I was thinking today, what financial methodology do I want Better Budget to have? Well, I think I've figured it out. The Better Budget methodology has one simple goal, to make the best decision where the outcome results in the biggest gain. Simply put, what decision will make the most money. It might seem like any other financial methodology, but there are a few more things that set Better Budget apart.
Better Budget is not a static plan. It's fluid and adapts to each person's situation. Consider paying off debt and you'll find several different strategies. I don't teach that one strategy is the one you must take, rather I analyze your situation and make a recommendation. If you struggled with finding motivation, I'd recommend the snowball method to pay off debt. If you're really driven, I would recommend the avalanche method to pay off your debt. This is a simple example and I would consider so many more aspects, but it illustrates the point. Better Budget methodology is a plan for you. It's a plan that adapts and will be different from person to person, but the underlying goal remains the same... to make the best decision where the outcome results in the biggest gain.
There's more. I want Better Budget's methodology to focus on averages and never speculate. Have you ever heard of the saying that history is the best predictor of the future? Well, this is another aspect that drives Better Budget. When I'm trying to figure out the best decision for a certain financial situation, I always use averages. For example, the average home value growth in the United States is roughly 3%. So, what is my home worth in 30 years? Using a compound interest calculator, my home would be worth about double what it is today. I don't take the best case scenario, nor do I take the worst case. I make a decision based on the average, then adjust for any differences that come.
Of course you'll find, Better Budget Plan is no more than a methodology at this point. I have a goal to someday write a book, outlining the plan. But for now, I would like to just simply help you go through the plan that I have gone through myself, because I promise you, it works. It's worked for me and my friends and it can work for you too. If you're interest in trying out the Better Budget Plan, please contact me! I'll help you get started for free. I just want to help!
As you may have read, I am in the process of refinancing my home to a 15 year mortgage. I submitted what seems like 1000 documents to the bank. Finally, I got conditionally approved. I also got the appraisal done pretty quickly, in about a week from the initial phone call to receiving the appraisal, but this is where a problem occurred. My home appraisal came in lower than what I originally bought the home for a few months ago.
This was obviously incorrect, but I need to prepare for the worst case, where it prevents me from being able to complete the refinancing. If I can't get the appraisal corrected, what should I do? I thought about this question a lot. This refinancing was to reach my goal of paying my home off early and with little interest. I have to remember this goal when I'm figuring out what to do next. What could I do next to make sure I can reach my goal just as quickly as before.
My first consideration was to just pay my mortgage I have now like it's a 15 year. This would be a good step toward my goal, but it doesn't completely achieve it. This solution forgets to consider the interest part. If I paid my 30 year mortgage as a 15, I would pay about $180,000 in interest. This is a big improvement over the $420,000 of interest for a 30 year. However, comparing it to the refinancing terms, it's about $50,000 more. So, in other words, if I were to refinance, I would only pay about $125,000 in interest. I'm not happy about this difference. Also, my monthly payments would be significantly more with this plan. After refinancing, my PMI would drop about $75 per month. Also, the overall payment would drop. Paying my 30 like a 15, I would have to pay about $4100 per month. If I were to just refinance to a 15, the payment would be about $3800 per month. Obviously, this solution isn't the best.
Another consideration I had was to go with the previous option, but try to cover some of the extra costs. My first thought was to rent my basement, but the problem is I don't have a bathroom down there. Another problem with this solution is my laundry room is also in the basement, so I would need to figure out a way that could still be accessible, while keeping the rented space separate. I think the renovations that this option requires would be too much money and effort. I also think it would devalue the home (maybe this is what the appraisal was trying to predict lol!).
This is kind of another consideration, but related to the last. I could also cover some of the costs through investing in dividend stocks. I have a few dividend stocks that I invested in primarily because they pay out somewhere between 10-12% in dividends per year. If I wanted to truly treat my 30 year mortgage like a 15, on the new refinancing terms, I would need to lower my monthly payment from about $4100 to $3800, about a $300 difference. Yearly, I would need about $3,600. To get $3,600 per year, I would need to invest about $40,000. This would give me estimated $3,600 per year, after taxes. This is a solid option, but not completely doable. I don't have $40,000 available to invest, first off. Also, in a way I'm using the $3,600 extra per year for the extra interest I need to pay, since I wasn't able to refinance to a 15 year. I would rather use that $3,600 on something else, like a nice vacation with my wife.
