Monthly Archives: April 2017

Financial Freedom, Relationships

Money and Relationships…3, 2, 1

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And here we go. Date the guy with the nice home instead of the nice car. That’s my advice.

Growing up, my father said my grandmother would say that a man should have a place to put his family. Simply put, if you want a family, then you should have a home for them. It doesn’t have to be a mini McMansion, but it can’t be a cracker jack box.

Will the real estate holder, please stand up? I have actually known some men to prefer a fancy set of wheels as opposed to owning their own piece of property. I get it. Cars mean freedom and to some that they had arrived at adulthood. However, from my experience it’s the guys with the homes that tend to stay in longer, better relationships. Maybe, being a home owner is something to aspire to.

Vanity hates loneliness.  I used to work with a guy that drove a pretty swanky BMW. The sticker price was between $40,000-$50,000. He lived in a one-bedroom apartment in a sketchy neighborhood. He was more concerned with looking good and cool gadgets than his net worth. The few relationships he had were terrible. However, he would be willing to stay in miserable relationships just not to be alone.

Well, one day he lost his job. The car payment was around $500 per month. And unemployment checks weren’t covering it. No savings to speak of. If he had a home, he could have tapped an equity line of credit until times got better or even rented out a room. But those were not options. So what did he do instead. He asked his mother to make his car payments for him.

Safe to say the woman he was seeing at the time didn’t stick around too much longer afterward. Last, I heard or saw of him he had paid off the car after about 7 years, was moving into a bigger apartment in another part of town, and his relationship status was single. And his hobby was…drumroll please…playing video games.

I did suggest to him to enroll in school or some other function that may help him increase his marketability in the employment world. Sadly, he declined.

Homes equal leverage.   A car is a depreciating asset. It usually does not retain its original value, and continues to steadily decrease as the years go by. In contrast, a home is an appreciating asset that increases in value over time. In a 7-year time period, you could build up equity and your home could appreciate in value at the same time.

Let’s say you build $20,000 of equity and your home appreciates 2% a year for a 14% increase in value. If your purchase price was $150,000, then your home is now worth $171,000. For a total equity of $41,000 that you can tap for home repairs, remodeling, etc. That is leverage. You can use this equity to your advantage. What do you get back from paying rent? Zero.

Rent check or car payment. Now that we know what to look for in a guy. Let’s see where the guy without a plan to acquire property could potentially end up without assets of any kind or of substantial worth.

Without his mother paying his car payment, the car may have been repossessed. This ruins your credit, you have no vehicle, can’t get to work, you may lose your job, cashes out retirement account to eat and live, and now you can’t buy a home because you have bad credit and no job.

You may end up living off the side of a freeway off ramp or at the ripe old age of 70 asking customers paper or plastic. Not that there is anything wrong with having a job, but if I have to utter this statement I want it to be my choice and not because I have to.

Working in your golden years to still put food on the table is not how I or anyone should have to spend their retirement. You always want to have the option not to have to work. Or worse yet, from the peanuts you are making, you may be only able to afford Alpo.

Pay on what you own. Paying the mortgage is better than paying for a car. Even though at the end of your loan terms you own an asset, the home can go up in value, house your family, and be used for leverage. Your car can only be used for the latter and for a minimal amount at best.

And so there you have it folks.  If you plan to date, find a partner that understands the value of money and doesn’t just know the price of everything. If you know how to spend, then you should also know how to save.

Financial Freedom, Retirement

R-E-T-I-R-E oh yeah I ment for this to happen

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Retirement the best laid plans. First, they tell you to go to school and get good grades. You won’t be able to get into college they say. Little do they know that there are many colleges willing to accept you because bottom-line is they want your money. So you get into college, you graduate, and get a job. Now you have to plan your exit strategy. Sounds daunting because it is.

