If you really want to save more than you earn, the conventional wisdom says you’re gonna need to start a budget. It’s only by seeing where your money goes and figuring out where you can cut back that you’ll be able to get your financial act together. But conventional budgeting is fraught with danger. Here are the three main things you should avoid.

Budgeting Danger # 1: Relentless Focus on Minor Expenses

Bring your lunch to work. Cut back on your lattes. Don’t order dessert. Rent videos from your library.

All of those over-hyped strategies are sure to cut expenses, but will they make a big difference? Will such small dollar changes enable someone currently living paycheck-to-paycheck to move comfortably beyond? Usually, it will not.

Lattes, video rentals, and the like are all real expenses that indisputably leave you with less money for everything else. And, if you cut out $3 of spending every day of every week of every month of every year for several decades, yes indeed—your savings will add up to a ton of money. Such are the benefits of the miracle of compounding interest.

But do those minor expenses represent your biggest opportunities to save? Unlikely. Spending an extra few dollars on lunch a couple of times a week or meeting a friend at a café every so often is probably not what keeps you in a financial hole or prevents you from achieving your financial goals.

The more likely culprits: the size, timing, and frequency of big-ticket expenses like your car and home. Focus your energies there. Can you delay the purchase of a new car for another few months—or even longer? Can you buy a used car instead? Can you buy a house that costs less than the one you’ve been told you can “afford”? Are you willing to do your homework to ensure that when you buy or refinance your home you save a quarter or half of a point on the interest rate you might otherwise pay? Such one-time decisions can have a far greater impact on your financial fitness than nailing the latte choice every day for decades.

Budgeting Danger # 2: Reduced Spontaneity and Flexibility

Are today’s budgeting tools too powerful? You can slice and dice your personal data every which way to Sunday with minimal effort. You can categorize everything. You can create budgets based on your actual historic data and then update the numbers constantly.

But should you?

Certainly not the last part. Not only because constant updating may indicate some sort of obsession, but also because it’s utterly unnecessary. Worse, it could negatively affect your life. Like all tools, you have to use it properly. Use the budgeting tool to increase the value of the life you live, not to decrease the cost to get through it.

Say there’s a week left in the month and while you still have $50 left in your dining category, you’ve spent all of the money in your entertainment account. Then a friend calls and asks you to go to a movie that you really want to see. If you tell your friend, “Sorry, I can’t afford to go to the movies tonight but I can take you to dinner,” you’re missing the point of budgeting.

Don’t let budgeting overtake your life. Don’t micromanage. As with a few baseball statistics, just because something can be measured doesn’t make it meaningful. Understand what’s truly important and ignore the rest.

Budgeting Danger # 3: Easy to Miss the Big Picture

Instead of budgeting your spending, budget your savings.

Start with a goal like “I want to save $X per month,” or “I am going to increase the amount I contribute to my 401k plan by Y%.” Keep this goal top of mind as you undertake any budgeting process. By doing so, you establish your specific budget parameters with your eye on the prize: your savings rate.

Yogi Berra said, “You’ve got to be careful if you don’t know where you’re going because you might not get there.” You can create and live within the most detailed budget in the world—and still live paycheck to paycheck. That’s neither a happy life nor one likely to lead to financial security.

On the other hand, if you’re saving 15% of your income, who cares how you’re spending the other 85%? Don’t lose sight of the big picture.

Michael B. Rubin is the author of Beyond Paycheck to Paycheck and the blog of the same name. He is the President of Total Candor, a financial planning education company.

(Source: zoonabar)

Spring is here and love is in the air. So don’t let the plans for your dream wedding be daunted by economic realities. These days, more and more brides and grooms are footing the bill for their weddings themselves. And a wedding can be one of the biggest expenses you’ll face as a couple. Instead of starting out your financial lives together many thousands of dollars in debt, consider these practical tips for saving money on your wedding.

