Cheapest Cars to Insure for a Teenager in 2024 (New & Used)

least expensive cars to insure for teenage drivers young woman in a yellow shirt driving a convertible Middle Class Dad

As my daughters go deeper into their teen years, before I know it, they’ll be driving cars. So I wondered about the cheapest cars to insure for a teenager.

Here are the cheapest cars to insure for teenage drivers:

  1. Fiat 500 – MSRP $26,565 – New
  2. Chevy Equinox – MSRP $26,300 – New
  3. Honda Civic Hatchback – MSRP $23,250 to $29,850 – New
  4. Honda Civic LX Sedan – MSRP $22,350 – New
  5. Mazda3 Sport Sedan – MSRP $23,000 – Used
  6. Ford Fusion S Hybrid Sedan – MSRP $20,000 – Used
  7. Ford Fusion – MSRP $19,000 – Used

On average, insurance rates for a family adding a 3rd car and teen driver to their policy can expect rates to increase by 62%.

It’s a proud day for parents when we see our young ones graduating from high school.

That is traditionally the beginning of a new chapter of their lives. This of course also means that they are ready to drive their very own cars.

It’s important to make sure that young drivers are fully aware of the importance of driving carefully and maintaining a clean driving record – not only to ensure their own safety, others’ safety, and the safety of their vehicle and property, but also to ensure that they don’t have to deal with issues like applying for a hardship license.

Driving safe and staying out of trouble is the best way for them to stay safe and keep car insurance cost low. In this article, we’re exploring the world of teen drivers and insurance costs.

We’ll examine average car insurance rates, how much policies go up adding teens, and some crucial steps you can take to minimize the increased costs. Also be aware that due to the events of 2020, car prices and availability have changed radically. So expect to pay more and for them to be harder to find.

Specifically, we’re looking at the cheapest cars to insure for a teenager, so you can get them the best cars they’ll love with insurance costs that won’t break the bank!

After all, finding affordable insurance is a nightmare, especially when it comes to auto insurance for teens.

The following new cars are safer for teens, have a low price, AND are among the lowest cost to get insurance on. For used cars, CLICK HERE to skip down:

Cheapest New Cars to Insure for a Teenager

1. Fiat 500 – $26,565

least expensive cars to insure for teenage drivers Fiat 500 blue Middle Class Dad

One of the most trusted cars, the Fiat 500 is a complete car in terms of safety, reliability as well as stylish looks.

A small car, Fiat is fully equipped with the latest tech. Featuring a 5-inch infotainment touchscreen on the dashboard, Fiat is for all those who love retro and vintage cars.

Not only does it look super adorable, but it also drives very smoothly without giving any hitches. The best part? It is extremely economical and at under $30,000, it’s one of the least expensive cars to insure for teenage drivers.

That being said, this car has increased in price significantly (almost doubled) from when I first wrote this article. So do be aware that unlike 2-3 years ago, you can probably get more car for the buck by looking at others on my list.

2. Chevy Equinox – $26,300

least expensive cars to insure for teenage drivers Chevy Equinox green Middle Class Dad

This sleek crossover SUV is perfect for your young blood.

It does not contain too many powertrains and when it comes to technology, Equinox has its limitations. However, It was one of the top picks by IIHS as a safe car.

The rearview camera allows for better visibility. Seating and airbag security are also in check. Your kid will love you for getting them this beautiful car!

3. Honda Civic Sedan – $22,350

least expensive cars to insure for teenage drivers Honda Civic black Middle Class Dad

The Honda Civic is known for its additional safety features.

This car contains a reverse camera as well as features like daytime running lights, anti-lock brakes, electronic stability control, side airbags, as well as airbags for the torso and head.

One more exciting feature is that a hands-free Bluetooth phone connection is integrated into the car’s digital dashboard control. If you opt for the hybrid model, the car will also contain front crash prevention.

So it would be much safer for your teen.

For real peace of mind, don’t forget the Always Prepared 149-Piece Roadside Assistance Emergency Kit(click to check the current price on Amazon).

It’s almost 5 stars on Amazon Prime with well over 300 less-worried parent reviews. It includes jumper cables, a first aid kit, and other crucial survival items if the unexpected happens to your child.

4. Toyota Prius – $24,625

least expensive cars to insure for teenage drivers Toyota Prius white Middle Class Dad

The incredible thing about Toyota Prius is that it is an extremely eco-friendly car, as it runs not just on fuel but battery too.

Prius features electronic stability control, side airbags, driver knee airbag, and anti-lock. Since it is eco-friendly, it will allow your teen to select one of the three modes that help in improving fuel consumption.

5. Mazda 6 – $24,325

least expensive cars to insure for teenage drivers Mazda 6 blue Middle Class Dad

Mazda 6 is not your typical family car.

It is a sports sedan that is perfect for teenagers with raging hormones. Laced with features like electronic stability control, multiple airbags, anti-lock brakes, and daytime running lights, this reliable car also contains blind-spot monitoring and rear cross-traffic alert system.

This means that your young driver will be able to see at the front as well as at the back of the car!

Not wanting to buy a new car? For many, buying a late-model used car makes much more financial sense. So make sure you check out the crucial steps for Buying a Used Car (click to read my steps now) while avoiding the most common pitfalls.

6. Mitsubishi Outlander Sport – $22,995

least expensive cars to insure for teenage drivers Mitsubishi Outlander white Middle Class Dad

Even though it is a small SUV, Mitsubishi Outlander does not lack in the safety department.

It has a driver knee airbag, rollover sensors, airbags on the front and sides, as well as electronic stability control.

It is perfect for youngsters who want an attention-grabbing SUV, as it also features a 6-inch touchscreen display, a front dual-zone climate control, and a rearview camera. This car allows for seven-passenger seating.

7. Subaru Outback – $28,395

least expensive cars to insure for teenage drivers Subaru Outback red Middle Class Dad

Given the best ranking for front crash protection, Subaru Outback is the car to opt for if you are worried about your teenager’s rash driving skills.

This beauty also features electronic stability control, side airbags, a rollover sensor, and daytime running lights.

Outback has a unique feature of the EyeSight Driver Assist system that has two cameras right next to the rearview mirror so that the driver may be warned of a collision before it takes place.

This system helps the driver in keeping within the lane by automatically tapping on the brakes when the car swerves out of control. Not one of the least expensive cars to insure for teenage drivers, but certainly one of the safest.

8. Nissan Rogue S FWD – $27,360

least expensive cars to insure for teenage drivers Nissan Rogue orange Middle Class Dad

Want something that isn’t simply safe but catches the eye too?

Then Nissan Rogue is the one you are looking for. The SUV features head curtain airbags for all the seats, electronic stability control, front seat-mounted torso airbags, and a rollover sensor.

This car is also perfect for long drives to and back from college because its front seats are designed in a way that reduces fatigue to the back and helps in improving blood circulation.

Cheapest used cars to insure for teenage drivers

Don’t want to shell out the big bucks for a brand-new car for your teen?

I get it and won’t be doing that for my girls either! I actually love what my dad did for me in high school for my first car. He said he would match me dollar for dollar any amount I could save up.

I ended up saving $700 and bought a $1,400 used Toyota Corolla.

But without further ado, here are the cheapest used cars to insure for teenage drivers. Not surprisingly, the newer versions of some of these also make the new car list.

Prices are all for 3-year-old models around 30,000 miles in great condition.  The prices are courtesy of Kelly Blue Book.

As I update this article each year, these cars and prices may change.

When options were available, I selected the lowest-priced option for the listed price and in “very good” condition (lower than “excellent”). I also selected buy from a private party which is almost always less expensive.

Obviously, prices will vary based on zip code, mileage, and condition. Prices shown here are not guaranteed and are given only for a range and for informational purposes only.

1. Honda Civic LX Sedan – $25,000

The Honda Civic is known for its additional safety features.

This car contains a reverse camera as well as features like daytime running lights, anti-lock brakes, electronic stability control, side airbags, as well as airbags for the torso and head.

One more exciting feature is that a hands-free Bluetooth phone connection is integrated into the car’s digital dashboard control. If you opt for the hybrid model, the car will also contain front crash prevention.

So it would be much more safe for your teen.

2. Mazda3 Sport Sedan – $20,000

Mazda3  is not your grandpa’s sedan!.

The Mazda3 ranks in the top 50% for the compact car class. It has great engine performance, awesome safety scores, and a luxury-like interior.

3. Ford Fusion S Hybrid Sedan – $18,000

least expensive cars to insure for teenage drivers Ford Fusion grey Middle Class Dad


The great news about Ford Fusion is that it is very intelligent when it comes to saving up on the fuel, hence perfect for teenagers.

Some other terrific features include traction and stability control, anti-lock brakes, integrated blind spots, and optional lane departure warning.

The speed is limited to 80 mph which will keep your youngster in check when they are driving on the highway!

4. Subaru Outback – $28,000

least expensive cars to insure for teenage drivers Subaru Outback red Middle Class Dad

Given the best ranking for front crash protection, Subaru Outback is the car to opt for if you are worried about your teenager’s rash driving skills.

This beauty also features electronic stability control, side airbags, rollover sensor, and daytime running lights.

Outback has a unique feature of EyeSight Driver Assist system that has two cameras right next to the rearview mirror so that the driver may be warned of a collision before it takes place.

This system helps the driver in keeping within the lane by automatically taping on the brakes when the car swerves out of control. Not one of the least expensive cars to insure for teenage drivers, but certainly one of the safest.

5. Subaru Forester 2.5i Sport Utility 4D – $28,000

The Forester has a rare perfect rating not only for head-on collisions but also for side-impact crashes from The Insurance Institute for Highway Safety.

After all, you not only want an inexpensive car for insurance for your teen, but you want a safe one too!

Additional safety features include:

  • Rollover sensor
  • Electronic stability control
  • Driver knee airbag

6. Ford Fusion – $19,000

least expensive cars to insure for teenage drivers Ford Fusion grey Middle Class Dad

The great news about Ford Fusion is that it is very intelligent when it comes to saving up on the fuel, hence perfect for teenagers.

Some other terrific features include traction and stability control, anti-lock brakes, integrated blind spots, and optional lane departure warning.

The speed is limited to 80 mph which will keep your youngster in check when they are driving on the highway!

This car was discontinued by Ford in 2021, so just know that used is the only option up to 2021 unless they decide to bring it back.

Frequently Asked Questions

Why is auto insurance more expensive for teens?

Auto insurance rates are higher for teens to cover the increased losses they are more likely to incur. Teens get in over 230,000 accidents each year, and car crashes are also the leading cause of death for teens. Every accident, death, and bodily injury or property claim is lost profit for the insurance company. 


Since your teenager may not have started working yet, you will likely be the one paying for all the damages.

If you’re adding a teenage driver to your auto insurance, the rates will be going up. It’s the perfect time to review your coverage and compare rates with multiple companies.

How can a 17-year-old reduce car insurance?

A 17-year-old driver can reduce their auto insurance rates by adding themselves to their parent’s policy rather than getting their own, taking a defensive driving course, get better grades at school, drive a more sensible, less flashy car, and go longer periods of time in between moving violation tickets and incidents.

In some ways, expensive auto insurance for teens just goes with the territory.

Parents and teens have been dealing with this since the invention of the automobile. After all, as I mentioned above, car crashes are the leading cause of death for teens, and every year, teens get in over 230,000 car accidents.

Ultimately it’s the insurance company that has to pay out damages, medical bills, and lawsuits resulting from those things. So they offset those losses by making assumptions about all teens and driving.

Unfortunately, that assumption is that teens don’t drive well, aren’t very safe, engage in risky behavior, and are more likely to cause an accident. All of that adds up to higher costs of insurance.

However, it’s not all bad news and there ARE some things you can do to cut the cost of insurance for a 17-year-old or any teenage driver, such as:

  • Take a defensive driving course – I’m used to doing this for speeding tickets, but generally, your insurance company will give a discount for taking this course. Just check with them first as they may require certain providers. Many classes these days are done online which your teen will appreciate
  • Keep the grades up – Yup, most insurance companies reward drivers under age 25 if they have a B average (in high school) or a GPA of 3.0 (in college). They figure if they’re crackin’ the books, they’re not crackin’ the beers! This is called the Good Student Discount.
  • Keep driving safe – It goes without saying for all of us that the longer we go without an accident or claim, the cheaper our insurance will get. So keep driving safe and don’t file minor, more frivolous claims
  • Rethink the frat parties – It might surprise you, but some companies such as Geico, actually give discounts for college students who are members of certain fraternities and sororities
  • Don’t drive a flashy car – It makes sense. But if you buy your 17-year-old a red Corvette, you can bet the insurance company is going to charge you more than if you bought them a late-model baby blue Hyundai. So vehicle types can make a huge difference with your ability to find cheap car insurance.
  • Buy a beater and only get liability coverage – It (hopefully) goes without saying that your child’s first car doesn’t need to be a Lamborgini. In fact, my first car was a 1971 Toyota Corolla. That kind of car doesn’t really need comprehensive and collision coverage as you’ll likely spend more in a year than the car is worth. So buy an inexpensive used car and just get liability coverage to save a ton!

How much does insurance cost for a 17-year-old male?

The national average to insure a 17-year-old for car insurance is $8,844 a year, which is 237% more than what adults over 30 pay.

By comparison, the national average for adults is currently $1,758 a year. Specifically, that’s for teens between ages 16-19. (source)

The good news is that insurance costs do start going down at age 19 ($4,130/year) and then down again at age 21 ($2,217).

By the time your child turns 25, they’ll still be a lot higher than what it costs parents, but still gradually improving, coming in at 1,931.

I have daughters so the good news for me is that female teens generally see an average of 12% better rates than teen boys. AND when they turn 19, they will be saving about 45% over what parents with teen boys are paying.

The reason, of course, is that statistically speaking, girls are much safer drivers than boys.

The other potentially bad news is if you live in one of the following states, which rank as the most expensive states for teenage driving insurance costs:

  • Texas (darn it, that’s where I live)
  • New York (no surprise, but if we lived in NYC we wouldn’t drive)
  • Deleware
  • Louisana
  • Michigan

Do I need insurance to drive my parent’s car?

Yes, once a teen gets a driver’s license (not a learner’s permit) they do need insurance even if driving their parent’s car.  Teens don’t have to have their own policy, and it’s usually cheaper for a teenager to be added to their parent’s policy. 

Ultimately insurance covers a driver, not a vehicle, and even if they have insurance on their cars, if you drive them without being added, you are driving without insurance.

Trust me, as someone who got a no-insurance ticket in my early 20’s, you DON’T want that.

You especially don’t want it as it’s probably a whole lot more expensive of a mistake now than it was then. At the time, I thought I couldn’t afford insurance while flipping burgers at Wendy’s for $3.25/hour (which was kind of true).

BUT, in reality, the ticket and then having to file an SR-22 each year for 5 years afterward was REALLY something I couldn’t afford.

So yes, new drivers should get their parents to add them to their insurance, or don’t drive. It’s as simple as that.

How much does insurance go up after adding a teenager?

For a 1-car family, expect your auto insurance to go up about 44% for adding a teen to your policy. With 2 cars you will see a 58% increase, and having 3 cars with a teen on the policy will see an increase of 62%.

Figures courtesy of

All that being said, adding them to your policy is DEFINITELY what you want to do compared with getting them their own separate policy.

For the same coverage on the same car with their own individual policy, you or they will pay 365% MORE than if you just added them to your policy.

In short, no matter what you do, having teenage drivers is an expensive proposition, so just start budgeting now.

Can I stay on my parent’s car insurance if I move out?

Younger drivers can usually only stay on your parent’s auto insurance policy after moving out if you are still their dependent, driving a car they own, or if you are a full-time student. In most cases, insurance companies prefer the insured to live and park the car where the main policyholder lives. 

What it comes down to is an insurance term called “separate residence” and the definition of that term varies from company to company.

Staying on their policy, which is definitely cheaper up through age 25, works best if you leave home to attend college, whether you stay in college housing or rent somewhere near the university. This is often true whether you are using an in-state school or are in a different state.

But do check with your parent’s insurance company as it may vary from company to company.

Unlike health insurance, there is not a dedicated cutoff age for children being on a parent’s insurance policy.

But in most cases, once a child is done with college, unless they are living with their parents, it’s unlikely the insurance company will continue to allow them to stay on their parent’s policy.

Final thoughts

In this post, we looked at the cheapest car to insure for a teenager. But we also explored safety concerns, looked at why the costs to insure a teen are so high, and explored some ways you can cut those costs.

When it’s time to get your teen their first car, get them involved. Ask their opinion on which car they like best.

Also, get them involved in the financial process.

Have them save up and then match however many dollars they can raise. That’s exactly what my dad did for my first car and it was a great financial lesson that has stuck with me.  Or if you buy the car have them be responsible for insurance and maintenance.

We also know that car repairs can be expensive.

And what’s worse is that many people don’t have enough money to pay for it. So, how to pay for car repairs with no money? Well, the answer is simple: you need to get insurance coverage for your car or you can get a small loan. This will protect you in case of an accident or other mishap. It will also cover any damage done to the car by other drivers or objects, such as trees or rocks.

Buying your teen a car can be stressful, nerve-wracking, and expensive, but it doesn’t have to be that way.

The images used in this post were acquired from the web and are considered “fair use” under US Copyright law given this post is for the purposes of reviewing these products. That being said if the original photographer prefers us to not use their photo, we will happily swap them out upon being contacted.

3 Steps to Bigger Paychecks You Probably Don’t Know

bigger paychecks regular sized hand holding a tiny $100 dollar bill Middle Class Dad

Many Americans struggle to get bigger paychecks

Since the economy began to struggle in 2008, many segments of society have lost ground or just tread water.

