I am looking to make some home improvements, and will probably use a HELOC. Let’s assume I am going to spend $10,000 (it will be more than that) and draw from my HELOC. I will then have to pay off my HELOC monthly. Will I categorize the initial purchase against my budget? Or do I hide that purchase and focus on my payments to pay off my HELOC? I intend to pay this off gradually through the end of the year.
In general I would consider anything to do with the HELOC as “outside” your usual budget, but if you are adding the payments to your budgeting, I’d treat it exactly as I would a credit card since that’s really what it is.
Thanks, I can see it as a credit card. So if I make a few payments using the HELOC adding up, that will hit my budget (Home Improvement). Then repayment to my HELOC would be treated like a credit card payment, and hidden. After writing that out, I think I might switch it, and use the HELOC payment as part of the budget to keep me in line (closer) to my monthly cashflow. Thanks for your help
Using it, here’s another approach: To keep your cash flow plan positive for the year after budgeting for your home improvements, you’ll need to bring the anticipated proceeds from the HELOC into your budget as an income source (lump sum at the beginning of the project since your draw down may be unknown) equal to the sum of the proposed expenses for the same time period that you plan to finance (you may pay for some of the improvements from in your non-HELOC cash flow? ). The sum of your budget lines for the improvements in the year and the lump sum from the HELOC amount should equal if you will finance them all. Don’t hide any of these category lines. Then, what you’re really budgeting and managing is your capacity and pace to repay the loan. Create a budget line for your HELOC payments plan (not hidden) to be sure you can continue to service the debt with your annual cash flow that is separate from the loan.
Does that make sense? It is a little more work, but these steps provide you with the tools to manage your expenses AND manage your repayments, keeping strong records of all.
Yes, it DOES make sense (although I need to re-read this a few times to figure out how to set this up). Conceptually though, I get it. HELOC cash inflow and then set up category schedule. I might work on this tonight, with a hot cup of tea. Thank you Brad. I’m a visual learner so I will take a look at the link you provided to understand more in depth.
I would use the Savings & Debt template in Community Solutions. When you take the HELOC distribution, add a debt account (manual or automatic depending on your bank). That will show the outstanding debt you have on your balance sheet. In the Savings & Debt template you will track that debt account and you create a category with the same name as the account to track the HELOC payments. The Debt Payoff Goal side of the Savings & Debt template will show your balance and budgeted amount. When you make your monthly payment (e.g. from a checking account) that transaction will hit Tiller, categorize as the category you set, and if your HELOC is a manual account then update the balance.
I use this for a couple other loans and it works great. You can also set up a “HELOC Projection” dummy account to play around with what your payments will look like based on how much you might take out, kind of like having your own loan calculator right in your Tiller workbook.
This is a great solution. Thank you, ill be sure to set that up before i take the loan out.