When someone says “I did my finances,” for a long time I had no idea what they meant. Did they balance their checkbook? Or perhaps they paid some bills. I would say in general this is what it meant. Years ago, it was balancing a checkbook or paying some bills. But today, I think “I did my finances” has an aged connotation and is begging for some modernization. I’m going to redefine it for the more technological, modern world we live in today.
“Doing your finances” means you took some time to know how much money you have. This is so much more than simply looking at your bank account amounts. If you’ve been reading Better Budget at all, you should understand now the importance of a budget. If you haven’t been reading it, well budget is in the name…so, it’s pretty important. When you do your finances, it’s really keeping your budget up-to-date. Keeping your budget up-to-date takes often work, but it literally pays off. The better you are with your budget, the more money you have in your pocket.
So, what does "I did my finances" mean for me? I use the envelope budgeting system and it’s pretty manual. When a transaction comes in my bank account, I also record it in the envelop budgeting app I have. So, doing my finances is pretty much syncing my bank account transaction list with my envelop budgeting transaction list. After this is done, I know exactly how much I have in each envelope. For example, if I had a $40 gas purchase in my bank account, I would then record a $40 gas purchase in my envelope budgeting app. Recording it in the app also requires me to take it out of an envelope. So, if I had $50 in the gas envelope, I would take $40 out of it. Now I know how much money I have, e.g. $10 left in gas.
Knowing how much money you have, or “Doing your finances”, also includes updating your budget when you get paid. I do my budget cycles weekly, which I highly recommend. So, every Friday (actually today after this blog post) I refresh my envelopes. I add the weekly budgeted amount to the appropriate envelopes. Then, if I have any extra money left over (say my wife worked some extra hours or we under-spent in an envelope), I then allocate the extra. I first allocate it to envelopes that we over spent, which is usually the coffee budget. If all those envelopes are good, then I’ll give my wife and I some extra spending money, invest it, or simply save it.
How often should you do your finances? I would recommend every 2-3 days, or after a lot of purchases. It takes me 10-15 minutes to completely go through my finances. The more often you do your finances, the less time it will take you to complete your finances for two reasons. 1) You get better at it, so you’ll finish it quicker. 2) You won’t have as much finances to review (e.g. if you do it every week, you’ll have a week of finances to review, versus just a day or two). If you have a big shopping day, I would go home that evening and do your finances. I always do our finances after going to the mall and buying a lot of things for two reasons. 1) To know if we overspent in any envelopes and return items if so. 2) To know how much left we have to spend.
So, “Doing your finances” means you took some time to know how much money you have and you do your finances every 2-3 days. Simple.
Thanks for reading the Better Budget blog! Doing your finances is tough, but it’s something you can create a habit of. Once it’s a habit, it’s easy. If you need help getting started with your finances, don’t be afraid to reach out to me. I’m here to help!
Have you ever heard someone say, “It’s just not worth my time”? I’ve said it before and I’m pretty sure you have too. But, have you really thought about it? Is it literally worth your time? Do you even know what your time is worth? I’m going to help you figure out the answers to these questions and help you save more in money, without even realizing it.
I thought of this topic the other day when my wife and I were driving to a wedding. I asked myself the questions, “Should I have flown? Is it worth my time to drive or fly? What’s really the more expensive option?” Looking at just the cost of a plane ticket vs gas for driving, driving is almost always the cheaper option. However, there are so many more factors that I should consider.
Let’s simplify things and look at it more generically as an action. Is that action worth my time? In my case, the action would be driving or flying. With action is better? I want you to start by considering only two things: 1) the cost of the action (e.g. gas and food), and 2) your hourly time rate. There are a lot of other factors you could consider, but focusing on these two will cover the bulk of the cost.
We know now what to focus on to see if the action is really worth your time. I’ll use my fly vs drive actions as an example. The first thing I did was estimate the cost of driving vs the cost of flying. I kept things simple and focused on gas+food for driving and ticket+food for flying.
Driving cost estimate: $80 for gas (2.5 fill ups), $60 for food = $140 estimate
Flying cost estimate: $320 per ticket round trip x 2, $0 for food (we can go without) = $620
From the looks of it, driving is the way to go. But, we haven’t considered the worth of our time. First, consider the time it takes to do both actions.
Driving time: About 14 hours
Flying time (including check-in, layovers, etc.): About 5 hours
Time difference: 9 hours
So, if you flew instead of driving, you would save 9 hours, but what do you do with this information? You start by figuring out your hourly rate (or in my case, my and my wife’s combined hourly rate). If you get paid hourly, that’s your hourly rate. Easy. If you get paid by salary and work normal 40 hour weeks, just divide your salary by 2080 to get your hourly rate. If you get paid irregularly, add the amount of money you made across your last 5 pay stubs (A). Then, add the amount of hours you worked over your last 5 pay stubs (B). Now, divide what you got in A by B (A/B) to get your hourly rate. Lastly, if you’re doing this with a spouse, add your hourly rate with theirs to get the combined hourly rate.