Most people would just assume that cutting the guest list is the only way to go (less guests equals a smaller venue, fewer invitations, and less food to pay for), but it turns out, there are plenty of other options for couples who would still like to throw the wedding of their dreams.

“I actually don’t like to tell my clients to have a smaller wedding,” says Kathryn Kalabokes of Dream a Little Dream Events. “People are more important than flowers, and for a lot of couples, a smaller wedding just isn’t an option.”

We talked to Kalabokes and Alison Hotchkiss of Alison Events in San Francisco (and author of the recently released book Destination Wedding Planner: The Ultimate Guide to Planning a Wedding from Afar) to get some of their favorite cash-saving tips for your big day:

• Pick a less-popular day. If you want to save some serious cash, book a wedding on a Thursday, Friday or Sunday instead of the coveted Saturday slots. “There are only 52 Saturdays a year, and those Saturdays are gold,” Kalabokes explains. “Most vendors will offer heavy discounts on another day of the week.” Hotchkiss adds, “If it’s a three-day weekend, you can do the rehearsal on Saturday, the wedding and reception on Sunday, and then your guests have all day Monday to travel.” Also look at the off-season, especially if you’re doing a destination wedding. Prices tend to be higher during the peak months of May through September.
• For destination weddings, think locally. “If you have your heart set on a destination wedding,” Hotchkiss says, “try to use as many local vendors as possible.” Flying in decorations or a photographer, for instance, can all make your wedding a lot more expensive. “We just did a wedding where, if we hadn’t flown in the flowers, the couple could have saved a lot of money.”
• Cut your flowers-but not entirely. In order to keep things festive, Kalabokes suggests incorporating fresh fruit and vegetables into floral designs whenever possible; she estimates this could drop the price of a centerpiece from $250 to around $125 in a lot of cases. Also, let your bridesmaids feel adorned with strategically placed flowers, but don’t do a whole bouquet for each one. “If you’re doing peonies, have each girl carry a different color of each flower, or have them place one or their wrists or in their hair,” Kalabokes suggests.
• Be a smart shopper. For décor, raid stores like IKEA, Pier One and Cost Plus for things like candle holders. “This can be a lot cheaper than renting them,” Kalabokes explains. “Then, you can always sell them on eBay later. I’ve even bought stuff off of past clients to use again.”
• Serve beer and wine-but try not to go the cash bar route. “Cash bars are just seen as tacky; people don’t want to pay for their own drinks,” Kalabokes says. Instead, she suggests serving beer and wine, and perhaps one cocktail that fits in with the overall theme of your wedding (but that doesn’t necessarily have to be named after the bride and groom).
• If you have your heart set on a high-end dress designer, try to find a trunk show. At trunk shows, not only will you get a discount on the dress, Kalabokes says, but you may even score some freebies like a veil or alterations, which can add up to hundreds of dollars in the long run. “Even if you have to fly from, say, San Francisco to LA to go to a Monique Lhuillier trunk show, the money you save on the dress and the extras will easily pay for your ticket down there and then some,” she says.
• Don’t go crazy with your jewelry. “Why spend hundreds of dollars on a necklace that you’re going to wear one day?” Hotchkiss says. Instead, she recommends visiting stores like J. Crew, Anthropologie and even Forever 21 to find inexpensive baubles. “Especially if you’re just trying to match something to the dress, you can find lots of really cute, inexpensive options at those stores,” she says.
• On your wedding day, travel to the makeup and hair stylists, instead of the other way around. Having your makeup artist and hair stylist come to your home or hotel is typically much more expensive. “You can have all of the amenities you would in a hotel room if you just go to the salon, like champagne and food,” Hotchkiss says.
• Think “station” instead of “buffet” for food. Buffets were the traditional way to save money on reception dining, but these days, offering guests a variety of stations with small plates is a more stylish (and often cost-effective) way to go. “We’re not necessarily talking a cocktail party here, but rather dishes like short ribs on a bed of mashed potatoes,” Kalabokes says. “This can take you down to about $50 a head instead of around $130 a head for sit-down dinners.” Hotchkiss adds, “You can have one ‘wow’ factor at your event, like an oyster or sushi-rolling station, but really, it’s best to keep the food simple if you can.”
• Pare down your invitations. Brides and grooms today have the tendency to stuff their invites with several pieces: the invitation, a response card, a map, and even additional information cards. Instead, simply print the reception info on your invitation, and ditch the maps. “Also, you can just do a postcard for the responses, instead of doing another envelope insert,” Kalabokes adds.
• Go the DJ route. “Hire a DJ to play at the ceremony, cocktail hour and reception,” Hotchkiss says. “You might lose a little bit of ambiance, but we’re talking thousands of dollars here.” With bands and popular quartets, she notes, it’s easy to get saddled with hourly minimums, which can add up quickly.