The last option I've considered was to just reset. I'll give it a month or two. This gives me time to build up a little more equity in my home. I could also get a different appraiser, that could more accurately price my home. The rates might be different, but this doesn't necessarily mean they'll be bad. There's a chance that they could be better than now and a lot of analysts think they will be. I'm out $500, but I got an offer in the mail yesterday where if I switched banks to citizens bank, they would give me $500. So, then I would be back to even. My credit score might be affected, but I really don't care about my credit that much. After my mortgage is done, I won't have a credit score anymore.
With all things considered, my first priority is to try to get my refinancing to go through. The lower appraisal doesn't affect my net worth, but just forces me to tie up more money than I would like in my home. It would drain my accounts, but only for a little bit. I'm not happy to be in this situation and I'm not exactly sure what I'm going to do yet, but I'm working hard to figure it out and I think I have some good options.
Maybe you have an idea about what I could do? I would love to hear from you, you just need to message me! I'm thankful you took the time to read Better Budget. I hope you enjoyed this post. If you have any questions at all, or want some help reaching your own goals, please reach out to me! I really want to help you with your personal finances.
My parents will tell you, I was full in on the 100% down payment plan. I was going to live in their basement for years and mooch off them until I had enough for a home. I'm glad I didn't go that route and I'm sure they are too. I was against all debt, period. It didn't matter what kind of debt it was, I was against it. However, my opinion has changed about debt, but not drastically.
Let's just say, I'm okay with mortgage debt. The only other debt I'm considering changing my stance on is debt to obtain appreciating assets. I haven't clarified my view on that yet, but I've been thinking a lot about it. That's for another post though. Now, we're focusing on mortgage debt. The only debt I'm okay with and here's why...
Your mortgage debt is backed by an appreciating asset, i.e. your home. So, if you can't pay your mortgage, you just sell your home and you'll likely make a profit. Because of this, your risk is lowered and if you set up your emergency fund correctly, you could even go a few months paying the mortgage bill without a job.
This is only half of it though. Another reason I'm okay with mortgage debt is something I explained quickly in a previous post. I look at a mortgage payment in two parts: the rent and the investment. The investment is the easiest to understand, it's simply the principle paid each month. Then, everything left over is the rent (e.g. taxes, insurance, and interest). I call this rent because it's the cost of acquiring a residency.
For example, my mortgage is roughly $3170 a month. I'm currently on a 30 year, but switching to a 15. This is how it breaks down monthly (average over first few months):
Looking at it this way, I now ask myself, would a $2651 apartment be better for me and my wife? I'd then invest the $519 a month, which would actually get better returns than if it was invested into a home. After all things considered, renting wasn't the right decision for us, but now you can see how a mortgage is split into two parts: the investment and the rent.
You'll find that a lot of people who are totally against debt (think Dave Ramsey) are okay with a mortgage. It's because you're going to be paying rent one way or another, but a cool thing you can do with mortgages is lower your rent. The best way to do this is either make additional payments, or switch to a 15 year mortgage (or something even lower). This will also increase the amount of money invested each month.
If you don't fully understand how to look at a mortgage in two parts, please message me! I really want to help you understand, because it will improve your personal finances.
One of my goals with this blog is to give me an avenue to helping people with their finances. That's why every post I encourage you to ask me a question! I hope you enjoyed reading Better Budget and it has helped improve your personal finance journey.
To start, this is a simple strategy that I use often when investing. Anyone can use it and it doesn't require a close analysis of a company's financial position or a degree in business finance. This strategy requires little or no investment experience. I have used this strategy for years and it works. Because I used this strategy, I was able to fund a down payment for my home.
Here's how it works.
1. Find a public company you like and understand
The first step is the most important. I don't want you investing in any company you don't like or don't understand. Even if every analyst in the world, every friend in the world, and every stock "expert" is advising you to invest in it, do NOT. Only invest if you like the company and understand it. This is important for you to grasp because it's the foundation for my strategy.
How do you know if you like the company? Well, when you talk about their products and/or services, is it positive or negative? Do you shop there religiously or try to avoid it? For example, I know someone who won't step foot in a Walmart, but would buy a Target bumper sticker. I would recommend to that person not to invest in Walmart, but instead consider Target.
Just because you like the company, doesn't mean you should invest in it. A lot of people like Snapchat, but hardly any of them know how Snapchat makes money. People also love Instagram, but hardly anyone realizes that it's owned by Facebook. The important question to ask is, do I know how the company makes money? A simple Google search can help with this knowledge, but you need to know the answer before investing in the company. Then, consider if you would support this way of making money.