Expert advice. All the experts say you have to start saving and investing early. Pretty much from the time you start your first job. They might as well say as soon as you can start walking and talking because it takes a while before your investments are self-sustaining from what is known as compound interest, which is interest calculated on the principal and also on the accumulated interest that grows money over time. In other words, if you invest $5 dollars and $1 dollar of interest grows on it, then interest will now start accruing on $6 dollars and so on. That’s how you build wealth. This happens even faster when you get out of debt because then you have more money to invest.

Most commonly known and used retirement plans

401k. This is a retirement plan where participants make a contribution from his or her paycheck that is usually done through pretax and/or post-tax deductions. Investments are chosen among the options provided under the plan. Pre-tax deductions grow tax deferred and are tax deductible.

IRA’s. Roth vs. traditional

A Traditional IRA is a retirement account that allows participants to direct pretax income into investments that grow tax deferred until the money is withdrawn.

A Roth Ira is similar to a traditional IRA, but contributions are from after-tax income, are not tax deductible but distributions are tax free.

I remember being in my twenties and finally landing a job that had a 401k. I thought it would never happen. Little did I know I now needed to manage paying the bills, picking investments, eating, bathing, juggling work and school on top of becoming a semi-professional financial expert to manage it. I just decided to do enough to get the match.

This was a time when I was not making a lot of money mind you. Less than $30k thank you very much but something is always better than nothing. So I had to work with what I got. My other coworkers laughed at me for contributing so little (we all made peanuts) and some even decided not to invest at all!

I ignored the naysayers. I continued to invest until I was laid off during the financial crisis. Since, I did not know much about 401k’s and rollovers at the time I left it alone and let it sit. It turned into about $5,500.

Later, I was informed that it went below the $5k mark needed for it to stay invested and I would have to cash it out. I learned that if your investments fall below this amount that it cannot stay with your old employer’s plan. However, to cash out any retirement plan before the age of 59 ½ means paying steep penalties such as 10% for early withdrawal and paying federal and state income tax. I was like no way!

I just held fast and waited to see what would happen. The only way that I was cashing in my golden ticket was if the tax man himself came to my house, tipped his hat, flipped over with his cane and said I have no choice or Uncle Sam, aka the government, would take my money away from me. Well, guess what, that never happened.

My investments ending up going up and down for a while teetering between $5k and $5500 but eventually settling down to the tune of over $8k. Not bad for someone who was laughed at and told that I did not make enough to invest.

I would go on to rollover that account and invest modestly over the next few years and that balance within 3 years became over $15k! I’m glad I stuck to my guns and decided to trust my gut instead of listening to others. Your instincts are usually the best advice you can take.

And after seeing what was endless possibilities thanks to compound interest I said to myself…this is just the beginning.

Financial Freedom

Getting back to cash only

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I once heard the saying ‘cash is king’ and now after spending years in credit card debt, I can finally understand the meaning. If I used cash, there would be no debt. Debt can be debilitating. It can cause stress, anger, anxiety and limit upward mobility.

For example, let’s say that you have $15,000 in credit card debt at 15% interest. It could take about ten years with a payment of $242 a month and over $14,000 in interest before the debt would be repaid. You would have paid for your purchases twice! If instead, that money was invested in a Roth IRA, after ten years of contributing $242 per month at an 8 percent, your investment would be worth $74,452.

That’s a whole lot better than repaying debt! So how can we get back to cash. It’s simple. Just do a little less.

Instead of buying breakfast every morning, you could buy twice a week. Same goes for snacks and eating out. Just limit what you do. And use cash.

Start by using cash at the grocery store and gas station every week. Then on other regular purchases such as the hair salon or barber shop, tip with cash, eat out with cash. When you have to physically part with your hard earned money it hurts a lot more.

Let’s say you pay $1,000 monthly to repay your debt. If you were to save that same amount of money, you would have $12,000 in your bank account by the end of the year. Do this for three years and have $36,000. Five years will give you $60,000. And for eight years will give you a whopping $96,000!

You can’t afford not to save as the alternative is usually being in debt. When you have the cash to pay for whatever life throws your way, you are able to cope better with the challenges it will bring you. Just saving for a few years could provide you with financial freedom the likes of which you have never felt before.

All you have to do is a little less.