Getting your finances under control is nearly impossible without using some method of budgeting. Although you may shy away from the idea of a budget, it is really just a plan for how you will use the money you earn, and it often includes a method to help you stick to your plan. You’ll find many available budgeting methods, and it’s up to you to pick one that makes sense to you, feels sustainable, and fits with your financial goals. What is zero-based budgeting? Zero-based budgeting starts with the premise that your income minus your expenses each month should equal zero. Most people know that you should not spend more money than you earn. But zero-based budgeting says that you should not spend less money than you earn either. Every dollar that comes to you during the month should have a defined purpose, whether it is used to pay a bill, save up for a vacation, invest for retirement, or buy new clothes. At the end of the month, you should have spent or saved each dollar you earned or received. To achieve this goal, you will need to create and stick to a budget (also known as a spending plan) that accounts for all your income and expenses in equal amounts. Advantages of zero-based budgeting Steps to create a zero-based budget
  1. List all the after-tax income you expect to receive during the month from all sources. This might include your paychecks from work, additional income from side jobs, child support money received, or earnings from investments.

  2. List all of the ways you expect to spend your money during the month, each with a specific dollar amount. Start with your fixed expenses, like your house payment, car payment, and phone bill. Then list expenses you have more control to adjust, like your grocery spending, eating out, shopping, and buying gifts. Lastly, list other places you would like your money to go, like retirement accounts, charitable donations, building up your emergency savings, or making extra loan payments.

  3. Add up the totals for your income and your spending and compare the numbers. Adjust your spending plan until your income minus your spending equals zero. You could cut how much you allocate for things like shopping or savings if you need to reduce spending. Alternatively, if you discover you need to spend more, you could increase the amount you will spend on an extra loan payment.

  4. Decide how you will stick to your spending plan during the month. For a zero-based budget to work in practice, you must spend your money exactly where you are planning to spend it. In many cases, you will need to keep track of your spending during the month to make sure you are staying on target.

The Zero-Based Budgeting Method

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Consumers often don’t realize the wide range of options available when they want to borrow money. Most people have a credit card, and many have auto loans and mortgages, but fewer use a personal line of credit. Similar to a credit card, a personal line of credit is an unsecured revolving credit account with a maximum credit limit. Personal lines of credit, however, are more flexible than a credit card because you can draw the money with checks, or often in cash, rather than only making card purchases. This makes a personal line of credit a potentially useful financial tool for many people. Advantages of a personal line of credit Disadvantages of a personal line of credit Is a personal line of credit right for you? Before applying for a personal line of credit, take an honest look at your personal finances and consider your budget and spending habits. A personal line of credit has the potential to lead to undisciplined spending because there are no restrictions on when you draw the money and what you spend it on. However, in the right situation, a personal line of credit can be a useful financial tool. A personal line of credit might be right for you if you are self-employed, work on commission, or otherwise have an uneven cash flow. It can help smooth out cash flow because you can borrow during months when you are not receiving much money, then make large repayments during months with a surplus. A personal line of credit can also be a good security net if you work in a volatile industry and want to have an emergency source of cash during times of unemployment. A personal line of credit might not be right for you if you do not live on a balanced budget, and you are planning to make purchases that are beyond your means. You do not want to dig yourself into debt from which you cannot escape. Also, you might not be able to get a personal line of credit if you have average or poor credit history or you cannot show proof of steady employment.

