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Is Your House TOO EXPENSIVE For You?

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Is Your House Too Expensive For You?

Here’s a crazy fact: I once worked for Washington Mutual Bank as a mortgage underwriter. Washington Mutual was the country’s largest savings and loan bank, until 2008 when it completely went out of business in just one day. (Just like in the Great Depression.)

But one thing I learned about mortgages while I worked there was that most borrowers were buying too much house for their budget. They were buying impressive houses, but they really couldn’t afford them.

Back then, lenders had lax requirements on income qualification and debt-to-income ratios. In fact, most of the mortgage files I saw had buyers that shouldn’t be buying a house. As a result, when the financial crisis hit, many people lost their homes.

Now, banks are more strict, but people are still buying houses out of their price range.  Financial experts agree that your total housing cost should only be about 25%-35% of your income. This includes your mortgage, property taxes, home insurance, mortgage insurance, and any association dues.

Why It Matters

If you are paying too much for housing, then the rest of your budget will suffer. You won’t have enough for the remaining categories.

Your budgeted income should be spread like this:

  • Charity 10%
  • Savings 10%
  • Housing 25%
  • Utilities 5%
  • Food 10 %
  • Transportation 5%
  • Clothing 5%
  • Medical Costs 10%
  • Insurance 10%
  • Recreation 5%
  • Personal 5%
  • Total 100% (of Take-Home Pay)

Notice that there is no room for consumer debt payments in this formula. That is because no one should have consumer debt. If you are dying to get out of debt, see this post to learn how to get out of debt quickly. Click here to set up a budget for free.

What to Do About Your Expensive Mortgage

There are a few options you can try to reduce your housing costs. If you rent, you could shop around for a new place once your lease is up. If you own your house, try one of these options:

  1. Refinance. If the mortgage rates are currently lower than your mortgage interest rate, you might benefit from refinancing. Lowering your interest rate can reduce your payment and make it easier to afford your house. 
  2. Downsize. If you are open to the idea of downsizing, now might be a good time. The price of houses are rising and you might be able to make a nice profit on the sale of your home. You could use this money to put a down payment on another home that is more affordable. 
  3. Rent Out a Portion. If you have a spare room, rent to a relative or friend. This would reduce the burden of your housing cost.
  4. Use Airbnb. If you are planning to take a trip, rent out your home while you are gone. You can earn quite a bit per night through online home rental sites like Airbnb and Home Away. This can help bring in more income to pay for your mortgage.
  5. Get a Modification. This option is very difficult. You have to contact your mortgage company and ask for an application to get a modification. They will require lots of paperwork to be submitted to apply. Then they still might decline your application. Some homeowners have been able to get approved, but it is an uphill battle. It’s worth it if it helps you reduce your costs. It doesn’t negatively affect your credit.
  6. Earn More Income. Getting a second job or doing things from home to help earn money will really help get your financial situation under control. Starting a side business is often very rewarding. 
  7. Get Rid of Your PMI. Some mortgages have what is called Mortgage Insurance. This is required by the lender. Only some borrowers have to get this insurance. But usually, you can get rid of it after a certain amount of time. If you have this, contact your mortgage company to see if you can get rid of it soon. It will save you a nice chunk of cash.

If you can’t do any of the above strategies to reduce your housing cost, another option is to just reduce your other living expenses. For 87 ideas on how to reduce your expenses, click here.

Check back soon for more money saving tips.

New Giveaway: Win $150 Amazon Gift Card!

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Signup to win a FREE $150 AMAZON GIFT CARD!

Hi, Friends!  Welcome to Momma Money Sense where you can get FREE advice from a professional Julieaccountant. I’m Julie Tronsen, founder of this blog, and my goal in life is to help as many people as possible to achieve their financial dreams!

I am so excited to announce our next big giveaway!  Our last winner was Autumn G. of Ortonville, MI and she received a $125 Amazon Gift Card. Who will be the next winner of $150 Amazon Gift Card?

