I think I’ve mentioned this in the past, but the first quarter of the year is one of my favorite times of year, simply for the financial benefits. In the first quarter of the year I get:
-My annual bonus
-My annual raise
-Our tax return
From a financial point of view, it’s usually pretty good. I found out today that everyone gets a bonus equal to 3 extra weeks of pay. That’s going to come in handy. We are just about finished with our lake house and that money will take us all the way through to completion. We have just about arrived at the point I’ve been looking forward to since we started this project. (construction complete and lots of extra income each month).
Once it’s done, we’ll have a ton of extra income every month because we won’t be paying for all the construction materials. The first order of business will be to start building our emergency fund back up significantly. We’ve kept a reasonable buffer in savings but not nearly as much as we used to. It will be nice to see that balance go back up to what it used to be.
The second thing we’ll do is start putting more than the $150 per month away in my daughter’s 529 plan. It’s a great time to increase the contributions since the market is down some. I’m always happy to buy in to the market when it isn’t at it’s peak.
The third thing we’ll do is to roll my raise in to an increase in 401k contributions. Since we started on the lake house I have only been contributing 8% of my income to the 401K. It had to be 8% so that I didn’t miss any of the company match! Now I’ll be able to put 12 to 13% of my income towards the 401k. (or whatever gets me to the annual maximum per the IRS)
It’s been very challenging to see our balances increasing slower than they used to while we’ve been working on the second house. Psychologically I’ve felt like I’ve let my “future self” down a bit. I have to remind myself that by building the second place we are “living for today” and still meeting our goals for tomorrow. The equity we’ve built in the second house has more than covered the reduced contributions to our retirement accounts, that’s for sure.
I know I vented a bit in the last post about the piss poor shape our economy seems to be heading towards. With the fed lowering interest rates yet again, I’m seriously considering refinancing. If I can get a 30 year fixed for under 5%, I may consider it. What I don’t want to do is pay a bunch of points to get it. Zero points with a rate under 5% would be just peachy. I guess we’ll wait and see.
The lower rate also seems to be good news for all those people that bought adjustable rate mortgages. Hopefully this will give them some relief. If they’re smart, they’ll take the difference and start building their own emergency fund. Maybe they’ll even be able to refinance in to a fixed rate mortgage so that they aren’t at the mercy of the rate fluctuations!
The problem is, that people will probably just take their extra 300 bucks a month from a 1.25% drop on their 400K mortgage and go buy a car since that’s close to a car payment. People won’t think about whet they are going to do next year when rates come back up again (or 2010). Then when the banks decide to squeeze the consumer for more cash they’ll be in the exact same scenario they are in today, almost losing their house because they purchased too much home and can’t control spending.
A friend of mine bought a house with no money down and wanted to take advantage of the drop in interest rates by refinancing. She was told that she has to have a 90% LTV to refinance which would require writing a check to the back for something like 50k. Needless to say she doesn’t have that kind of cash, so she’s can’t refinance. I think a lot of people who bought in 2004 and later are in the same boat.