Using a Personal Line of Credit

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Income-based student loan repayment plans are a type of payment plan where monthly payments are based on the borrower’s monthly income, allowing for borrowers with lower incomes to make lower monthly payments. Each year, the borrower submits income and family size information from the previous year to recalibrate the monthly payment amounts. For many borrowers with low to moderate income and moderate to high student loan debt, income-driven repayment plans can significantly reduce the monthly financial burden of student loan payments. While some private lenders may offer income-based repayment plans at their discretion, the main place where you are sure to find them available is on federal student loans. The federal government offers four different plans that fall under the broad umbrella of income-driven repayment plans. Eligibility requirements and calculations of payments vary from one plan to another. The four plans are income-based repayment, Pay As You Earn, income-contingent repayment, and income-sensitive repayment. Borrowers under any of these repayment plans may be eligible for Public Service Loan Forgiveness, which discharges any remaining loan balance after making 120 loan payments while working in a qualified full-time public service job. Income-Based Repayment Any federal student loan except a parent PLUS loan, or a consolidation loan that included a parent PLUS loan, can be repaid under the income-based repayment program. If you have a Perkins loan, it must be consolidated into a Direct Loan to qualify. There are two payment structures, depending on whether you had any federal student loans before July 1, 2014. For loans older than July 1, 2014, your monthly payments will be 15 percent of discretionary income. In this case, your discretionary income is your gross monthly income minus 150 percent of the poverty guideline for your family size for your state of residence. Any remaining balance on your loans is eligible for loan forgiveness after 25 years of payments. If your only loans were issued on or after July 1, 2014, your monthly payments are 10 percent of your discretionary income, and you are eligible for loan forgiveness after 20 years of payments. Pay As You Earn To be eligible for the Pay As You Earn payment plan, borrowers must not have had any federal student loans with an outstanding balance as of October 1, 2007, and also must have taken out at least one Direct Loan since October 1, 2011. Also, all loans being repaid under this plan must be Direct Loans, which can include consolidated loans of other types, except consolidated parent PLUS loans. This plan is identical to the new income-based repayment plan for borrowers who take out their first loan on or after July 1, 2014. It was created in 2012 to make the payment structure available before the new guidelines for the income-based repayment plan were issued. Income-Contingent Repayment Borrowers are eligible for income-contingent repayment on any loan within the federal Direct Loan program. Notably, income-contingent repayment is the only income-driven repayment plan available for parent PLUS loans, which must be consolidated under the Direct Loan program to qualify. Monthly payment amounts under this plan are 20 percent of discretionary income, calculated as gross monthly income minus the poverty guideline for the borrower’s family size for their state of residence. These payments will be higher than they would be on other income-driven repayment plans available. Therefore, borrowers who have other options should use those instead. Income-Sensitive Repayment This is an older repayment plan, and it is only available to borrowers who have loans made under the Federal Family Education Loan program, which ended in 2010. Federal Stafford loans, PLUS loans, and consolidation loans made under this program qualify. Monthly payments under this plan can be between 4 percent and 25 percent of monthly income, but they must cover at least the accrued interest. Borrowers can only use income-sensitive repayment for a total of five years, and after that, must switch to another repayment plan.

Income-Based Student Loan Repayment Plans

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When you have been house-hunting for months in search of the ‘perfect home’, you will feel the thrill of excitement that comes when you find the home that fits your ideal. It is true that making an offer on a home is very exciting, but it can also be stressful as you navigate the process with the help of your real estate agent. When you want a particular home, you will want to move forward with the right approach so the seller is likely to accept your offer. When to make an offer? As soon as you find a home that you would be happy to buy, you should at least consider making an offer on it. It is always tempting to wait and view a few more properties just in case a better home is out there, but this can be risky. A good rule of thumb is that if you would be devastated to have another buyer snatch up this home, you should make your offer immediately. If current conditions indicate a “seller’s market”, where homes stay listed for a very short period before going under contract, you should try to make an offer the day you see the property. That is especially true if the home has just gone on the market. On the other hand, it might be a “buyer’s market”. If there is a large inventory of homes that have been on the market for awhile, it is probably safe for you to take your time and come back to that house after seeing a few others. Factors to base your offer on Start by having your real estate agent run a comparative market analysis, which pulls information about recent sales of properties that are similar to the one you want to purchase. These comparable properties (often called comps) should be in the same neighborhood, have a similar number of rooms, and be of a similar size. Your real estate agent can help you adjust these sale prices to account for differences between the property you are looking at and the ones that sold. Differences could include the age of the home, number of bedrooms or bathrooms, condition, and home improvements. You’ll also need to look beyond the hard facts of the home to get a sense of broader factors affecting your offer. For example, in a seller’s market, you may need to make an offer higher than the asking price because you are potentially competing with other buyers. You can also consider anything you know about the seller’s level of motivation to sell. For example, sometimes a listing will advertise that a seller is relocating, which lets you know they are likely to accept a lower offer. 5 key ways to make your offer appealing
  1. Get preapproved for a mortgage or submit a cash offer. Sellers want assurance that you will be able to come up with the money you have offered for the home. The absolute best way to do that is to make a cash offer, but that is not possible for typical buyers. The next best thing you can do is to get a lender to preapprove you for a mortgage. The lender will review your financial documents and credit report and give you a letter stating that they have approved you for a mortgage of a specific amount.

