Labor Day!

“Labor Day differs in every essential way from the other holidays of the year in any country,” said Samuel Gompers, founder and longtime president of the American Federation of Labor. “All other holidays are in a more or less degree connected with conflicts and battles of man’s prowess over man, of strife and discord for greed and power, of glories achieved by one nation over another. Labor Day…is devoted to no man, living or dead, to no sect, race, or nation.”

Labor Day, the first Monday in September, is a creation of the labor movement and is dedicated to the social and economic achievements of American workers. It constitutes a yearly national tribute to the contributions workers have made to the strength, prosperity, and well-being of our country. – U.S. Dept of Labor

In observation of Labor Day, I would like to applaud you for your achievements and efforts to make America a better place to live. Have a safe and wonderful Labor Day Weekend!!

Mortgage Market Update

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Yesterday, four major US banks stepped up to the Fed’s “Discount Window” and each borrowed $500 Million. Analysts believe the Discount Window borrowing by these huge banks was largely symbolic, and designed to help calm all the nervousness in the credit and financial markets.

Now remember that the Fed just cut the Discount Window Rate last week, and many expect them in turn to cut the Fed Funds Rate at the upcoming September 18th Fed Meeting.

Here’s an interesting tie-in…today’s Initial Jobless Claims number showed a little softening in the labor market, and since Fed Chairman Ben Bernanke has been so concerned about a strong labor market leading to wage based inflation, this is another indicator that the Fed will more than likely make a cut to the Fed Funds Rate at that next meeting on September 18th.

For now, Mortgage Bonds remain above a floor of support at the 100-day Moving Average. I am continuing to advise floating, but should prices turn lower and move beneath the 100-day Moving Average, I will recommend locking.

Market Update

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Yesterday, four major US banks stepped up to the Fed’s “Discount Window” and each borrowed $500 Million. Analysts believe the Discount Window borrowing by these huge banks was largely symbolic, and designed to help calm all the nervousness in the credit and financial markets.

Now remember that the Fed just cut the Discount Window Rate last week, and many expect them in turn to cut the Fed Funds Rate at the upcoming September 18th Fed Meeting.

Here’s an interesting tie-in…today’s Initial Jobless Claims number showed a little softening in the labor market, and since Fed Chairman Ben Bernanke has been so concerned about a strong labor market leading to wage based inflation, this is another indicator that the Fed will more than likely make a cut to the Fed Funds Rate at that next meeting on September 18th.

For now, Mortgage Bonds remain above a floor of support at the 100-day Moving Average. I am continuing to advise floating, but should prices turn lower and move beneath the 100-day Moving Average, I will recommend locking.

Market Update

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In a surprise move, The Fed lowered their Discount Rate by a half percent this morning. The Discount Rate is the rate at which the Fed lends money directly to commercial banks, credit unions and large lenders. It is different than the Fed Funds Rate, which is the rate at which banks lend money to other banks. Although the cut provides some liquidity relief for lenders it does not directly affect mortgage rates. This cut, along with the extension of the borrowing period from overnight to 30 days, could allow time for the credit markets to settle a bit and help some large financial institutions better weather the storm.


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