I’m going to use some made up numbers here, but let’s say my wife and I had a combined hourly rate of $65 per hour. Going off of our example before, we would save 9 hours by flying. So, 9 x $65 is $585. In other words, flying would save us $585! Or said differently again, driving would cost us $585 more. How? Let’s assume we flew and we gained 9 extra hours. If my wife and I both then worked those 9 hours at our respective jobs, we would have made a combined $585. Let’s now look at our new estimate:
Driving Estimate: $140 cost + $585 in our time = $725
Flying Estimate: $620 cost + 0 in our time (we already subtracted this out) = $620
Now flying is the better option. This is simple and can cover most action comparisons, but you could also consider more factors. For example, if you could do some work remotely, you could work during your flight to save even more money. You could also consider the wear on your vehicle (your car loses an average of $0.11 per mile in value). We traveled 700 miles, so that would make the driving estimate $77 more, or $825. But, I like to just focus on the major factors, as all the minor factors end up offsetting. Focus on whatever you feel comfortable with.
If you go with this method of analyzing whether it’s really worth your time. Then, you have to understand, you need to work the time you saved. Using the above example, if my wife and I chose to fly and save 9 hours, but we didn’t then work those 9 hours, we would be out $585. Now our Flying estimate went from $620 to $1205 and our driving estimate dropped to $140. You can see, if my wife and I didn’t work the 9 hours we saved, we would have lost almost $1000.
Ultimately though, your decision shouldn’t be driven solely on numbers. For example, to my wife and I, flying is so much more convenient. We would be happy to pay a little more for this convenience. It’s also safer to fly than drive. On the flip side, driving gives us the advantage of having a car once we get to our location, which is very valuable. You should see my point by now, sometimes the decision isn’t solely based on numbers, but you should definitely rationalize your decisions based on those numbers.
I hope you enjoyed reading the Better Budget blog! If you want help calculating your hourly rate or figuring out if one action is more worth your time than another, please message me. As always, I hope your personal finance journey will get better every day!
I write the Better Budget blog to help you get better with your finances in general, but the core of every financially healthy person, family, organization, etc. is a well written budget. There are a lot of ways to do a budget. I teach the envelope method. I’ve been using it for years and I think it works the best out of any other way.
Something you should periodically do with your budget is making sure your numbers are accurate. For example, if you budgeted $40/month for gas, are you really spending that $40/month? Another example that a lot of people can relate to is those with variable income (income that changes from month to month). Is your monthly budget more, or less, than your net monthly income (i.e. your take home pay)?
There’s a couple ways you can check this. Let’s first look at an individual budgeting envelope, such as gas. I had been budgeting $30 a week for gas since December 2018. I do my budget weekly, but this can also be applied to other types of budgeting, such as bi-weekly or monthly. Anyways, I constantly found my envelope going negative on that budget by approximately $5-$15 every week. This was the first indicator that something needed to change.
Now, I had to figure out what my new budget should be. The best way to figure this out is averaging. For me, I gathered all my gas purchases between today and January. I just looked at my envelope history on the budgeting app I use, but you can also look at your bank account transaction history or receipts. What I found was I averaged about $43 on gas per week (well, my wife and I averaged). It makes sense. Gas has been going up in price and my wife got a job that’s about 45 minutes away from where we live. So, I adjusted my weekly gas budget to $45. We now stay within budget every week, as long as we don’t do any extra traveling!
Another way you might need to make an adjustment is your weekly budget amount. This weekly budget amount should be about 98.5% of your net income. This sounds complicated, so let’s break it down. You can figure out your net income in a couple of ways. First, if you’re on salary with a fixed monthly income, your income is what’s deposited into your bank account every pay cycle. If you’re on a changing income, you can either approximate it for the hours you typically work, or average your last 5-10 pay stubs. So, if you typically work 40 hours a week and get paid $20 per hour, then your average net pay per month would be approximately $2426 (40 hours * $20 * 52 weeks…divided by 12 months…multiplied by .7). The multiplied by .7 gives a very good approximation of your take home pay (i.e. your net pay) after taxes, insurance, social security, 401k contribution, etc.. The best option is to average your pay stubs if you have them. Take 5-10 pay stubs and average your take home pay from all the stubs. Then, this number is your average net pay per pay cycle.
Now that you have your net pay, multiply it by .985. Someone who makes $41600 per year would have an approximate net pay of $29120. Therefore, the yearly budget should be $28683 ($29120 * .985). Then, use that number for the number of budget cycles in a year. If you monthly budget, then you’ll divide it by 12. If you do weekly, 52. If you do bi-weekly, 26. I do weekly, so I would divide $28683 by 52 to get $551. That’s the magic number. That’s how much your budget should be per budget cycle.
