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The last two chapters that we have been reading about in class are on investing. Investing is a very interesting thing to most people. It is a way to take the you have and make more money. People invest in many different ways. You can invest your money in a company, a person, a property, the government, or many other things. It is important to have your own savings secure and good insurance before attempting to invest. I’m going to define a few investing terms for those of you who (like me) have no clue about any thing to do with investing. 

Common stock – this is the most common way that people invest in companies. When a person buys stock in a company they actual own a portion of that company. If the value of the company goes up, the value of the stock goes up. Some companies give the people that have invested in them a portion of their earnings, which is called dividends. The dividends are not fixed and may come at irregular intervals. 

Preferred stock – this is a type of fixed-income ownership in a corporation. Preferred stock owners will receive a fixed dividend. 

Bonds – a bond is an interest bearing negotiable certificate of long-term debt issued by a corporation, the US Government, or a municipality. The way that bonds work is a person invests money in a company and that company holds to money (called the principal). In return for the investment, the investor will receive regular interest payments and will receive their principal back after the stock has matured (the maturity date is the date upon which the principal is returned to the bondholder).

In my opinion, the best way to get started investing is to find an online broker that has the terms that look desirable to you. Unless you have a great deal of money to invest, online investors are pretty good for getting started. 


Buying a house

As far as getting a mortgage goes, I am pretty much clueless. Or at least I was before I read the chapter in my finance textbook about it. Before this, I assumed that in order to get a house you needed a small down payment (sometimes) and a good job and good credit. I knew that some people I am acquainted with had gotten a mortgage with almost no down payment, so I didn’t think that it was all that important. There was a time when that was true, but today, it is not. Most loans that I looked up require at least a 20% down payment. On a $200,000 house that is $40,000! That is a lot of money to have to save up. Interest rates are super super low, but it is also harder than ever to get a loan. Your credit needs to be just about perfect to get those low rates, and of course, you need the down payment. Another thing I knew nothing about was closing costs. I knew that they existed, but not what they were for or how much they were. Through my research I learned about a lot of fees that can be added on to the cost of a home: 

Points/Interest points – these are a tricky way for banks to tell you that you are getting lower interest on your loans. Points are a fee that equals one percent of the total mortgage loan amount. Usually they are paid at the time the loan is taken out, but can be paid later on in some cases. 

Attorney Fees – An attorney is needed to look over the paper work and as representation in case something goes wrong. This fee is usually around 0.5% of the price of the home, but can vary depending on the lawyer. 

Title Search and Insurance – A title search is needed to be sure there is nothing fishy about the history of the property. The buyer of the house can be required by the lender to purchase title insurance in case the search comes back bad. 

Appraisal Fee – An appraiser is often called in to asses the true value of the home.

Credit Reports – a fee can be charged by the lender to look up your credit report

Other fees: loan origination fee, home inspection fee, deed recording fee, lot survey fee, home title transfer fee, notary fee. 

Each monthly payment will have different aspects to it. Not only will you have to pay the principal and interest payment, you will also have to pay mortgage insurance if you have less than 20% paid on the house, and warranty insurance. Owning a home also has other added costs that renting a home doesn’t have such as maintenance and taxes. I’m not saying that owning a home isn’t a good idea, it is just a decision that needs to be thought out carefully. 

There are different types of mortgages, there are fixed rate and variable rate loans. Many people got into trouble recently because they took out variable rate loans and the interested got so high that they could no longer afford their payments. Variable rate loans can be good if you believe that interest rates are going to go down. Where we are right now with interest rates so low, a fixed rate is the way to go. It ensures that for the life of your loan, the rate will not raise, and your payments will not increase. I think the most important thing to do when looking into buying a home and taking out a mortgage is making sure you seriously understand the terms of your loan and what you are getting yourself into. Walking away from a loan is a big deal and it is not something you ever want to have to do. Protect yourself and know what you are doing. Buying a house should not be a rushed decision, and there is no shame in waiting a few years until you can afford it and are ready for the responsibility. and paying off your debt

So after writing down everything I spent in February, I decided that there has to be an easier way to keep track. I heard about so I decided to check it out. I have to say I am thoroughly impressed. This website is an easy way to manage your money. I suggest anyone who is trying to stick to a budget, but using cards instead of cash to check out the website. 

