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Does Your Budget Need an Update?
Does Your Budget Need an Update?
Having a budget is a great way to take charge of your financial health. In fact, people who track their spending are more likely to owe under $5,000 in debt than those who don’t. A budget can help you stay on track toward achieving goals like a secure retirement, but as your life changes, your budget may require updating from time to time. So, whether you’re planning for your dream home, a vacation or a debt-free future, it’s important to make sure your budget reflects your current financial reality. Here are some common reasons you might need to reassess your budget.
Changes in Income (Up or Down)
If your income changes, adjust your budget accordingly. With a raise, you might want to allocate more money to savings or retirement accounts or pay down debt more rapidly. On the other hand, if you lose a job or face a pay cut, you may need to reduce a few discretionary expenses, such as eating out, until you’re able to recoup the lost income.
Major (and Minor) Life Changes
Major life changes, such as moving or purchasing a home, a serious illness, starting a family or getting married tend to significantly impact household budgets across several spending categories. But even less drastic changes, such as a costly home repair bill or a car purchase, will often require budgetary adjustments. In the event a complete overhaul is needed, it may be wise to seek out assistance from a qualified financial professional.
Inflation (and Other Changing Economic Realities)
In early 2023, the average price of eggs was 70% higher than in 2022. While eggs have become the poster child for inflation run amok, many other household expenses have also increased significantly. And taken together, these changes have stressed the financial health of American households and likely contributed toward soaring consumer debt. But by reworking your budget numbers, you may be able to avoid burdensome credit card bills in the future.
Evolving Long- (and Short-) Term Financial Goals
As your financial goals change, so too should your budget. If you once thought you’d retire in Akron but have now decided you want to spend your golden years in Malibu, you might need to sock more away to make that retirement dream a reality. Rapidly increasing mortgage rates are changing the calculus for would-be home buyers; a budget can help you make adjustments based on shifting economic conditions. Consider your near-, mid- and long-term financial goals as you reassess your resources and needs.
Changes in Credit Card (and Mortgage, Car Loan) Debt
If you take on increased debt, whether it’s a new car payment, mortgage or medical bill, your budget will need to adjust to incorporate those payments. On the other hand, when you pay off a debt, it presents an opportunity to put more money toward paying down other obligations or putting more funds aside toward your retirement or other financial goals. What once was spent chipping away at a credit card balance could now be put toward your vacation fund or building up emergency savings for a rainy day.
A Budget Is a Living Document
Establishing a budget that works for you is an important step toward building a healthy financial future and securing your retirement readiness. But it will likely require several updates along the way. A midyear budget check is a great way to make sure your plans stay in step with all your life circumstances. If you need assistance, a financial professional can help you.
Sources
https://www.thepennyhoarder.com/budgeting/budgeting-statistics/ https://www.ers.usda.gov/data-products/food-price-outlook/summary-findings/#:~:text=Retail%20egg%20prices%20increased%208.5,flock%20to%20a%20lesser%20extent .
How to Afford a House With Rising Prices and Interest Rates
How to Afford a House With Rising Prices and Interest Rates
In the third quarter
of 2022, the median home price in the U.S. was around $400,000. That means the
average homebuyer required a six-figure income to afford their purchase — and
the $2,682/month payment that accompanied it. If that seems steep, don’t lose
hope. Here are six strategies to help you afford that new home you’ve been
dreaming of when prices and mortgage rates are high.
1.
Choosing a property. There’s an old real estate saying: “Location,
location, location.” And that’s because location is such an important driver of
price and value. While picking a prime location can drive price up, moving a
little further from a city or choosing a less sought-after neighborhood can
help control costs. You can also consider an older home — taking into account the
cost of potential repairs — or one with a smaller footprint. These moves may
also lower your property taxes.
2.
Adjustable-rate mortgages (ARMs). Unlike a fixed-rate mortgage, the
interest rate of an ARM can vary over the loan term. The “start rate,” also
called an intro or teaser rate, is fixed for a predetermined period (such as five
years for a 5/1 ARM), but then can fluctuate according to an index — typically
the secured overnight financing rate, or SOFR, plus a margin. The 1 in a 5/1 ARM
means that the interest rate can subsequently adjust every (one) year. ARMs typically
carry a lower rate than fixed-rate mortgages but carry the risk of going higher
over time. An ARM may make more sense if you’re confident you will sell the
home within the period of your start rate; otherwise you risk not being able to
afford your payments in the future.