After all that, we have what your budget should be and we can make the adjustment if needed. In my case, after I did all the calculations above, I actually found that I was a lot under budget! This meant I had more money to budget. For example, if my weekly budget was $551, I found out I was actually only budgeting $525. So, I found $26 more I could budget per week. That’s almost $1352 yearly! It’s a great day to be under budget and find out you have more money. It’s an even better day if you’re over budget and you have to reduce. It’s better because you found out before you overspent. You adjust your budget according. Cut from a couple areas to get back to your budget (e.g. cut $20 to get from $571 to $551). Check your budget and see what adjustments you need to make!
If this seemed like a lot to take in, please let me know! I want to refine my budgeting method to make it easy for you to understand and do. If there’s any way I could improve it or better explain it, please reach out to me. I would love to help you figure out your numbers to. Just contact me, and we’ll get your budget rolling! As always, thanks for reading Better Budget and I hope your finances get better every day!
Refinancing has immediately increased my net worth. I expected my net worth to have gone down about $1000 at first, before eventually recouping the loss over the following months. This wasn’t the case, to my surprise. To understand how this happened, let’s back up just a little bit.
Refinance from a 30 to a 15, take the credit
About a month ago, I and my wife decided to refinance our mortgage from a 30 year to a 15 year. Our goal was to get through the refinancing with as little cost as possible. So, we elected not to pay for any points. Actually, we decided to take a higher rate to get some credit toward the closing costs. Long term, the difference between par (the rate without points/credits) and the rate with some credit was small. It was even smaller 5 years out, which we considered because there’s a good chance we won’t be in this house by then.
Understand disposable closing costs
So, we had about $2000 credits, which covered almost all the disposable closing costs, like the appraisal fee, title transfer fee, etc. Basically, it covered almost all costs that we wouldn’t get back. There was about $5000 that had to go to escrow, but we would get the money in our current escrow account back. So, this cancelled out. At this point, we only have to pay about $500 of disposable closing costs.
Buy down the loan if needed
The last part of the closing costs was to buy down my loan. My original mortgage was a 3% first time home buyer’s loan (again, I don’t recommend 3% down, but we’re all learning). However, to refinance, you need 5% down. So, I had to buy down my loan by roughly 2%, which I estimated to be about $6000. However, this is where my refinancing almost fell through.
The appraiser appraised my home lower than what I originally bought it. This was a problem because I expected my home value to increase about $5000-$10000, which would have given me 5% equity without having to buy down my loan. Since it appraised lower, I had to bring even more money to the table. More money that what I was comfortable with.
Work with a reputable mortgage company
Thankfully, I was working with an incredible mortgage company, Better Mortgage (funny the name is so similar to Better Budget, but there’s no relationship). I simply told them that I couldn’t afford bringing that much money to the table. Even though it all would go toward equity and wouldn’t affect my net worth, it would cause my bank accounts to be way to low. In other words, it was too risky for my wife and I to make that sort of payment. Again, I was working with an incredible mortgage company. They gave me the max credits to help, $4999! They couldn’t give any more than that, but that was more than enough. Because they were so generous, and my net worth actually increased $1000 because of it!
Refinancing is a great idea if you’re on a 30 year mortgage. Take that 30 to a 15 and increase your net worth faster. If you have any questions about refinancing, please ask me. I’ll help you get started and give you any recommendations I may have!
Thanks for reading Better Budget. I hope this blog post will help you figure out how you could refinance a 30 year to a 15 year and increase your net worth at the same time. Even if you don't have a home, you can learn from this, so you can make the right decision when you buy one some day. As always, keep improving and getting better at your personal finances. Let me know if you have any questions!
Today's the day! We're finally closing on our home refinancing. It's been a little bit of a roller coaster. At a few points, I thought the refinancing was going to fall through. I'll write about it in a future post, but I'm very happy that it will go through and help me reach one of my financial goals, which is to pay off my mortgage as early as possible.
Everyone has financial goals, whether they're written down or just floating in space. We strive to meet these goals, but often struggle. Why do we struggle so much trying to meet financial goals? We know when we achieve them, it means we'll be in a better spot financially and often less stressed. But still, reaching a goal can sometimes feel like climbing Mount Everest. A long journey, that get's harder near the top. What's the problem? Why is it so hard?
We're doing things right by having financial goals. What we're probably missing is a well-defined set of whys. The whys drive us to our goals. The stronger the whys, the more driven we are to our goals. I guarantee you, if you define good whys, you will do well with your finances. I want you to do this and I'll do it with you. Write down your list of whys. It doesn't have to be long, but I want you to be honest. It should answer this question, why do I want to do well with my finances? This is my list,
Thanks for reading the Better Budget blog! I hope it helps improve your personal financial journey. As always, if you have any financial questions, just message me! I'll get back to you quickly, or answer them in the next blog post.
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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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