5 Steps to Creating a Realistic Budget

ImageBudgets: we all agree that they’re good to have. However, despite our best intentions, they never seem to match up with our real-world spending behaviors. If that sounds like you, keep reading. The key to creating a realistic budget is to work with your habits, not against them. Follow these five steps to understand yourself and your money, so you can create a budgeting plan that really works.

1. Get to know your cash flow

Before you create a budget, you need to know how much money you have coming in each month. You probably have a general idea, but have you taken everything into account? Do you receive a regular paycheck? Are you getting any benefits from the government, or money from your parents? Do you have a deposit account that pays dividends, like a savings account or CD account? Every little bit helps. Don’t include money you might have in the future, like a scholarship you applied for or a promotion you expect to receive. Budget as if these things won’t happen, and if they do, you’ll have a wonderful dilemma: extra money!

2. Determine your priorities

It doesn’t matter how much money you have; when you’re budgeting, life necessities come first. Focus on setting aside money for things like food, housing, transportation and paying down debt before you worry about anything else. Determining your basic cost of living is 100% non-negotiable.

3. Know thyself

What we really mean is “know your spending habits”. You can’t create new habits unless you’re aware of the ones you already have. Pull out all your account statements and start looking for patterns. Are you buying coffee every morning, for example? Are you shopping online more than once a month? Add everything up. If the total amount of money you’re spending is more than the amount of money you have coming in, it’s definitely time to cut back. That being said, it’s also a good idea to leave some wiggle room in your budget for unforeseen purchases. You can’t possibly account for everything. If you leave room in your budget for surprise expenses like car repairs, you can roll with the punches and come out with your budget unscathed.

4. Make it social

Spending is social. When you’re shopping, you’re often buying things for people, or with people. Why, then, wouldn’t you make your budget social, too? Don’t leave it in a dusty notebook on your desk. Talk about it, and ask your friends and family for tips. Or, better yet, ask your spouse or a trusted friend to be your “accountability buddy”. Make a pact to remind each other of your budgeting priorities while you’re shopping together. It’s easy to make an impulse buy when you’re alone, but it’s harder when someone you trust is there to say, “Do you really need that?”

When someone else is helping you make financial decisions, it may be tempting to just accept their advice without thinking about it, especially if they know way more about money that you do. When you’re applying for a loan or a credit card, your credit union representative can make recommendations, but you always have the final say. If you don’t feel comfortable with a particular arrangement, or don’t think it will fit with your budget, say something! Your lender will approve your loan based on your debts and income, not your living expenses. Only you know your living expenses, and these can be a much better indicator of how much you can realistically afford to borrow.

Laura Edgar is a senior writer for NerdWallet.com, a personal finance website dedicated to helping you make smart money decisions.

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Home Equity Loans Give You Room For Improvement

It’s a tough choice for a homeowner: Move into a new house, or improve the one you have. It seems so easy to call a realtor and arrange a showing. But your current home has something no new home can offer–equity.

Home equity is on the rise, providing homeowners a ready financing source to turn home sweet home into home sweet dream home. On average, homeowners spend 18 months planning home improvements. It’s time well spent; some renovations pay off better than others. Bathroom and kitchen renovations provide the greatest return, between 90% and 95%. Decks and home offices hold the low end, between 65% and 70%.

As you plan, look beyond your house to your neighborhood. Will renovations put you in a different league–and price range–than your neighbors? Also, keep in mind how long you’ll be in your house. If you’re going to fix it up and sell in six months, you’ll get all the pain of remodeling and not much gain. But if you plan to live in the house more than three years, it makes economic sense to remodel.

How do you calculate your available equity? First step: Say you made a down payment of $20,000 on a house priced at $100,000 five years ago. Since then, you’ve paid $15,000 toward the principal, and the market value of your house has increased to $115,000. The sum of your down payment ($20,000), principal paid ($15,000), and the increase in property value ($15,000) gives you $50,000 in equity.

Second step: Ideally, what you owe on your home–mortgage plus home equity loan–shouldn’t exceed 80% of your home’s value. So 80% of $115,000 suggests, if you meet other lending yardsticks, you may be eligible for as much as a $27,000 home equity loan (house is worth $115,000; 80% of that is $92,000; you still owe $65,000 on the first mortgage; so $92,000 – $65,000 = $27,000).

Call Hopewell Federal Credit Union to discuss your home equity loan options today.

The Home Search Process Simplified

Once you’re preapproved at the credit union for a home loan, you can start the fun part of the home-buying process…looking for a home! Let’s break down the process:

1. Document what you need—and want—in a new house.

2. Select a real estate agent—ask for personal recommendations from family or friends, and interview agents before choosing the best fit. Once you’ve selected an agent, meet face to face to review the criteria defined in step one.

3. Once your real estate agent sends you listings to review, select up to five houses for your first showing.

4. Take good notes after visiting each property…it’s hard to remember which is which afterward.

5. Once you find a property you like, revisit and ensure it’s what you want.

6. When you’re ready to make an offer, sit down with your real estate agent to define your offer terms.

7. Wait for a response.

8. Counteroffer if necessary.

9. When you’ve agreed on terms, schedule an inspection within three days.

10. Visit Wendy Bussa at Hopewell Federal Credit Union. We have great rates, and she will walk you through all your mortgage options step by step.

11. Wendy will walk you through the loan process. Note: You’ll need to find and pay for your first year’s homeowners insurance at this time.

12. On closing day, take time to read the documents you’re signing. Don’t feel pressured to hurry.

Walking through the home search methodically makes the process of buying a house much more enjoyable. Hopewell Federal’s are here for you along the way.

Copyright 2012 Credit Union National Association Inc. Information subject to change without notice. For use with members of a single credit union. All other rights reserved.