Cash Inflow vs. Cash Outflow

by brandt

I think I’m going crazy.

Either that, or I think numbers have taken over my life.  I think it was a plot to a movie once, but it’s getting to be a bit ridiculous.

Let’s backup here for just a second.

As of right now, it’s officially T-minus 30 hours 24 minutes until “Operation: Please Sign Here.”  And there has been something going on for the last 2 weeks that I’ve felt compelled to discuss.  It’s awkward.  It’s uncomfortable.  It’s something that makes people squirm in their seats, makes me want to hide this from the women and children, and makes grown men get sick to their stomach.

You see, I’ve got this growth….

No, I’m kidding.  It’s something even worse.

Money.

There, I said it.  Let’s all say it together to let it sink in.  “M-O-N-E-Y.”  It’s been often quoted that financial stress is a leading factor in divorce, and while I have my own thoughts and theories on that (for example, see here.), I would be remiss if I said it didn’t affect a husband and wife’s relationship.  Going through my college courses on finance (where I specialized in personal finance and investing), it’s amazing to me how many people are unaware of this “money” thing, how many people are scared of this “money” thing, and how many people are uncomfortable in it.

I’m jumping around a lot, I know.  I think it’s because my Coke Zero finally kicked in.

Why am I bringing up money?  Naturally, I have a few reasons for this.

First, it’s been on my mind a lot.  See, I’m very analytical with my money.  I’m talking, spreadsheets going 10 pages deep, line charts with linear curve analysis to determine how we’re doing gas-milage wise with the cars, scheming and plotting for saving up for different things here and there, it’s actually quite calming to me.  Being able to see the direct effect of an inflow or outflow of money is good for someone like me who doesn’t handle being caught off-guard very well.  I think I became this way because I was so horrible with money when I was younger.  It’s a Malone Family Legend® that when I was 16 years old, I blew through $1,000 in one month. Yes, shocking I know. And what did I have to show for it? A new sound system for my car? Nope. A new wardrobe? Nope. Awesome gizmos and gadgets? Nope. Food, gas, and CD’s. That was it.  And it took until I was 22 years old with my first credit card maxed out within 4 months to realize that it was a problem. So learning how to budget, learning how to save, and being prepared for the inevitable life throws at me has a nice calming effect, since I know exactly where the money is, how much is there, and what it’s going towards.

The second reason it’s been on my mind is because Ashley has put me to the test.  I’m not sure how many families do their finances, but for us, the money is all pooled together, and I’m in charge of budgeting/saving/paying bills.  We talked about it once, and I asked Ashley if she wanted to do the finances.  She said “Not really.  You enjoy doing them, and I just want to be kept in the loop about what’s going on.”  And we’ve always had a “nest egg” set aside for our savings “lump” as well as the future down payment on the house.  It’s come in handy as well.  Emergency car repair?  No big deal.  Huge bill that we didn’t see coming?  Got it covered.  Plane tickets home to see Ashley’s family?  No problemo.

Napoleon, you know we can’t afford the fun pack. What, do you think money grows on trees in this family? Take it back!

Now that homeownership is just around the corner, we’re looking at things a bit closer.  The biggest thing Ashley was worried about (and naturally so) was “Can we afford it?”  And you know, it’s nice to have those reality checks.  For me personally, it’s nice to be held accountable, and it’s nice to show that “Yes, we can afford it, and no, we won’t be eating Ramen Noodles and PB&J Sandwiches 3 meals a day, and we’re going to be alright.”  It’s very self-satisfying, very fulfilling to be able to look at a big-time decision like this, with all the nervousness and uncertainty and apprehension and say “Yeah, we’ll be alright.”

Third, there’s a phrase tossed around “teh interwebz,” especially among us homey blogs (or is it homey blogs?  I don’t want to be confused with the underground movement of gang members blogging!).  It’s almost a mantra that we try to live up to.  A way of life, living, and blogging.

Keep it real

So, in the spirit of “keeping it real,” and for any potential future homeowners out there, here’s a breakdown of what you should be prepared for as far as cash inflow and cash outflow.

  • Be prepared to cut a check on the house you want to make an offer on in the range of $1,000 – $1,500.  This is called your “Earned Money Deposit,” (EMD) and it’s a deposit that goes towards your home.  This goes towards your down payment, but our check was cashed in 1 week after we made the offer.
  • Next, after an offer is accepted (whether short sale, bank-owned, foreclosure, REO, or private sale), be prepared to pay for an inspection.  Our inspection price?  $325.00
  • After that, your lender will ask for an underwriting fee/appraisal fee.  This is to cover the process of underwriting your paperwork as well as your appraisal.  For us?  $450.00
  • Did you think we were done?  Oh no.  Because a house is a big monetary investment for a lender to make, they require insurance on the house.  Kind of like the state requiring car insurance on a car.  Our loan was an FHA loan, which needed 1 year of homeowners insurance paid up front (or POC, paid at closing).  Being first-time homeowners, we were also required to have replacement-cost insurance instead of market-cost insurance.  Replacement cost insurance covers the cost of the house to be rebuilt, whereas market cost only covers the cost of the market value of the house.  The upside of getting an awesome house in the SE Michigan real estate market?  The market value was very low, low enough that we could afford it as first-time homeowners.  The downside?  The replacement cost was valued at 2x as much as what we’re paying for the house.  The cost of our annual homeowners insurance for the first year (paid up-front)?  $1085.00
  • And once you’ve paid all that, you get to the down payment/closing costs on the house.  In our case, with an FHA loan, we were only required to put down 3.5% for our payment.  And remember, the EMD is considered a portion of your down payment.  So we had the rest of the down payment left to pay.  We also asked the bank to pay 3% of the closing costs, which covered a good portion, but still left some over for us.  So our closing costs came out to be just under what we budgeted for it, which is always appreciated.

So there it is.  That’s “keeping it real.”  And like I said, the hardest thing for me was justifying this whole process in my brain.  I’m so used to financially looking at cash inflow vs. cash outflow, spend less than you earn, always be in the black, never be in the red.  As a matter of fact, my Mint.com account (which is a phenomenal online tool for budgeting) keeps sending me emails that I’m spending too much money.  But the one thing that does justify it (financially) in my head is looking at the appraised value of the house, comparing that with the relatively minor expenditures that we’re having now, and realizing we’re in the black, in the positive, and making net income. Which is one of the few things that is allowing me to sleep well at night.

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