  2. Put up a hefty deposit. Your deposit, or earnest money, is the money you submit along with your offer to show the sellers that you are serious about following through with the deal. Once you and the seller have both signed a contract, the contract, and your state laws specify the circumstances in which you could get your deposit back. Otherwise, if you back out, the seller keeps your deposit. If you put up a high amount, the seller will know you are in a strong financial position and that you fully intend to go through with the purchase.

  3. Limit the contingencies in your offer. You are allowed to write several contingency clauses into an offer that give you the flexibility to back out without penalty. For example, you can make an offer contingent on the sale of your current home by a specific date or contingent on a clear inspection by a third party property inspector. The fewer contingencies you include, the more confident a seller will be that the deal will go through.

  4. Be flexible with timing. Unless you need to be in the home by a specific date, it can be helpful to indicate in an offer that your timing is flexible. While you do need to write in a closing date on the offer, you could include a note that you are willing to adjust the date to be sooner or later depending on the seller’s needs. A seller might want more time to find a new home or might already have another home under contract, in which case they’ll want a quick sale date.

  5. Write a personal letter to the sellers. While a purchase offer is a legal document, it does not hurt to add a personal touch. Write the sellers a letter telling them about your family, what you like about their home and neighborhood, and how much you are looking forward to taking care of the home they have made so beautiful. You can also include a photo of your family. This personal touch can go a long way in helping sellers feel good about you and your offer.

Making an Offer on a Home

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When you are looking to obtain a loan, amortization is a word you might run across. While it is a concept that is fairly easy to understand, many people are not familiar with it. Take just a few minutes today to understand the basics of loan amortization, and how it works so you can apply this knowledge to your loans. What is loan amortization? Amortization is the process whereby each loan payment made gets divided between two purposes. First, a portion of your payment goes toward paying interest, which the lender calculates based on your loan balance, interest rate, and how much time has passed since the last payment. Second, the remaining part of the payment goes toward paying off the principal, which is the loan balance you owe the lender. When issuing the loan, your lender will use a payment formula to calculate in advance exactly how each payment gets divided. That way, you can have a loan repayment schedule with a specific number of payments of a specific amount. One key element of loan amortization to note is that the amount of each payment that goes toward principal and interest changes over time. As you pay down your loan balance, the interest portion of each payment decreases. Because the amount of the payment remains the same, this means that the principal portion of each payment increases, which helps you pay off what you owe faster. By the last few payments, you are paying very little interest, and almost your full payment is reducing your loan balance. What types of loans have amortization? Most types of installment loans are amortized loans. An installment loan has a fixed number of payments (also known as installments), and each payment is an equal amount. Some common types of installment loans include mortgages, student loans, auto loans, and some personal loans. If your lender told you exactly how many payments you would be making and each payment is the same amount, it is probably an amortized installment loan. If your payment varies from month to month and you can borrow more money, like with a credit card or home equity line of credit, then it is probably not an amortized loan. Example of loan amortization The most common amortized loan is a mortgage, so it makes a good example for understanding how amortization works and what its effects are. Let’s say you get a mortgage for $200,000 to be repaid over 30 years at 4.5% interest. Your lender will run the calculations and create an amortization schedule of 360 monthly payments of $1,013.37 each. In this example, the first month, you will owe $750 in interest, based on your mortgage amount and interest rate. The remaining $263.37 of your $1,013.37 monthly payment will go toward repaying the principal. The second month, because your principal balance is slightly lower, you will only owe $749.01 in interest, and you will repay $264.36 of principal. Your 180th payment, halfway through your mortgage repayment, will be $498.68 interest and $514.69 principal. Your final payment will be $3.79 interest and $1,009.58 principal. Keep in mind that any amortization assumes fixed payments for the duration of the loan. In cases where a borrower has an adjustable rate loan, the amortization schedule will adjust, along with the payment amount with each adjustment to the interest rate.