Here's a quick example of how I recently did step 1 for my own finances
I was considering Boeing as an investment. Do I like the company? I love the company. I have always been fascinated with planes and Boeing makes them the best. You have Airbus too, but I like Boeing better because they're based in America. I also think their planes look better. They're innovative and an engineering company. I'm a software engineer, so I really understand what it takes for Boeing's engineers to achieve everything they do. I understand the intellectual property they hold, which would be very difficult to copy, even if stolen.
Most of the planes we fly in are Boeing. I also fly at least once a year and have experience flying in a Boeing airplane. I've watched videos on how Boeing planes are made, just for fun. I've also applied for jobs at Boeing. I know how they make a majority of their money, selling aircraft. It's a simple answer, but I have the answer.
You can see, I haven't once yet considered whether it was actually a good investment or not. I simply considered whether I liked Boeing and understood the company. I think the obvious answer is yes and yes.
2. Check it's 5 year and life time track records
Now, this is the one financial, stock-specific item I want you to consider, but before I send you to Google, I want you to understand why I am having you check the track record. If you invest in a company, you need to expect to hold it for at least a year or more. I would even argue that you should hold anything you invest in for 5 years. That's why I say the first step is so important, because you're not just investing to make money. You need to invest in something you like enough, where in 5 years you know you'll like it just as much.
So, how do you check the track record? What even is the track record? The track record is simply just the stocks performance history. How much has it grown over the past few years? For this strategy, I only buy stocks where it's graph looks like a stable uphill climb. I stay stable, because I don't want too many ups and downs, because I might trip. Below's an example of a graph I would say is a stable uphill climb (Visa Graph).
Don't look at anything below one year, because you're going to be holding the stock for at least a year or longer. I want you to really understand this. You're investing in a company you're expecting to keep around for a long time, that's why the long-term track record matters most.
The greatest thing about this strategy is its simplicity. You've only considered two things and I would say you're ready to invest, if it all checks out. If you like the company, understand it, understand how it makes money, and its long-term graph looks like a steady uphill climb, then you're ready to invest. Don't go overboard and put all your money in this company. You still want to diversify (message me if you don't know what this means). Buy what you feel comfortable with, then use the strategy again for a different company.
Again, realize when you're investing in the company, what you buy today you'll have for at least a couple years. Be ready to be a long term investor. To give you a little motivation, the best long term investor of our time is Warren Buffett, who has a net worth of 86 billion dollars, as of today. He did this through long term investing and was really the one who made long term investing so popular.
4. Vote, re-invest, hold
This is my favorite step of my strategy, that I think a lot of strategies miss. First, when you invest, remember you have a very small share of the company. You might own a chair in a conference room, or some pencil on someones desk (metaphorically, but a good way to look at things). For many companies, each stock you own gives you a right to vote for executives. You'll probably get an email inviting you to participate in the voting. I want you to participate in every single vote. It reminds you that you're actually part of the company and the reason for investing in the company. Your votes are probably not going to make a difference, to be honest. But, the psychology behind it is important enough for you to be involved.
So, what happens when this investment starts to go down? Maybe, you're starting to lose money? For me what happens is, I check my investment and maybe see a 20% growth...a couple months later, it's only 13%, 7% lower than last time I checked! What I want you to do in any of these scenarios is invest a little bit more into the company. Maybe buy only a couple more shares. If you really understand the company, you could buy a significant amount, since the stock is "on sale". But, in none of these scenarios I want you to sell the stock.
I want you to hold on to it, through thick and thin. Don't let the day-to-day scare you. You understand the company, like the company, and see that it has a good long-term track record. There's no reason that today's USA Today article should scare you into selling or getting rid of the stock. If anything, this feeling should lead you to buy more of the stock, because other people are going to make the poor decision and sell the stock. When a lot of stock is sold, the price drops, which is your time to get something on sale.
This is my main strategy for investing. It's not what I started with, but I wish I had. I have helped friends get started with this strategy and it works well for them. If you want help, please message me! I'll be more than happy to help.
This shouldn't be your only strategy you use, but it's a good one to start with. I have many different strategies, but this one drives at least 50% of my investing. I have other ones that focus on the technical financials. Some strategies that focus on dividends. I have some that focus on mutual funds, and others that focus on passive investing. This strategy has been the most successful out of them, but I still maintain a diverse portfolio. I want you to do the same eventually, but if you can't from the start that's okay.
For those who already have a portfolio of investments. Don't sell everything and just use this strategy. You may want a fresh start. So, if you do sell everything, don't reinvest primarily using this strategy. If you're looking for a fresh start, please reach out to me and I'll help you out!
