Listener Mailbag: Tax Refunds, Saving a House Down Payment, and Refinancing

We’ve brought back the listener's mailbag. Today we’re answering your family and finance questions about best ways to spend your tax refund, refinancing to pay off debt, and more!

Tackling your Family and Finance Questions

One of my favorite parts of creating Simplify and Enjoy is the community. 

While I’m happy to share our journey as a family, it’s fun when you chime in with your wins, stories, and questions. 

Today we’re going to be diving into your family and finance questions. 

In this episode we’ll discuss:

• How and where to save up for a big goal like a house down payment
• Wise ways to use your tax refunds
• Is refinancing your home to pay off debt a good idea? 

We have plenty to cover so let’s get started!

Resources to Manage Your Money Easier

• Best Budget and Money Apps: Personal Capital, Tiller, Mint
• Grab Your Copy: Jumpstart Your Marriage and Your Money
• How to Snag a Great Deal When Buying a House

If you want to chat some more about creating better money habits, questions, or share your own tips please join us over at Thriving Families on Facebook.

Thank You to Our Sponsor Coastal!

Support for this podcast comes from Coastal Credit Union! If you’re living in the Raleigh Durham area and looking to bank better, come check out Coastal today.

As a credit union, Coastal serves its members first including an annual loyalty bonus.

We've been members for years and love their service and competitive rates on checking and savings accounts!

Rollover Your 401(k) Easily with Capitalize

We’re grateful for wonderful partners like Capitalize. Not only do they support the podcast, but they help make managing your money so much easier. 

Did you know that it’s estimated that there are currently over 24 million “forgotten” 401(k) accounts? In fact, the average American changes jobs every 4 years. 

And because of the Great Resignation, you or someone you know might be changing jobs even more 

It’s an extreme case of out of sight and out of mind. Is your old 401(k) in there somewhere, left behind at a job you're no longer with?

One huge benefit with an IRA is you get to choose how your money is invested, not your old employer. 

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With Capitalize, they handle the process from start-to-finish – for FREE. They handle the process from start-to-finish, and yes that includes calling the 401(k) provider on your behalf. 

Find out how and get started today! 

Where Do We Start When Saving Up for a Big Goal?

The first question in the mailbag is, where and how do I start saving up for a big goal?

The whole process is covered in detail in my free course, five days to 5k. I actually created it because this is one of the most common questions families have. We have a lot of different goals that we're trying to pursue. But where does the money come from?

It walks you through step-by-step on how to analyze and optimize your finances. You can grab it at simplifying. enjoy.com/five K. But let me give you a high level review of the process.

The first step is you should get a ballpark of how much you need to save and when you'll need it.

It's hard to measure progress if you don't know what goal you're working towards. Even if it's not entirely accurate, getting a ballpark figure can give you a measurement of how close or how long it's going to take to hit your goal.

Then you can work backwards to see what your monthly contribution needs to be.

The third step is looking at your current budget calculate the difference between what you can put away now toward your goal () and make sure you automate that transfer right away. And what you need to fill in the gap. You may discover that you're much closer to your goal than you originally thought.

Once you have that number in place and you do have some transfer going into savings, the next step is to look at your budget. You're looking at your income and expenses. You really have to look at both sides of the coin.

The first step I recommend with families is optimizing that budget. And in the course, I go through some easy wins that you can have with your finances. Of course the big one for many families is food, but then I also look at bills where many families are paying much more than they need to for the services that they're getting.

I'll give an example – your smartphone bill. Did you know that the average American cell phone bill is $70 for a single user? When you have two or more lines that can quickly balloon.

The great news is that there are providers out there who use a hybrid model. The technology realized both on cell data and wifi that can drastically cut your bill in half in, sometimes more. Options, you might want to consider our Republic wireless mint, mobile and Google fi.

That's just one example from the course, I look at other expenses where you can save and find better alternatives that makes it easier to keep more money in your pocket.