3.
Higher down payment. If you can scrape together a higher
down payment, it can lower your monthly payment significantly. And by exceeding
the 20% threshold, you can save even more by dropping private mortgage
insurance, or PMI.
4.
Put time on your side. Real estate deals may be few and far
between in a competitive real estate environment, but you have a better chance
of scoring one if you’re not in a hurry. Allow plenty of time to shop around so
you can take advantage of any lulls in the market.
5.
Negotiate and lowball. It may be a tougher sell in a hot
market, but you still may get lucky by putting in low offers. Consult with an
experienced real estate professional for advice on getting your best chance of
having a seller accept a lowball offer, knowing you may need to make a bunch of
them before someone bites.
6.
Get preapproved. Do what you can to make your offer more
attractive by getting your financing preapproved by your lender. If a seller
needs more time to get out of their home, you may be able to contract to let
them stay and rent it out from you. Waiving contingencies comes with risks, so
don’t do this without careful consideration.
Buying a home is one of the biggest purchasing decisions anyone ever makes. A consultation with a qualified financial professional can help you weigh your options.
Sources
Coping With Financial Setbacks
Coping With Financial Setbacks
It’s not always a smooth ride when it comes to managing personal finances.
Bumps in the road can derail your plans if you don’t take steps to protect yourself
and stay on top of the situation. Here are some strategies that can help.
There are a number of difficulties you can face on the journey through life. Some events that can negatively impact your personal finances include:
● Layoff or furlough
● Illness or disability
●
Lawsuits
●
Divorce
●
Death
of a spouse
●
Investment
losses
●
Fire
or theft
●
Pay
cut or reduced hours
●
Major
repairs (including home or auto)
Plan, Prepare and Protect Yourself
You can prepare financially for most of these situations. Combining approaches to create multiple layers of protection is even better.
●
Insurance. A good home or auto insurance policy can help lower
expenses related to an insured event such as a theft, fire or accident. Health and
disability insurance can cover some costs related to illness or injury. And
life insurance can assist your family in the event the unthinkable occurs.
●
Umbrella policy. If you’re worried about major accidents and lawsuits
that target your assets, an umbrella policy can protect you in a way that a regular
insurance policy might not. An umbrella policy’s coverage generally picks up where
home and auto policies leave off.
●
Emergency fund. Set aside money in an emergency fund to cover expenses
without having to rely on credit cards. This dedicated account can also help you
withstand investment losses as you wait for a recovery or adjust your strategy.
●
Maintain good credit. Should you need
a loan to help with certain setbacks, having good credit can go a long way toward
ensuring access to lower rates and more affordable terms.
With the right planning in place, you have a better chance of weathering financial storms. Take action before you’re in the middle of a crisis if at all possible.
Additional Tips for Managing Financial Setbacks
●
Don’t panic. Take a moment to stop and breathe. It can be difficult
to make decisions at this time, but it will be harder to think clearly if you’re
panicked.
●
Look for community and state resources. If you can access a food pantry, apply for unemployment
benefits or connect with other programs, it can free up necessary cash to deal with
a crisis. Remember that these services are meant for times of distress. Consider
returning the favor for others when you get through this setback.
●
Take care of yourself. Do your best to eat healthy, get adequate sleep and
exercise. You’ll make better decisions and have greater resiliency when you practice
self-care.
●
Do some research. There’s a plethora of articles
and advice online, but seek out only reputable sources of financial information
— not chat rooms or social media.
● Seek social support. Get emotional support from friends and family who won’t judge you. Find people who can serve as a sounding board as you work through financial challenges.
The Bottom Line
Seek information and advice from reliable sources as you navigate financial
setbacks. Your WellCents financial professional can be a value resource to help
you plan and pivot to adjust your financial strategy to help weather whatever storm
blows through.
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