Adjusting Withholding

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You can adjust your withholdings by filing a new Form W-4 and submitting it to your employer. You want to be careful to avoid decreasing your withholdings so much that you wind up with a large tax bill at the end of the year. The IRS’s withholding calculator can help you determine the proper number of allowances to claim.

In addition to providing salary information, you must know, or at least be able to reasonably estimate, what your property taxes and mortgage interest are for the year. You should have access to this information from your lender if you are using an escrow account. To calculate your interest payments for the year, you can use an amortization table or one of the online calculators.

A Four-Step Plan

Step 1: Determine Your Financial Goals
A financial goal is a specific amount that you want to save for a defined purpose. These goals are usually set for expenses that are one-time, intermittent, or difficult to pay for with the cash you have on hand if not budgeted ahead of time. Think about what necessities you will have to pay for as well as desired purchases, and list them in a goal worksheet. Include both housing- and non-housing-related goals.

• Creating a Comprehensive List 

Take the necessary time to compile a comprehensive list of expenses. Consider all the costs associated with your move, the anticipated expenses during your first year of homeownership, and potential future expenditures. Your home inspection can provide insights into when replacements or repairs might be required. Some timeframes will be fixed, while others may be more flexible. Prioritize Building an Emergency Fund If you don't already have an emergency fund equivalent to at least two months' worth of mortgage payments, it's essential to make saving for it a top priority. An emergency fund provides a safety net in case of unexpected expenses or a loss of income, ensuring that you can continue making your mortgage payments. 

• Conduct Thorough Research 

When unsure about the estimated amounts for certain expenses, conduct thorough research. For instance, if you need to purchase new plumbing fixtures, explore online resources or visit local hardware stores to gather price information. If you have questions regarding your potential supplemental tax bill or its existence, consult your real estate agent, who can help provide the necessary information for estimating it. Budget and Save Once you have determined the timeframes and costs involved, you can begin budgeting for the monthly amount you need to save. Divide the total cost by the number of months until your desired target date to calculate the required monthly savings. By completing the previous steps, you will have a clearer understanding of what is feasible and realistic to save each month. 

Step 2: Examine Your Expenses and Income
In order to be able to save and pay all of your bills each month without relying on credit, your expenses must be less than your income. To find out what your cash flow will look like once you become a homeowner, you can use the Spending Plan Worksheet. This serves as a preparation for creating Your Money Plan later in the program and will reinforce your target goals.

List your income and amount of your expenses post-purchase. Consider everything that may change in addition to your housing expenses. For example, your commuting costs will likely be different, along with electricity, maintenance, and other potential expenses. Also include the monthly savings amounts from the Goals Worksheet. What if you do not know what you are spending on existing costs, such as food or clothing? For now, use your best guess, and start tracking your spending. This can help you create a more accurate spending plan in the future.

• Examining Your Expenses and Income: Maintenance

If you do not have a good idea of what the home will need in the future, you can use a rule-of-thumb estimate of 1% of the home’s value per year. Maintenance expenses will arise and if you have nothing budgeted to cover them, it could create financial difficulties. You may want to consider purchasing a home warranty if the roof, furnace, and major appliances are more than 15 years old and you find a reasonably priced warranty.

Step 3: Review and Adjust 

Once you have completed your Money Plan in Chapter 7 and assessed your expenses against your income, you can determine the state of your financial well-being. If you have determined that your expenses are lower than your income on this worksheet, you can be confident in your financial situation. However, if your expenses exceed your income, it's important to carefully review your plan and consider adjustments that can improve your cash flow. For example, you could start bringing your lunch to work instead of buying it, eliminate your landline and rely solely on your cell phone, or evaluate which expenses are essential and which can be reduced, postponed, or eliminated entirely. Record any potential changes you believe you can make in the proposed column of your spending plan. 

Step 4: Implement Your Plans 

To make your goal and spending plans effective, it's essential to take action and follow through with them. When it comes to saving for your goals, setting up automatic processes can greatly increase your chances of success. If you have direct deposit set up through your workplace, consider allocating a portion of your paycheck to be directly deposited into your savings account. This way, the saving process becomes automatic and you're less likely to be tempted to spend the funds intended for your goals. Taking proactive steps like this can help you stay on track and make progress towards achieving your financial objectives. 

Take Action and Stay on Track

To ensure you stick to your financial plan, it's helpful to take specific actions and establish routines that support your goals. One effective strategy is to set up automatic transfers from your checking account to your savings account. By moving the money earmarked for savings out of your checking account, you reduce the temptation to spend it impulsively. Many financial institutions offer the option to schedule periodic automatic transfers, making it convenient and effortless to save regularly.

Consider whether you want to consolidate all your savings into one account or create separate accounts for different goals. Having separate accounts can help you track your progress towards specific objectives more easily. Additionally, it can provide a sense of clarity and organization when allocating funds for different purposes.

To stay on top of your spending plan, display it in a visible location in your home, such as on your refrigerator door. Regularly tracking your expenses will help you stay aware of your spending habits and ensure that you don't exceed your monthly budget for each category. By actively monitoring your spending, you can make adjustments as needed and maintain control over your financial progress.

Take Action: Implement Your Post-Purchase Plan

Transitioning from renting to homeownership often comes with changes in expenses. Suppose your current rent and utilities amount to $1,000, while your projected mortgage and other housing expenses will total $1,500. To ease into this new financial reality, consider paying $1,000 towards your housing costs and allocating the remaining $500 to savings. This approach allows you to practice managing your mortgage payments while simultaneously building up your savings at an accelerated pace.

In certain cases, despite your best efforts, you may encounter challenges adhering to your spending plan. This can happen if your original estimates were inaccurate or if unexpected expenses arise. If you find yourself in this situation, don't be discouraged. Simply revisit your spending plan and reassess the amounts you can allocate to each category. Adjustments can help you regain control and ensure that your financial plan remains realistic and effective.

If you encounter difficulties or need guidance, remember that Apollo's Home is available to support you. You can reach out to us at agent@apolloshome.com, where a counselor will be ready to assist you. We can review your spending plan with you, offer suggestions for potential adjustments, and provide advice on how to approach creditors and service providers if you find yourself unable to meet payment obligations due to financial constraints. Don't hesitate to seek assistance and explore options to navigate any challenges you may encounter. 

  End of Lesson 3:

• Take the Quiz - The First Year