But it’s not all bad news and there ARE things you can do to change your habits, expenses, income, and yes, even get bigger paychecks.

To get bigger paychecks, 1st, make sure you aren’t paying too much in taxes. If you get a huge refund each year, that means you lent the government money interest-free. Adjust your allowances to get more take-home pay, but also get on a monthly budget & monitor how future raises can negatively impact your tax bracket.

The good news is there are steps you can take today to increase your paychecks tomorrow; without getting a raise. Bright Money can help, finding faster, smarter ways to save and set aside from your paycheck. It can also pay off your cards faster and save you money on interest charges.

In this post, we’re looking at all the ways you can cut expenses & improve your budget. But specifically, we’re looking at the key steps to take for bigger paychecks.

If you’re in the situation where you think refinancing student loans might make sense, the folks over at Next Day Personal Loan make it easy to get the best offers in under 2 minutes.

You could possibly save thousands a year and you have nothing to lose in checking!

The sad truth about the cost of living and salaries

In my own family, while I have changed employers we’ve seen our expenses go up roughly 46% across the board. But we’ve struggled to get bigger paychecks to keep up with the cost of living.

Healthcare alone for our very healthy family of 4 has gone up about 45% since 2008.

Meanwhile, our family’s annual salary has maybe gone up 9%.  And even if we’re not the norm in that regard, as I get into more below, the average salary increase has only been about 2.2%/year.

So if your family was consistently getting those 2.2% increases since 2008 you’d have increased about 19%.  What happens when salaries increase 19% but your costs increase 46%?

That’s right; less money for your family.

bigger paychecks torso shot of a person with one hand facing up an the other pulling out an empty pocket in their pants Middle Class Dad

Bigger paychecks feel like a thing of the past

As I said, even for families that have done better than ours, available cash for purchases has decreased by 27%!

That’s not only affecting luxury purchases like vacations, new cars and appliances but also just the basic operations of the household.

When we as a country spend less, be it at the department store, grocery stores or vacation destinations, guess what?  They cut back on staff and stock.  Plenty of businesses have actually gone out of business.

So what happens to my household or yours affects EVERY household.

Do a monthly budget to feel like you’re getting bigger paychecks!

You know what happens when we do a monthly household budget?  As Dave Ramsey says, “We tell our money where to go instead of wondering where it went”.

If you and your spouse do a written budget together, before the month begins, magic happens.

When you line up your monthly expenses and all sources of income you begin to see where $$ are being wasted.

bigger paychecks one hand holding several ten dollar bills and the other hand about to cut them in half with scissors Middle Class Dad

When you start doing a budget it becomes easier to see . . .

  1. How much are you spending eating out (vs cooking at home)
  2. If you are wasting precious $$ buying coffee (on the way to work each day?)
  3. Do you constantly forget to plan for irregular expenses (like oil changes or annual auto registrations and then forced to put on a credit card?)

These things individually and on a daily basis may not seem like a lot.  But if you buy a grande drip coffee at your local Starbucks 5 days a week 50 weeks out of the year, guess how much you’re spending?

Well over $600!  Not enough to retire on for sure, but what else could you spend that on?

I’m not saying your life has to be without those little perks.  But maybe Starbucks becomes your once a week treat and not a daily habit.

For less than $5.00/week you can easily brew your own and if you really need to feel fancy, just get a handy Starbucks travel cup for less than $10 bucks!

In addition to non-essentials, how much of your hard earned bucks are just going to pay off debt each month?

Need help getting started on a monthly budget?

I have a copy of my Budgeting Spreadsheet available at no charge

– a key step in feeling like you’re getting larger paychecks!!

This is the very same spreadsheet my wife and I have used for about 7 years.

It’s a simple, highly customizable, Excel spreadsheet and you can download it quickly and easily FOR FREE!

bigger paychecks FREE budget spreadsheet banner Middle Class Dad
If your family is struggling with your finances, I highly recommend you take a moment and read about how to stop Living Paycheck to Paycheck.

Our parents had bigger paychecks than we do

Take a look at this chart courtesy of

You can see the actual cost of something in 1938.  The middle column shows what that item should cost as of 2013 if it represented the same percentage of annual average salary as it did in 1938.

Then the far right column shows the actual average US price as of 2013.

bigger paychecks inflation and cost of living chart Middle Class Dad

Thus you can see indisputable proof that our paychecks are not growing nearly as fast as the cost of living.

Bills are getting larger faster than paychecks

Inflation has averaged just under 2% per year since 2008 according to  According to the Social Security office, average wages have increased an average of 2.2% since 2008. A nominal increase for sure, but still an increase.

So why doesn’t it feel like things are getting better?

Well for one, if you look at the 8 years leading up to 2008, the average annual increase was 3.31%.

So right out of the gate, on average, we’ve seen our raises decrease each year since 2008 about 1.11%.  So as your annual expenses continue to climb, your paychecks are actually going down by about $500/year.

Going back to 2008 up to the time of this post, that means the average American has lost around $5,000.

Is your tax bracket preventing bigger paychecks?

Most of us just try and do the best we can and hope for nice raises each year.

Unlike our grandparents, most households these days are 2 paycheck households.  What we don’t always consider is the impact of moving up a tax bracket might have on our paychecks.  For this example I’m using some tax rates courtesy of BankRate.

Let’s say John and Kris are married and currently make $72,000/year combined.

If Kris gets a $4,000/year raise, that bumps them from a 15% tax bracket to a 25% bracket.  Back when they were making $72k, they were paying (using basic numbers and not looking at deductions) $10,800 in Federal income tax each year.

That left them with a net annual income of $61,200.

Now Kris is proud of that raise of $4,000!  But now making a combined $76,000 per year, in a 25% tax bracket, they will now pay a whopping $19,000 in Federal income tax!

Guess what?  That will leave them with a net annual combined salary of only $57,000!

So for all of Kris’ hard work, their combined annual salary will actually GO DOWN by $4,200!

So do the math and double check, but for your family, it just might make sense for one person to work less so you can have larger paychecks!

I recently had a guest post from writer Barbara Delinsky on the 7 most Common Tax Return Mistakes people make.  If you haven’t seen it yet, it’s well worth checking out!

You can get bigger paychecks with just a few simple steps

The first key is to look at the average size of your tax refund each year.

I know it feels awesome to get a refund that is thousands of dollars.  But you know what feels better? Not giving your money to the government in the first place!

Think of it this way.  If you get a refund of $5,000 that means you essentially lent the government $5,000 over the past 12 months and they didn’t pay you 1 cent of interest.

Do you know what happens if you owe the IRS money for 1 year?  That’s right, not only do they demand it, but often you pay interest and penalties and they can even garnish your wages if you take too long to pay.

Still can’t quite get your budget to balance? Consider starting a Side Hustle to Earn Extra Money!

Lots of folks just like you make an extrta thousand or more a month with just a few hours of their prescious time; and many of those jobs can be done from home!

So why in your right mind would you want to lend them money for a year and get nothing?

Now if you routinely pay taxes come April 15th, this section of the post probably won’t help you much.  But for most Americans, according to the IRS, you’ll get an average of over $3,000 back in the form of a tax refund.

If you didn’t get that $3,000 refund, guess what?  Your paychecks would have been $250/month higher last year.  That’s not enough to do a month long vacation in the Caymans or anything, but it’s something.

My family could definitely use an extra $250/month and I bet yours could too.

Interestingly enough, according to a recent poll by Bankrate, the higher the income level the lower the desire to get a large tax refund.

So what do the wealthy know that we don’t?  Flipped a different way, how many of us simply use a tax refund as a way of saving because we lack the discipline to do it ourselves?

So what do you do if you receive a large refund?

The best place to start is by adjusting the withholding allowances on your W4 form with your employer.  I’m sure most of you reading this have filled out a few of those in your day, but if not, I’m talking about this form from the IRS:

bigger paychecks how to fill out allowances on a W-4 form Middle Class Dad

Click on the form to download a copy from the IRS which you can print, fill in and give to your HR person at work.

So first it will be helpful to know how many allowances you are currently claiming.  This will be shown on your paystubs, but when in doubt ask your payroll person. Often people just blindly put down a 0 or a 1 box 5 where I drew the arrow. In most cases, you’ll likely never want to enter anything in boxes 6 or 7.

In truth, you can put down any number you like in box 5.  Of course, if you put a 45 there and end up owing a lot come April 15th the IRS might not like that, so let’s not get carried away.

Just know the smaller the number in box 5, the more your employer withholds for the IRS.

Want bigger paychecks?  Make the number in box 5 larger

Let’s say you currently claim 3 allowances (normal if you’re married with 1 kid).

Come April 15th you find yourself getting a $3,000 refund.  You could probably up your allowances to 5 going forward and most likely come out next year about even.

Even if you owe a small amount next year, isn’t it worth it to have had bigger paychecks each month?

I used to find in my personal experience that each allowance I added was worth about $50/month to my checks.  But since I’m not a professional tax guy and am only telling you what has worked for me, I’d like to recommend a different approach.

TurboTax has a nifty W4 Withholding Calculator you can use to see EXACTLY how much you should be claiming.

So what are my . . .

3 Key Steps to Bigger Paychecks Tomorrow?

1. Do a monthly budget to make sure every dollar counts!

The budget is your key to financial freedom.

Without a budget that changes each and every month, you’re just guessing where your money is going to. On average, when people start to budget, they usually find they spend about 20% less.

2. Make sure your tax bracket isn’t preventing larger paychecks!

Sometimes more is less.

Depending on your current income an tax bracket, a small increase might actually push you into the next tax bracket. When that happens you’ll actually take home less than if you hadn’t gotten that raise!

I’m not, necessarily, suggesting you turn down that raise. But it is crucial that you know your tax bracket and know what the next threshold is so you can plan accordingly.

3. Check your w4 allowances and increase a little if you consistently get large refunds

A big tax refund just means you loaned the government money all year for free.

Trust me; if you owe them money for a year it ain’t free! So do yourself a favor and set your withholding allowances so that you come as close as possible to break even.

That means you don’t owe them much and they don’t owe you much.

A large refund sounds a whole lot better if you just get bigger paychecks throughout the year instead of 1 lump payment!

Did I cover all the bigger paychecks tips and strategies you were looking for?

In this post, we looked at the reality that many of us face; a significantly increased cost of living and stagnant wage growth.

We talked about the proven power of budgeting and exactly how our paychecks have gotten smaller over the decades. Specifically, though, we looked at the steps you can take to bigger paychecks and maximize the hard-earned dollars you’re getting.

What if your biggest financial challenge?

If you like this post, please follow my Tax board on Pinterest for more great tax and income tips from myself and top finance experts!

Of course in this legal age we live in, I do have to offer the following disclaimer:
While I have years of successful financial & budgeting experience and run several million dollar businesses and handled the accounting, P&L and been responsible for the financial assets of them, I am not an accountant or CPA. Like all my posts, my posts are opinions based on experience, observations, research, and mistakes. While I believe all my personal finance posts to be thorough, accurate and well-researched, if you need financial advice, you should seek out a qualified professional in your area.
Photo credits (that aren’t mine):
Empty Pocket  by is licensed under CC BY 2.0
Destroying Money by  eFile989 is licensed under CC BY 2.0

How to Pay Off a Mortgage Faster and Save Thousands of Dollars!

pay off mortgage faster Middle Class Dad beautiful home on a spacious lawn

Wondering How to Pay Off a Mortgage Faster?

We all know (or should know) that a 30-year mortgage costs us a lot of money!

If you don’t know that, let’s do the math real quick so you can see just how costly it is.

Let’s say you buy a $200,000 house and put down 5%. If you finance the remaining $190,000 at 4% with a 30-year mortgage (fixed rate loan) that has you paying a total amount of $326,552.

In other words, for the benefit of a 30-year mortgage, the mortgage company is charging you $136,552 in interest!

But there’s a better way!

If you can afford the payment, a 15-year mortgage could literally save you tens (or hundreds) of thousands of dollars depending on the amount of your loan. Can’t afford those payments? Talk to your lender about a 20 year or even 25-year loan.

Already locked into a 30-year mortgage? No problem. There are simple strategies that don’t require a paid program you can implement to shave years off your loan and put thousands back in your pocket.

Don’t worry. In this post, we’re diving deep into the world of mortgages, buying and refinancings homes and we’re demystifying it so even a beginner can understand.

We’ll show you exactly how to pay off a mortgage faster and, more importantly, why you should and how much money you can save.

Why the 30-year mortgage is a bad idea

pay off mortgage faster Middle Class Dad stack of $100 dollar bills

The 30-year mortgage with a fixed rate is the standard loan given to most people.

You buy a home, finance it over 30 years and if you stay in that home that long, at the end of the 30 years you own it free and clear.

The biggest downsides to this, aside from how much interest you pay are:

  1. Most folks stay in their home an average of 15 years (source: National Association of Home Builders), hence most folks never get out of their home debt
  2. Many folks refinance their homes and in that process start the 30-year cycle over (and again, never get out of debt)
  3. Still more people take out home equity loans, which is a secondary way of borrowing money on your home.  These loans too make it harder to reach the end goal of being debt free on your home

If the idea of being debt free is new to you or sounds crazy, check out exactly how and why you can be debt-free even on a low income!

The preference for the 30-year mortgage has been in place for decades and many people aren’t even aware they have options. Most of us aren’t taught about pay off a mortgage faster. Those who are aware of options often opt for BAD options like interest-only loans or adjustable rate mortgages. (HINT: stay away from those!)

Want to see how much you can save? If you’re in the European Union, check out this great mortgage calculator and see just how much you could save by a shorter loan term!

How can I pay my loan off faster?

In an ideal world, instead of taking out a 30-year mortgage, you would take out a 15-year mortgage.  If you can afford the payments, a 10 year or 7-year fixed rate mortgage is even better!

You see, the shorter the loan length, the less interest you will pay.

In some ways that sounds simplistic but in other ways not.

Why? It’s called compound interest.  When you invest in things like mutual funds, compound interest is your friend. It builds interest for you the same way a 30-year mortgage does for the loan company.

So when you pay off a mortgage faster, you could take all that money you AREN’T paying to the mortgage company and invest it in mutual funds and have compound interest work for you instead of against you.

What happens when you pay off your mortgage?

If you didn’t have a mortgage payment then the total cost of home ownership would simply be your property tax bill each year and your annual home owner’s insurance.

Those costs vary a lot from state to state. They will also both be based on the assumed value of your home.

Thus a $500,000 home will have much higher costs than a $150,000 home.

In my case, my home is currently worth about $200,000. My mortgage payment (including taxes and insurance) is about $1,300/month.  If I paid off my house, that monthly payment would drop to about $525.

Thus, paying off my home would save my family about $800/month! What could your family do with an extra $800/month?

How compounding interest works against you!

pay off mortgage faster Middle Class Dad hand holding a fortune cookie fortune that says Do not spend the money that you don't have

MoneyChimp has an excellent page on breaking down the concept of compounding interest.

If the interest wasn’t compounding, you could simply multiply 4% times $190,000 (using my original example) and arrive at interest of $7,600.

If you could get a 30-year mortgage for $7,600, that would be fantastic!

Instead, they basically charge you 4% a year for how much you still owe on the loan amount (called principal). Spread that out over the 30 years of a 30-year mortgage and wa-la! You will have paid $136,552 for the glory of borrowing money.

If you took even a 1/3 of that $136,552  you are giving to the mortgage company ($45,000) and invested it over 30 years in mutual funds averaging 10% interest, you’d grow that to over $785,000!

Wouldn’t you rather have 3/4 of a million dollars instead of a 30-year mortgage??

I certainly would!

How can you pay off your mortgage in half the time?

If you follow my posts at all, you know I LOVE Dave Ramsey‘s take on all things personal finance. Listen to Dave here on the concepts of paying off a mortgage faster.

So now we understand the math. And why a 30-year mortgage is not a great idea for anyone other than loan officers.

Many of us, myself included, already have a 30-year mortgage.

Sure I could refinance my 30-year mortgage and go with a shorter loan. However, a traditional refinance costs between 3-6% of the loan value.

On my home, I owe about $145,000. Thus a refi would cost me between $4,000 and $8,000! Having done a few refis in my day, I can tell you it usually ends up on the high end of that range.

If I am not also able to get an interest rate that’s at least 1/2 percent lower than what I have now, then that doesn’t make sense financially to refinance.

In addition to my post on home buying I mentioned above, I also have one on refinancing. That post goes into more specifics on when and if a refi makes sense for you.

If these terms are confusing or if you have a 30-year mortgage, that would be well worth reading too!  That post is about the pros and cons of refinancing your home.

So are we stuck in a 30-year mortgage?

pay off mortgage faster Middle Class Dad old military Jeep stuck in the mud

I have bought and/or sold a total of 7 houses. I’ve had a 30-year mortgage on all of those.

I’ve also done home refinances at least 5 times. Thus I’m not completely without experience. I’ve made plenty of mistakes in that process and thus, I’m blogging about many of those today!

I started writing this post after seeing the question of HOW do you pay off a mortgage faster posted on Clark Howard’s Facebook page.

I’ve listened to Clark for at least 20 years and love his stuff. I noticed that the woman who posted the question had no answers.  Thus I Googled the topic to see if I could give her some quick help.

In doing so, I realized that there were a number of posts on the subject. However, none of them answered the question of how to do it quickly or succinctly.

So my hope with this post is to truly answer all the questions related to how to pay off a mortgage faster.

Is there a penalty for paying off your mortgage early?

No; unless your loan specifically penalizes you for what they call early payoff!  I have personally never had or seen a loan that prevents early payoff, so chances are yours doesn’t either.