How Loan Amortization Works

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Student loan debt can feel crippling, especially if you are a recent graduate who is not yet earning much money. Your loan payments could hold you back from being able to work toward many of your financial goals, including buying a house or saving for retirement. The good news is that some borrowers will not have to repay the full amount of their student loans. The federal government offers several student loan forgiveness programs that cancel the remainder of a borrower’s federal student loans after the borrower makes a specified number of payments. Available student loan forgiveness programs Tips for obtaining loan forgiveness

Student Loan Forgiveness

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Although there’s always a chance you will get a raise at your annual performance review or when you receive a promotion, those are not guaranteed, and companies often skip them when budgets are tight. This can leave you feeling like you have fallen through the cracks and are not earning what you deserve. In this situation, the best thing to do is to have a level-headed and professional conversation in which you make your case and ask your boss to give you a raise. Preparing to Ask for a Raise Start by researching how much money people in similar jobs, either at your company or elsewhere, are earning. It’s important to not only look at people with the same job title, but people who have similar responsibilities to yours and who make the type of contributions you are making. Your HR department can help answer questions about pay scales within your company, and glassdoor.com and payscale.com can help you make comparisons. In preparation, list some of your recent accomplishments that highlight how valuable you are to your company. If you have implemented changes that have saved the company time or money, these make you an ideal candidate for a raise. Successful completion of a project or taking on new responsibilities can also make you a strong candidate for getting a raise. You can also look to customer feedback and praise you have received from within the community to help build the case that you deserve more money than you are getting. Discussing a Raise With Your Boss Make an appointment with your boss so you have time for a proper conversation. In general, time this meeting after you have successfully completed some visible tasks, and not too close to your annual review, when your boss is likely to be busy with other requests. Come to that appointment prepared to make your case and really sell yourself. Be calm and confident during your conversation, and don’t raise your voice or show signs of anger or frustration if it is not going as you hoped it would. As you talk, build your case for why you deserve a raise, based on the contributions you have made to your team and to the company as a whole. It can also help to look to the future and tell your boss what value you will be adding in the coming months that will justify the raise. When you come to the end of the conversation, make a specific request for a percent or dollar amount raise. Your concluding statement should reinforce your past performance and future potential, along with an assertion that a raise of the amount you are asking for is fair and justified. After you are done, resist the urge to keep talking or circle back around to points you have already discussed. Instead, just wait for your boss to respond. Tips for Best Results
  1. Practice the conversation with a friend and get feedback on how it went. Your friend can provide valuable input on whether you were convincing or if there were parts of your conversation that dragged, and how your request comes across.

  2. Project confidence through your body language. Sit up straight, avoid fidgeting, use direct eye contact, and don’t be afraid to give a genuine smile if it seems appropriate.

  3. If you cannot get a raise, ask for a one-time bonus instead. Often your boss will be better able to give this because it does not come with a long-term commitment from the company.

Asking for a Raise

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When you are preparing to get a mortgage, one of the steps you can take is to lock in your interest rate. This is when you sign a formal agreement with your lender that solidifies what interest rate they will use for your mortgage, and how many days you have to get your mortgage closed at that rate. Once locked, you will be able to obtain your mortgage at that rate, even if market interest rates change before your loan closing date. Locking in your rate is often a wise choice, but you have to make the tricky decision of exactly when to lock that rate. A rate lock is typically good for at least 30 days, but it can last for 45 days, 60 days, or longer. However, longer rate locks are sometimes for slightly higher interest rates or come with an upfront cost. Most borrowers wait until they have signed a contract on a home to lock their rate, because you never know how long it will take to find the right home and get an accepted offer. Advantages of Locking Your Rate Early Disadvantages of Locking Your Rate Early How to Decide When to Lock in Your Mortgage Rate Consider how much financial risk you are willing to take on. As soon as you lock your rate, you are eliminating most of your financial risk and transferring it to the lender, who has to honor the rate lock commitment even if market rates increase. If you are financially tight and would have a hard time qualifying for or paying your mortgage if the interest rate increases, then it’s a good idea to lock in on the early side. Pay attention to market dynamics. If interest rates have been very stable, it may not be as important to lock your rate early. If rates are decreasing and are likely to continue decreasing, you will probably want to wait to lock the rate. If, on the other hand, rates are rising, it may be worth it to pay extra for a long rate lock period now.

