Dear Dave,

My wife and I are about to have our first child. Shed like to stay home with the baby after its born, so well be losing about half our income. Weve looked at our budget, and we can stay in the house but things would be very tight. Ill make $42,000 this year, with a potential bonus of $23,000 at the end of the year. Our house payment is $1,550 a month. Do you think we should downsize to a smaller home and live more comfortably?

-Mike

Dear Mike,

I hate it when people have to leave their homes. It can be a hurtful thing to the heart and spirit.

If you had $65,000 as a steady income the house payment wouldnt be a big deal. But you cant count on a potential bonus, and from your guaranteed income, more than half your take-home pay will be wrapped up in a house payment. Youd probably have to take a part-time job, or save any bonus you get to subsidize your income just to have a realistic chance of making ends meet.

Im all for mom staying home with the kids  especially a little baby  whenever possible. But when it comes right down to it, Mike, you and your wife have to decide if its worth the part-time work and budget hassles to stay where you are.

Moving is no fun, especially when its something youre forced to do. But you dont want to be a slave to your house payment either! 

-Dave

Dear Dave,

Were thinking about refinancing our home, and will be talking to a loan officer next week. What kinds of things do I need to know so we can protect ourselves in the deal?

-John

Dear John,

Its not really a big deal. Youll get a Truth in Lending Sheet and an Estimated Settlement Sheet. You might want a little more detail, so ask them to give you a sample settlement sheet based on the size of your loan.

Watch out for points and origination fees. These are nothing but pre-paid interest. You might get a little lower interest rate if you pay them, but the break-even point is between seven and 12 years to get your money back. Since the average mortgage is refinanced every 5.6 years, paying points and origination fees is not a good deal.

And dont worry if the loan officer tells you this isnt normal. They can make just as much money from the sale. Theyll just have to work a little harder to do it!

-Dave

                                                                       

Dear Dave,

Is it a good idea not only to diversify among various mutual funds, but also among different companies that sell mutual funds?

--Brian

Dear Brian,

Theres no need to do that. Find one good broker youre comfortable with, and who has the heart of a teacher. You want to know whats going on with your money, and finding someone who can explain it well and help you understand the details is a must!

Just make sure your broker is not directly connected to the mutual fund. You dont want someone with a vested interest. What youre looking for here is someone who can objectively connect you to a good mutual fund with a solid five- to 10-year track record.

-Dave 

 

* For more financial help please visit daveramsey.com.