Monthly Archives: October 2018

Blogger Interviews, Financial Freedom

A Blogger’s Tale: An Interview with Bitches Get Riches

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It’s almost Halloween! So, I will start this post like the Crypt-Keeper would on the show Tales from the Crypt on the heels of this upcoming All Hallows Eve.

Hello Boils and Ghouls! Tonight’s tale is one of money, sophistication, and women.

Topic du jour: Women who talk money. Who are the ladies behind the riches?

Before I get into the interview, I just want to start by saying this:

Thanks for coming out tonight. You could’ve been anywhere in the world. But you’re here with me, I appreciate that. – Jay Z

So, like Nas says, “Yo sit back, relax, sip your cog-ni-ac” and I hope you enjoy this blog post!

INTRODUCTIONS ARE IN ORDER

Much like Chaucer did, in A Knight’s Tale, I want to make an introduction.

Welcome Ladies and Gents!

And everybody else here NOT sitting on a financial cushion:

Today, you find yourself equals.

For you will all equally receive the same knowledge.

I have privilege, nay pleasure, of introducing you to bloggers, like no others,

Bloggers that can trace their lineage back to 2015.

I first met them at a dinner table near Orlando, Florida,

Waiting for our drinks,

Hoping that our meals would be arriving soon,

As the chips and salsa, were not enough to satisfy our hunger.

Next, Kitty amazed me still further

With her sign language skills and by telling jokes for an hour

Helping us forget we were ravenous

And to not walk across the street to the Shake Shack.

Three hours later, both ladies entertained us with stories

So, that we did not spend dinner in uncomfortable silence.

And so, without further gilding the lily,

And with no more ado,

I give you the Seekers of Financial Independence,

The Protectors of ending uncomfortable silence,

The Enforcers of Getting Rich,

The Ones —

The Only –

Bitches Get Riches!!!

MEET THE BI*CHES

GBM Miriam: It was an absolute pleasure meeting you ladies at FINCON 18 this year! Congrats, on winning the PLUTUS Award for funniest financial blog for Bitches Get Riches. Thank you for stopping by Greenbacks Magnet.

This blog is to help folks learn all things money.

I asked Kitty and Piggy to share their knowledge by answering a few questions and they so kindly said yes.

And thankfully so, I need all the help I can get because I don’t want to have to live in the forest, eat off the land, and use roots as medicine due to lack of money and financial literacy.

After the Dow dropped 800 points, I was strongly considering it, but then, like my sister, I thought if only I didn’t need tampons and to watch Supernatural…

So, here they are dropping gems right here for all to see. In the illustrious words of Sailor Moon, “And that means you!”

Fast Fact: The hand signs that Sailor Moon makes while she says her famous line, “In the name of the moon, I will punish you” means “I love you” in sign language.

Let’s get right into the interview.

BI*CHES START A BLOG

  1. What prompted you ladies to start a blog about money? 

BGR Kitty: We were the first among our group of friends to hit the classic major life milestones–marriage, buying a home, selling our souls in big girl corporate jobs. Our parents and grandparents, bless them, they meant well, but their advice was from another century. So we were always texting each other for advice. We needed help from a peer who’d been there recently. Eventually we realized there was a wealth of valuable information just sitting in our text convos, and we thought, “Hey, why not publish it?”

BGR Piggy: What Kitty said. 

  1. What are your favorite finance books? How come? 

BGR Kitty: Piggy is The Good Child and will give you real answers. But I’ll tell you that I get more out of reading advice that I don’t agree with. Bad advice fires me up. For that reason I have to say The Four Hour Workweek is my current favorite. I haaaaaaaate that book. Myopic, exploitative, and smug. Just thinking about it gets me excited!