Know When to Lock-In a Mortgage Rate

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It is more common than ever for adult children to live with their parents, with estimates of 15 to 25 percent of 20 to 34-year-olds currently living at home. Plus, even more than that receive at least some financial support from their parents on a regular basis. However, having a child at home can put a huge strain on your finances, and sometimes even force you to delay retirement. If you are ready to get your child out on his or her own, go through a few steps to help your child get ready to be truly financially independent. Educate your child about expenses One of the first issues is that many adult children don’t even realize what sorts of things they will need to be spending money on when they are heading up their own households. These are things that you cover and they just take for granted without realizing. If you are comfortable with it, share your household expense sheet with your son or daughter to help open their eyes to where money goes. Some expenses to make sure you discuss include: Prepare a realistic budget Your child will not be able to move out for good until he or she has a balanced budget where the monthly expenses are less than the monthly after-tax income. Otherwise, you will probably be getting quite a few phone calls or texts requesting money to make ends meet, or a panicked moment a year down the road when the credit card is finally maxed out. You can help prepare your child by creating a detailed and balanced budget. This step will involve some research into what actual costs are in the area where your child plans to live and at the standard of living your child envisions maintaining. The tricky part is that often, the standard of living your child wants cannot be supported by his or her income. You will need to help guide your child to make the tough decisions about where to cut costs to create a balanced budget. Look to have them live with a roommate to minimize rent and utility costs; choose a used car instead of a new one; or dine at home more to minimize the cost of food and beverages from restaurants and bars. Develop a transition plan Even if your child has a budget ready, there’s still the hurdle of actually going through with the move. Parents have found that each of the following strategies can help the transition happen more smoothly.

Getting Your Child’s Finances ‘Move-Out’ Ready

View Resource Getting Your Child’s Finances ‘Move-Out’ Ready
When you have a parent, sibling, or another family member who is planning to move, you may be able to be first in line to buy their home. Plus, they may even offer you a price below market value to help you out, especially because they will not be paying a hefty commission to a real estate agent. It sounds like a great idea on the surface, but remember that buying a home is a huge financial transaction. It will be important that you follow some specific guidelines to ensure that the purchase goes through smoothly and you are both protected legally from future repercussions. How to structure the purchase Your first step is to agree on a purchase price for the home. Keep in mind that if you pay less than fair market value for the home, you could be stuck with big capital gains taxes if you sell it again too soon. In addition, your family member may trigger a tax audit if the discount is too steep. One way to structure the purchase is to get a third-party appraisal to determine the fair market value, then agree on a purchase price close to that amount. Your family member can then offer to pay all of the closing costs to help give you a discount, if they want to. Before proceeding, get a home inspection so you have a complete understanding of the condition of the home. Even if you have spent much time there, the house may have structural or system issues of which you are unaware. Your family member who is selling it may not be aware of them either. An independent home inspector can provide a thorough assessment of the home’s condition and bring to your attention any existing issues. If needed, you and your family member can renegotiate your deal based on the findings of the inspection. Obtaining financing to purchase a home from a family member Your family member might offer to finance the purchase for you, meaning that you would make payments to them rather than to a bank. While this might sound like a good idea, it can complicate your relationship if you fall behind on payments. Doing so would leave your family member in the tough spot of having to decide whether to pursue foreclosure or to let it slide. The best option is for you to obtain financing through a traditional lender. With interest rates as low as they have been lately, it is a small sacrifice to help preserve family relationships. Get pre-qualified for the mortgage before your family member hires any legal help for the transaction, just to ensure that your credit score and income are sufficient. When you apply for your mortgage, you should also disclose that this is a sale between family members. Proper documentation for a real estate transaction between family members Buying a home is a legal transaction, and you must ensure that the documentation is properly completed. If not, you could run into problems with ownership claims down the road. Manage documentation with the help of two professionals:

Buying a Home from a Family Member

View Resource Buying a Home from a Family Member