We have been talking about buying cars and houses in my finance class. I think the most important thing that I have grasped is the more cash you have the better. My husband and I are trying to save as much as we can so that when our car gives out or we outgrow it, we can pay as much cash as possible. The more money you borrow, the more control you give to someone else. Getting out of debt should be the number one priority as far as extra cash goes. My favorite “get out of debt” method that I have seen so far is the snowball method. Dave Ramsey is a big proponent of this method. The way it works is you start with the smallest debt you have. Say you have $300 on a credit card, $500 from some furniture you bought and $3,500 on a car. Lets say your minimum payment on the credit card is $50, the furniture is $75 and the car is $300. That means your total debt payment each month is $425. Start out by seeing if you can pay any extra into debt. Let say you decide that you can afford $500/month for debt payments. So, what you do is pay the minimum payment on the car and furniture, and put all that extra into the credit card. So, instead of paying $50, you pay $125. Assuming you don’t use the credit card again, it will take less than three months to pay it off. Then, you take that extra $125 and put it towards your next smallest debt, the furniture. So, instead of $75/month, you are paying $200. You would have that debt payed off in just about a month after the credit card was paid off. Then, take that $200 and put it towards the car. It would only take another 5 months to pay off the car. In 10 months, you would be debt free. (granted I’m not including interest, these are just rough estimates so you can see how it works). If you had just paid the minimum, it would have been paying the credit card for 6 months, the furniture for 7 and the car for 12. These numbers are low since I am not including interest. 

A lot of people think that it makes more sense to pay off the debt with the highest interest first. I think that it is better to pay off the debt that is smallest first because it gives you a sense of accomplishment and you are more likely to stick to the program. Plus, it allows you to put more towards other debts once the smallest one is taken care of, and the total debt will get paid off faster. 

Our goal is to be completely out of debt before we buy a house. We are close, but that means that we should take on no more new debt which I think can be the hard part. We seem to be using our tax returns every year to pay off our credit cards. We are trying to get out of that habit. Right now, we are only using credit cards for gas and online purchases. It seems to be working for us. What do you do to stay out of debt? Also, let me know if you try out and it works for you!

Tax Terms

Like I promised, this blog will be all about taxes. We learned a lot about taxes in class last week and I feel like since it is tax season, it would be a good post to put up. It seems like you don’t have to hardly know anything about taxes to be able to file them yourself online. All the different tax programs make it really easy. However, I think there are some things that everyone should know about taxes. It’s your money, don’t you want to know how to get the most back and how much you are actually paying for taxes? So, here are some key terms that I thought I should explain.

Income: obviously, this is the money you bring in. Everyone knows this. But, there are a lot of different terms that include the word income that you should know. Here they are:

  • Total income: compensation from all sources. This is your income from your job, selling things, side work, interest, any money you bring in at all. This includes cash, property, or services.
  • Earned income: This is the money that you make from work that you have done. This doesn’t include interest or anything that you didn’t have to work for.
  • Gross income: all income in the form of money, goods, and services, and/or property. This term is similar to total income.
  • Adjusted gross income: This is your gross income minus any exclusions or adjustments (we’ll get to those in a minute).
  • Pretax income: This is the amount of income that is withheld from a worker’s salary before taxes are calculated. This would be money that you put into a tax deferred savings account. This money doesn’t go towards your taxes.
  • Unearned income: This type of income includes investment returns in the form of rents, dividends, capital gains, interest, or royalties
  • Taxable income: This is the amount which taxes are taken out of. This is your gross income minus your adjustments, deductions,  and exemptions.

Okay, now I will explain some tax-specific terms.