The other side of the equation, which sometimes families forget is the income.

After all there's only so much you can do with optimizing your budget, even though that can be a big one. Besides getting a second job you might want to look at opportunities in the share economy that fit your schedule and circumstances.

Some obvious ones are doing deliveries or driving for Uber Lyft but you may find that something that's more suited towards you is pet-sitting. Maybe you don't mind picking up electric scooters if that's around your city and recharging them. You could get paid for that and then also believe it or not merchandising.

My friend, Sandy from, yes, I am cheap and the creator of the side hustle crew has a great side hustle selling mugs through Amazon. And she has a course that teaches you how to set that up yourself with whatever item you're thinking of dropshipping.

You want to weigh the pros and cons to find a side gig that fits your schedule and circumstance. But hopefully I gave you some ideas on how to start saving for whatever big goal you have, but don't forget again, sign up for that course. It's completely free. It's at simplifying enjoy.com/5k

What’s the Best Way to Save for a House Down Payment?

Since we're on the topic of saving let's jump into the second question what's the best way to save for a -house down payment.

This is fantastic because this means that you were thinking ahead and making sure that you have a sizable down payment for your home. Having 20% down can be beneficial for you because that's typically the threshold for lenders where you don't have to pay for private mortgage insurance or PMI.

Keep in mind that there are other programs and mortgages that you may qualify for where you don't have to put such a big down payment options like us da loans. FHA VA. And depending on where you live, there could be down payment, assistant grants.

Whatever option you choose, it's always good to have money saved up both for buying the house and when you become a homeowner, having something stashed away for home maintenance and care. So, where should you put that money?

There are a few options. I have to mention the most obvious, which is savings accounts. As boring as it is this can be the right account for you because more than likely you'll be needing to have this money assessable in the near future.

While investing can be a great longterm option for savings such as retirement. They're not so great for short term savings because the market can be volatile year to year.

If you're looking at savings account that you're not happy with the interest rate that's available, then you might want to consider high yield savings accounts.

Look at your community banks, local credit unions, online banks. Typically they offer more competitive rates with their savings accounts then some of the big banks because they don't have as big of an overhead to cover.

Finally, there's an account I recently learned about that might be of interest to you. It's called a first time home buyer savings account. Only a handful of states offer it like Colorado, Oregon, and Virginia so you have to double-check to see if it's available in your state.

It's a tax advantage account that can be used for eligible expenses such as your down payment and closing costs.

If you're thinking of buying a house in the near future. Please catch those episodes where I talk with Daymark agents about one, how to find those hidden gems of neighborhoods so you can get a great location and what you're looking for at an affordable price. And how to figure out if you're really getting a great deal with a fixer-upper or it's a money pit.

How Should We Spend Our Tax Refund?

This third question really fits in with the fact that we're in tax season. It's how should we spend our tax refund?

Tax refunds can be a great opportunity to give yourselves a boost and set yourselves up for an awesome year financially.

There's a couple of ways you can go with this. The key is to figure out what stage you are financially speaking and what are your goals for the year?

The first way you can boost your wealth and make sure that you're taking care of is building that financial cushion. That's right. You got to start with the foundation.

Make sure that you have an emergency fund that is stashed away for any hiccups that can come this year. The rule of thumb is a thousand dollars as a starter. But you want to look at your circumstances. You may find that a thousand dollars doesn't cover an emergency.

We found out these past couple of years, we can't control a lot of things that happen to us. But we can be better prepared. That will not only help us on the financial side but reduce a lot of the stress when you go through these tough situations.

A second way that you can make this tax refund goes so much further is by paying down or paying off your high interest debts.

Yep. I'm talking about credit cards. If you have them, you probably already know that they're basically quicksand with your monthly budget so feel free to go ahead and knock out a few of those.

Another money savvy way to use your tax refund is to increase your contributions towards goals like retirement.