To be sure though, read the loan docs you signed or check with your loan agent or mortgage company! I am not a Realtor, attorney or mortgage broker; I’m just speaking from my personal experience.

So How do you Pay Off a Mortgage Faster?

Of course, the exact dollar amount you have to pay on top of your 30-year mortgage payment is going to vary. It’s affected by your loan balance and interest rate, but we can break down the formula into simple math.

Then with the help of a trusty mortgage calculator like this one at you can easily get your specifics.

For now, let’s use the math examples I used at the start.

You owe $190,000 on a 30-year mortgage. You have a fixed rate of 4%.  We’ll also assume it doesn’t make sense for you to simply refi to a 15-year mortgage.

If it does make sense to refi, that’s a good way to go; just make sure you shop around and get the best rate. Even a small difference can add up to big bucks!

pay off mortgage faster Middle Class Dad mortgage rate savings infographic

At 30 years using the figures above, your monthly payment would be about $907.

That is just principal and interest.

I’m not going to include property tax, homeowner’s insurance, and PMI in my calculations. The reason is those things can vary so much by state to state and even city to city.

If you had a 15-year mortgage using the same numbers, your payment would be about $1,405. That’s a difference of just $498 per month. That difference amounts to about 54% of your original payment.

Thus if you pay an additional 54% of your monthly payment, you would pay your 30-year mortgage off in about 15 years.

How to understand your mortgage payment

My numbers are not factoring in things like PMI, taxes or insurance so make sure you know the breakdown of your payment.

If you have no idea how much of your total monthly payment is interest and principal you can:

  • Call/email your mortgage company or loan office and ask
  • Log into your mortgage company account on their website as I’m sure it’s listed
  • Call or email your mortgage company and ask for what they call an amortization table or schedule. This is a list of every payment over your 30-year mortgage showing each month’s principal and interest breakdown.

But using the 54% as a guide, you can see the following as it might apply to different monthly payment amounts:

  • $500
  • $750
  • $1,250
  • $1,500
  • $270
  • $405
  • $675
  • $810

Those numbers are not going to be accurate down to the penny, but they will be close.

The goal, of course, is to pay your mortgage off early and save a boatload in interest. Following the above will do exactly that even if it takes 14 1/2 years or 16; so don’t get mired in the math if it’s not 110% accurate!

Hopefully, this helps simplify the process!

That’s not even factoring in things like:

  • PMI (private mortgage insurance which covers the mortgage company in case you stop paying – required if you owe more than 80% of your home’s value)
  • Homeowner’s Insurance (which protects you in case of damage to your house)
  • Property taxes (what you pay your county, state, and city for tax on your home)

If these terms are confusing, I have an earlier post that goes into the home buying process in great detail.  I cover all the terms and the entire process, so it’s well worth checking out.

That post is called 9 Key First Time Home Buyer Steps You Must Take

Can’t afford to pay off your 30-year mortgage in 15 years?

No problem! Money is tight in my house too!

You see ANY amount extra you pay will go right to the principal of what you owe. So any extra amount helps you pay off a mortgage faster.

Just make sure when you write that check or pay the additional amount online that you specify “extra principal” so they know where to apply it.

Believe me; they’d love to assume that’s extra interest!

Every time you pay down the principal, the amount of interest you owe gets a little smaller. In other words, every little bit helps!

If you can’t pay an additional 54% now, just pay what you can; 20%, 30% or 40% maybe? You may not pay your home off in 15 years, but even if it took you 20 years, guess what?

You just saved $50,000!

That’s right; if you pay off a mortgage faster, using the numbers I’ve illustrated, will save you $50k!

Your family could do a lot with $50,000! Plus as you go along, you’ll likely find your income going up and thus your ability to pay a little more gets better each year.

Want some quick and easy ways to pay off a mortgage faster?

  • Simply pay 1 extra house payment 4 times a year.  That trick should save you over 10 years on a 30-year mortgage
  • Divide the mortgage payment by 12. Pay that amount every month which amounts to 1 extra payment per year, saving you 4 years on that 30-year mortgage
  • Do bi-weekly payments. This system simply has you paying half your mortgage payment every 2 weeks. You end up making 1 extra payment each year. This saves you 4 years on your 30-year mortgage
  • Round up your normal monthly payments by any amount you can spare
  • Got a big bonus at work? Throw all of some of that at the mortgage as a 1-time extra payment

If you aren’t on a monthly budget, then you likely have no idea where all your hard earned money goes every month.

Once you begin to track your every dollar earned and dollar spent, you will quickly find extra money that isn’t being spent wisely. When you do that, the amount of money you have to pay towards your mortgage grows.

Want help getting going on a monthly budget?

I have a copy of my Budgeting Spreadsheet available at no charge. There’s no point in learning pay off a mortgage faster until you get your financial house in order.

It’s a simple, highly customizable, Excel spreadsheet and you can download it quickly and easily FOR FREE!

pay off mortgage faster Middle Class Dad free budget spreadsheet banner

Confused about the process of how to pay off a mortgage faster?

In this post, we took an in-depth look into the world of mortgages, home refinances and how they work.

We took the mystery out of it and broke it down so we can truly understand just how much money we stand to lose with a traditional 30-year mortgage. We also looked at many different strategies to pay off a mortgage faster to save thousands (maybe tens of thousands) of dollars.

What’s your biggest challenge in learning how to pay off a mortgage faster?

If you like this post, please follow my Real Estate board on Pinterest for more great tips from myself and top financial experts!

pay off mortgage faster Middle Class Dad bio

Photo credits (that aren’t mine):
Remedy Oak Club House with some amazing Autumn colours by Neville Wootton is used under CC 2.0
Pile of cash –
Fortune –
Stuck truck –
While I have years of successful financial & budgeting experience and run several million dollar businesses and handled the accounting, P&L and been responsible for the financial assets of them, I am not an accountant or CPA. Like all my posts, my posts are my opinons based on my own experience, observations, research and mistakes. While I believe all my personal finance posts to be thorough, accurate and well-researched, if you need financial advice, you should seek out a qualified professional in your area.

3 Fast Tax Form 4868 Steps to File Your Extension Quick!

Tax Form 4868 hourglass dropping sand with the words April 15th Middle Class Dad

Don’t have your tax return completed?  NOW is the time to file your tax extension using tax form 4868!

Have you put off filing your taxes? Wondering if you owe or when the IRS might come knocking?

We’ve all been there and felt that fear and panic that drove is into avoiding the whole thing. But I’m here to tell you that avoiding taxes works out about as well as trying to cheat death.

Sooner or later we all have to pay, so why not take charge of it by filing tax form 4868?

In this post, I’m walking you through every simple step to file your tax extension. That way you can avoid penalties while you get your financial house in order.

We’ll explore the reasons to file an extension and the penalties for NOT filing one and filing late.

But most importantly, we’ll break down all the steps involved in filing tax form 4868 so you can rest a little easier.

Looking for an easy, quick and free way to file your taxes online?

E-file Your IRS Taxes for FREE with E-file in as little as 15 minutes. Get your refund as fast as possible. If you run into trouble, quickly and easily get help with their online support team.

Learn more about E-file today!

Death you can put off, taxes are certain!

Tax Form 4868 claymation tax collectors Middle Class Dad

The origins of tax day go back it’s introduction in 1913 when the tax deadline was originally March 1st.  The April 15th deadline we know and love was introduced in 1955.

During tax time, if you won’t be able to file by April 15th, NOW is the time for action!

The IRS won’t penalize you if you haven’t filed by April 15th, but ONLY if you file a tax extension using tax form 4868 on or before that date.  If you put off filing and miss the deadline, you’re looking at the failure to file fines of up to 25%!

Do note that the deadline is not always April 15th, as the IRS gives us a grace period any time the 15th falls on a Friday, Saturday or Sunday.

Filing a tax extension via tax form 4868 is quick and easy so there’s no reason not to request one if you won’t be able to get your return done by April 15th!  The tax extension gives you up to an additional 6 months to file.  Plenty of breathing room to get your finances in order.

If taxes stress you out, take a moment to check out my 11 Secret Ways to Maximize Your Tax Refund This Year.  Just some simple, actionable steps you can take to keep more of your hard-earned dollars!

The most crucial reasons to file a tax extension

You should file for at tax extension anytime you are unable to complete your return by April 15th.  And tax form 4868 is the way to do it!

There could be a variety of reasons you are unable to complete your return by the deadline.  The following are examples of good reasons to file a tax extension:

  1. Not having all your documentation (maybe an employer went out of business before sending you a W2?)
  2. Perhaps you are active military (serving our country and not in a good position to be able to file on time)
  3. You will be out of town for a period of time around tax time (and will be unable to file on time)
  4. You’ve procrastinated (to the point where you simply won’t be able to get your return ready by April 15th)

Of course, if you can file by April 15th, you should; especially if you will owe money as an extension is for filing, not paying.

Speaking of the active military as I mention above.  If you are in a combat zone, the IRS gives you 180 days after you leave the zone to both file and pay without penalty. They call that a Tax Exclusion for Combat Service, so just check that link if you need more information on that.

The most ridiculous reason for filing an extension

Many people confuse a tax extension as being able to pay taxes late.

In truth, as I mentioned above, a tax extension simply allows you to file your tax return late without a failure to file penalty.  It DOES NOT give you permission to pay what you owe late.

If you owe money and file a tax extension all you’ve really done is incur interest and a penalty for late payment.

If you have undergone certain hardships such as fire, natural disaster or death of an immediate family member, the IRS may grant you Penalty Relief Due to Reasonable Cause, in which case they will allow you to pay late without penalties.  Click the link if you think that might apply to you!

Just know being broke is NOT what they consider a reasonable cause!  If you struggle to keep your finances in order, I highly recommend you check out my most popular personal finance post called Paycheck to Paycheck – 7 ways to stop being broke!  I’ve been there and believe me, it’s not where you want to stay.

Tax Form 4868 Monopoly board Middle Class Dad

Filing late when you owe money will cost you BIG! 

You’ll likely pay some or all of the following penalties and interest:

  1. LATE FILING PENALTY – 5% of what you owe, PER MONTH, until you pay, up to a total of 25%!  If you owe $10,000 that could be up to $2,500 if you don’t file on time!
  2. LATE PAYMENT PENALTY – .05% of what you owe, PER MONTH, until you pay, again up to 25% max.  If you get dinged with both filing late and paying late, you could potentially pay A LOT of money!

If you know you owe, don’t just file an extension and don’t bury your head in the sand.

Those mistakes will cost you thousands of dollars!  You just need to learn how to Set Up an IRS Payment Plan with form 9465.

You’ll be amazed at just how quick and easy that is.  You can thank me later!  Just still plan to file your return by April 15th. The failure to file penalty can be up to 10 times higher than just failure to pay.

The crucial step you must take if you can’t pay but might owe

If you suspect you’ll owe but need to file a tax extension anyway, it’s imperative that you send in what you think you’ll owe by the tax deadline.

Obviously, if you need an extension then you haven’t figured out exactly how much will be due.  In this case, it’s better to estimate than send nothing.

Even if you underestimate you’ll likely just get dinged for the difference between what you really owe and what you paid; hopefully a small amount!

Need a handy tool to do a reasonably accurate estimate?  Check out TaxCaster: Income Tax Calculator by Intuit’s TurboTax.

This video walks you step by step through the process.  It’s not for the current year but everything else is still 100$% accurate and easy to follow.

So what are my . . .

3 Fast Tax Form 4868 Steps to File Your Extension Quick?


Fill out IRS form 4868, their “Application for Automatic Extension of Time To File U.S. Individual Income Tax Return” and mail it in with your estimated tax payment.


Alternately you can file that form electronically using by e-filing the form through TurboTax.  Again, this doesn’t give you permission to pay late, but Intuit’s TurboTax helps you estimate if you owe and can allow you to pay an estimated payment electronically.


Just know that while filing tax form 4868 gives you some breathing room, you still have to get your house in order by October 15th.  So you won’t want to put off getting your return done for too long.

While starting the process of preparing your return, you’ll want to review my post on 7 Common Tax Mistakes  You’ll be amazed at just how some of these simple mistakes can cost you down the road!

As a complete aside, if you do find yourself owing taxes and are unable to pay, a good emergency fund can really protect your family’s finances and future.

An emergency fund is essentially a savings account of 3 to 6 months of your expenses.  You don’t touch it except in cases of emergency.

I wouldn’t exactly call a tax bill an emergency as in most cases better planning could have averted it.

But using your emergency fund is better than going into debt or living in fear of the IRS.  If you don’t have an emergency fund, you owe it to your family to check out my Dave Ramsey Emergency Fund.

Someday your family may depend on it!

Looking for an easy, quick and free way to file your taxes online?

E-file Your IRS Taxes for FREE with E-file in as little as 15 minutes. Get your refund as fast as possible. If you run into trouble, quickly and easily get help with their online support team.

Learn more about E-file today!

Have you procrastinated on filing tax form 4868?

In this post, we took an in-depth look into the world of tax extensions.

Tax extensions don’t allow you to file late, per se, but you will avoid the big penalties of not filing or filing late. We also took a look at all the penalties involved in failing to file an extension as well as the possible reasons you might want to file.

Specifically, we looked at exactly how to file tax form 4868 so you can get back to living your life!

If you like this post, please follow my Income Tax Tips board on Pinterest for more great tips from myself and top tax experts!

tax form 4868 Middle Class Dad bio

Of course I have to offer the standard disclaimer here: I am not a tax professional and you should always seek the advice of a CPA or other tax professional.  While I do have decades of experience running million dollar businesses and have many years of personal experience with taxes, ultimately, the opinions offered here are mine based on my personal experience, knowledge and research and should not be interpreted as legal or financial advice.
Photo credits (that aren’t mine or which require attribution:
Monopoly Income Tax Ver1 By: Chris Potter is licensed under CC BY 2.0

Simple Form 9465 Instructions for Your IRS Payment Plan

form 9465 instructions 2 people sitting at a laptop Middle Class Dad

Can’t pay the taxes you owe this year? Set up an IRS Payment Plan with these simple form 9465 instructions!

I think you’ll agree with me that worrying about taxes is incredibly stressful. Owing taxes is no fun.  I’ve been there.  Wondering when or if the IRS is going to come knocking is stressful.

Hiding your head in the sand doesn’t really give you peace of mind.

Most people have no idea just how easy it is to set up an IRS payment plan.  And understanding  IRS form 9465 instructions are the key to getting it done.

The media paints this evil, terrifying picture of the IRS.  Not without good reason, but at the end of the day, they just want to get paid.

If you approach them in earnest and want to pay them, guess what?  They are likely to say yes because that’s a whole lot easier than tracking people down, court orders, wage garnishments, etc.

You want to pay and they want to get paid.  They have every reason to cooperate if what you propose paying is reasonable and somewhat timely.

So in this post, we’re diving deep into the world of the IRS payment plan.

We’ll explore the how, when, and why you might need to set one up. Then we’ll walk through exactly how to use their form 9465 instructions so you can get yours filled quickly and easily!

Looking for an easy, quick and free way to file your taxes online?

E-file Your IRS Taxes for FREE with E-file in as little as 15 minutes. Get your refund as fast as possible. If you run into trouble, quickly and easily get help with their online support team.

Learn more about E-file today!

Why an IRS Payment Plan is your best option

Ignoring the IRS when you have a large tax bill outstanding is a BAD idea.

While they do have to give you notice and you can file appeals, the IRS can take your home, car and/or paychecks.

You don’t want the IRS to come looking for you!

An IRS Payment Plan, filed using form 9465, gives you room to breathe.  It means you’re not living in fear of the Internal Revenue Service knocking at your door or (worse) your place of employment.

Now if you make $200,000/year, owe $49,000 and want to take 10 years to pay it back, they’re going to say no.

That’s just not reasonable. But in most cases, if you owe a reasonable amount and plan to pay it back over a reasonable time within the next 6 years, they will say yes.

No penalties; just a simple interest rate of around 5%; likely better than you’d pay taking out a loan and certainly better than putting on a credit card.

So learning exactly how to file your payment plan using these form 9465 instructions is crucial!

Thinking about cashing out a retirement fund to pay the IRS?  Think again!

Why cashing out retirement funds is your worst option

Unless you are age 59 1/2 years of age, when you cash out retirement funds (IRA, 401k, etc) for ANY reason, you’re going to pay your tax rate on that PLUS a 10% penalty.

For many of you reading this, that’s roughly 35%!  Would you go borrow money at 35% interest to pay off debt?  Especially when an IRS Payment Plan would generally charge you only about 5%?

No is the answer you were looking for.

That’s what makes cashing out your retirement plans one of the WORST options for paying off the IRS or any debt. Just follow my proven form 9465 instructions and you’ll be way better off!

Cashing retirement plans before age 59 1/2 should only be done under 2 circumstances:

  1. To avoid foreclosure on your home
  2. Preventing bankruptcy

Any other cashing out of retirement funds is just dumb.  And I say that having done it once myself close to a decade ago.  I was dumb.  Learn from my mistake!

If you need help with your retirement planning and don’t know where to turn, I highly recommend checking out my 9 Best Ways to Save for Retirement & Make Your Dreams Come True! post.  It’s a great place to get started with all the basic info you need.

Why simply filing an extension doesn’t work

An extension simply lets you file late.

If you owe the Internal Revenue Service money, it’s still due by April 15th.  All you’ve done by filing an extension when you owe money (even if you don’t know you owe) is create penalties and interest.

If you know you owe, you need to set up an IRS Payment Plan by April 15th by following these form 9465 instructions.

Aren’t sure you will owe?