BGR Piggy: Oh yeah this is definitely my area of expertise. I am currently reading Brynne Conroy’s “The Feminist Financial Handbook” and loving it. Like, when’s the last time you read a book on money that started with a definition of intersectional feminism? I also can’t recommend enough the classic “Your Money Or Your Life” by Vicki Robin, which is an essential read for anyone pursuing financial independence or just a better life. Then for beginners, I really enjoyed “The Financial Diet” by the brilliant Chelsea Fagan. Last but not least, I am counting down the days until Tanja Hester’s “Work Optional” is released!

  1. What are you reading right now? What’s on your night stand? 

BGR Kitty: I’m currently rereading Y the Last Man. It’s one of my absolute favorite graphic novels. It’s the story of what happens to the world when everyone with a Y chromosome dies suddenly, with the exception of one guy and his pet monkey. A fantastic piece of sci-fi that’s I mean, I love any story with roving bands of crazed misandrists. I also just started White Trash: The 400-Year Untold History of Class in America.

BGR Piggy: I just finished reading “Dietland” by Sarai Walker. It’s a total mindfuck of a book, all about body positivity, subversive feminism, rape culture, and a literal feminist terrorist cell that assassinates rapists and blackmails corporations into eliminating sexist products. If your reaction to that description was “… wut?” then hey, me too!

  1. One thing people may not know about each of you?

BGR Kitty: I don’t get hangovers. (I try not to rub it in the morning after a long night of drinking, but it definitely came up at FinCon.) I also have a genetic mutation that makes my body not process cannabinoids. Finally, I can open ANY jar. Seriously, ANY jar. Given this body of evidence, it’s entirely possible that I am Bruce Willis’s character from Unbreakable.

BGR Piggy: I hate chocolate. Refuse to eat it. When I was a kid my brother and I would divide the Halloween candy between us: he’d get all the chocolate, I’d get all the non-chocolate. He also got all the cavities which I’m sure is unrelated. I also love playing blues covers of pop songs at open mics! Just learned Ariana Grande’s “Dangerous Woman.”

  1. What’s in your wallet? How did you start getting your riches? 

BGR Kitty: I have a net worth of a quarter million. I find that beyond amazing, considering I’m a working artist. Every single lucky break I’ve had in my career has been because someone believed in me and advocated for me. If I were trying to make it in the big city with just my brains and my work ethic, I’d be straight fucked. I’ve had help, lots and lots of help. That’s why I like helping other people! It both feels good and is the only karmically sensible reaction.

BGR Piggy: I love this question, but I feel like Kitty’s question is perfect. Also, the Capital One Venture card is LITERALLY in my wallet. My husband and I paid for a vacation to Portugal for our fifth anniversary using the travel points for that card. It took us about two years of earning the points, which isn’t bad for a free vacation.

BONUS ROUND

Bonus Questions (pick any of the questions from the top or below that you want to answer) 

  1. Any life or money lessons from a favorite movie or TV show you would like to share?

BGR Piggy: According to my favorite movie, The Princess Bride, you should never get involved in a land war in Asia, nor should you go in against a Sicilian when death is on the line.

  1. If you could have dinner with anyone in history, who would it be? Why?

BGR Kitty: Malcolm X, especially towards the very end of his life. He’s a personal hero, and an incredibly complex figure. I’d be so interested to hear his thoughts on the state of America right now. Also, he doesn’t eat pork, and neither do I, so it would be super easy meal planning.

GBM Miriam: On your About Page it states: Who are Kitty and Piggy?

Some people wonder which of us is the Bebop, and which one’s the Rocksteady. But that question is an illusion. We are both Krangs.

So, here is my question.

  1. Why not Bebop and Rocksteady? Why 2 Krangs? Inquiring minds want to know! You said I could ask you anything. Please, no judgment.

BGR Kitty: If we’re going by the 1987 animated series, Bebop and Rocksteady–though lovable–are bunglers of the highest order. We’re strictly bunglers of the second-highest order. Like Krang, we are very goal-oriented. We too have platform dependencies (us, Patreon; him, Shredder). And most of all, we share Krang’s personality: sarcastic and demanding, with an almost admirable abiding pettiness.