  • Exclusions: income not subject to federal taxation. This includes gifts, inherited money, cash rebates, tax refunds, mileage expenses not paid for by an employer, contributions to a flexible spending account, child support payments, and many other things. The list goes on for while. It is important to check this list to see if you can lower your taxable income.
  • Adjustments: (or adjustments to income) These are allowable subtractions from your gross income. Some things that are included are moving expenses to a new job or a first job if it is more than 50 miles from your last location, higher-education expenses, student loan interest, contributions to an IRA or 401K or health savings account, alimony, expenses of up to $250 for teachers and other school professionals for school supplies, and some expenses of people who are self employed. This is another list that is helpful to look up when filing your taxes. The smaller you can get your final taxable income number to be, the better.
  • Deductions: there are two different types of deduction that people talk about when discussing taxes. They are standard deduction and itemized deductions. Standard deductions are a set amount that all taxpayers can subtract from their adjusted gross income if you choose not to use itemized deductions. Itemized deductions are tax deductible expenses. Using itemized deductions is a lot more work, but it is worth it if you are able to lower your tax liability. In order to itemize your deductions, you need to keep detailed records of all the times you spend money on something that is deductible. Those items include
  1. Medical and Dental expenses that aren’t paid by insurance. The amount you deduct in this category can’t be more than 7.5% of your adjusted gross income.
  2. Taxes you paid
  3. Interest you paid
  4. Gifts to charity
  5. Casualty and Theft losses not paid by insurance in excess of 10% of adjusted gross income
  6. Job expenses
             The standard deduction for a single person is $5800. For a married couple filing jointly, it is $11,600. People over 65 and/or blind can deduct an additional $1450 for singles and $1150 for married couples. If your itemized deductions are less than your standardized ones, you obviously want to use standardized deductions.
  • Exemption: an exemption is a legally permitted amount deducted from adjusted gross income based on the number of people that the taxpayer’s income supports. A married man with two children would have four exemptions (the man is included).
  • tax credit: dollar for dollar decrease in tax liability. There are two different types of credits: nonrefundable tax credits and refundable tax credits. Nonrefundable credits are those that can reduce your tax liability, however, if it reduces it to zero, that is as far as it goes. With a refundable credit, it can be reduce to below zero, and then the tax payer would receive a refund.

Once you figure out your taxable income, you must loot at a tax-rate schedule to figure out the amount (if any) of taxes you owe. The United States uses a marginal tax rate, which means that as your income goes up, the percentage your a taxed goes up as well. However, lets say you are in the 25% range. That does not mean that your whole income is taxed at 25%. Lets look at a chart to see how it all works: (for a single person)

If taxable income is over —                                           But not over —                            the tax is —

$ 0                                                                                             $8,500                                     10% of the amount

$8,500                                                                                     $34,500                                   $850 (10% of 8,500) plus 15% of the amount over $8500

$34,500                                                                                  $83,600                                   $4,750 plus 20% of the amount over $34,500

$83,600                                                                                  $174,400                                $17,025 plus 28% of the amount over $83,600

$174,400                                                                               $379,150                                 $42,449 plus 33% of the amount over $174,400

$379,150                                                                                 no limit                                    $110,016.50 plus 35% of the amount over $379,150


For a married couple filing jointly, the numbers are a little different:

If taxable income is over —                                              But not over —                              The tax is —

$0                                                                                                $17,000                                   10% of the amount

$17,000                                                                                   $69,000                                    $1,700 plus 15% of the amount over $17,000

$69,000                                                                                   $139,350                                   $9,500 plus 25% of the amount over $69,000

$139,350                                                                                 $212,300                                  $27,087.50 plus 28% of the amount over $139,350

$212,300                                                                                 $379,150                                  $47,513.50 plus 33% of the amount over $212,300

$379,150                                                                                 no limit                                       $102,574.00 plus 35% of the amount over $379,150

Its kind of confusing but let me outline a problem for you and maybe it’ll make sense. If Joe (a single guy) has an adjusted gross income of $10,000, he would be in what is called the 15% tax range, but he wouldn’t be taxed $1500 which is 15% of $10,000. Instead he would be taxed $850 on the first $8500. That leaves $1500 left to be taxed in the 15% range. 15% of 1500 is $225. So, Joe would be taxed $850 + $225, or $1075.

