Beating Broke

Why We’ve Decided Not to Throw Extra Money at Our Debt Now

May 11, 2020 By MelissaB 1 Comment

Going into debt is a bit like gaining weight. It’s much easier to go into debt than to get out. But, when you’ve finally decided you want to break the debt cycle and live debt free, it takes a lot of time and effort, much more effort than it took to go into debt. Likewise, when you decide you want to be fit and healthy, you have to work much harder than you did to gain weight. With either situation, when you decide you want to make a healthier change, you want it to happen.right.now! That’s why so many people who want to be debt free decide to save only a $1,000 emergency fund and put the rest of their money on debt. We’ve tried that before, but there are several reasons why we’ve decided not to throw extra money at our debt now.

Get Off the Debt Repayment Roller Coaster

Why We've Decided Not to Throw Our Extra Money at Debt Now — Photo by Matt Bowden on Unsplash

With COVID-19, we’re living in unstable times. But honestly, even before the virus, a $1,000 emergency fund was never enough. My husband and I have been in debt most of our lives.

When we were first married, we had student loan debt, car loan debt, and credit card debt from our time in college. We followed financial gurus who said have a $1,000 emergency fund and put the rest of the money on debt.

Some months, we had phenomenal success and paid down a significant amount of our debt. But other months, because we were living so close to the edge with only a $1,000 emergency fund, we’d have the unexpected happen such as a $2,500 car repair. Our emergency fund would be wiped out, plus we’d go back into debt to finish paying for the unexpected.

Going back into debt a few thousand dollars when we were trying to pay down debt was depressing. Plus, we’d have to pause our debt repayment and start back over to rebuild the emergency fund.

We paid off the credit cards eventually, but a few years ago, we went back into credit card debt when three things happened one summer—our HVAC system died, our house had mold and had to be remediated, and our child had a medical issue that wasn’t completely covered by insurance.

Since then, we’ve been working to build a more substantial emergency fund AND pay down debt. No more debt repayment roller coaster for me. This time I vowed when we paid down our debt, it would stay gone. But for that to happen, we needed a bigger emergency fund.

The Economy Is Too Uncertain

Now that COVID-19 has hit, we’re not paying any extra on our debt. We’re funneling all of our extra money to our emergency fund with the goal of hitting a 6-month emergency fund.

Why?

No one knows for sure what the economic impact of this virus will be. I want to make sure my family has enough cushion to survive. That means creating an ample emergency fund.

Prepare for Potential Job Loss

We’ve been lucky that my husband hasn’t lost his job. He’s in the higher education field, which is being hit especially hard by this pandemic. He has to furlough for 39 days this upcoming year, which means we will essentially be losing two months of pay in the next 12 months. However, we’re grateful that he still has a job.

But what will happen next year?

There is a very real possibility his job could be in jeopardy next year, depending on how badly this year goes. We want to be prepared. Sure, it would be nice if we could get our debt load down, but right now, we’re just focusing on piling cash in the bank. We want an ample security net.

Much of the country is in the same predicament. If you work for or own a small business, how long can the business hold out? We’re already seeing some small businesses closing permanently, which means all of those employees will be looking for jobs.

I don’t want to advocate irresponsibility, but if you’ve lost your job and aren’t able to get a new one, you can always negotiate with your creditors or worst-case scenario, not pay your bills. However, if you don’t have money in the bank, you’re left without resources. Having a savings account in this situation always comes first.

Only Pay Down Debt After a 6 Month Emergency Fund Is Established

If you pause paying down your debt and only pay your minimum payments due, you can always change your plan later and pay more on your debts in a few months. That’s one of the major reasons why we’ve decided not to throw extra money at our debt now.

We’re going to save, and save, and save. If we, as a country, as a world, ride out this virus and it is no longer a threat, things can change. Let’s say my husband and I do save a six-month emergency fund. If, in another year or two, his job is stable, and the world is back to normal, we can change gears. Maybe we take three months’ worth of our emergency fund and throw it on our debt to pay it off. We can do that.