You should definitely get going down the (virtual shopping) aisle to find smart ways to save money and manage your expenses on the less important elements of the Big Day. And, drawing from the list below, you’ll probably find ways to spend less.

Flower Girl-sized Suggestions

• Print your own invitations.
• Make your centerpieces and favors.
• Make your veil, ring pillow, and other accessories.
• Create a CD of music instead of hiring a deejay to play at the reception.
• Substitute a personalized collection of music or pictures or a video for more expensive, and likely less memorable, favors.
• Use balloons instead of flowers to decorate.
• Donate your wedding dress and accessories as a tax deduction.
• Drop the extras. Among Family Education’s smart wedding cost saving tips are their suggestions to stay away from bubbles, favors, and embossed napkins.

Bridesmaid-sized Suggestions

• Have your wedding on a Friday or off-season.
• Serve brunch or appetizers instead of a full dinner.
• Buy your dress from the donation center
• Share the cost of decorations and rentals with the couples that are using the same facilities before and after your ceremony
• Consider buying versus renting; table linens may actually be cheaper to buy than to rent.
• Consider borrowing versus renting or buying. Family members and recently married friends have often saved special cake knives, toppers, or even a dress from their own weddings. They may be honored to have you want to include them in your Big Day in this manner.

Mother of the Groom-sized Suggestions

• Limit the size of your wedding
• Buy your own beverages, if your venue allows it. Offer limited options instead of a full bar. Limit choices to wine and beer, with champagne just for the wedding party.
• Be careful about choosing a “destination wedding” to save money. Many couples end up throwing a reception back home for guests who couldn’t make it. You’ve just doubled your wedding expenses.
• When requesting quotes from vendors, avoid the “wedding upsell” by describing your event as a “family gathering” rather than as a “wedding”.
• Always negotiate with vendors; ask for discounts for paying upfront.

Take Tips From Those Who Married Frugally

To help you with your wedding budget planning and to inspire you to adhere to your personal budget, here are additional ideas on how to have a wonderful wedding from people who’ve hosted their own frugal events:

• The Wedding under $5,000. Make your own wedding gown, have a family member handle the photography and make the cake, and serve lunch instead of dinner.
• The Wedding for $5,786. Have the men wear suits instead of tuxes, print your own invitations, and keep the wedding inexpensive for your attendants, too.
• Radical Wedding Tips. Rent your dress, fake the wedding cake, marry in a park.

• Tie the Knot on a Shoestring’s Top 10 list says Barter! And avoid the month of June.
• How to Save Money on Your Wedding Ceremony and Reception Use local college musicians, and stick to your Big Day schedule to avoid additional charges by vendors
• Frugal Bride Check all vendor contracts to see if they already include gratuities.

If you recently tied the knot for less, please share your best tips with other “-to-be’s” here.

Related Mint tips:

Budget Help
Create A Budget Online
Tracking My Money
Free Money Manager

Budget planning is something that we care about here at Mint. Learn more with great budget planning tips in our blog article index.