Then you need to figure that out before April 15th.  If you don’t know how to calculate that seek out a CPA or other tax professional or use any one of the free or low-cost online options.

Worried about your tax return?  Make sure you check out my 7 Common Tax Return Mistakes post which covers the most common tax errors out there and the easiest ways to fix or avoid them!

What criteria must you meet to set up an IRS Payment Plan?

form 9465 instructions Middle Class Dad a paper house made of a 1040 form

You must owe less than $50,000 in total outstanding taxes (including penalties & interest) to set up an IRS Payment Plan following the form 9465 instructions.

They refer to this as an “online payment agreement”.  However, even if you owe more than that, it is still possible to file a request for installment payments for a shorter term.

You also need to be current on filing taxes so if you are years behind you have some work to do first.

If you are years behind and work for an employer that has been withholding taxes, chances are you don’t owe much.  Otherwise, you would have been tracked down by now.

So file your back returns, take your lumps and then see if you need to set up an IRS Payment Plan for the current year using the form 9465 instructions.

Lastly, you must be able to pay what you owe in 6 years or fewer.

Also be aware that any future tax refunds you may get will go right towards your debt, not to you.  Thus you may want to up your withholding allowances a little to minimize the size of the refund.

That’s a better strategy generally anyway; why let the IRS keep thousands of your dollars all year instead of having larger paychecks?

Looking for more ways to keep more of your hard-earned dollars and avoid giving it to the IRS?  Check out my 11 Proven Tips to Get Your Biggest Tax Refund This Year which details all the simple steps you should take to keep more of what you earn.

What are the costs involved in following the form 9465 instructions?

I get there’s something wrong about the idea of charging people a fee to pay money they can’t afford to pay.

But hey; it’s the Internal Revenue Service.  What are you doing to do?  Pay.  Below is a current chart of their fees as of a few months ago.

form 9465 instructions Middle Class Dad IRS fees

As you can see, for most of you who meet their “online payment agreement” criteria, especially if you opt for the direct draft out of your checking account, you’re looking at a fee of $31.

While I’m not a fan at all of giving most creditors direct access to your checking account, since the IRS can take it anyway, this is your best and cheapest option.

If you don’t meet the OPA criteria but are doing the installment plan option, you’re likely looking at $107 if you do the direct access.

If you struggle with credit issues and past due debt in general, I highly recommend you take a moment and check out my highly shared post about Credit Report Repair Steps.

How do you set up an IRS Payment Plan?

If you owe less than $50,000 simply click the IRS “Apply for an Online Payment Agreement for Individuals and Businesses” page to get started.

You’ll need the following info to get started:

  • Name
  • Valid e-mail address
  • Address from most recently processed tax return
  • Date of birth
  • Filing status
  • Your Social Security Number

If you and your spouse filed a joint return, whoever has their social listed first is the one who will need to apply.

Owe more than $50,000 and need to set up the installment version of an IRS Payment Plan? 

You’ll need to fill out and mail both a Form 9465 – Installment Agreement Request and a Collection Information Statement then call 800-829-1040 to go through the next few steps.

Check out this IRS video that details much of the above info!

What are the specific form 9465 instructions?

First, if you are filing form 9465 with your tax return, just mail the two together.  If you are mailing it separately (more likely), then refer to this IRS list to see where you need to mail it.

Use Form 9465 if you’re an individual:

  • Who owes income tax on Form 1040
  • Who is or may be responsible for a Trust Fund Recovery Penalty
  • Who owes employment taxes (for example, as reported on Forms 941, 943, or 940) related to a sole proprietor business that is no longer in operation
  • Who owes an individual shared responsibility payment under the Affordable Care Act. See section 5000A.

Don’t use Form 9465 if:

  • You can pay the full amount you owe within 120 days (If you plan to pay the taxes, interest, and penalties due in full within 120 days, you can save the cost of the setup fee.
  • You want to request an online payment agreement (see Applying online for a payment agreement above)
  • Your business is still operating and owes employment or unemployment taxes. Instead, call the telephone number on your most recent notice to request an installment agreement.

You can see the complete list of IRS form 9465 instructions here or check out this helpful video.

Looking for an easy, quick and free way to file your taxes online?

E-file Your IRS Taxes for FREE with E-file in as little as 15 minutes. Get your refund as fast as possible. If you run into trouble, quickly and easily get help with their online support team.

Learn more about E-file today!

Do you need help with the form 9465 instructions?

In this post, we took a detailed look at the IRS payment plan.

We explored why you might need one, how it’s different than filing an extension and why you definitely don’t want to just not pay or file late.

Specifically, though, we walked through all the form 9465 instructions on how to get yours filed quickly and easily so you can stop the worry and fear that can sometimes come with not being able to pay our taxes on time.

If you like this post, please follow my Income Tax Tips board on Pinterest for more great tips from myself and top tax experts!

form 9465 instructions Middle Class Dad Jeff Campbell bio

Of course I have to offer the standard disclaimer here: I am not a tax professional and you should always seek the advice of a CPA or other tax professional.  While I do have decades of experience running million dollar businesses and have many years of personal experience with taxes, ultimately, the opinions offered here are mine based on my personal experience, knowledge and research and should not be interpreted as legal or financial advice.
Photo credits (that aren’t mine or which require attribution:
Considering The Tax Shelter By: JD Hancock  is licensed under CC BY 2.0

11 Biggest Tax Refund Tips You Probably Didn’t Know

biggest tax refund pile of 100 dollar bills on top of a 1040 form Middle Class Dad

Looking for your biggest Tax Refund this year?

Avoid the top tax return audit flags!

I’m sure most of us just want to pay our fair share but not a penny more.

We don’t have aspirations of intentionally underpaying or cheating the system.  But even if you follow all the rules, you could still be subject to an I.R.S. audit!

An audit can reduce or stop you from getting your biggest tax refund yet! At best it will certainly delay your refund.

In this post, we’re diving deep into all the legit ways of maximizing your refund from the IRS.

We’ll explore the top audit triggers to avoid and review what you can legally claim on your 1040 return for deductions.

Specifically though, we’re reviewing the top tips to help get your biggest tax refund yet!

Avoid the perils of the top audit triggers!

1. Only reporting part of your income

  • The safest bet is to report all income you received; even if someone paid you in cash and didn’t ask for your social
  • Make sure you’re reporting all interest income such as bank dividents
  • Cash out some company stock options?  Yup.  Claim that too

2. Home office expenses

  • It’s totally legit to claim a portion of home expenses if you genuinely work from home some of the time
  • But make sure you’re claiming reasonable percentages; especially in comparison to industry standards for the type of work you do
  • Correctly claiming all related home office expenses will increase your tax refund
  • Want more info?  Check out the IRS page on Home Office Deductions

3. Keep the salary down

  • While it may be tempting to try and earn millions, just know that your odds of an audit increase by 4 times once you make $200,000/year
  • Once your salary crosses a million, your audit odds go up by over 10%; good thing you can now afford your own CPA!

4. Look for a career path that doesn’t involve tips

  • If you work in the restaurant industry, for example, and claim too much or too little income, guess what?  Audit time
  • Any industry where a high percentage of income is possibly paid in cash or in tips draws attention

5. Keep your finances private

  • Many an audit has been triggered by a work associate or disgruntled family member making anonymous tips
  • If you disclose damaging info or even if someone misunderstands or is jealous of your situation, you can find yourself in the hot seat

6. Make sure your small business really is a business

  • The I.R.S. has no problem with your Amazon Seller account that earns you $500/month in extra cash
  • But your vintage Barbie collection you like to post about on Pinterest is a HOBBY
  • Don’t write off expenses unless it’s really a business

7. Filling a Schedule C

  • If you have a genuine small business you operate, it may make more sense to incorporate rather than filing a schedule c
  • Schedule C businesses are typically smaller Mom or Pop side business which have the potential to really just be a hobby
  • By incorporating you show the I.R.S. you’re more series and the chances of an audit go down

Looking for an easy, quick and free way to file your taxes online?

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The danger of filing your return too early!

biggest tax refund 1040 form with a magnifying glass and a calculator Middle Class Dad

I have always operated under the assumption that the closer to April 15th you file, the lower the audit chances.

After all, except for glaring errors that will obviously trigger an audit, the I.R.S. just has a certain percentage of returns they audit.

The audits start in early January. Thus it stands to reason that as time goes on, more and more of the automatic audits for no particular reason have already happened.

Once their quota is filled, unless your return looks unusual, you’re much less likely to get audited.

Who gets a tax refund?

As we work a job, unless you are classified as an independent contractor, your employer is withholding federal income tax.

The amount they withhold is simply based on how many allowances you claimed when you filled out your W4 form.  The amount withheld is calculated based on your income.

Thus if you claimed a 1 on your form and you make $50,000/year, they will withhold less than someone who claimed 1 who makes $100,000/year.

So based purely on that, without factoring in things like deductions, you could very easily find that you overpaid throughout the year.  Thus you may well be eligible for a tax refund.

In short, anyone who paid in more than they owe can get a refund. But follow my tips to make sure you get the biggest tax refund possible!

If you aren’t getting a refund or may owe and can’t pay, make sure to follow my proven steps to file a Tax Extension before the April 15th deadline!

What can you claim on your tax return?

Taxpayers often overlook some very simple deductions that would reduce their taxable income.  Get your biggest tax refund by following these simple tips. Unless you are single and childless you probably stand to benefit from itemizing your deductions.

If you are itemizing, the following are MUSTS for your list of deductions!

  • Home Ownership Expenses
    • Mortgage Interest
    • Property Taxes
  • Refinance Expenses
    • If you paid points to refi your home, you can deduct that money
    • The points get divided by the life of your loan (ie: 30 year loan, divide the total point cost by 30)
    • That is your annual deduction for refi loan points
  • Child Care Expenses
    • This isn’t just for traditional day care!
    • This can often include summer camps and other instances where you pay an organization to watch your child
  • Income Tax you paid last year
    • If you wrote the I.R.S. a check last time, guess what?  That’s deductible now!
  • Moving Expenses
    • If you moved for work and they didn’t pay for the move guess what?  You can deduct those moving expenses
    • To qualify you have to have moved more than 50 miles
    • Even if your employer did pay, if you incurred additional out of pocket expenses, you can claim above and beyond what they covered
  • Unreimbursed Medical Expenses
    • In this day and age, it’s virtually impossible to not have out of pocket medical expenses
    • Deductibles, out of pocket costs or premiums if you pay for your own healthcare are all tax deductible
    • Check out the IRS page on Medical Expense Deductions for more info
  • Claim state sales tax
    • If you paid it, you can claim it on your Federal Income Tax

Related: Make sure to avoid the 13 worst Common Tax Mistakes

What is the best thing to do with your tax return?

If you have debt (other than a mortgage), that is the first place I would put my tax refund.

If you don’t have any debt other than a mortgage, you’re doing great!  In that case I would look at how much you have Saved for Retirement. If you have kids and don’t yet have a plan for how to Save for College, that too is a great place to invest that money!

Covered in all those areas?  Great! Set it aside in savings for home upgrades or a vacation later in the year! And the tips here in my post will help you get the biggest tax refund possible!

Get your biggest tax refund quicker by ensuring a complete return

You’re all set to send in your return!

You’re excited about that biggest tax refund you hope to get.  But if you forget any of these crucial steps, guess what?

At best you’ll significantly delay your refund.  At worst you may have triggered an audit.

Just double check before mailing your return that you are doing/including all of the following:

  • Sign your return!
    • This is the #1 most common tax return mistake according to the I.R.S.
    • Forgetting to sign is the equivalent of not filing
    • Once you’ve passed April 18th (the deadline to file for an extension), you’re potentially facing a 25% fine
    • If they don’t notify you that you forgot to sign until after 4/18, guess what: it’s still your problem!
  • Your W2
    • Unless you’re retired or self-employed you will have received at least one w2 form.
    • The state requires one copy (if you have state income tax) and the Federal Government requires a different copy
    • This must be filed with your return
  • Your Direct Deposit Info
    • If you are getting a refund double check the routing number and bank account info you put down
    • Routing numbers are always 9 digits, whereas bank accounts vary in length
    • Being off by even 1 digit may delay your refund or send your cash to someone else!
  • Your Social Security Number
    • This number tells the I.R.S. exactly who you are
    • There are a lot of John Q. Publics, but only 1 with your unique 9 digit code
  • Make sure your name matches your social
    • Check spelling
    • Ensure the middle name is listed the same (full name or initial?)
    • Make sure to use a maiden name if that’s still how Social Security has it
  • Make sure your math is solid
    • If you’re using a web company or program this is less of a concern
    • If using a calculator, double check your math to make sure it’s correct
    • Aside from forgetting your name, this is the most common error
    • The I.R.S will generally catch and correct the errors, but if you owe money and the error means you owe more, you may also generate penalties

Owe a bunch and want to set up an IRS Payment Plan? I highly recommend you take a moment and review my steps on how to get that set up quickly and correctly!

Do you get more tax return if you are married?

The short answer is typically yes; you do pay less income tax if you are a married couple.

But don’t take my word for it.  The IRS says “most couples find that their income tax liability is lower if they file jointly, as opposed to filing separately.”

As a married couple (and this applies to legally married gay and lesbian couples too), you must file as married. However, you have the option to file “jointly” or “separately”.

Personally, as a married man, I have always filed jointly and I believe that allows us to get the biggest tax refund possible.

But check out this page from the IRS on how Getting Married Affects Your Taxes for greater detail.

So what are my . . .

11 Biggest Tax Refund Tips You Probably Didn’t Know?

biggest tax refund guy working on a laptop writing in a notebook Middle Class Dad

1. File Your Return Sometime Between February 15th and April 15th

  • This can reduce your chance of an audit

2. Triple Check Your Return to Ensure It Is Signed

3. Make Sure to Include Your W2 and any 1099 Forms

4. Itemize Your Deductions

  • The US Government Accountability Office conducted a study a short time back
  • That study  is Taxpayers Who May Have Overpaid Federal Taxes by Not Itemizing
  • In that study they found that about 70% of tax payers don’t itemize
  • Of those 70%, about 948,000 may have overpaid by not itemizing
  • Those 948,000 taxpayers overpaid by as much as $945,000,000!!!

5. Deduct any State Income Taxes Paid

6. Claim All Home Owner Related Deductions

  • Deduct Property Tax
  • Claim Mortgage Interest
  • Also claim any points paid on a refi

7. Triple Check to Make Sure Any Math Is Accurate

8. Make Sure Any Direct Deposit Account Numbers Are Accurate

  • Routing numbers and account numbers can look similar
  • Routing numbers are always 9 digits and can be easily Googled if you’re unsure

9. Use a Professional Tax Preparer

  • Sure you can save money by doing it yourself or with a program
  • But a good tax preparer who’s been doing this for years and keeps up with IRS code changes can be worth their weight in gold
  • A professional can often find deduction you might miss
  • Your tax preparer also takes some of the heat in the event of an audit
  • Check out the results of a contest comparing tax refunds by software vs a professional courtesy of CBS Money Watch

Any tips or ideas you have to get your biggest tax refund yet?

In this post, we took an in-depth look into the world of the IRS and income taxes.

We walked through proven tips and strategies to maximize your return and reduce your chances of an audit.

Specifically, we looked at the best tips to get your biggest tax refund so you can put a few extra bucks in your pocket and not sweat the possibility of an audit as much.

Also be aware that with each new President, tax laws can change and the information here could become dated.  I strive to update my factual posts annually, but always double check!

Of course I have to offer the standard disclaimer here: I am not a tax professional and you should always seek the advice of a CPA or other tax professional.  While I do have decades of experience running million dollar businesses and have many years of personal experience with taxes, ultimately, the opinions offered here are mine based on my personal experience, knowledge and research and should not be interpreted as legal or financial advice.

Photo credits (that aren’t mine):
Money and Tax Return by 401(K) 2012 is licensed under CC by 2.0
Tax Forms and Calculator by 401(K) 2012 is licensed under CC by 2.0 – modified by me
Search! (Magnifying glass added to above) by Jeffrey Beall is licensed under CC by 2.0 – modified by me



5 Key Life Insurance Tips and Advice to Protect Your Family

life insurance tips and advice Middle Class Dad family on a pier overlooking the ocean at sunset

Looking for Life Insurance Tips and Advice?

Life insurance tips and advice can be confusing.

Whole Life. Term Insurance. Are those the only 2 types and is one better than the other? When should you buy life insurance and is there ever a time you don’t need it.

There are a lot of questions. Most of us weren’t taught how to shop for insurance at school or by our parents.

The right insurance policy will replace your income for your spouse and/or kids in the event the unthinkable happens to you. It provides them with peace of mind during the worst moment in their lives.

But it also could mean the difference between being provided for and losing everything.

In this post, we’re exploring and demystifying everything you need to know about life insurance. We’ll break down the types and costs. We’ll calculate exactly how much coverage you need.

We also explore who needs it and who doesn’t!

But ultimately, join me as we look at all the crucial life insurance tips and advice you need to know to protect your family.

life insurance tips and advice Middle Class Dad Life Insurance ad

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The terrible truth about children’s life insurance policies

You need life insurance if someone depends on your salary to live.

Thus, right out of the gate, let’s knock life insurance for kids right out the window.

It’s a gimmick.  A trick.

It’s designed to play on the emotions of parents (especially new parents).  “You DO want your baby to be insured in the event of the unthinkable, don’t you?”

I can feel the guilt swelling even now. Any life insurance tips and advice worth anything will assuredly tell you to stay away from this scam.

The death of a child, however tragic, will have a somewhat minimal impact on the parents financially.  Certainly the parents might need some time off work, but hopefully, you work somewhere with vacation or personal time built into your benefits.