Final Thoughts

Though you may want to be debt free or carry a lower debt load, there are several good reasons to pause that goal. The main reason why we’ve decided not to throw extra money at our debt now is because having money in the bank is priceless, especially in the age of a pandemic.

We can later decide to take some of that large emergency fund and put the money on our debt. However, if we pay down our debt and stay with a $1,000 emergency fund, we’re extremely vulnerable financially to what may happen in the upcoming months. We intend to protect ourselves as well as we can from economic instability by saving as much as we can. There will be time later to aggressively pay down debt. We don’t believe now is that time.

How to Make a Refinance Appraisal Checklist

May 4, 2020 By MelissaB Leave a Comment

If you’re looking to refinance your home, you will likely need to have an appraisal as it’s the first step to putting an official price value on your home. You may not know where to start, but learning how to make a refinance appraisal checklist is the perfect place. Once you do this, you can work on improving your property for the appraisal.

How to Make a Refinance Appraisal Checklist

My husband and I recently called our real estate agent because we wanted to refinance our house. She gave us several pieces of advice to prepare for an appraisal.

Get Rid of the Clutter

How to Make a Refinance Appraisal Checklist — Photo by Minh Pham on Unsplash

Most Americans have at least some clutter. Your job is to get rid of the clutter in preparation for the appraisal, much the same way you would if you were preparing your home for sale. Our real estate agent specifically said, “Make your house show ready.” However, she also added that in general we didn’t have to make places like closets pristine for an appraisal.

Make a List of Improvements to the Home

Since you’ve lived in your home, what improvements have you made? Make sure you have a list of what you’ve done and when you did it. Since we moved in, we’ve replaced the water heater, the HVAC, and two bedrooms’ flooring. Big ticket items like replacing the HVAC system help the appraiser increase the value of your home.

Make Easy Cosmetic Fixes

When you’re in your house every day, you tend not to notice the little things like the paint that is chipped off your kitchen cabinets or the hole in the dry wall where your child’s bedroom door handle hit the wall. You might not notice dingy floorboards or dusty door hinges, but the appraiser will.

These items don’t cost much to fix, but they can increase the value of your home by creating the appearance that you care for your home and that it is well-maintained.

Look at the Curb Appeal

How does your house look on the outside? Is the paint fresh or the siding clean? Is the lawn mowed? Nicely landscaped? Or, do you have piles of clutter outside?

A tree fell in our backyard during a windstorm, and while we had taken care of most of it, the trunk of it still lay across our backyard. The real estate agent was adamant that we must take care of that before the appraiser came.

Get Comps for the Neighborhood

How much do comparable houses in your neighborhood sell for? Having this information gives you an idea of how much your house would likely sell for. Making this information easily accessible to the appraiser also gives him a starting point.

Our real estate agent offered to put together a list of comps for us. However, we didn’t need her to. When we put in our application for refinance, the comps in our area were high enough and our mortgage low enough, that the bank didn’t even require an appraisal.

Final Thoughts

Now is a good time to consider a refinance based on the market. If you’re wondering how to get started, hopefully this helps you learn how to make a refinance appraisal checklist.

How to Create a Zero-Based Budget in Excel

April 27, 2020 By MelissaB Leave a Comment

Whether you feel like your finances are a mess and you don’t know where the money goes every month, or you want a better handle on your spending and saving records, I highly recommend keeping a monthly budget. I know, I know, people always complain that they don’t want to keep a budget, or that their finances are too complicated for a budget. The simple truth is, once you learn how to create a zero-based budget in Excel, keeping a budget is quite easy. And if you’re short on cash, that’s all the more reason why you should keep a budget.

Why Keep a Budget?

A budget can be helpful at the beginning of the month to act as a map. This map tells you how much you have to spend and save and helps direct how you use your money.