The holiday shopping season officially starts on the Friday after Thanksgiving. So, most of us are gearing up to tackle the our holiday budget planning. According to the Retail Federation, Americans will spend an extra $20 billion during November and December. Think about this at a personal level: if you charge an extra $1,000 on your credit card, and pay a minimum of $25 per month with 19% interest, it’ll take you nearly 5 1/2 years to pay for those gifts! And don’t forget that during those years, you’ll face five more holidays with more expenses.

Mint suggests a different approach this year. We’ve collected some ideas on how you can balance your desire to shower your loved ones with gifts, with your need to reach other important financial goals such as reducing debt and increasing savings. But we’re not Scrooge! Here are 10 tips from Mint to help you celebrate the holidays… while keeping your spending in check.

Make a List

• Know what you have. If you can only spare $600, it’s better to know that before you start shopping, instead of shopping blindly per person then attempting damage control afterward. You can use Mint.com to easily determine your average monthly spending by category and set a budget for your holiday gifts.

• Remember non-gift expenses. Holidays expenses don’t stop at gifts. They include travel expenses, gift-wrap, tape, food, household decorations, etc. Account for these things in your budget so there are no surprises.
• Best Option: Use cash. It’s harder to let go of money when it’s real cash. Handing over twenty-five $20 bills for that Play Station for your little brother might make you think twice. How about some new PS games instead of an upgraded player?
• Second Best Option: Don’t spend more that it’ll take to pay off in one month. Friends and family don’t expect you to sacrifice your credit for their happiness. If it’s going to impact your financial health and ability to reach your goals, they won’t want you to spend it.

Check it Twice

• Reduce the length of your “must buy for” list. Make up your “nice” list… and then review it. Do your hairdresser and mailman really need gifts from you? Reduce expenses by sending cards, or letters of praise to their bosses, if you want to share your appreciation.

• Think outside the (gift wrapped) box. Write a poem, sing a song, bake cookies, make arts and crafts, spend time, or make a coupon book for free chores. If buying for more than one person in the same family, buy a group gift-something they can all appreciate.

• Shop online. Malls are designed to get you to spend more money than you’d planned. With online shopping, you can make more objective, smarter purchasing decisions.

• Get the best price. Use comparison-shopping sites like nextag.com, pricegrabber.com, and bizrate.com to find the cheapest price. Ebates.com and rebatejunkie.com will refund a percentage of what you spend if you shop through them. Search Google for coupon codes to get free shipping or a percentage off your total. Keep track of prices before or after you buy using services like those mentioned in our recent 5 Sources for Savings and Rebates on the Web post.

Plan Ahead

• Keep detailed records. Know what you bought, for whom, and for how much. Keep a tally of what you’ve spent and what’s left. This will ensure you don’t exceed your limits this year … and will help you plan a budget for next year.

• Put money away. Starting in January, put money away monthly in a high-yield savings or money market account. At the end of the year, you’ll have what you need for your 2008 holiday shopping.

Build your gift giving fund! When you easily earn rates 11 times higher than that of the national average with high-yield accounts, you’ll be better able to meet the budget you have set for your next year’s holiday shopping.

Accelerate your savings. Here are two accounts that offer high-interest.

E*Trade Max Rate Savings

No fees & no minimum deposit.

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These are some of the shopping strategies we’ll be using this year. What are some others that you’ve found helpful?

Shop smarter this season. Sign up today for Mint.com to plan and track your holiday spending. You’ll be headed for a happier New Year!

Budget Planning: The True Cost of an iPhone = $2,200

The iPhone will run you about $2,206. And if you live in Tennessee, where the sales tax is at a lovely 9.4%, it’ll cost you about $2,218.

Wait a minute, two thousand and two hundred dollars, for a cell phone? How did that happen?