On average, according to ChildTrends, the number of children who won’t reach age 20 is just a hair over 1%.  So even if you thought you needed life insurance on your child, you’re insuring against something that only has a 1% chance of happening.

You’d be better off buying life insurance against meteor damage to your roof.

life insurance tips and advice Middle Class Dad sepia colored picture of a young hand being held by an older hand

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Do you need life insurance after age 50?

Life insurance is not something you likely need if you’re older and the kids are grown.

And it goes without saying that it’s less important if you’re either single or retired and you and your spouse have built a nice nest egg.

Again, life insurance is designed to prevent hardship due to the loss of your income.  It should not be viewed as a means of a retirement benefit or a savings account.

If that’s what you need, there are much better vehicles out there for that. Thus life insurance tips and advice should not steer you towards life insurance for purposes of savings.

So in my case, at age 54 with a 10-month-old daughter, I DO need life insurance.

If your kids are grown and out of the house and you have a good-sized retirement nest egg and/or your spouse has a great income, you may want to consider dropping it.

Life insurance is NOT the same as an inheritance!

I’m not knocking the idea of leaving an inheritance for your heirs whatsoever.

That’s just not the purpose of life insurance.

Life insurance should be to protect your loved ones financially in the event of your death and the loss of your income. That’s it.

To provide children and grandchildren an inheritance, I think looking at true investment opportunities is a much better idea.

Open an IRA for the kids.

For school-age kids, open a 529 College account (basically an IRA that can only be used for education purposes).  Have a trust that pays out your assets upon your death in a manner you outline in your will.

Retirement or inheritance planning is NOT the job for life insurance.

Need help thinking about retirement?  I’ve covered that in a previous post too, so if you need help to Save for Retirement, I highly recommend taking a moment to check out that post.

When will I drop my life insurance coverage?

By the time I’m 70, my oldest daughters will be pushing 30. My youngest daughter will be graduating high school and will soon no longer be in need of my ongoing financial assistance.

My wife will still be working since she’s younger than me.

By then her income will likely have at least doubled from what it is now as she’ll have her masters by then.

We will also hopefully have quite a large nest egg in our Roth IRA and other investments.

Thus, the likelihood of anyone needing my income to live comfortably will be greatly diminished by then.  Good news considering the cost of life insurance continues to rise as we age.

Life insurance is most needed by parents who work when they have kids under age 18.

If I were to die, while my wife works as much as I do, she would be in financial hardship with the loss of my salary.  I too would be in financial hardship if she were to die, although not as much as she since my salary is higher (she’s in teaching, ’nuff said).

So we just need enough life insurance to replace the other’s salary so we can continue with at least no financial disruption.

So how much Life Insurance do you need?

Let’s say Larry makes $60,000/year and his spouse Kris makes $45,000/year.

As a general rule, you want about 10 times your annual salary in life insurance.  The “why” we’ll get to in a second.  So Larry would need $600,000 in coverage and Kris would need $450,000 in coverage.

In the event of Larry’s death, Kris would take that $600,000 and invest it into good mutual funds.

Look for funds that, on average, have a track record of 5-10 years and earn an average of 10% interest or more.  Thus, if Kris takes 10% out of that each year (leaving the principal untouched so it can continue to earn interest), Kris will be getting approximately $60,000/year; the same as Larry’s salary.

Need help understanding the investing concepts I’m referring to here?  Check out my Investing Tips for Beginners!

Of course, that money won’t earn interest immediately. The market also goes up and down and some years may be better than others.  Thus if Kris’ career is less stable or expenses more variable, it might make more sense for Larry to take out even more coverage.

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What are the two main types of life insurance?

This is where I get even more opinionated with my life insurance tips and advice! At this point, while there are probably a half dozen types of life insurance, 99% of what is sold out there probably falls into one of two categories:


Is a whole life policy worth it?

life insurance tips and advice Middle Class Dad a five dollar bill on fire

A whole life (sometimes called cash value) is a policy you buy for the rest of your life and you pay monthly.

Yes, I know it’s a bit dramatic to show a picture of money on fire under this topic. But of all my life insurance tips and advice, I feel pretty strongly about just how bad these policies are.

You are figuratively burning money!

Whole life is also sometimes called cash value life insurance. It typically costs more per month, but no matter what happens in your life with illness or injury; you have that coverage.

Your monthly payment also does not change as you age. That could be viewed as another plus (but if your payment is 2-3 times what a term life insurance policy would be you have to consider that too).  Often you don’t need a full medical exam. That could be considered another benefit.

My biggest beef with whole life insurance tips and advice is that they sell you on this somehow being a great investment. That it builds cash inside of it the way an IRA would.

It is an investment; just not a good one.

If you decided to cancel the policy you can get paid the “cash value” inside of it (less any of their fees, of course).  However, in the event of your death, your beneficiary only gets the face value of the policy; not whatever the cash value is.

Thus if over 30 years you built up a cash value of $50,000 on a $200,000 policy, your beneficiary only gets the $200k.  The company keeps your $50k cash value.

Why do so many companies sell whole life insurance?

Because it makes the company (and thus the agent getting the commission) a lot more money.

life insurance tips and advice Middle Class Dad hand clutching a few twenty and one dollar bills

The other reason I don’t like these policies is that from an investment standpoint, you could usually do much better opening a Roth IRA and investing in mutual funds. Of all my life insurance tips and advice, I feel the most strongly about this.

Why is Cash Value Life Insurance such a bad idea?

Take a look at this whole life insurance chart courtesy of

You see that if you kept the policy from age 40 to age 90, you’d have built up your cash value and death benefit to a decent amount.

life insurance tips and advice Middle Class Dad cash value payout chart

However, as we’ve already covered, the cash value would typically not be paid out to your heirs upon your death.  Also, consider that an annual payment of $1,178 amounts to $98/month for anywhere from $100,000 in coverage up to $323,000.

Personally, I have $800,000 in term life insurance coverage on myself and at age 52, I pay $68/month for that.

Term Life Insurance

This is a policy you buy for a set period of time

Most companies offer 10, 15 or 20-year term life insurance.  At the end of your term, the policy expires. If you still need coverage, you buy a new policy.  As you age, your premiums most likely increase as the risk of you dying is going up.

However, overall term rates have gotten better over the years, so you may not find much of an increase at all.

There is not a savings component to these plans.  You pay, your beneficiary gets the death benefit if you die.  That’s it.  If the policy ends and you’re still with us, nothing is paid to you; it’s just like car insurance.

Check out how the top term life insurance stack up in this great comparison of the Best Term Life Insurance companies courtesy of

Which is the best life insurance?

life insurance tips and advice Middle Class Dad bald man shrugging with his hands up

Taken further, let’s assume that at age 40, Larry got that $600,000 term life insurance policy we talked about above.

Most likely, if he’s in decent health and a non-smoker, he’ll be paying about $33/month for that coverage (quote courtesy of Mutual of Omaha Life Insurance Company and quoted at the time this post was originally published).

If he invested the additional $65 he’s not paying for that whole life insurance policy in the chart (which wouldn’t pay Kris anywhere near $600,000 in the event of Larry’s death) let’s see how he fares.

If he invested that $65/month in mutual funds with a track record of earning 10% (or more) per year, guess how much $$ he’d have by age 90 (the highest age listed in the chart)?

He would have $1,126,085 – take that whole life insurance policy!

life insurance tips and advice Middle Class Dad giant pile of one dollar bills

And of course in his will, Larry could leave 100% of that to Kris!

I calculated that using a calculator from MoneySavingPro.  Of course, I have to throw in the whole thing about interest rates vary, your results may differ, and nothing is guaranteed.

My point is not to show you specific amounts.  My point is to point out that as a savings or investment tool, whole life insurance policies are terrible!  If you only take one of my life insurance tips to heart, this should be the one!

But don’t take my word for this. Hear it yourself from the extremely knowledgeable Dave Ramsey:

Let’s lastly review the difference between a life insurance agent and a life insurance broker.

A life insurance agent works for one company only, such as the biggies you know like Farmers or Prudential.  A life insurance broker is an independent person who can shop all the companies and find you the best deal.

I’m not knocking agents.  Often an agent you would use is local. Most likely they have an office you can go to when you need help.  They may get to know you and your family and that detailed knowledge can help them give you great life insurance tips and advice.

Brokers, on the other hand, often operate online.

They deal with hundreds or thousands of customers across the country.  Brokers simply get your particulars, shop around for the best deal and let you choose.  They may set up a medical exam, but once the ink’s dry they’ve moved on to the next customer.

So what’s most important to you, service or price?

How do you buy life insurance?

Personally, I have bought all my life insurance online.

But you can go through local agents and brokers as well. Just realize that the more overhead (like a fancy office) a salesperson has, typically the more your coverage may cost.

Ultimately you need to shop around and look for the best deal.

Want an amazing FREE investment tool?

Personal Capital is the smart way to track and manage your financial life.

Get award-winning financial tools AND personal attention from registered financial advisors for significantly less than traditional financial advisors.

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So what are my . . .

5 Key Life Insurance Tips and Advice to Protect Your Family?


Probably the most important of the life insurance tips and advice.

As we discussed above, whole life insurance is a terrible option as an investment and it’s expensive.  Its only real benefits would be if you have serious health concerns and want to avoid taking a medical exam.  Term Life will almost always provide more coverage for less money.

Take that leftover cash each month and invest it!


As we said above, you don’t need life insurance when you’re single and 25. You also probably don’t need it at age 80 with grown kids and you and your spouse have $800,000 in an IRA or 401k.

Get it during the period of your life when someone is dependent on your salary to survive.


Under age 40, I would get 20-year term insurance so you’re covered for the next 2 decades.

If you’re newly married with a baby at age 25 you’ll probably want to get a new policy in 20 years but that can be a smaller amount for a shorter term.

At age 52 like I am, I don’t need a policy that covers me into my 70’s as my kids will be gone, our nest egg will be good and my wife will still likely be working.


Hopefully, you and your spouse will get some nice annual salary increases.

You don’t need to tweak your policy every year as you get those 3-5% increases but I would suggest reviewing your coverage about every 5 years and see if you need to add on.

You can have multiple term life insurance policies at the same time.  Thus if after 5 years, your salary went from $50,000 to $60,000 and you initially had a $400,000 policy, I would get a 2nd policy.  For your second policy, probably about $200,000 to $300,000 is about right.


Personally, I’ve used Zander Insurance (not an affiliate) for my recent quotes and have found they usually get me the cheapest quotes from some great companies.  That being said you may know a local agent and like being able to access them whenever you need it.

Either way, I would get at least 3 quotes before choosing one.  Most likely you and your spouse will never need to use this, so the lower premium should be high on the priority list.

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Do I cover the Life Insurance Tips and Advice you needed?

In this post, we explored the crucial role life insurance plays in our lives and the lives of our family members.

We looked at the pros and cons of both term and cash value policies. Then we explained how to buy it and the difference between an agent and a broker.

More importantly, we explained in everyday language to calculate how much coverage you need (or if you need it at all).

Specifically, we covered ALL the most important life insurance tips and advice that most of us weren’t taught in school or by our parents. That way you can make the most informed and cost-effective decision to protect your family in the event of the unthinkable.

If you have life insurance, what type do you have?  Need help getting out of a bad policy or confused about what you should get?

Do you have questions about it I can help with?

If you like this post, please follow my Personal Finances Tips board on Pinterest for more great tips from myself and top insurance experts!

life insurance tips and advice Jeff Campbell Middle Class Dad bio

Photo credits (that aren’t mine), licensed under CC2.0:
Hands –
Retirement street sign –

Money on fire –

Hand with cash –

Guy shrugging –

Money pile –

I have had experience shopping for, buying, and canceling life insurance policies for over 30 years. I have talked to numerous experts and educated myself on all things life insurance related. But, at the end of the day, remember I’m not a life insurance agent or broker.  I don’t work for any life insurance companies and have never had official training (other than the school of hard knocks).  I am not giving you life insurance tips and advice. Rather, I am telling you my opinion and what has worked (or not worked) for me. I formulate my opinions based on my experience, mistakes, and research, and you should too! If you need a financial professional, you should consult one in your area.

Best Excel Household Budget Template for Your Best Year Yet!

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Looking for an Excel household budget template for your family?

Are you struggling each month to pay bills?

Maybe you’re behind on bills or have more bills than you do income.

You’re left wondering where your money went each month instead of telling your dollars where to go?

I get it! 8 years ago my wife and I were deeply in debt (think about $60,000). We were living in a house we couldn’t afford, driving cars that weren’t paid for. We didn’t have a plan for our money. We simply bought what we thought we needed and when we ran out of money we simply reached for a credit card.

If that sounds familiar at all I’m here to tell you there IS a better way!

In this post, I’m giving you the household budget template I created. Its the very same template we started using over 8 years ago to dig ourselves out of debt and we still use it today. But beyond just giving it to you, I walk you through exactly how to set it up and use it so you can get your family to a better financial place too!

Download your Excel household budget template now!

Below I’ll get into why and how we use it, but if you’re eager to get started, just click below to download your copy instantly and free!


What programs to open my spreadsheet with:

My household budget spreadsheet is done in Excel format (which has an .xls extention).

But fear not if you don’t own Microsoft Excel! While you can get a copy inexpensively from Amazon by clicking my link, there are also 2 great free alternatives. is a great free alternative software that is almost identical to Microsoft Office. Like Microsoft Office, OpenOffice comes with a Word processor, a spreadsheet application as well as versions of PowerPoint and more. While there are obviously some variations between the programs, my spreadsheet will open in OpenOffice.

Google Docs is another great free option to open the free spreadsheet. Within Google docs, you can import worksheets with the .xls extension and should work flawlessly. Also be aware that Google docs will not work quite as fast as Excel or OpenOffice.

Why use an excel budget template?

My wife gets stressed out at the thought of budgeting. But then I’m more the budget nerd.

In reality, you will sleep better at night knowing EXACTLY how much money you have, what you spent it on and where the remainder is going. A budget doesn’t have to be fancy. It doesn’t have to take you hours to craft. A budget also doesn’t have to be something that both you and your spouse labor on together at the computer.

What IS crucial about an Excel household budget template is:

  1. You and your spouse agree on discretionary expenses (your pocket money, savings, entertainment, etc)
  2. That you do a custom budget each month before the month starts
  3. You communicate with each other during the month if something changes or comes up

It’s totally OK if one of you is more the math nerd than the other as long as there are no surprises.

If you’ve downloaded my spreadsheet and need help getting started, while I have several budgeting posts, I suggest starting with my post How to Make a Monthly Budget. I walk you through all the basics so you can get your budget going today!

How to use your Excel household budget template

My Excel household budget template has some of the cells locked. This is simply to keep the formulas from getting messed up. Thus, while you can totally customize the bills and income, the totals that get calculated will need to be unlocked if you want to change them.

While my Excel household budget template is designed so you shouldn’t have to change the formulas, if you need to, unlock the spreadsheet with the password “MCD”. If you aren’t sure how to unlock it, then changing the formulas is probably a bad idea as it could easily get messed up. So email me or comment here if you have any issues.

First, select the month for your next budget. Just click where you see the month and select any month from the drop-down menu.


Then you can change the date your pay period starts (ie: the day(s) you get paid. Again, simply select the date from the drop-down menu.


You can easily change the name of any bills or expenses and of course change the amounts of the bills:


Enter the amount of your income for the month as well as how much money you want to allocate to more discretionary expenses like pocket money for Mom & Dad, etc.

2 Moms or 2 Dads in your house? No problem! Those fields can be changed too! Change ’em once at the top and the bottom ones convert automatically!


Cash is king (and not just Johnny)!

Notice I have the phrase “2 week Cash breakdown” listed above. That’s because my wife and I use cash for our expenses outside of what we pay online. Things like pocket money for my wife and I, gas money, family eating out money, etc.

While you can use a debit card for stuff like that (and we did for the 1st 2 years we were budgeting), we ultimately found we spent less when we used cash.

We follow Dave Ramsey’s Envelope System, so we set aside the agreed upon amounts in cash in those envelopes in a secure spot in our house. Some may prefer to carry the envelopes in their purse. If that sounds more your speed, Dave has a great Starter Envelope System on Amazon Prime for less than 20 bucks!

But wherever you put the cash, you will naturally spend less. For one when you can easily see how much you have left you will scrutinize your purchases more. For another, you become more disciplined with spending as once it’s gone, it’s gone until the next pay period.

How much money do you have to spend?

The Total Income box at the top of each pay-period shows the total amount of money you have to spend. For many families, we get paid every other week. Thus a typical month will have 2 groupings of 2 weeks each.

This total income box is the sum of everything you entered in your income box:


How much is left over?

As you enter bills on the left, you’ll see a running total to the right of the amount of the bill. Then at the very bottom of that pay period box is the grand total left over. That doesn’t necessarily mean that’s money you can blow through!

Depending on how many bills appear in the bottom pay period of your Excel household budget template you may need that carryover balance over the next 2 weeks.


When you get to the end of the month, in an ideal world you would have zero dollars. That means you allocated every cent that came in exactly where you wanted it to go. If you find you have a lot left over, that’s great!

If you aren’t already doing so, if you’re debt-free except for your mortgage, then it’s time to start thinking about:

  • Retirement Savings
  • Saving for Kid’s College
  • Building an Emergency Fund
  • Short and Long-Term Savings (for vacations or that next car)
  • Saving each month in a Christmas Fund (so you don’t go into debt during the holidays)

If, however, you find yourself short at the end of the month than we either have an income issue or an expense issue. I know that sounds simplistic, but it really does come down to either finding ways to Earn Extra Money or finding expenses you can cut or reduce.