  1. If you found a lottery ticket that ends up winning $1 million. What would you do? 

BGR Kitty: I would drive my van to Empire City and stay at Le Hotel with my son in the hopes that I could convince my dead wife’s possessive lesbian ex-servant to chill the fuck out. Hashtag reference! All the kids got it!

The End.

This is where the screen fades to black and the curtain closes. Please ladies take a bow!

Well, we have now come to the end of this interview. That was not only interesting, but also entertaining to say the least. I feel like I just walked out of an amateur comedy night,  open-mic contest!

BGR: Thanks Miriam!!!

GBM Miriam: Thank you Kitty and Piggy for coming aboard!! The next time we see each other the Patreon is on me!

Want more financial and life gems, from the comedy stylings of the dynamo duo of Bitches Get Riches?

Find them on them on their website and connect with them on Twitter at @BitchesGetRich

Financial Independence, Saving

Become your own bank

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“If you would be wealthy, think of saving as well as getting.” —Benjamin Franklin

Growing up one of my favorite toys was my piggybank.

I used to put all the spare change and money I found or received into it.

It was my ice cream truck money.

I just loved having my own.

It was such as source of pride, freedom, and independence because I was allowed to spend my money on the things I wanted.

That is how I want everyone to feel.

A sense of ownership and accountability over oneself and your actions.

In order to do this, you have to go back to saving the old-fashioned way, like putting money inside that old piggybank.

Here’s how.

A HOUSE IS NOT A PIGGYBANK

First, you need to stay away from borrowing. And if you truly must borrow, make sure to only get what is absolutely necessary. Every dollar you borrow just keeps you in debt.

Case in point, if you do a cash out refinance on your home, that can reset your mortgage debt-free clock and cause you to owe more interest over the life of the loan.

No one wants that.

You need to keep your hands off of large piles of cash. This includes the equity in your home, your 401(k), and easy access savings accounts.

It’s like losing weight. You have to keep your hands out of the cookie jar. In this instance, it’s the money jar. If you keep taking out of it, you will never reach your goals.

Forget taking out huge auto loans and personal loans. You do not need to drive a BMW to the airport on the way to Jamaica. That is the road to broke, if you cannot afford it.

I would rather you drive a Honda to the Grand Canyon, if this will keep you out of debt.

HOW TO START SAVING YOUR COINS

The most important step is to decide to save. If you want to save more, you have to earn more, slash expenses, or both.

Set a goal.

I started out with a goal of $50 per month and worked my way up to saving $13,000 a year by increasing yearly savings goals.

You have to write it down. Otherwise, it is a wish and not a goal. A goal requires action. It starts with writing it down. A written plan is 80% more likely to succeed.

I started saving my change. I would put it into a jar or bag.

I would save up anywhere from $25 to $100 dollars in change and then deposit this into the bank.

When you see the money add up and feel how heavy that coin jar or bag is, it gives you incentive to keep going. After, mastering the coin game, I moved on to bigger gains.

TURN SAVING COINS INTO SAVING DOLLARS

Then I started turning my attention onto dollars.

I started with manually transferring $50 per month into my savings account.

From there, I set up an automatic deposit of $25 every two weeks.

However, I was also getting tired of having to pay ATM fees. So, I found a way around this.

I would have to either go to the bank and take out a large enough amount of money to get me through the week, go to free ATM’s, spend less, or go to stores and do cash back.

For instance, grocery stores will allow you to do a debit card cash back of anywhere from $100-$300 depending on what store you go to.

Other places, like the convenience store, may allow you to get between $20-$80 cash back with a purchase.

I slowly worked my way up to saving more.

Every year, I would re-evaluate what my saving goals were, I would write it down, and figure out a way to make it happen.