Welcome to the concept of expenses tracking. Like with so many things in life, owning the iPhone doesn’t just end with a single purchase — it stretches on with service plans, taxes and more. By the end of the two years required contract, you’re talking real money. Let’s take a look at the math:

$599 iPhone x 8% sales tax ($47.92) = $646.92

$60 required cellular plan + $5 (taxes & fees) x 24 months = $1560

Total cost: $2,206.92.

Note: Engadget has a great compare and contrast on the iPhone vs. other smartphones.

Again, this is just for owning the phone for two years. What else can we dig up to show their true value? More than you know.

The Total Cost of Pet Ownership ~ $12,000

“All right,” you say, “what about this pet number you have going on here. Surely my dog won’t cost me $12,000?”

You may be right there, as your pet can easily cost more if you have a larger breed, or if you live in a costlier area.

Here are the budget planning numbers to owning a 50 pound dog (living in the Midwest)¹:

$1,977 first year cost

$807 yearly cost x 14 years

Total cost: $12,468.00

According to the Wall Street Journal², the average cost of ownership for a small dog that lives 15 years will cost almost $12,000 — and more than $23,000 for a larger breed that lives for 12 years. These are averages, mind you.

The Total Cost of Car Ownership ~ $42,000

Let’s take one of the best selling cars of 2007, a Toyota Camry LE (Automatic transmission, because who drives manual in America?), and punch some numbers³.

For a five year ownership, this is the cost break down:

Total depreciation cost: $11,482

Financing: $4,580

Insurance: $10,026

Taxes & Fees: $2,318

Fuel: $8,653

Maintenance: $4,310

Repairs: $689 (whew, thank goodness it’s a Toyota)

Total: $42,058

Once again, these are average numbers. They’re based on 15,000 miles per year, in a region that isn’t terribly expensive. Insurance can fluctuate from low prices to high prices depending on your situation. If you live in a costlier city, or drive more miles per year, many of these numbers can easily increase.

The Cost of Raising a Child Over 17 Years ~ $170,460

In this example, the numbers are based on a survey by the U.S. Department of Agriculture along with data from the U.S. Department of Labor⁴. They are numbers for a dual-parent family with medium household before-tax income of $39,100 to $65,800.

The cost of raising a child over 17 years:

Housing: $57,360

Food: $29,550

Transportation: $24,510

Clothing: $10,470

Health: $12,180

Child care/Education: $17,430

Miscellaneous (the occasional iPhone and pet): $12,720

Total cost: $170,460

Here’s a kicker. These numbers are updated with 2001 numbers using the Consumer Price Index. So yes, raising a child these days will most likely cost you more money.

The Costs of Buying a Home Over 30 Years ~ $1,073,000

Here are some numbers from a recent Wall Street Journal Article⁵, based on the average mortgage-interest rate in 2006. The national median home price was $222,000 during the time.

Purchase Price (typical single-family home): $290,000

Down payment: $58,000

Principal: $232,000

Interest @ 6.41%; total = $291,000 (after tax: 33% bracket): $195,000

Taxes & Insurance ($6,000 / year): $180,000

Maintenance ($300 / month): $108,000

Major Repairs & Improvements: $300,000

Total Cost: $1,073,000

Average numbers? You bet. If you live in a more expensive area and have subpar credit, expect to add quite a bit more to the price tag above.

Okay, So… Don’t Ever Buy or Do Anything?

Obviously, we can take any expenses we have, figure out its cost of ownership or its total opportunity cost in the long term, and make a big fuss.

When you see the numbers in a big picture, things will always seem a bit intimidating — and that’s kind of the point. In the world of personal finance (as in, your money), it’s common adage to focus on the long-term cost of your financial choices and expenses tracking so you can make better financial decisions today.

No one really sits down and breaks out the calculator before they buy a cup of coffee and donut (unless you happen to be a glasses-wearing blogger working at a start-up called Mint.com); most people also don’t input their night-out expenses into the spreadsheet before they pick up their date.

