What the HELOC
I’m starting this off with a disclaimer that I am not a professional financial adviser. Since most of my energy is spent chasing my toddler, I barely have time to watch tv, much less the cash in the bank. In my past life, I was frivolous with my money, as it was mostly spent on entertainment - the restaurants, the clubs, the movies, etc. After all, who cares about things like retirement or a mortgage payment when you’re out with Ricky living la vida loca. Being a mom has changed the way I now look at money. Here are a few basic things I did that help me worry less about providing for my family:
1) 401k: If your job has a 401k retirement plan and you haven’t already sign up for it, you should reconsider. Some companies even match a portion of your contributions. This is literally free money that they are putting towards your retirement. I started off with a small amount, just $50 each paycheck. And each year after my annual review, I would bump up the amount I contribute. Over time I have been able to build up to contibuting 10% of my annual salary to my 401k, which is still not the maximum amount, but it is an amount I am comfortable with setting aside for future use. Another benefit to having a 401k is that the money is taken out pre-tax. That means that for every dollar you put in to your 401k, that is one dollar less in taxable income. For example, let’s say you make $50,000/year and you contribute $1000 of it to your 401k. Come tax time, your taxable income is $49,000. If you already have a 401k account, consider bumping it up to a level where you won’t be hurting financially, but can live without going into debt.
2) Check your mortgage rate: Even though fixed-rates have risen in recent times, they are still lower overall than they were 10 years ago. Shop around for good rates at your local bank and credit unions to see if you can get into something stable and predictable that you can calculate for in monthly increments. If you have a HELOC (Home Equity Line of Credit), resist trying to use it as a revolving credit card. The goal is to reduce your overall debt, not dig yourself into a deeper hole.
3) Create a budget: This seems obvious and simple, yet can be easily overlooked. You need to have a good baseline of your finances before creating the budget. Just make a list of where your cash is going. This includes big items such as mortgage/rent, utilities, phone, car payment, daycare, etc. down to the small items such as movie rentals, haircuts, etc. Add the total of expenses and find ways to trim down your expenses. For instance, instead of dinner and a movie every friday, you could alternate every other friday.