If you zero sum budget, then you know when something gets paid off or you eliminate any type of expense that money gets freed up and must go somewhere or it disappears. Like all good dogs, it goes into heaven, I call it dollars heaven.

I started saving my money first from income I earned, and then spending what was left over.

I would decide to save $300 per month and figure out how much more to bring in to increase my cash flow or what I could cut in my budget to lower my expenses and then save that money.

It went down like this:

Year 1: Save $600.

Year 2: Save $1,800.

Year 3: Save $2,500.

Year 4: Save $3,600.

Year 5: Save $10,000.

Year 6: Save $13,333.

WHERE TO PLACE YOUR MONEY

Since, I knew I did not want to depend on having to go to the bank or grocery store every week, I decided to place money into a cash box.

I would put no more than a few hundred bucks in it.

I was placing my savings into several savings accounts such as regular savings and money market savings.

In addition, I would label my savings accounts to ear mark that money for things I wanted to pay for such as a vacation, car, home down payment, or college.

I then started looking into Certificates of Deposit (CDs) and High Yield Savings Accounts (HYSA).

Earn Money with High Yield Savings Accounts

With the high yield accounts, you can start to earn money on your money, that you can spend any way you want.

HOW TO BE YOUR OWN BANKER

Now that you have a cash cushion and cash box, you need banks less and less.

You should get to the point of not needing to borrow for much of anything.

You can keep 1s, 5s, 10s, 20s, 50s, and 100s in your cash box. Enough money to make your own change.

The savings account allows you to earn interest on your money and use this to save up enough to pay for hotel stays, rental cars, and vacations.

You can also earn through peer-to-peer lending because you now have enough dough to start lending to others like a bank does. And earn interest too!

ROLLING IN THE DOUGH

At this point, you should be able to start saving at least 10% to 25% of your income, after you eliminate debt and put your money to work for you.

So, now you know how I did it and what you can do too.

I went from saving $50 to over $13,000 per year! See how here 

How Millennial Money inspired me to start saving $13,333.06 a year

I started doing 5% of my income to now saving over 41% of my gross income!

It took years to get to this point.

Once I made the decision to save, I wrote it down, and created a plan.

It took over 5 years to get here!

So, take my advice, do not rush to try and do so much and then do nothing.

Take small steps toward bigger ones. That is the key to building wealth. The kind of wealth that lasts takes time to build. There are no shortcuts. Only patience, discipline, consistency, and time.

Banking, Bankruptcy, Budgeting, Credit Cards, Real Estate

From debt-free to owing $1 million in mortgage debt

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“Don’t tell me where your priorities are. Show me where you spend your money and I’ll tell you what they are.” —James W. Frick

It seems like only in America can a family go from debt-free to being $1 million dollars in debt in a decade.

And yes, you read that right. A couple got into $1 million of debt in 10 years!

As unbelievable as that sounds, it is very possible. If you don’t believe me then see my post called Meet an orthodontist with $1 million in student loan debt.

Although, student loans are a different financial beast, mortgage debt can be just as damaging to a family’s finances because, like student loans, bankruptcy does not absolve you from the debt. You still owe the money.

I read this article in the Washington Post several years ago entitled, “Swamped by an underwater home.”  The Boatengs had no debt in 1997 and by 2006 owed over $951,000. By 2013, their debt had gone up to $1,011,176.

When this article was published in 2015, the Boatengs had not made a mortgage payment in 6 years. It took them 10 years to go from $0 in debt to $1 million in debt. This is crippling debt. Most families in the United States will not come anywhere near this amount of debt in a lifetime, but this couple did in less than a decade. Here is their story.

HOW TO GO FROM DEBT FREE TO OWING $1M IN 10 YEARS

Comfort and Kofi Boateng won a visa lottery to come to America from Ghana in 1997. Their odyssey would not take them to where they truly wanted to be like Homer’s, but just the opposite. Instead of the American Dream they would be ensnared in an American Nightmare.