Here is another example. Melissa and Doug are filing a joint return. Together, their adjusted gross income is $150,000. That puts them in the 28% category. So, since they are married filing jointly, their first $17,000 is taxed at 10%, which is $1,700. The money that is between $17,000 and $69,000 is $52,000. (69,000-17,000) That amount is taxed 15%. 15% of $52,000 is $7,800. $7800 plus $1700 is $9,500. But, they still have some income that needs to be taxed in the 25 and 28% category. The amount in the 25% category is anything between 69,000 and 139,350. 139,350 – 69,000 is 70,350. 25% of 70,350 is 17,587.50. Add that to their 9,500 and you get $27,087.50 that they owe in taxes so far. One more step. Their adjusted gross income is $150,000. That is into the 28% range, but only by 10,650 (150,000 – 139,350). So $10,650 is the amount they will be taxed in the 28% range. 28% of 10,650 is $2982. Add that number to the taxes we already calculated ($27,087.50) and we end up with $30,069.50 that they owe in taxes. However, after figuring out this number, the next thing to do is to see which credits apply to Melissa and Doug. They may not end up paying that full amount.


I think thats about all for taxes today. I hope I didn’t confuse you too much. Its not too hard once you sit down and figure it all out. Don’t forget to track your spending in February! Good luck with the rest of that challenge.

Tracking Finances & Checking Accounts

So its day six of tracking finances and I am amazed at how difficult it is. It is crazy to think that in the last 6 days, only one day went by where I didn’t spend money. My husband and I have a goal to not spend any money every third day for the rest of the month. Hopefully there will be more days than that, but for sure on those third days we’ll keep the sheet clean (hopefully).

In class right now we are looking at comparing different checking accounts. One thing that I learned is that it is smart to get a checking account that gains you interest. This isn’t a huge deal to a lot of people (myself included) because I don’t have a lot of money in a checking account, but it is nice to know that I get SOME money from storing my cash at a bank and that the money isn’t working for them alone. We have an account at ING Direct and I think we get .2% interest in our checking and .8 % in our savings. We had $25 in our savings and we got .07 cents interest in one month. Thats not too bad. It ends up being like.. $.84 cents in a year, but hopefully we’ll have more money in savings then that here shortly. Which reminds me… Next blog post is going to be about taxes.

Tracking Finances Challenge

February Finance Challenge

So, like I said before, I am challenging all of you to track your finances for a month. This is an assignment I have for class so I will be doing it as well. I really think that it is the first step to creating a good budget. I have created a sheet that will help you organize where your money is going. If you want to go one step further, just use cash for this month. When I use only cash I feel like I spend way less money, as long as I track it carefully. It is easy to spend cash too quickly if you aren’t careful. If the cash only thing doesnt work for you, try eliminating credit cards for a month. Using a debit card is essentially the same thing as cash, you just don’t feel the money leaving your wallet the same way, but it is obviously better than using credit cards.  Here is a link to the paper. Let me know how it goes!

Tracking Your Finances – February Challenge

I think the key to understanding your finances is to really break it down. So, for the month of February, I am going to keep track of everything I spend. I challenge you all to do the same. I am working on a printable to make this easier to track. Once that is taken care of, it will be easier to see how much you realistically need on certain expenses, and which expenses you could possibly cut back on. Plus, I know that when you keep a food diary, you tend to eat less, so maybe if you keep a finance diary you’ll spend less! It’s worth a shot, right?

Finances 4 life

Hey all and welcome to my blog! Join me on my journey to tackling house hold finances. I don’t profess to be a financial genius, on the contrary, I am just learning. I am a stay at home mom of one boy with a little girl on the way. I am currently working towards a general studies degree and am enrolled in a “Personal and Family Finance” class. I am starting this blog as a requirement for the class, but am hoping to be able to help a few people along the way. So, tell your friends and be sure to check back often to see the latest financial tips and tricks.

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