Refinancing And Financial Planning

The most common reason usually for refinancing is to use the equity to consolidate those high interest cards and other debts. Home mortgages will have lower interest rates than credit cards and unsecured credit, so it should lower your overall monthly budget. But it could raise your monthly mortgage payment.

A refinance where you remove equity means a higher monthly payment in many cases. Most people think they can handle it and then run up the same high interest bills they had before. Now they are faced with higher monthly mortgage payments and the same credit cards bills that caused them to refinance in the first place. If you have refinanced from an adjustable rate mortgage to a fixed rate mortgage, at least your payments are fixed over the life of your loan. No sudden rise in payments means you can stick to a monthly budget.

Higher mortgage payments will mean restructuring your budget and your life style. In order to stay out of debt you will have to stay within your income each month. There won’t be much to spare for extras like dining out and entertaining. Every member of the family will have to make sacrifices so that you don’t jeopardize your home with additional debt. You will need to develop and live on a monthly budget.

In order to calculate a budget, you should consider your monthly disposable income (after taxes). If you bring home $5000 you should first deduct fixed expenses like your mortgage, utility bills, car payments, etc. Make an allowance for more flexible expenses like groceries and entertainment and put anything left in savings.

Getting a part time job for extra income will probably not bridge the gap in your expenses. In addition it will take you away from your family. The answer is not to produce more income, it is to learn to live with less. Everyone in the family has to learn that you have to live within your means. It’s a good lesson to teach your children and will serve them well in the future.

The first thing you have to do is review your expenses against the $5000 to live on. This is tough so you have to go over the new budget with your family so everybody knows where the money will be going and why every one has to minimize their spending.

Explain to your children that they are going to have to make sacrifices now so that the entire family can have a better future. Teach about living on a budget and not always having everything they want. Don’t give in to impulse at the check out counter and spend that dollar or two. Those dollars add up faster than you may think.

Part of overall financial planning is considering the future. This means having savings to cover unexpected expenses, a retirement plan and life insurance. If you have children, you may need to have a college fund for their education. Planning for the future is an essential part of establishing financial health. Avoid borrowing when ever possible.

To repeat, during those thirty years while your refinance is in effect, live on less; give up the “expensive” good times. But then you can be creative and have inexpensive fun with your family and friends. At the end, you have your home, your retirement pension, and a secure lifestyle while you children have finished school and have lives of their own.