Have you maximize your contributions with your IRA this past year? If the two of you are pursuing a goal of financial independence, have you contributed to a brokerage account? Don't worry if you haven't. You can start now with that tax refund.

Even though it might not be technically financially savvy. One last tip I would say is, do keep a portion of that tax refund for something that you can enjoy.

Perhaps you've discovered a new hobby during this pandemic. You can upgrade that so you can enjoy it even more or you can have that set aside for a family vacation.

Having these rewards can recharge you and keep you motivated with the other big goals that you have in mind.

Finally, as a reminder, if you're getting a rather large tax refund. Double check. Why?

It could be that you withholding too much in your paychecks. While we all love getting a nice big lumps of money. Many families have found that having that money sooner in their paychecks through the year is better than later.

Should We Refinance Our Home to Pay Off Debt?

This last one is a really good question. Should we refinance our home to pay off debt.

First off. Anytime someone asks me, should we do something? I want to be very clear. I'd love giving you information about options that you have or resources that are available but you really have to sit down and consider your family's specific circumstances.

Sometimes those seemingly small details can make all the difference with what's the best decision in your case.

While I do feel great that you want to pay off debts. This is definitely not a decision I would rush into. There are a few things to consider and talk about. So why don't we go into them?

Let's start off with why people use refinancing to pay off debts. Typically it's because mortgage rates have a much lower interest rate than other debts, especially when you're talking about credit cards. Currently the mortgage rate for a person with good credit. We'll say about six 70 to 7 39 is around 4.2%. While the average credit card interest is 16.5% for someone with the same credit. Depending on the balance you're carrying that could be a significant savings in interest if you were refinancing to pay off that debt.

So it sounds reasonable but let's also consider that not all debts are equal.

With things like your credit cards, those are considered unsecured loans. While your mortgage is secured. Unsecured means you don't have anything backing the loan, so to speak. So if you don't pay your credit card, They'll go after you, but there's only so much they can do.

Secured means you have something of value, backing it up. So, if you don't pay your mortgage, you could lose your home.

One of the first steps I would suggest is gathering up all the data and dig into the debt that you want to consolidate. What type of debt is it? Can you negotiate a better rate? Have you gotten your spending under control? For example, if this is a credit card debt, have you decided and have a system where you're not going to go back into that same debt?

I hate for you to be not only back, where you are with the debt but now have your house on the line.

Okay, now that you have that in front of you, let's go over to common refinancing options. The first is rate in term refi and then the cash out refi.

Both of these will require you to qualify in terms of your credit score and have equity in your home.

With a rate in term refi, you're taking out a new mortgage either with a new and lower interest rate, different term, or both.

The goal here is getting a better deal on your mortgage so that your payments go down. Then that monthly savings, that difference you use to pay down the other debt. You're not actually tying that extra debt into your mortgage. It's still separate.

Cash out refi is an essence where you're rolling your debt into a new mortgage. Let me give you an example.

Let's say you have $150,000 left on your mortgage and your house is now worth 250,000. That's a hundred thousand dollars in equity that you have. You also have $20,000 of credit card and medical debt that you want to get rid of.

Because you have enough value or equity in your house to cover it. You can do a cash out refi. With the refi your old mortgage is paid off. You now have a new mortgage of at least $170,000. Remember your original one 50 left on the mortgage and you want to cover that $20,000 of debt. And the reason I say at least is that there are closing costs with a refinance.

You'll get a check for the difference. In this example, we'll say $20,000, which you can then use to pay off and close those debts.

If you decide to refinance, as you can see, there's a lot that goes into it.

First off, will you qualify for the loans with your credit report and score? Do you have the equity in your home to do this? And if the refi has done. Can you afford the new payments?

Besides refinancing. There are some other ways you can consolidate your debt. And I'll include them in the show notes.

Thanks for sending in your questions. It's always fascinating to me to see what goals you guys are pursuing. And what you're trying to work on. So please keep sending them in. I'd love to do this again.

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