Thanks for reading this post about one simple investment strategy I use a lot. I hope you've enjoyed Better Budget. If you have any questions at all, please reach out to me. I'll do my best to answer anything. As always, continue getting better at your personal finances everyday!
On the first of every month, I calculate my net worth. It gives me an idea of how well I did financially for a given month, because I can compare this month's net worth to last month's. I can also use it to compare it to the national average for my age. Coming from the Unites States Census Bureau and adjusted for inflation, the average net worth for a particular age is...
Step 1: Update your finances
The first thing I do before starting my calculation is getting my finances up to date. I manually update my budget, pay off any outstanding credit cards, and allocate money for the next month (if it falls on the right day of the week). You don't have to do this step to calculate your finances, but I recommend you do.
Step 2: Add up all your assets
You want to next add up all your assets. Examples of assets are...
Checking and Savings accounts: I simply open my online banking account and add the numbers I see. For me, I only use one bank so all my checking and savings accounts are on the same page. For you, they might be through different banks. Regardless, don't do anything fancy. Don't try to add pending money. Just simply grab the number you see after you login.
Investment accounts: Just like the checking and savings account, simply open your investment account(s) and add the first number you see. If you're doing it during the day and the number might be changing, just use the first number you see when you login.
Vehicles: I use Kelley Blue Book to get the value of my vehicles. I bookmark the page for each of my vehicles. It doesn't matter what estimate you use, as long as you're consistent from month to month. I use the median trade-in value, which is a low estimate. But, I would rather estimate low and end up with a higher net worth, rather than the opposite.
Home: I think Redfin gives the best estimate for a home. I have found that it is the closest to what a real appraisal ends up being. Just search your address and you can see your Redfin Estimate at the top of the page.
Step 3: Add your debt
Add together all your outstanding debt, i.e. the money you still owe. For most debts, you can look on the website to see how much money you still owe. If for some reason you're not sure how to find this number, you can always calculate it too by using a monthly amortization calculator. To use a monthly amortization calculator, you'll need to know your original loan terms. Also, add in any credit card debt you haven't paid off yet.
While this isn't exactly debt, I would also add tithe money or money you've set aside to donate. This money might be technically be part of your net worth, but I always add it with my debt. I don't want it to be added into my net worth, since I know I'm going to be giving it away. In a lot of cases, I should have already given it away and have forgotten to.
Step 4: Subtract your debt from assets... assets - debt = net worth
Now you're ready to calculate your net worth. Simply subtract your debt from your assets, i.e. assets - debt = net worth. In other words, subtract the number you got from step 3 from the number you got from step 2, i.e. step 2 - step 3 = net worth.
This number could be anything. It's very possible it could be negative too and for a lot of people it will be. This simply means you owe more money than what you're worth and you should prioritize your debt strategy.
Step 5: Analyze and repeat
Now you have your net worth! Record your net worth. I keep mine in a spreadsheet. I'll send you the one I use. Just message me and I'll email it to you! So now that you have your net worth, analyze it. Are you happy with it? Is it negative? What is it compared to last month (if you have last month's)? What do you want it to be at next month? How about at the end of the year? Why did my net worth go down this month? Or go up this month?
These are all questions I ask after calculating my net worth. For example, my net worth went down by about 28% in December. Very alarming at first, but then I realized I had just paid all the fees associated with buying a home and bought Christmas gifts for my family. The next month, I was able to calculate my net worth with the home and got a paycheck from some freelance work I did during the fall, which I usually use for Christmas. It went up 17%. The next month, it increased 16% and I was back to normal.
Lastly, make sure you calculate your net worth on the first of every month. If you miss the first, just do it as close as possible. There's been times I've calculated it on the 4th. It doesn't give perfect numbers, but it's still a good estimate for the month. I set a reminder in my phone to calculate my net worth on the first of every month.
A note to married couples
Always calculate your net worth as a couple. Don't calculate two separate values, i.e. a net worth for you and a net worth for your spouse. You're one and your finances should be too. If you have your finances completely separate, I recommend joint bank accounts and to start treating your finances as one.
Thanks again for reading Better Budget. I hope this helped you learn about the value of knowing your net worth and taught you how to calculate it easily. If I could have explained it any better, please let me know! As always, I hope this has helped your personal finance journey improve and ask me any questions you may have.
Better Budget Co
Your guide to all things personal finance. We're big fans of goal getting budgets, debt fee living, and a good cappuccino.
My name is Corey and I have a passion for budgets and personal financing. I can talk about it for days (weirdly enough). Hope you enjoy the blog!
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