The reason we are doing these giveaways is to get more people to subscribe to Momma Money Sense. The purpose of this blog is to help people achieve financial freedom! I want to help as many people as possible to get their finances under control, get out of debt, and build wealth. As a professional accountant, entrepreneur, and college instructor, I have the answers to your money questions! And it’s all FREE. You can Ask the Accountant or get help with a variety of money management topics by reading the blog posts.

Sign up below for your chance to win.

The giveaway is open to U.S. residents, age 18 and over. There is no purchase necessary to win. There are multiple ways to increase your likelihood of winning. The contest is being hosted by Gleam. The winner will be randomly selected by Gleam at the end of the contest. You must enter by August 25th to be eligible. The entries require tasks to be done in order to be valid. If selected, your task will be verified. Make sure to tell your friends. Each time you refer someone to the contest that signs up, you get another chance to win. Scroll down to enter.

(Please don’t enter the giveaway unless you are planning on remaining a subscriber after entering. Becoming a subscriber means you will receive weekly email updates from the blog with new blog articles, links for coupons and deals, and the latest news from the blog. The purpose of the giveaway is to get more subscribers to Momma Money Sense so that I can provide useful financial advice to people who need it. If you don’t need or want money management and wealth building advice, please don’t subscribe or enter. Thanks.)

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Lots of Freebies

If you like freebies,  click below for a free printable budget workbook. Also, check out my FREE Printables page for many more items that can help organize your life and save you money. I will be adding more freebies each month. Plus, I will send out weekly newsletters to subscribers with lots of useful money management tips, deals, coupons, and freebies!

Topics Covered on Momma Money Sense:

  1. Money making ideas
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  3. Budgeting help
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MommaMoneySense.com $150 Amazon Gift Card Giveaway

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Answers to Tax Questions: Car Donation

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Have you ever considered donating an item to charity so you could get a tax deduction? Maybe clothes, toys, or even a car? One of our readers asked about it and now I’m going to share the detailed answer with everyone.

Question From Linda in Washington: I have 3 ‘junk’ cars I want to donate for the $500 tax deduction. Would I be able to do all 3 in the same year, or should I space them out? 

Answer: 

Yes, you can donate them all in one year. But first, you need to make sure that the donation is going to a real charity. They should be able to provide you with a receipt and proof that they are a legitimate charity.

Second, you need to check your prior tax return to see if you itemized deductions or took the standard deduction. If you don’t itemize, you can’t deduct the car donation. Wait until you can itemize before you donate. 

Next, before you decide when to make the donation, you might want to estimate your tax refund for the year based on what you already know. The best site for doing that is e-file.com. It’s completely free to use their tax refund estimator

My philosophy is that you only want to donate this year if it will help you get a bigger refund or reduce what you owe. Otherwise, save it for the next tax year. This will maximize your financial gain.

If you need more deductions to increase your expected refund or to reduce your tax liability then you definitely want to donate the cars this tax year (or clothes, toys, household items, etc.). If you don’t need more deductions, then save it until you do. As long as you donate the car by the last calendar day of the year, you can still count it on your tax return. The IRS has a special publication just for car donations if you want to read up on it.

But hold on…you don’t get $500 more in a refund just because you value the car donation at $500! The amount of additional refund you get is LESS than the donation value. Why? It’s because you are deducting the $500 from your income and your income is being taxed at a certain percentage.

For example, if you are in the 15% tax bracket and you deduct the $500 donation, this will represent an additional tax refund of 15%* $500 = $75 more refund. That’s pretty insignificant, right? Maybe you would be better off selling the cars for what you could get for parts. Can you get more than $75 by selling the parts of the car on Craigslist? Can you sell the car as is to someone who can fix it up? This is my recommendation. Sell the car for more than what you can get back on your tax return.

Do You Have a Tax or Budgeting Question? 

I worked as an accountant for years. Feel free to ask any question you like. Just reply to this email with your question and I will answer it in an email like this one. Plus, this coming tax season, I am planning to give tips to help you save a bundle of money by preparing your own tax return.

If you need help setting up a budget, click here.

Click below to get your FREE copy of The Modern Mom’s Epic Guide to Easy Budgeting! 28 Page Workbook with 87 ideas to reduce expenses, 14 beautiful worksheets, 7 bonus lessons, and full, easy-to-follow instructions.