The point of seeing the numbers in a bigger picture is so that you understand the financial commitment you may face when you make a decision to buy an iPhone, Pet, or even a car.

Consider this: let’s say for whatever reason you have financial trouble in the future. You’re living paycheck to paycheck, and suddenly one month becomes extremely difficult.

Would you wish you’d had $2,200 so you can provide food for your family? Would you wish there’s an extra $12,000 laying around so you can take another step towards that down payment for a home? Would you wish you had an extra $42,000 so you wouldn’t have to worry about how you’ll pay your bill next month?

Wait, that’s not fair, you say.

“I love my dog and I don’t care how much he’ll cost me.”

You have a point there.

Whether you got to make your calls with a “frigging sweet iPhone,” let your child experience the joy of pet ownership, or just have a car so you can get to work — sometimes we just have to spend some extra money.

And that’s how it should be.

Money is for living. It’s a tool that we use to better our own lives and those of our loved ones.

It is, however, a tool you need to use wisely. You certainly don’t want to buy a gadget — or another financial responsibility such as a pet — if you’re between a rock and a hard place with the bank.

Even if you can afford the current monthly payment, if a purchase will hurt you financially in the long term, you may not be making a responsible financial decision.

Remember, reaching financial independence isn’t about spending all day long wondering how much money you could have or should have saved. A sensible financial lifestyle also isn’t about hoarding all your money for that rainy day.

Being smart with your money is about fully understanding the financial choices you make and seeing the entire picture – the true cost and total cost of ownership when you commit to a device, transportation, pet, or even a child.

In the end, it’s a careful balancing act — a pretty important one that you’ll need to think about occasionally, so that you can live well today and live even better tomorrow.

More to Read So You Can Make Smart Money Decisions

• 30 Free e-Books to Learn Everything You Want to Know About Your Money
• How To: Tackle Your Debt in Five Simple Steps
• How To: Stash Your Cash at the Right Places

———————-
References:

1. Cost of Owning a Dog from PetEducation.com
2. Calculating the True Cost of a Pet from the Wall Street Journal
3. True Cost to Own Ratings at Edmunds.com
4. The cost of raising children at MSN Money Central
5. Why Your Home Isn’t the Investment You Think It Is from the Wall Street Journal

Further Reading on the Topic:

Expenses Tracking

Budget Planning

Personal Budget Plan

Budget planning is something that we care about here at Mint. Learn more with great budget planning tips in our blog article index.

What are the benefits of using fixed-rate mortgage in purchasing or refinancing your home? If you are in an adjustable-rate loan, should you consider refinancing and getting out of it while you still can or buckling down and budgeting your money before interest rates get too high and home values drop?

There’s no simple answer to that question, since so much depends on your specific home, loan, and personal financial situation. But you’ll also find that, depending on your state or county, a different type of mortgage is appropriate for you. Sound confusing? It shouldn’t be: simply put, areas with home values that are increasing (and where interest rates are low) often choose to have adjustable-rate mortgages on their properties. On the flip side, many U.S. homeowners find a fixed-rate loan to be safer and less dependent on market conditions. It also provides people with security and a sense of self-confidence in their ability to meet financial obligations.

While an adjustable-rate mortgage (ARM) might work for you if you fully understand the terms and conditions, you have to work on budgeting your money. By their nature, in an ARM, interest rate will increase or decrease – and you should be prepared. In recent years, the interest rate has risen steadily, causing many homeowners with adjustable-rate loans to see rising costs in month-to-month payments.

An ARM is a gamble – you’re gambling that the interest rate will decrease and home values will increase. If you happen to be wrong, you could face an insurmountable monthly payment and a decreased home value.