In the Ghandian culture, people pay cash for their assets including their homes. In Ghana, Comfort graduated with a degree in computer science at the University of Science and Technology in Kumasi and his wife, Kofi, received an associate’s degree.

The couple married in 1989, he was 30 and she was 26.

Wanting more opportunities, they applied online for a lottery administered by the State Department to receive a U.S. permanent resident card. If this was football, this would be considered a Hail Mary.

The reason for this is that the odds of getting chosen were slim. Per federal data, less than 5 percent of the 1 million immigrants granted permanent residency enter the United States through the lottery. But, this family beat those odds.

In July 1997, Comfort was on his way to American in a plane headed for Maryland.

On May 5, 2000, they bought their first home, a three-bedroom townhouse for $128,900 in Germantown, MD. This was after renting for several years and taking 2 of those 3 years to save for a down payment.

Even though his wife admitted she didn’t know anything about loans and houses, she was now a homeowner.

For me, this is a red flag. If you do not know about loans or homes, then why buy a home with a loan? This is a double whammy. At this point, I would urge anyone to learn about these things before doing anything else.

FROM $128,900 IN MORTGAGE DEBT TO $223,900 IN FOUR YEARS

In 2003, the Boatengs become American citizens. Comfort’s mother gets a green card to come live with them and this eliminates $300 in weekly child-care costs as they now have three children.

The Boatengs refinance their Germantown home several times to pay for home improvements and consolidate other debt. They cash out $95,000. They now owe $223,900 in mortgage debt.

Ultimately, with 6 people now living in the home, they decide they need a bigger house.

The townhouse, thanks to the booming housing market before the 2008-2009 stock market crash, their home is now worth $355,000 within only 3 years.

FROM $223,900 IN MORTGAGE DEBT TO $838,583 IN 1 YEAR

The Boatengs decided to move to from Germantown to Bowie, which is in Prince George’s county Maryland.

A home is found in a subdivision with manicured lawns, European cars, and intercom systems in a place called: Fairwood.

The neighborhood has a lot that Comfort likes because it reminds him of his dormitory back in Ghana.

At this point, he is already emotionally attached, which is a major no-no when it comes to money.

The family decides to build a house for over $600,000!

They think it will be a good investment. Their thinking was it is likely to go up in value like their Germantown home and could use the equity (more cash outs) to pay for the kid’s college educations.

I now have to call a time out! Flag on the play. I am shocked that this couple did not see the RED FLAGS here! How are you going to afford this? His wife is working as a secretary making $30,000 and he as an IT specialist making $80,000-$100,000.

They do not have the money to pay for this. This is the part in game where they are supposed to forfeit.

Alas, they continue to roll the dice with their finances. Little do they know the house is about to win.

Their real estate agent assures them it is affordable, if the refinance (yet again) the mortgage on the Germantown house — which they were going to keep (this just makes no sense, now they are going to be landlords!!!) — and cashing out the $60,000 in equity. That money will be the down payment for the Fairwood house.

Bad, bad, bad idea. They are now taking advice from a realtor.

Let me tell you something. This person is not their financial advisor, CPA, attorney, business manager, or anything. He owes this family nothing. They have signed no documents to act as a fiduciary. They are not working is this family’s best interest.

Think of it like this. A baker likes to bake. If you ask the baker, if you should buy a cake, the answer is going to be yes. A barber likes to cut. Same rules apply, if you ask a barber, if you need a haircut.

However, I digress. Let’s get back to the story.

The Boatengs receive a loan from Lehman Brothers.

I’ll offer you a little background on the Lehman Brothers. It was founded in 1850. This bank was the fourth-largest in America and was not only one of the biggest subprime mortgage lenders (that helped cause the 2008-2009 housing crash), but also became the biggest bankruptcy in American history with $600 billion in debt. It had been in business for 158 years.

