We are all feeling our pocket books being pinched in so many different way these days.  The economy might be heading into a recession, costs of goods are increasing, gas prices are at an all time high, and for some homeowners it just getting tough to make ends meet. 

Recently I met with a homeowner who approached me about refinancing their home.  As we started getting to their core needs about pulling cash out of their home, I realized that they did not have a family budget.  They just have never done a budget and started to run into problems.  We have all heard about robbing Peter to pay Paul.  Well for some, this is just reality.  So as a favor to my client, I decided to meet with them and we worked on their family budget, discovered their problems and showed them how to get back on track without having to refinance their home. 

Here are some basic tips on creating a family budget:

1.  Calculate your correct net income (not gross income).  The first step to figuring out your budget is to understand your net earnings.  Take your net earnings and multiply it by the number of paychecks you receive each year.  If you are paid 2 times a month, this would be 24 pay periods, every other week would be 26 pay periods, weekly would be 52 pay periods.  Then divide this by 12 for the number of months in a year and this is your total income to pay all your bills and expenses.

2.  Calculate all your fixed costs and budget for the unexpected.  Your fixed costs would be your house payment, car loan, insurance, telephone, electric.  Some unexpected costs are one time costs that creep up on us every year like car registration or car repairs.  Make sure you budget for these items as well.

3.  Calculate all your variable costs and over budget if possible.  Variable costs are fuel costs, groceries, dining out, entertainment, household goods etc. 

4.  Reconcile your budget.  Add up all your expenses and subtract this from your monthly income.  If your expenses exceed your income, then you have 2 options.  Either earn more income or trim the budget.  I usually recommend to trim your budget first.  You will be surprised how much you can save by just cutting out a lot of little things.

When I went through my clients budget, these are the things I found that they were able to trim:

•  Verify all your fixed costs and make sure everything is accurate.  We found that their car insurance and homeowners insurance were very expensive, they ended up shopping for a cheaper option and ended up saving 30% a year. 

•  Do not spend money on things you are not using.  Their budget had money for a health club membership and they did not attend for almost 12 months.  We got that cancelled.  They bought a cell phone plan for 1500 minutes when they regularly only used about 500 minutes.  We got their plan revised.  They were paying for cable pay channels they were not watching.  These little things shaved over $100.00 a month off their budget.

•  Cut back on things that are not a necessity.  In their budget they were spending money at Star-bucks.  Well $3.50 a day 3 times a week at 52 weeks a year ends up costing $546.00 a year.

•  Tough sacrifices might need to be made.  My client realized that every year they went on a family vacation that they could not afford.  They had to make a hard decision to cut this expense back to every other year. 

All I can say, is sometimes the simple solution seems to be to just have your mortgage guy give you the quick fix by refinancing the house and paying off the out of control credit card debt.  But in the end they might just be treating the symptoms. 

We are unique people out there.  We expect better then "would you like fries with that drink".  I just have learned to use my Midwest values and transfer them into my mortgage business.  If you are looking for something a little more unique in your next mortgage loan, please do not hesitate to get a hold of me.