On the other hand, you could look into a fixed-interest mortgage. As you look into the best home loan option, here are three advantages of fixed-rate mortgages to consider:

• Decreased risk. Your month-to-month mortgage payments are fixed. Even if the current interest rate increases, yours will stay put, which is an essential point of security for many homeowners. This is one reason why fixed-rate mortgages are popular, particularly with first-time home buyers.
• Secure long-term planning. Since your monthly mortgage payments won’t change, you have the security of planning out your payments throughout the life of the loan. You can carefully plan for things like property taxes and insurance, and it also allows you to be financially responsible in planning out your family’s future.
• Budgeting your money. For the most part, we can’t predict the ebb and flow of interest rates. Inflation may cause interest rates to rise, which would cause you a great deal of trouble with an adjustable-rate loan. With your fixed-rate loan, though, you can ride out the storm at ease. Your mortgage rates will stay the same, even if your taxes and insurance costs rise.

Fixed-rate mortgages have been a secure way for home owners to purchase homes for decades. Over the years, loan-to-value ratios have fluctuated and interest rates have moved up and down, but the security that a fixed-rate mortgage offers has never lost its appeal to homeowners throughout the U.S.

Fixed-rate mortgages may have a timeline between 10-50 years, but a 30 year amortization period is most common. People often choose a 30 year loan, because it often gives you a reasonable monthly payment to shell out. Rising home costs, though, have increased the number of 40- and 50-year loans being accepted. While that may be a good move to make the month-to-month mortgage payments reasonable, it does increase the amount of interest on the loan by stretching those interest payments over a much longer period of time – with a 50-year loan, almost twice the amount!

Understanding closing costs. Also known as settlement costs, closing costs are fees and expenses over and above the price of the property, incurred by the buyer and/or the seller in the property ownership transfer.

During the early years of a fixed-interest mortgage loan, much of your monthly payment goes toward eliminating the interest. As the loan progresses, though, that will change: slowly but surely, most of your payments will go towards that principal, such that by the end of your loan almost all of your money will go towards principal payments.

This type of fixed-interest payment plan means that it will be harder to sell your home during the first few years. Very little of the principal will have been paid off, so the loan will still be high. If the house did not appreciate in value, the financial situation gets difficult. However, if home values are increasing, then it will be a significantly smaller problem that so much of the principal has yet to be paid.

As the homeowner, you have some choices with this, too: making a larger monthly payment and directing more of it towards budgeting your money will decrease your principal loan balance faster, and decrease the amount of interest that’s left over. Say, for example, that you paid half of your monthly mortgage every two weeks; that would pay off your mortgage about 5.25 years faster than scheduled. Paying one extra payment per year would reduce the amortization period by 5.25 years, as well. Options like these aren’t requirements, but they do shorten your payment periods significantly.

Another factor to a mortgage loan is the “point” system. Points will decrease your interest rate if you pay an additional fee – about 1% of your loan for each point. Depending on your circumstances, it could be a good idea to invest in points, but you’ll want to calculate your overall savings before you start buying them. To recover the cost of those points, you’ll want to figure out your monthly savings with the lower interest rate versus the rate without points. Divide that number into your points to arrive at the number of months it will take you to break even. Beyond that, all of your savings are yours to keep.

To give an example of that, if you decide to pay for 2 points on a $300,000 loan (for an interest rate of 5% rather than 7%), your payment will be $1610.46. However, stuck with the 7% interest rate, you’re left with the payment of $1995.91. The difference between the two payments is $385.45.

Two points will cost $4,000. To recoup that investment, $4,000 divided by $385.45 equals almost 10.4 months. By your 11th month, not even one year of payment, you will begin to profit from paying those points with a personal budget planner.

Hopefully it’s become clear now that your choices involved in a fixed-interest rate mortgage loan can be extremely beneficial to your personal financial situation. There are many ways that you can decrease the term of the loan or the overall interest rates of the loan. With smart financial planning, you can be through that loan and into financial freedom quickly.

Further Reading on the Topic:

Personal Budget Planner

Budgeting Your Money

Home Budget