If you Can’t Pay Your Bills and want some handy tips on prioritizing bills and cutting out the fluff, take a moment and review a recent much-shared post that goes through those very steps.

Irregular Checks or Paydays?

If you don’t get paid regularly or your checks vary wildly that does present some challenges. In those cases I would do the following depending on how extreme they get:

  • Budget using the worst case scenario (and then be pleasantly surprised rather than the other way around)
  • Use the top half of the spreadsheet for each check rather than using the whole form monthly (if you don’t get paid consistently)

If the amount of your income varies really widely then consider doing what accountants call an accrual.

With an accrual, you will set aside a set number of dollars in a high dollar month to go towards the expenses in the next month (or any future month) when income is lower. To use a real-world example, let’s say you make $2,000 in Jan but $1,000 in Feb and each month you have $1,500 in expenses.

In Jan you would set aside (leaving in checking or transferring to a standard savings account) $500. Then Feb 1st you would move that money back into your checking account to go towards that month’s expenses.

Still frustrated? Let me do your 1st month’s budget for you!

I get the frustration of trying to do that 1st budget.

Nothing balances, there are more bills than income or it’s just hard to remember who to pay on what day.

I’ve been doing our budget for YEARS. I’ve seen the good budgets, the bad one and the ugly ones that make you want to bury the bills and hide your head in the sand.

Let me craft your very first budget for you and take all the blood, sweat and tears out of it.  Then you just take the budget I send back to you and copy and tweak for the next months. Rinse and repeat!

Yes, getting started budgeting could be just that easy!

Ready to get started? Submit your secure Custom Budget Order Form today! You’ll get it back within 72 business hours.

Was this the excel household budget template you were hoping for?

In this post, we took an in-depth look at the world of budgeting.

Specifically, I shared my highly-downloaded Excel-based household budget template and walked you through how to use it, step-by-step. That way you and your family can start using it today for a better financial tomorrow.

If you like this post, please follow my Budgeting board on Pinterest for more great tips from myself and top financial experts!

Jeff Campbell Middle Class Dad bio Excel household budget template

Of course, I have to add in that this post, like all my personal finance posts, is not intended as “financial advice”. I offer my opinions based on my experience, research and my own mistakes. Thus if you need financial advice you should seek out a professional in that area who is legally authorized to give financial advice.

9 Top Pros and Cons of Refinancing Your Home You Must Know!

pros and cons of refinancing your home Monopoly board with dice and houses Middle Class Dad

Considering the Pros and Cons of Refinancing Your Home?

Maybe you’re wondering if a refinance will drop your monthly payment?

The pros and cons of refinancing must be considered before you get started!

You might shortening your loan, saving you tens of thousands of dollars! Or you may just want to drop PMI or just get a better interest rate.

There are some great reasons to refinance. But there are also definitely some things to avoid.

A home refinance can be a great way to lower your payment. It can also reduce your interest rate or enable you to pay the home off faster.

It’s also important, however, to avoid some of the common pitfalls that many home owners fall into when doing a home refinance.

In this post, we’re taking the myserty out or mortgages, refinancing and when & how to do them.

Specifically, we’re looking at all the big pros and cons of refinancing your home so you can make the right decision for your home.

What does refinancing a home mean?

This is your existing mortgage (which is just a fancy word for a loan).

Then you work with a new lender (or the original mortgage company) to renegotiate the terms of your loan.

Most of the time you can expect to pay a few thousand dollars in the negotiation process.

So we want to review the pros and cons of refinancing your home to make sure it makes good financial sense over the long term.

First we need to identify your goal and see if it makes sense in the pros and cons of refinancing your home:

As I said, you might want to:

  1. Lower your interest rate (rates are currently below 4% and you can always see the current rates no matter when you read this post by checking out MarketWatch)
  2. Lower your monthly payment – Lowering your interest rate will drop your monthly payment. If, however, you are currently paying PMI (Private Mortgage Insurance) and your home has gone up in value since purchase, you may be able to refinance and get rid of the PMI payment. This is likely adding $100 or more per month to your payment)
  3. Get a shorter loan term – Most homeowners go for 30 year loans and most of us grew up just thinking that was how it was done. In reality you can get a loan for almost any length of time. A 15 year loan will save you big bucks over the life of your loan depending on the home price. That money, if invested in mutual funds, could bring you millions for retirement. A great alternative to giving it to the bank!
  4. To move to a fixed rate loan – If you are currently on an adjustable rate or an interest only loan you are seriously jeopardizing your family’s financial future. Moving to a fixed rate loan could literally be one of the best decisions you ever make.
  5. Cash out equity – Equity is the amount of money your home is worth over how much you owe on it. If it’s worth $200,000 and you owe $150,000, your equity is $50,000. This is my least favorite of the reasons. Going this route, you are essentially borrowing money and using your home for collateral; meaning if you default on the payment you could lose your home. There are a lot of ways to improve your monthly cash flow. Saving for big purchases is always preferable to borrowing money, but if you are going to do this we need to be smart about it.

Is it bad to refinance?

Generally speaking you should only consider the pros and cons of refinancing your home after you’ve been in the home at least 2 years.

You also want to make sure you plan to stay in the home at least another 5 years.

We’ll get into that more below.

Lastly you need to have a clear goal for your home refinance.

Whatever your reason to refinance, you want it to make sense financially. A lower interest rate, lower payment or dropping PMI might all be great reasons to refinance.

But before you rush off to call a loan officer, let’s dig into all the pros and cons of refinancing your home and examine each one as it pertains to you and your situation.

So let’s look at each of the pros and cons of refinancing your home, one by one


1. Lower Your Interest Rate

Generally speaking if you can lower your interest rate by half a percentage point (or more), it’s probably worth doing.

For instance, let’s say you bought the house 8 years ago on a 30 year fixed loan and at that time you got a 5.25% interest rate.

Chances are at today’s rates, you could drop that to 3.99%, saving you 1.25%.

Say you refinance the balance of what you owe ($150,000). Over the course of 30 years from that point forward, that change in interest rate will literally save you about $40,000. (factored using the mortgage calculator at

Dropping your interest rate is certainly one of the top pros of the pros and cons of refinancing your home.

2. Lower Your Monthly Payment

We know lowering the interest rate can save you cash, but what about just doing a home refinance to lower your monthly payment?

Aside from interest rate, you can also lower your monthly payment by eliminating PMI which as I noted above is Private Mortgage Insurance.

This is insurance your lender (the company giving you the money to buy or refinance your house) requires when you owe more than 80% of your home’s value. And they make you pay for it. It insures them in case you default on the payment (stop paying your monthly payment).

In a nutshell if you buy a $200,000 house, and your loan amount is over $160,000 you will have to pay PMI.

PMI typically adds about $120 to your monthly payment on a $200,000 loan. Check your specifics by using this PMI Calculator by GoodMortgage.

That’s a savings of $1,440 per year! That might be worth doing

Getting rid of PMI without going thru a refi

PMI doesn’t just automatically drop off your mortgage when your home value goes up.

Depending on your loan terms it will, however, likely drop off when you have paid down the loan principal enough to where the LTV (loan to value) gets better than 80/20 (where you owe less than 80% of the home’s value).

But for many of us, the home value is increasing faster than our loan principal is going down. In which case a refi to get rid of it might make sense.

However, you may be able to request it be dropped by your current company without going through the hassle and expense of a refi.

But in order to prove your case you’ll likely have to pay for your home to be appraised by a professional appraiser.

Before you pay for this you’ll want to contact your current mortgage company and ask if this is possible and find out what they need specifically to make this happen.

Need more on this? Check out the government’s page on PMI at the Consumer Financial Protection Bureau.

Getting rid of PMI, which only benefist the lender, is definitely a good pro in the pros and cons of refinancing your home.

3. Get a Shorter Loan Term

Nothing sheds tens of thousands, if not hundreds of thousands off your mortgage more than shortening the loan term.

Back in the “old days” everyone just got a 30 year fixed rate mortgage and that was considered “normal”.

However you need to understand that your are paying compound interest over decades. In doing so, you begin to realize that the $200,000 mortgage you just took out will actually have you paying back almost $348,000 (factored using the

Thus, cutting your loan term down by ANY amount can save you a lot of money. This is my favorite in the list of the pros and cons of refinancing your home.

How the math works on reducing the length of your loan

Just as a for instance, if you took that $200,000 loan from a 30 year down to a 15 year, you would only be paying back $266.287.

Saving almost $82,000 is a good reason to refinance!

Now, I know some of you are thinking that going from a 30-year mortgage to a 15 year means your payment doubles.

As crazy as it might sound, that is not correct.

While it’s true it will be higher, it may be a manageable increase and worth some cut backs to save that $82,000! No; going to a 15-year loan means a monthly payment of about $1,479/month. That is versus the $955 it was at a 30 year.

Yes, a monthly payment difference of about $500 can save you $82,000!

To keep things a little simpler, all my mortgage calculations are with principal and interest only. Thus I’m not factoring in things like property tax and home owner’s insurance, all of which can vary a lot from place to place.

Also, know that you’re not locked in to only 30 or 15. If you can afford a 7 year or less; go for it! Can’t quite make the mortgage payment work at 15 years? Ask about doing a 20!

Want to dive in deeper on the benefits of Paying Off Your Mortgage Faster? I have a highly shared post on that very subject. Take a moment and review if you want to learn more.

4. Get a Fixed Rate Loan

A fixed rate loan should be the only type of loan you consider.

Thankfully one of the benefits of the crash of 2008 is that many of the riskier loan types aren’t pushed nearly as hard now.

But if you got your loan before that, it’s possible you have an adjustable rate mortgage or an interest only mortgage.

Let’s review why these are a TERRIBLE IDEA.

An interest only loan is literally just that.

You are paying the bank the interest (profit) only, for a set period of time, and not putting anything towards the principal (the amount you actually owe). Imagine buying groceries each week.

You give the store $100 each week and then at the end of the year you have to pay $5,200 because that $100 you gave them each week was just for the privilege of shopping with them.

That’s EXACTLY what an interest only loan is.

Would you even consider that?? I hope you answered no.

Adjustable rate mortgages are the financial equivalent of Russian Roulette.

You are simply gambling on how much and when your interest rate will go up. Maybe it will only go up a percent or 2 after a few years.

But depending on your terms, in 7 years it could double and at that point you might not be able to afford the payment and you could literally lose your home.

I still recall when I was in my early teens and the home my mother had purchased went up to almost 14% interest and we had to sell it.

That was because of her adjustable rate mortgage and the crazy economy in the early 1980’s.

Don’t gamble on your family’s future! If you have one of these loans, now is the time to ditch them. If you don’t have one; keep it that way!

So getting rid of an adjustable rate or interest-only loan is probably the #1 pro in the pros and cons of refinancing your home.

5. The H.A.R.P. Program

HARP (the Home Affordable Refinance Program) was created by the Federal Housing Finance Agency.

It is specifically designed to help homeowners who are current on their mortgage payments, but are upside down. By that I mean they owe more on their home than it is now worth.

In a traditional refinance setting you would not be able to refi if you are upside down on the home’s value. Thus the HARP program could be a great way to reduce your interest rate if that’s the boat you’re in.

Learn more and see if you qualify on the government’s HARP Page.


6. Cash Out Equity

As I mentioned, this is my least favorite of the pros and cons of refinancing your home although it’s widely done.

Essentially you are borrowing money using your home as collateral.

Now, since you already have a home loan, you are technically already doing that. The key difference, however, is that your original loan was for the home by itself.

Taking out equity loans are often done for a variety of reasons outside of just paying for the home. Reasons range from paying for remodels to vacations to paying off other debt.

The reason I don’t like this is that you are increasing the amount of money your home is borrowed against.

This means it will take longer to repay. Unless you are also dropping your interest rate significantly, you are also increasing the monthly payment.

The danger then becomes that if there is a change in employment or income, the new higher payment can be harder to meet each month and the risk of losing your home to foreclosure increases.

If you insist on doing a home equity refi the only way I would personally be OK with it is if you are:

  • Adding to the value of the home (genuine home improvements that boost home value, such as these mentioned by
  • Using the money in a way that generates additional income (eg: you or your spouse going back to finish a degree that has a high probability of significantly improving household income)

I would never recommend doing a cash out refi to:

  • Pay for things that go down in value (cars, boats, campers, etc)
  • Loan money to friends of family (do you really want to lose your home bailing Uncle Johnny out of jail?)
  • Pay for frivolous things that don’t bring value to your home or income (vacations, cosmetic surgery, etc) – that’s what being frugal and saving money and working hard is for

Lastly, on this subject, I would also encourage you to check with your local credit union about a Home Equity Line of Credit.

As I go into further below, a refi will cost you between 3-6% of the total loan value.

So if you owe $150,000 and want to take out an additional $40,000, your new loan is $190,000. 3%-6% of that is $11,400.

That’s a lot to pay for the privilege of borrowing money even if it’s for one of the better causes I mention above.

My local credit union is currently offering Home Equity Loans for as little as 2.75%.

Of course the amount I borrow and my credit will be factors, but even at 3%, I’m only paying $1,200 to borrow that same amount of money.

Unless you are also dropping your interest rate and maybe dropping PMI, just doing a refi just for equity is probably a terrible financial idea.

If you own your home some of the processes or terms can be confusing.

I encourage you to check out my previous post called 9 Key First Time Home Buyer Steps You Must Take That post covers the entire process and terms in-depth. It breaks everything down so that even a novice can become an expert!

7. If you plan to be in your home less than 5 more years

Many of us had grandparents or great grandparents who lived in the same house decade after decade. Maybe they still live it the same house you remember as a kid.

That, however, is not the reality of the current generations.

According to the National Association of Home Builders, the average length of time a home owners stays in their home is about 15 years.

For first time home buyers, that time is even less. So you will likely live in your home 15 years minus however long you’ve already been there.

As we get into below, in most cases it will cost you more (in fees) than you will save (on your new monthly payment) to do a refinance if you are likely to move in fewer than 5 years.

Thus this is also one of the biggest cons in the pros and cons of refinancing your home list.

8. Longer approval time

Before the economy tanked in 2008 it was common for new home loans and refinances to take up to 30 days.

These days that process can be considerably longer. If you recently changed jobs, have poor or mediocre credit or a variable income, expect it to be even longer still.

Thus expect your refinance to take up to 90 days. Of course your lender can give you a more accurate estimate. But in my experience, it still often takes a little longer than they initially project.

9. The Streamline Refinance Program

The streamline refinance program is a government program.

If you have bad credit and your home is underwater then you might move this to the pros section of the pros and cons of refinancing your home.

But for most people with decent credit, you will save more with a traditional refi.

They sell the program as having no or low fees, no credit check, etc. Sounds great, right? It does until you consider the interest rate is higher than a traditional refi to cover that expense and risk.

So in most cases this is a con, not a pro. Underwater on your home, the HARP Program is probably a better option than this.

Is it worth it to refinance?

In the case of looking at any of the above pros and cons of refinancing your home, we need to make sure it makes sense monetarily.

It can be all too easy to see the potential savings of a lower interest rate or payment. But don’t forget about how much it’s going to cost you to do a home refinance.

How much it costs you and how long it takes to make that back is the best way to decide if a refi is right for you.

This is the most important of pros and cons of refinancing your home!

How to calculate whether a home refinance makes sense for you

Let’s say you owe $200.000 on your home and it’s now worth $300,000.

We can already tell from those numbers that we can drop the PMI we are paying. That alone saves us up to $120/month or over $1,000/year.

Doing a traditional home refinance will cost you between 3% and 6% of what you owe on your current loan.

Those figures and some great detail on doing a refi can be found on the Federal Reserve’s page. For our purposes, let’s assume the cost will be right in the middle, 4.5% on that $200,000 loan or $9,000. In my experience having done home refinance several times, that amount is about right.

So we now know we need to save at least $9,000 to make this home refinance make sense.

Quite simply, divide the total costs of the refi ($9,000) by the monthly dollar savings the refi gets you.

If you’re doing the refi to take out cash or shorten the loan period then this doesn’t apply to you. In this case, you aren’t doing the home refinance to save money on your monthly payment.

So in my original example, dropping the interest from 5.25% to 3.99% on a $200,000 loan balance nets you a monthly savings of $151.

That’s not including possibly dropping PMI and saving up to an additional $120/month.

So $9,000 divided by $151 is 59. That’s how many months of new lower payments it will take to recoup your expenses, or (divided by 12) about 5 years.

Plan to be in the house at least another 5 years? Then under the scenario of my example numbers, it would make good financial sense to do a home refinance.

Before you dig in on the pros and cons of refinancing your home make sure your finances are in shape!

Need help getting your family’s monthly finances on track?

I have a copy of my Budgeting Spreadsheet available at no charge!

It’s a simple, highly customizable, Excel spreadsheet and you can download it quickly and easily FOR FREE!

pros and cons of refinancing your home free budget spreadsheet click box Middle Class Dad

If you struggle each month, aside from being on a written budget like my spreadsheet provides, you might also want to check out one of my previous posts called 7 Best Ways to Stop Living Paycheck to Paycheck

A home refinance can definitely help get your finances in order. But nothing does the job quite a well as 2 people working together with a plan and some organizational systems!

So let’s review the . . .

