To follow up on the previous post, I applied for and received a Penfed Visa platinum card, with a credit limit of $25K. I was then able to complete a balance transfer of $15K to the card. The BT fee was capped at $100, and the APR is 2.99% fixed for the life of the loan. I will be using the $15K to pay down my HELOC. Along with approximately $15K in extra savings I can eliminate the HELOC entirely. The HELOC interest rate was at a floating interest rate of prime minus 0.5%, but was currently floored at 3.5%. Since interest rates pretty much have to go up from here I feel safe trading the 3.5% tax deductible interest for 2.99% credit card interest. The $100 transfer fee is very reasonable in today's CC market. I highly encourage others to look at this card.
Viewing the 'Budgeting' Category
In the midst of all the news about Chase cutting credit limits on some of their credit card accounts, I wanted to mention that this month, for no reason at all, Chase increased the credit limit on my Freedom card from $6500 to $9500 (almost a 50% increase). My credit score is excellent, and I use this card for everything (racking up about $2-3K in charges a month, and paying off in full every month). That probably explains the move. From what I have heard, the latest trends seem to be creating a bigger divide between those who have good credit and those who don't. So if you have a low FICO, Chase cuts your limit, if you have a high FICO, they raise it. The only thing I don't get is, since I PIF every month and earn $250 in rewards every 6 months, why would they even want me as a customer? They are losing money on me as it is!
Well, I finally decided to pull the trigger on a refi. Rates have been steadily dropping at our credit union, and they reached 5.0% on a 30-year last week, so I put in an application. Got the phone call today locking in at 5.0%, with around $2000 in closing costs. We would be consolidating our 1st (at 5.375%) and 2nd (at 5.99%). The 2 payments are currently $1070 and $570, and the new payment would be $1090, so we effectively get rid of the 2nd payment. We would continue to pay the $570 as extra principal, but could stop if times got tough.
The big question mark is the appraisal. Values are all over the place so it will really depend on who does the appraisal and how many data points they get.
Oh, we get one free floatdown (we have a 45-day lock), so I will continue to watch interest rates to see if they go below 5.0%. With the Fed's announcement today, I am betting they will go to at least 4.875, if not lower. Rates on 30-year Treasuries went down .25% today, so I may even get 4.75% if I'm lucky.
Have you ever done a financial fire drill? It's the equivalent of pretending an emergency has hit, and looking at what it does to you budget & savings. Most people don't sit down and do this important test until the fire is already burning. It's important to have a game plan before this happens as it will relieve a lot of the fear and stress that would hit in the event of an emergency.
I did it yesterday with my budgeting spreadsheet and was pretty happy with the results. I tried 3 scenarios; in the first 2 either my wife or I lost our job, without severance. The third scenario (doomsday) I figured we both lost our jobs tomorrow with no severance. I figured we would stop contributing to retirement immediately, so I cut our 401k contributions to 0, and stopped the biweekly Roth contributions. I also eliminated child care costs and savings for travel. I also cut back our overpayment on our HELOC.
In scenario #1, where my wife lost her job, the hit was not that bad (she makes about 50% of what I do, but provides our health insurance). I assumed we would go on COBRA at least short term, paying about $260 every two weeks (double her current premiums). This is probably overly conservative, since COBRA is supposed to be subsidized right now by the US of A. Surprisingly, we would actually not have to dip into the EF at all. We would probably not have to cut out vacations completely, and could still contribute a little to our retirement. So it would not be a catastrophe by a long shot.
Scenario #2 involves my losing my job tomorrow, which would obviously be a huge hit to our income (it would go down by approximately 66%). This is moderated a bit by the fact that we would still have health insurance through my wife's job. In this case we would have to draw approximately $1800-$2000 a month from the EF. Since our EF is about $41K right now, it would last us at least until the end of 2010, or about 22 months. I feel pretty confident that we would not get to this point without me finding some kind of work (even at a drastically lower salary).
Scenario #3 is the doomsday scenario where both my wife and I lose our jobs tomorrow, with no severance. In this case we'd have to draw about $5K a month out of the EF, which means it would only last until November 2009. Obviously not a pretty picture, but still an 8 month cushion for at least one of us to find a job.
Barring a total worst case scenario, I think our household would probably be able to weather most storms that could come our way. I recommend everyone run a FFD with their own household budget, to see how close to the edge you are.
I had some free time today so I went to Kelley Blue Book (/http://www.kbb.com) and updated the values of our 2 vehicles. I track these values in Quicken because it gives me a sense for how fast vehicles depreciate (hint: very).
Our 2003 Subaru is worth about $10 grand. The original MSRP was $25.5K. So in 5.5 years it has lost just over 50% of its value. A good chunk of that (about $3000) occurred in the last year. New car sales have been so pitiful that it is pushing down the used car market as well.
Our 2nd car is a 98 Subaru station wagon. It's pretty utilitarian but it gets us around when we need it (I work from home so I don't need a daily vehicle). It has around 90K miles on it and its value has dropped to $5100. We paid $6700 for it 2 years ago so that's not too bad. Depreciation slows a lot after the first 5 years, in general.
The good news is that we are getting close to the point where we could just go to liability coverage on the 98 Subaru. Our insurance is really cheap so we are keeping full coverage for now, but another couple of years of depreciation and we might drop it! If we dropped collision and comprehensive on the 98 Subaru, we would save $220 a year on our insurance. If the car was ever stolen or totaled and we were going to file a claim, we would get back the blue book value minus our $1K deductible. Right now, that would be $4100. That works out to an 18-year breakeven period. When it gets down to about 12-15 years we will drop the comprehensive/collision, but for now it makes sense to keep it.
Well, it's official. We saw the sonogram last week, and we are having another baby! We had a hard time getting pregnant the first time, but this time it only took about 2 months, so we must be getting better at it! Obviously, this is a huge change for our lives in general, but it has specific effects on several areas of our finances:
With an additional exemption and child tax credit, my estimate is that our federal tax bill will go down by $1900, and our state taxes by $250.
In 2008, we were just on the cusp of the 15% federal tax bracket, which is a good place to be. With the additional $3650 exemption, we can now reduce pre-tax 403b savings by $3650 and still be on the cusp of the 15% bracket. We will increase our Roth savings by $3650 to keep the same savings percentage. So some of the tax savings will be reduced by cutting back on the 403b contributions. The rest of the tax savings will go towards our increased expenses.
My wife works part time, so our daycare needs are reduced already. My mother will be watching the kids once a week. We have a nanny for the other 2 days. We will probably give her a significant raise due to the increased workload. This will increase our daycare costs from around $800 a month to about $1000.
We were not expecting to get pregnant so quickly, so we will come up a bit short on leave. My wife earns 6.5 hrs every two weeks of general leave (sick, vacation & personal). Right now she has saved up about 84 hrs. If #2 is on time, she will have about 171 hrs by the time she has to take her leave. Her short term disability will cover 6 weeks at 60% pay. The rest comes out of paid leave, and then unpaid leave when she runs out. We are calculating that we will only need to take 2 weeks of unpaid leave, so this is a fairly minor hit to our budget.
We will definitely see some increases in our weekly expenses (diapers, clothing, food). My wife plans to breastfeed again so we won't need formula. Except for the diapers, we are expecting these expenses to increase pretty gradually so we will adjust to them when we notice a big difference in our budget. Probably we will see some cost savings in other places since I think it will be harder to go out.
Overall, the effect on our budget will not be nearly as drastic as when we had our first child. However, I know my sleeping budget is going to see some serious cuts!