At the end of the month, when you fill in what you spent, the budget serves as a financial journal, so to speak. I find it very helpful at the end of the year to see how much I spent on groceries, miscellaneous, etc. That helps me make next year’s budget. Also, if my savings is smaller than I would like, looking over past expenditures helps me see what was the cause.

Why Use Excel?

There are so many budgeting software programs out there. Why not use one of them? Well, you certainly can, but I’ve discovered that most of them charge a monthly or yearly fee. I don’t know about you, but I find it irritating to pay $5 to $8 a month just to have a platform for maintaining my budget. However, after you initially buy Excel, it’s completely free! And, once you learn how to use Excel, it’s easy to use.

Sure, you could keep your budget on paper, and I did that when my husband and I were first married. However, as finances get more complicated, a paper budget is harder to maintain. It’s also harder to evaluate your spending at the end of the year because you can’t organize it by categories and expenditures.

What Is a Zero-Based Budget?

A zero-based budget simply means that each paycheck, you plan expenditures that are equally to your income. So, if you create your budget, and you discover you have an extra $200, you don’t just leave it sitting there. (Most people will slowly pitter away that money during the month.) Instead, you earmark that extra money for something. Maybe it goes to your emergency fund. Maybe it goes to debt repayment. The point is, you give that money a job so you don’t spend it because you see it as “extra.”

How to Create a Zero-Based Budget in Excel

Creating a zero-based budget in Excel is fairly easy and quick.

Create Categories First

When you start your budget, you’ll want to have several categories. These categories will run vertically down your Excel column.

Categories to Add to The Budget

The first column should have several major categories:

Income
Fixed Expenses
Variable Expenses
Debt

These categories represent your income and all expenses for the month.

Fixed expenses will be those expenses that are the same month after month. Think rent or mortgage, cable & internet, etc.

Variable expenses will be those expenses that vary every month such as gas, groceries, spending, utilities, etc.

Debt will obviously include all of your debt such as credit card payments, student loan payments, car payments, etc.

By now your Excel spreadsheet should contain two columns. The first should be the broad categories of income, debt, fixed expenses and variable expenses.

The next column should contain the names of all of those particular expenses.

Get Ready to Record Data

After that, you should have two new category headings, each in their own column—Budgeted and Actual.

At the beginning of the month (or pay period), you will put in the budgeted amount you plan to use for each category.

As you incur expenses, you will put the actual spending under the “Actual” column heading.

Customize to Your Choosing

At this point, you can customize how you would like. Some people focus on the aesthetics and make each column a different color.

Some people budget for the entire month, while other people budget for each paycheck in the month, whether that be four or five for a weekly paycheck or two paychecks for a bimonthly payment. You decide what works best for you.

Keep in mind, if you look in Excel, you don’t need to create such a simplified budget. Excel has plenty of budget templates already designed for you such as this:

What If You Don’t Know How to Use Excel?

What if you’re convinced you need a budget, but you are intimidated because you don’t know how to use Excel? No worries.

There are plenty of free online tutorials that can teach you how to use Excel. If you’re a visual person, check out YouTube tutorials. If you prefer online websites that explain how to use Excel, there are plenty of those, too.

For the most part, learning how to create a zero-based budget in Excel only requires the most remedial Excel knowledge.

The only tricky part is that in some places in your budget, you will likely want to add a calculation formula. For instance, if you have a category for “Emergency Fund” and at the end of the month you want the $400 you saved this month to be combined with the $600 you saved last month, you’ll need a calculation formula. Again, this is easy to learn in less than two minutes through a video like the one below:

Final Thoughts

Learning how to create a zero-based budget in Excel will be worth your time! Once you have the budget set up, you can create a plan for your spending and also track how you spent your money at the end of the month. When you have a clear view of how you’re spending your money, you’ll be able to have more control of your money. As a result, your financial situation should improve.