9 Top Pros and Cons of Refinancing Your Home You Must Know!

  1. Understand your goal in doing a home refinance
  2. If you are doing the refi to lower your interest rate, make sure you can lower it by at least .5%
  3. If you think your home has gone up in value enough to drop PMI, see if you can get that dropped by your current mortgage company without the hassle and expense of a refi (not sure? Ask a Realtor friend to run “comps” in your neighborhood to see what “comparable” houses are selling for)
  4. Make sure if you are doing the refi to lower interest rates or payments that you can cover the cost of the home refinance in the remaining time you plan to live in the home (ideally you should recoup the savings within 5 years)
  5. If you can make it work, go for a 15-year loan rather than a 30, but even a 20 year is an improvement!
  6. NEVER do an interest only loan
  7. NEVER do an adjustable rate loan
  8. If you are doing the refi to take out equity, understand that you are essentially taking out a loan on your home and if you have any trouble making the increased payment, that can put your home in jeopardy.
  9. That being said, if you insist on using your home to borrow money, make sure the refi is the best option as a home equity line of credit from your local credit union might cost you less

Are you looking at the pros and cons of refinancing your home?

In this post, we took an in-depth look at the sometimes confusing world of home refinancing.

We looked at all the best options out there and what pitfalls to avoid.

Specifically, we looked at the top pros and cons of refinancing your home so you can decide if a refi is right for your situation.

Do you have questions? Have you done one and had issues? Done one and had it meet your goals?

Feel free to comment here or email me with any questions as I am here to help!

If you like this post, please follow my Real Estate board on Pinterest for more great tips from myself and top financial experts!

pros and cons of refinancing your home Jeff Campbell bio Middle Class Dad

Photo credits (that aren’t mine):
Monopoly houses and dice –
Growing Money –
While I have years of successful financial & budgeting experience and run several million dollar businesses and handled the accounting, P&L and been responsible for the financial assets of them, I am not an accountant or CPA. Like all my posts, my posts are my opinons based on my own experience, observations, research and mistakes. While I believe all my personal finance posts to be thorough, accurate and well-researched, if you need financial advice, you should seek out a qualified professional in your area.

How Much House Can I Afford Rule of Thumb – Steps You Must Know

steps to buying a house for the first time brick house with a green lawn Middle Class Dad

Buying a home for the first time is scary!

It means a big step into adulthood, but it can also add a lot of stress.

How much do houses cost? Even if you know the sales prices of homes in your area, how much will that cost per month? Done right, home ownership can set you up for huge financial success.

Done wrong, however, it can lead to being house poor and maybe even bankruptcy or foreclosure.

Fear not though.

It is possible to get answers to all your questions and make smart and informed choices about your home purchase.

In this post, we’re walking together through all the most common questions about buying a home, figuring out all the things that make up your monthly payment and navigating the sometimes complicated world of real estate.

Specifically, though, we’re looking at the exact how much house can I afford rule of thumb formula. That way you can rest easy and make the best choice for your financial situation and start your journey down the road of financial success.

Ready to look into a mortgage? The digital age has made applying, qualifying, and funding a mortgage easier than ever! Check out Floify to learn more!

Before you buy a house, it’s vitally important to know the how much house can I afford rule of thumb

Are you on the verge of buying a house? If so you’re probably scared to go through with the deal. After all, it’s the biggest financial decision of your life.

What if you buy too expensive of a house? What would it be like to be house poor? More importantly, what is the how much house can I afford rule of thumb?

Then comes more panic and more questions!

What percentage of your income should go to housing expenses?  How do you figure the total cost of your mortgage?  What do you do if you’ve already bought a house and feel it’s too big a chunk of your monthly budget?

Except for medical care, we never buy anything without first knowing:

  1. What it costs in total
  2. How much we can afford
  3. If it works for our household budget

So with that in mind, its crazy to think that many of us have bought houses without ever knowing the “how much house can I afford rule of thumb”  And yet many of us have, myself included.

If you have not yet bought a house but are considering it, I highly recommend taking a moment to check out my post called First Time Home Buyer Steps. I break down all the best practices, define all the common terms and walk you through the process step by step.  I also utilized 2 amazing realtors when researching that post so you know it’s accurate!

The biggest perils of not knowing the how much house can I afford rule of thumb

How much house can we afford rule of thumb keys in a front door Middle Class Dad

The downsides of not knowing the how much house can I afford rule of thumb can be many and could literally turn your dream into a nightmare.

Worst case scenario you could be facing foreclosure.

Best case scenario you’ll be house-poor.  By that, I mean that so much of your income will be going towards your house payment or rent that you can’t afford much else.  Or (even worse) you begin to live off credit cards to offset you much you’re overspending.

Knowing the “how much house can I afford rule of thumb” is one of the most crucial questions you’ll ask yourselves.

If you’re at least not going further in debt you’re talking about no vacations, bare-bones grocery shopping and rarely eating out.  If you do end up using credit cards to make ends meet you’re not actually saving any money; you’re just delaying the punishment.

Plus when you factor in credit card interest you’re coming out even further behind.

If you struggle to make ends meet each month and need help just getting the basics under control you should check out my post entitled Household Budget Template Tips  It’s just a 3-minute read, but it’s full of useful tips and action items!

The crucial steps to factor the how much house can I afford rule of thumb?

The rule I learned from Dave Ramsey about 8 years ago was to not spend more than 25% of your household income on housing expense.

I was also reminded of the how much house can I afford rule of thumb while listening to a recent podcast by the always insightful Brandon Gaille.

In his podcast, he details the 8 habits of millionaires which includes not spending more than 25% of their annual income on housing expenses.  It’s a great listen!

The worst financial mistake of our lives

Anyway, when we bought our house in Dallas in 2006, it was before I knew the importance of knowing the how much house can we afford rule of thumb.

My family and I bought that house for $389,000 and we had a 1st mortgage and a 2nd one.  In those days if you couldn’t qualify for a loan for the whole thing they would do a 2nd mortgage.

That 2nd mortgage would be at a higher interest rate.  It would, however, allow you to avoid PMI (private mortgage insurance).   Those types of loans are something of a rarity these days following the crash in 2008.

We had a 1st and a 2nd mortgage and had not made a sizeable down payment on it.  My wife was mostly at home with our kids and my salary was around $75,000/year.

Guess how much our mortgage payment was?  Including principal, interest, taxes, and insurance, we were paying upwards of $2,700/month!

Our house payment was a whopping 43% of our income!

Is your budget a mess or non-existent?

If you are struggling with bills and can’t seem to get ahead, you may not be using a monthly budget. The budget was one of the real keys to my family getting out of debt, going on dream vacations and getting ahead. And we did while salaries were pretty stagnant!

If you aren’t sure of the basics, check out my post called How to Make a Budget.  I walk you through the exact steps we took to pay off over $80,000 in debt!

But if you’re ready to get started, grab a FREE copy of my budget template right here! It’s the same template my family has used for over 7 years and hundreds of others are using it too!

Digging our way out of the financial hole we were in

Unfortunately for us, we started listening to Dave Ramsey after we bought that house!

Thus we never knew the “how much house can I afford rule of thumb”.  We just blindly assumed if we could qualify for the loan we could afford it.  That was WRONG!

Once we started listening to Dave it was clear something had to change.

We were making things work by using credit cards. But as I’ve already said, that’s just delaying the inevitable.  And for us, the inevitable could have been bankruptcy.

If you are struggling with debt take some cues from my mistakes!

Want to know more about the best percentages to divide up your income by?  Check out my handy infographic!

How much house can we afford rule of thumb how to divide up your paycheck infographic Middle Class Dad

The terrible truth if you’ve already bought too expensive of a house

The sad truth is that many people, just like my family, have already purchased a home they can’t afford.

If you’re already in a mess you have 2 options:

  1. Sell the house or (if you’re renting) break the lease and move to a cheaper house
  2. Ride it out and make cutbacks elsewhere

Deciding which option can be a little tricky.

In the case, I laid out above we had a house payment that was 43% of our income.  Once we finally realized the “how much house can I afford rule of thumb”, the answer was crystal clear.

Thus we had to sell and move down in house. We decided to sell in August of 2008.  Guess what else happened around that time?

Yes, if we’d only sold about a month earlier we could have sold quickly and probably made an extra $100,000.  But no, life was determined to make sure we learned our financial lessons.

Thus it took a year and a half and an over $100,000 price drop to get the thing sold.

But once we did, life was sweet.  We moved into a $900/month duplex. That way we could really make traction on our debt. And we could focus on getting ourselves out from under the mess we had made and to begin to plan for retirement.

Should you move or suffer and stay in an expensive home? 

For me, if your total mortgage payment (including taxes and insurance) or rent is under 33% of your total gross annual income, and you like the house; stay there.

Unless you went with an adjustable rate mortgage your payment will stay close to the same (taxes & insurance will slowly increase) but your income will hopefully be going up each year by a larger percentage.

If, however, your total payment is way over 33% of your income, it’s probably time to sell and move down.

If you’re renting and you have a lot of time left on your lease contact your landlord and see what the options are.  You signed a lease and that means you have an obligation.

A huge rent payment we agreed to is not the landlord’s problem.  But they also will probably sleep better at night knowing someone is in the house who isn’t on the verge of going broke.

Maybe a sub-lease or maybe the rental market is hot and you sacrifice some or all of your deposit to walk away.

If you own and are upside down on your mortgage that does add a layer of complexity.

But if your payment is way high like mine was and you’re only underwater by a little bit (under $20k), it might make sense to take our a personal loan from a credit union for the difference and sell anyway.

If the housing market in your area is terrible and you’re on the verge of defaulting on your mortgage you might also ask your lender about a debt forgiveness program.

Or maybe a short sale (where you sell for less than you owe and the bank accepts that as payment in full).  Banks were probably a whole lot more willing to consider those things in 2010 than now, but it never hurts to ask.

How much house can you afford on 60000 a year?

Of course, qualifying for a mortgage is different than what works with your budget.

Mortgage qualification is based on:

  • The total household income
  • Your credit score
  • All outstanding debt

But purely in terms of how much home I could afford using the rule of thumb, I would personally not buy a house that cost more than $150,000.

Ultimately at that income level, you want your total monthly payment (including taxes and insurance) to be around $1,250/month max.

How many times your annual income should your house be?

As I get into more below, you want your total monthly house payment to be about 25% of your monthly net income.

If your paychecks total $5,000/month that amounts to a net income of $60,000/year.

Knowing as we factored above that a house that costs about $150,000 is about right, you want to look for a home that costs about 2.5 times your annual salary.

So what are my . . .

5 Steps You Must Know About the How Much House Can I Afford Rule of Thumb?

How much house can we afford rule of thumb woman in a red top pointing to a laptop Middle Class Dad


Take your total household income.
If you’re looking at an annual amount, divide by 12 to arrive at a monthly figure. If you or your spouse get paid irregularly (pay dates or amounts), you’ll want to do the following:

  • Look at the previous year’s gross annual income on your tax return or W2
  • Decide if the coming year will be comparable, lower or better
  • Using that info, arrive at an estimated total and divide by 12 for a monthly amount
  • If you get quarterly bonuses or other large, irregular fluctuations, don’t include those amounts; I’d rather you occasionally get extra money to put towards debt, vacations or retirement than be counting on that money and not have it be there each month

Let me give you an example.

When I was a GM for the largest natural foods grocery out there, I made a nice 6 figure salary.  But a good chunk of that was in the form of a quarterly bonus based on the profitability of my store.

If sales tank, guess what else tanked?  My salary!  My actual regular paychecks added up to about $70k/year.

So using me as an example, I would take $70,000 and divide by 12 for a monthly gross of $5,833.  The bonuses which I may or may not get 4 times a year should not fall into that.  That’s gravy but shouldn’t be relied upon for essentials.


The monthly gross gets multiplied by .25, representing exactly 25% of your monthly gross household income.  Going back to my example, 25% of $5,833 is $1,458.


Now the figure you have is what your total monthly housing costs should be.

Again returning to my example, $1,458 is the max I should have spent on housing costs if there were no other steady sources of income.  Thus that house payment we had I detailed above was more than $1,200 too high!


If you own your home (and have not paid it off yet) your total housing costs include:

  • Your principal
  • The interest payment on that principal
  • Your annual property tax amount
  • The insurance on your home
  • HOA costs (if any)
  • PMI costs (if any – this stands for private mortgage insurance)

If you own your home and don’t know those amounts the easiest way to get them will be to login to your mortgage company’s website as the info will be right there.

Paying your taxes and insurance through your mortgage company?

This is commonly referred to as escrowing.

Don’t know what that means?  When you buy a house you have 2 options pertaining to insurance and taxes.  You can include them with your mortgage payment. This is called escrowing those costs.  Or you can keep them separate and pay them on your own.

Unless you are a highly organized and disciplined person, escrowing them into your mortgage payment makes more sense.  Doing that, the mortgage company actually pays those entities at the end of the year, estimating the total payments.  Then they simply divide those total annual costs by 12 and add that amount to your mortgage payment each month.

If you escrow those costs then your mortgage payment IS your total monthly housing cost (not counting HOA if you have one).  If you do not, you need to know how much your annual property tax and insurance bills are.

Calculating insurance and taxes for a monthly payment

Then add those together and divide by 12.

Add that amount to your monthly mortgage payment.  If you are paying PMI, it will already be in your monthly payment.

If you have an HOA bill you pay each month, include that with the remaining payments.

Now you have your total monthly housing expense.  If you rent, your rent is obviously the main component. But if you have renter’s insurance, include that monthly amount as well.

If your total monthly housing cost is way over your 25% calculation, then the “how much house can I afford rule of thumb” tells us you spent too much.

Now you need to walk through the steps above to determine if you should sell or stay.


If you are in the market for a new home, that’s great!  Following the above steps, you know how much you should be spending per month on housing. But how do we translate that to the “how much house can I afford rule of thumb”?

Is that impossibly complicated math?  No!  Fear not.

First, we need to know how much of a down payment can you put down.  Avoid 0 down programs and plan to do somewhere between 5% and 20%.

Obviously the more you put down, the smaller your payment.  Also know that unless you put down 20%, you will be adding PMI to your monthly payment (probably a max of about $100).  This protects the lender in case you default.

Let’s assume for these calculations you plan to put down 5%.

Let’s also assume your gross annual income is $70k like mine was in the above example.  Thus we know your total monthly housing costs should be around $1,458.  For my purposes, I’m assuming an interest rate of 4%.

In this scenario, you are looking for a house with a sales price of about $160,000 on a 30-year loan. 

Here are the calculation formulas for you to factor your own situation.

  • Total monthly payment ($1,458) * 78.21% = principal & interest
  • Total monthly payment * 11.59% = property tax (can definitely vary quite a bit from city & state)
  • Total monthly payment * 5.8% = home owner’s insurance
  • Total monthly payment * 4.40% = PMI

Of course, there are a lot of variables and these will not be down to the penny.  They should, however, be in the ballpark and steer you pretty close to where you need to be.  Also, know a 15-year loan is much better financially than a 30 and can mean the difference on a $160,000 house of over $100,000 in interest over the life of the loan, but only increases your payment by about $400/month.

If you’re already in a 30-year loan and aren’t sure if you should refinance down to a 15 year, you’ll definitely want to check out my post How To Pay a 30 Year Mortgage Off Faster  It’s a simple 5-minute read that walks you step by step through the process of paying your 30-year mortgage like a 15.  And saving you thousands of refi costs in the process!

Did I cover all your “how much house can I afford rule of thumb” questions?

In this post, we looked at how to use the how much house can I afford rule of thumb to make sure you don’t end up house poor.

But we also broke down the crucial formulas used to calculate everything. Lastly, we looked at what to do if you’re already in a home that’s too costly for your income bracket.

Ultimately done right, home ownership is a dream. Done wrong and that dream can quickly turn into a nightmare.

Feel free to comment here or email me with any questions as I am here to help!

Love it? Pin it to your favorite Pinterest Boards!

How much house can I afford rule of thumb Jeff Campbell bio Middle Class Dad

While I have years of successful financial & budgeting experience and run several million dollar businesses and handled the accounting, P&L and been responsible for the financial assets of them, I am not an accountant or CPA. Like all my posts, my posts are my opinons based on my own experience, observations, research and mistakes. While I believe all my personal finance posts to be thorough, accurate and well-researched, if you need financial advice, you should seek out a qualified professional in your area.
Photo credits (that aren’t mine or which require attribution):
Home Equity – Home on top of stack of Money by By: American Advisors Group is licensed under CC BY 2.0

17 Worst Used Car Buying Checklist Mistakes You Should Avoid


car buying featured download box

A used car buying checklist isn’t something we were taught in school

Is it time to buy a car but you’re dreading the process? You know you should haggle to get a better price. And you know you’ll get more money for your trade-in if you sell it privately.

But it all seems like such a high-pressure headache, doesn’t it?

The key is knowledge. A used car buying checklist can make all the difference. You especially want to know what NOT to do. Having just taken these steps myself, I can help.

Personal finance in general wasn’t taught to me in school; be it a household budget or even balancing a checkbook (yes, I went to school when people still used to write checks).  It wasn’t taught.  So if your parents weren’t astute financially, it’s no wonder most of us don’t have a clue how to buy a car.

New, used, pre-owed, leasing.  What’s the difference?  Should you buy a car off Craigslist?  Do you pay more buying from a dealer? How do you know you’re getting a great deal?

We’ll get into all that and more in my used car buying checklist, so read on!

First, figure out how much you can spend on your car


This is crucial!  You never want to blindly go into a car dealership having no idea what you can afford.

I know it’s tempting to log off, run down to the dealership without a used car buying checklist. You sign wherever they tell you to and then drive off!  But trust me; that’s NOT how to buy a car.

If you do that, you’ll pay later; literally and figuratively.

You must go into the process with knowledge in hand.  Knowledge is power and power gives you the advantage and leverage; things you need when going into the lion’s den that can be car dealerships.

