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Yesterday we started focusing on budgets by taking a good look at what you are actually spending. Once you get everything assigned to categories and see exactly how much you are spending it’s much easier to see where you need to make changes.
The biggest category for spending is traditionally housing. You need to look at this including every expense, not just your rent or mortgage. Make sure to include your insurance payment, any tax payments, and homeowner dues. After factoring in all costs we want to get this section of your budget down to around 25%-30% off your monthly income. In other words, you make $2000 a month that would be $500-$600 a month.
If you are way over the 30% mark this is the first place to look at making big changes. This is not the place most folks want to make any changes, but if the goal is to get out of debt and actually make expenses equal income this is one area where a big change has a big impact!
Options for renters:
Rent a smaller house/apartment.
Move to a different area of town that is cheaper.
Bring in a roommate.
Work directly with your homeowner (not the rental agency) to see if you can lower rent possibly in return for doing yard work or other things around the house. (Renting houses is usually cheaper than large apartment complexes).
Options for Homeowners:
Bring in a renter. Look for singles in your church that may need a cheap place to live. You can charge $200 a month and they have a steal, but you have extra money towards this part of the budget. For families with kids, don’t toss this to the side without thinking about how awesome this could be if your renter was up for baby sitting…
Look at selling and moving to a smaller house in a cheaper area. This will affect a few things in your budget in probably huge ways. Not only are you reducing your monthly payment, you could reduce utilities, household expenses, insurance and tax payments. For some of you that are incredibly underwater in your mortgage contact your lender for advice or contact the HUD Housing Counselors to see what options may be available.
Refinance your mortgage over a longer time to reduce payments. (This is complicated and has additional fees so make sure to weigh all sides).
Reducing other expenses:
If reducing your mortgage or rent payments isn’t something you want to do, or you are not that far away from the 30% mark, look at ways to reduce your other expenses related to housing.
Reduce house insurance or renters insurance payments by increasing your deductible. This isn’t as big of a change as reducing your mortgage. Also make sure you have the coverage you need and that values are way over inflated. If your policy is covering $4000 in jewelry and you maybe have $100 in jewelry they can make some line item changes. Lastly check into seeing if you can get lowered rates by extra discounts like adding cars to the same company, being claim free etc.
Reducing Property Tax Payments. This isn’t as easy as you would like it to be. You can go to the assessors office in your county and see if they can reassess your home. If values have fallen significantly (as they have in most of the south) this can be a big help. In many counties you can look at the “rate card” for your house to see how it was assessed. Make sure that information is correct, many times they assume how many bedrooms and square feet you have from neighbors, aerial photos and other vague guessing techniques.
Homeowner Association Dues. You can discuss with them your hardships and see if they are gracious, but beyond that you don’t have many options. Buying into a neighborhood with a POA is something too many families take too lightly. In most states if you do not pay your dues they can place a lien against your house and put your home in foreclosure.
Do you have any other ideas for folks on reducing rent or mortgage payments or even reducing other housing related expenses?
Tomorrow we are tackling Utilities.