OK, that was a little dramatic, but car salesman don’t get a bad rap for completely no reason.  Of course the way we buy cars, and thus the style of the salespeople is changing, and there are also a lot of great folks out there who sell cars.

But it still pays to:

  1. Know what you want
  2. Be informed on the average price for that model, year, mileage and condition
  3. Have a good idea of what you can afford

Don’t be a loan ranger!

For me, I don’t use credit or debt on anything other than our home.  Thus when we bought a car last (a few weeks ago as of this writing), we paid cash.  I don’t recommend debt to anyone else either.  That’s just not how to buy a car in our house!

If your family struggles with debt the way mine did, I highly encourage you to check out our story out of debt. These are the steps we took to better our lives and they can better yours as well. So check out my 5 Great Ways to Improve Finances & Save Your Future!

That being said, you run your house the way you want to and that’s OK.  Whether you use a car loan to buy a car or not, it’s still important to know what you can afford.

When I did have car payments (7+ years ago), I preferred a payment of somewhere around $200/month.  I feel like for a household making between $60,000 and $100,000 per year, that’s a manageable payment.

Don’t be fooled by low payments with long terms though.

As with any loan, the longer the term, the more interest you’ll pay over time.  Ideally get as short a term as you can afford; 3 or 4 years and certainly no more than 5.

I once had a car payment that was almost $500/month. My salary then was 6 figures. But even though I wasn’t married and was childless, it still hurt to write that check each month.

I didn’t know how to buy a car and I made most of the used car buying checklist mistakes I list below!

When you buy more car than you can afford, you’ll never truly enjoy the experience of being in that car!


What I also know is that having a written budget each month is key to understanding how much car you can afford. If you are on a budget but struggling to stay consistent or just need help keeping your budget in line, I suggest you check out my post 5 Effective Household Budget Tips – Make Your Money Work Smarter!  Just some simple, actionable tips to make your finances work better!

New or Used – what’s the difference?

A new car loses 11% of its value the moment you drive off with it.

If you just paid $25,000 for that car, that’s the equivalent of throwing almost $3,000 right out the window!  That is NOT how you want to buy a car or spend your hard earned cash!


Have tons of excess cash, no debt and just want that new car smell? Don’t care about wasting your hard earned $$? Go ahead.  For all the rest of us Middle Class Dads, that is NOT how to buy a car, no matter how you slice it.

A used car in most cases just makes way more sense.  THAT is how to buy a car. Someone else took that 11% hit for you.  If they kept up with maintenance and weren’t in any accidents, that car will be just fine. Pre-owned is just a fancy way of saying used.


Should I Lease a Car?

Dave Ramsey, probably the world’s leading expert on personal finance, refers to leasing as “fleecing”.  For good reason too!

Make no mistake, when you lease a vehicle, it’s just another way of borrowing money to pay for the car.  But more like an interest-only loan; your payments never go towards the principal. And unlike traditional financing, you are typically required to put down more money as a down payment.

People get sucked into leasing because it typically allows them to drive a nicer car than they can really afford.

But is that feeling you get driving that new Lexus to work really worth all the cash you’re burning?  Is that really how to buy a car that makes sense for your family and budget?


Leasing Extras – How to buy a car the expensive way!

You also have restrictions on how many miles you can drive.  Those extra miles you drove will be charged to you at the end of the term anywhere from 10¢ to 30¢ cents per mile.  Go 5000 miles over each of the 3 years of your term and that could be an extra $4,500 you hadn’t counted on paying!

You are allowed to have the vehicle get “normal wear and tear”.  But that’s a very subjective term and anything beyond that will cost you extra. Plus unless you pay additional money at the end to buy it, you never truly own the car.

Also, bear in mind that your insurance typically would cover the value of the vehicle; not what you owe on it.

Thus that brand new Lexus you just lost 11% on as you drove off is now worth $22,000.  But if you total it or it gets stolen and you still owe $25,000, guess what?  In addition to your insurance deductible, you also have to pay that $3,000 difference.  A costly mistake!

Have a lot of money to burn and want to be able to simply drop the vehicle off at the end of the term and walk away (after writing a good sized check)? STAY AWAY FROM LEASING; that is NOT how to buy a car!

Listen to Dave Ramsey explain the math on car leasing right here!

How to buy a car at the best price

My wife and I just bought a late model Mazda5 and we love it.  Thus, I’m in a great position to tell you exactly how we found it.  But you don’t even want to start this step until you know exactly how much car you can afford and where that money is coming from.

Once you know your budget then you need to figure out your needs.  For my family, we wanted more room.  We’re a family of 5 driving cars that can barely squeeze 5 into them.  Thus, trips with friends or in-laws always required 2 vehicles.

Your needs may be different.

Is it good to buy a used car with high mileage?

Once you know the type of car, if you’re buying used, you want to figure out the max mileage you’re willing to accept.

For us, 80,000 miles was our threshold.  Anything significantly over that means potential large repairs in the near future.  But also consider that cars these days can go well over 200,000 miles if properly maintained.

We live in a culture that feels entitled to a new car every few years.  Thus, many of us sell or trade in our cars well before they have truly run their course.  They get 40,000 miles on them or the moment that 5 year loan is done and people get new car fever!

There’s no shame in buying a late-model car.  There’s also no shame in driving it 200,000+ miles.

But driving a car you can’t afford while in debt up to your eyeballs?  Well, there is shame in that!

Make no mistake, a used car at a great price will still save you a lot of money even if you have to put some repairs into it right away.  But you want to manage that process and have a little cushion before those expenses hit.  There are no guarantees but choosing a car carefully and getting it inspected can significantly minimize surprises.

I started on my used car buying checklist by looking on Craigslist.  Sure some scams go down there, but if you’re careful, it’s a great place to start.  Plus these days most car dealers list their cars there too.

But it’s a great idea to check multiple sites in your area and see what’s available and the range of prices.  You’ll want to look at a lot of cars and take your time!


Check out the eBiz list of the 15 Most Popular Car Websites.  That’s a great place to start your search.

Once you see some cars that look appealing then it’s time to dig deep and look at the history of that specific vehicle and the true street value in your town.

Not sure, how to do that?  Read on!

How to buy a car you won’t regret

Kelly Blue Book (often referred to as KBB) and Safe-Vehicle are your friends here.

Kelly Blue Book allows you to look up the value of any car.  You enter specifics like your zip code, mileage, year, condition, etc.  Then it gives you the value if you are buying/selling from/to a dealer or individual, trade-in value, etc.  You don’t want to buy a late model car or sell your existing car without knowing the going rate in your zip code.

Safe-Vehicle, on the other hand, can give you vehicle history for almost all used cars and at a fraction of the price of CarFax and other VIN report companies.

How many owners.  Accident/repair history and much more.  Has it ever had a salvage title (meaning it was totaled)?  Many dealers these days proudly offer a vehicle history report.  Many that do even give you online access to the report from their website.

You will still want to get the car inspected by a 3rd party.  But the Safe-Vehicle report helps you to eliminate lemons before you pay for inspections. These guys are crucial for your used car buying checklist.

Can you take a used car to a mechanic before buying it?

You’ve selected a great late model used car and you’ve seen the CARFAX report. The next used car buying checklist step is to get it inspected.  Ideally, you have a regular mechanic who you trust. If so, that’s who you want to take it to.

I have to give a shout out to our mechanic who is fantastic (he drove to my house today while I was at work to take a look at one of our cars that had a mysterious fluid leak).  His name is Adam Potter of Potter Automotive.  If you live anywhere south of Austin, he’s well worth seeking out!

But if you don’t have a regular mechanic, then using Yelp, I would select a well-rate mechanic close to the dealer or seller.

If the seller won’t allow you to get it checked out or are insistent that their mechanics will check it out, RUN; don’t walk, and go elsewhere.

That’s a huge red flag; what are they hiding?  Is there something huge they don’t want you to know?  You absolutely need someone to look at it who both knows what they are doing and is impartial.

How much does it cost to have a used car inspected?


You want what is often called a pre-purchase inspection.  It’s not an in-depth hours long inspection.  But it does check all the major components of a car and will give you a good idea of any work that will be needed soon or down the road.

A typical pre-purchase inspection will be anywhere from $75 to $100 or maybe a little bit more. This is crucial for your used car buying checklist.

Once you know what work may be needed in the immediate future, ask for that amount to be reduced from the purchase price.  Unless their asking price was rock bottom on the KBB value scale, they will likely accept that offer.

Also know that most of the time, you’ll pay the purchase price plus tax, title and license.  Those things will vary a little state by state with state sales tax being the biggest variable.  But in general, you’re looking at anywhere from an additional 6-12% of the sales price.

Use this handy auto loan calculator from to factor your specifics.

What used cars NOT to buy?

You can find lemons from almost every manufacturer. That being said, Consumer Reports has compiled a list of the worst used cars to buy.

Surprisingly enough, you’ll see models from almost all the major makers:

  • Acura
  • Audi
  • BMW
  • Buick
  • Cadillac
  • Chevrolet
  • Chrysler
  • Dodge

and more!

Their handy report allows you to select the manufacturer and it will tell you what years of their cars represent the worst used cars to buy.

This one needs to be on your used car buying checklist for sure!

What is best used car to buy?

Edmunds compiled a list of the best used cars to buy for under $18,000:

  • Honda Civic (2014-’15)
  • Mazda 3 (2014-’15)
  • Honda Accord (2013)
  • Hyundai Sonata (2013-’14)
  • Kia Soul (2014-’15)
  • Honda CR-V (2012)
  • Subaru Outback (2010-’12)
  • Nissan Murano (2010-’13)

Your mechanic is also a great person to ask. After all, they know what keeps coming back for more. They also know what cars only ever come in for an oil change.  As an added plus, because they’re local, they also are aware of how factors like weather or your local roads can affect a car.

So what are my . . .

17 Worst Used Car Buying Checklist Mistakes You Should Avoid?


  • They are counting on you coming in unprepared
  • When you’re not prepared, you’re more opt to make an emotional decision
  • An emotional decision will likely cost you thousands!


  • Your budget is your key to success; in life, in marriage and in general
  • Not knowing what you can afford will likely mean you end up with something you can’t afford


  • Guess what you can do when you don’t have a $200-$500/month car payment?  LOTS OF THINGS!
  • Debt will slow your accumulation of wealth & slow your ability to retire on time and in style
  • Saving keeps your impulses in check and your financial future in tact


  • If you do insist on debt, check your local credit union auto loan rates
  • My credit union is currently offering auto loans at 1.79% interest.  Chances are your local dealer will be much higher


  • Don’t get suckered in by a low payment
  • A $200/month payment doesn’t mean much at 5% over 7 years
  • That will have you paying a grand total of almost $30,000 for a $25,000 car that drops in value to $22,000 the moment you drive it off the lot!


  • Your personal mechanic sees a lot of cars
  • They know what they have to fix frequently, what’s challenging to fix and what is easily fixed or rarely in their shop
  • Seek out their advice as they are the one who knows!


  • With everything readily available at your fingertips, there’s no excuse to not have looked at online reviews, groups and forums for the car you’re considering
  • That should give you a very good idea of what you’re in for if you purchase it; the good, the bad and the ugly


  • As I point out above, you might as well take 11% off the price of the car in hundred dollar bills and set it on fire
  • You’re paying an awful lot of money for that harshly chemical new car smell
  • For what you would save in buying a late model version of the same car you could take the family to Disneyland


  • We may be expected to buy medical treatment without knowing the price ahead of time, but for everything else we buy in this world, it’s pretty easy to figure out an acceptable price range
  • Know that range and stay within it
  • The KBB site is your friend!


  • Getting the car checked out by someone who doesn’t financially benefit in the transaction is crucial
  • If you don’t have a regular mechanic you trust, use Yelp to locate a trusted mechanic near the seller
  • Never just blindly accept the dealer’s word that the car is clean or without issue


  • Some dealers may have the vehicle well priced so it moves quickly
  • If you did your KBB homework, you should know the price range on this vehicle with its exact mileage and condition in your zip code
  • Any offer in that range is perfectly acceptable and in a high supply situation (where the dealer has a ton of inventory) you may be able to dip a little below the bottom range
  • But do strive to be fair; you don’t win by making someone else lose


  • Just  like at Best Buy, you don’t want extended warranties
  • This is where most retailers make their big bucks
  • They are counting on you either not remembering the warranty or selling the car before you need to use it
  • Often (especially if you bought a car using the above steps) you’ll come out much further ahead financially without this


  • Unless you live in a salt marsh your car doesn’t really need rust proofing undercoating
  • Even if you do feel you need it, you’ll find it elsewhere for a lot less
  • Also skip the upholstery sealing; most car seats can easily be cleaned and your family’s health will appreciate the lack of those chemicals on the seat and in the air inside the car
  • These things, like the extended warranty, are often the highest markup things car dealers sell


  • The car we’re about to sell is a 2006 Kia Spectra.  Not glamorous, I know
  • If I sell that car on Craigslist, with our mileage and condition, we can get about $1700 (priced using KBB’s “check my car’s value” page)
  • The trade-in value, however, ranges from $250 to $750
  • So while I know it’s easy to just drop off your old car and sign a few pieces of paper, you’re also setting fire to $1,000 or more of your hard earned dollars!


  • As with step number 14, know the value of the car you plan to get rid of
  • If the dealer will give you close to the street value it might be worth the loss for the hassle-free action of trading it in
  • But if you haven’t checked the value (both trade-in and selling privately) then you don’t have enough info to make an informed decision
  • Not all cars are created equal in terms of what cars hold their value best. So its worth researching before your next purchase.


  • Just another means of financing a car
  • Except it’s not really yours & you have restrictions on mileage and wear
  • Basically one of the worst financial ideas you can have outside of a 10 year car loan


  • According to, you have between 7 and 30 days to add a new vehicle to your existing insurance policy
  • It varies due to both state regulations and difference between insurance companies
  • Since virtually all auto insurance companies allow these changes online, the best practice is to add the vehicle the moment you get home and then print a new coverage card right then and place it in your new car!

car buying featured download box

Was this the used car buying checklist you were hoping for? 

What could I have improved in it?

Feel free to comment here or email me with any questions as I am here to help!

If you like this post, please consider sharing on Facebook, because if it helped you, it just might help someone else!


Top Strategies to Avoid Getting Into Debt

how to become debt free on a low income one hand pulling out an empty pants pocket with the other hand holding a small amount of change Middle Class Dad

Debt is a scary thing. It can quickly spiral out of control, and before you know it, you’re struggling to keep your head above water. If you’re looking to avoid getting into debt in the first place, there are many strategies you can implement.

The below strategies, provided by Debt Relief Canada from A. Fisher & Associates, will help you to avoid getting into debt and if you are already in debt, help you start your debt free journey.

Here are 10 strategies to help you stay out of the red.

  1. Live within your means.

This means spending less than you earn and being mindful of your spending habits. If you find yourself constantly spend more money than you have, it’s time to reevaluate your budget and make some changes.

  1. Make a budget and stick to it.

Budgeting may not be the most exciting thing in the world, but it is crucial to avoiding debt. Know exactly how much money you have coming in and going out each month so that you can make informed decisions about your spending.

  1. Don’t use credit cards for everyday purchases.

Credit cards should only be used for emergencies or planned expenses that you know you can pay off in full. Otherwise, you’ll end up paying interest on your purchases, which can quickly add up and get you into debt.

  1. Pay off your credit card balance in full each month.

One of the best ways to stay out of debt is to pay off your credit card balance in full each month. This way, you’ll avoid paying interest and will stay debt-free. Budgeting is key to make this happen. You’ll need to track your spending and make sure you’re not spending more than you can afford. When you do use your credit card, be sure to pay off the balance in full at the end of each month. This will help you avoid debt and keep your finances healthy.

  1. Don’t take on more debt than you can handle.

Before taking on any new debt, make sure that you will be able to afford the monthly payments. Otherwise, you could find yourself quickly sinking into debt that you can’t escape from.

  1. Create a Debt Repayment Plan.

If you’re already in debt, it’s important to create a plan to pay it off. Start by listing all of your debts from smallest to largest. Then, focus on making the minimum payments on all of your debts except for the one with the smallest balance. Once that debt is paid off, you can move on to the next one on your list. This method is called the debt snowball method and it can be very effective in helping you pay off your debt and avoid further debt in the future.

  1. Avoid using payday loans.

Payday loans are generally a bad idea. They typically have high interest rates and fees, which can quickly get you into more debt. If you find yourself in a situation where you need cash fast, it’s better to explore other options, such as borrowing from a friend or family member, using a credit card, or taking out a personal loan from a bank or credit union.

  1. Build up your savings.

Having a healthy savings account can help you avoid debt in two ways. First, it gives you a buffer if you find yourself in a situation where you need to unexpected expenses. This can help you avoid using credit cards or taking out loans to cover the costs. Second, it can give you peace of mind knowing that you have money set aside for emergencies. This can help you avoid the temptation to use credit cards or take out loans when something unexpected comes up.

  1. Stay disciplined with your spending.

One of the best ways to avoid debt is to be disciplined with your spending. This means being mindful of your purchases and only spending money on things that you truly need. When you’re disciplined with your spending, you’re less likely to make impulse purchases that can lead to debt.

  1. Seek help if you’re struggling with debt.

If you’re struggling to keep up with your debts, don’t be afraid to seek help. There are many resources available to help you get out of debt and stay out of debt. You can talk to a financial advisor, credit counselor, or even a debt consolidation company. These professionals can help you create a plan to get out of debt and avoid further debt in the future.

Following these 10 strategies can help you avoid getting into debt. Budgeting, avoiding credit cards and paying off your balance each month are just some of the ways you can avoid getting into debt.