Due to their income, they could only qualify for an interest-only, adjustable rate mortgage. This is the worst type of loan there is. Do not ever take out an interest-only loan.

He has a great credit score of 748, which is how they got they loan. However, credit scores only mean you are great at managing debt. Nothing more. It does not necessarily mean you have any wealth.

For the first five years, they only make interest payments, then afterwards they would be required to pay more. How much more? Nobody knows. That is why these loans are so dangerous.

The Boatengs borrow $493,600 from Lehman Brothers, at an initial loan rate of 6.1 percent. In five years, it would reset to at least 8.3 percent. Their payments go from $3,662 up to $4,336. Thinking they would be able to refinance in the future to get a better rate. This day would not come.

He would then lose his job while the home was being built.

This is the part of the story where I am like. It’s all over. The house of cards has come crashing down. The jig is up. No more easy credit access. The bill has come due. There is no free lunch. It’s over.

And what happens next?

They admit to being emotionally attached, do not tell the lender of his job loss, decide not to walk away from the $20,000 deposit and not back out of the deal.

The Boatengs get a second loan to complete the financing through their broker’s company, a 30-year fixed-rate mortgage of $61,700 at 8.5 percent. The couple paid $29,000 in closing costs and put down a total of $73,000 in cash at the closing. They move in on November 25, 2005.

They now owe $838,583. Comfort has no job or any income and the couple are drowning in debt.

FROM $838,583 IN MORTGAGE DEBT TO $951,176 OF DEBT IN LESS THAN 1 YEAR

The couple is tapped out. They have no money to furnish the home. The first payment is due on January 1, 2006.

The payment on both homes (they still own the one in Germantown) is $5,550 a month!

Shut the front door! No, I mean literally. Shut the door to that place and give the keys back to the bank. Sell it and walk away. From both properties, in my opinion. You owe the bank everything you have.

The tenant in Germantown couldn’t pay. The housing market crashed, now being underwater, they couldn’t sell.

What did they decide to do? Take out more debt. Kofi started selling Mary Kay and took out $15,000 in personal loans with Bank of America. Then another $20,00 for her Mary Kay business with a 15 percent interest rate over 10 years. She didn’t see the risk because she thought she could earn $7,000 a month with Mary Kay.

Hold the phone. What happened to being cash heavy when starting businesses? Or starting them with your savings. Businesses need capital. Why not start small and see if a business works out? Then expand. She is putting the carriage before the horse here. There is no guarantee of making $7,000!

The Boatengs now owe $951,176.

FROM $951,176 TO $1,011,176 OF DEBT IN 6 YEARS

They decide to consolidate again. Howvever, consolidation only works when you pay off what you owe.

The couple took out a $620,000 refinancing loan from Countrywide Home Loans. It was again an interest-only subprime loan, carrying a 6.29 percent interest rate and adjusting in two years (even sooner this time) instead of five. Their payment on the Fairwood house would rise to about $5,230 by November 2008. That is $62,760 a year, after tax income!

They were unable to pay the $5,000 monthly payment and tried to modify their mortgage, but were able to get relief. They owed to much to qualify for HAMP. Ain’t that a kick in the head.

The Boatengs made their last Fairwood mortgage payment on Sept. 18, 2008. They are now in default and can be foreclosed on at any time. This means not only losing their home, but any money they put into it.

By November 2011, their payments were set to go up to $6,000. The bank valued the house at $378,216. That is $238,839 less than what they paid.

During this time, his wife went back to school in 2003 and graduated in 2009. She owed $90,000 in student loan debt. She lost her job and unemployment ran out after eight months.

Comfort was mostly unemployed or not working full-time from 2005-2010.

In 2014, the family was notified by Nationstar Mortgage, their new lender, that late payments dating back from 2008 were due now: $318,611.97.

Comfort’s mother passed away in 2014 and he was still looking for full-time work.

He became so frustrated he thought: Why stay in America? Why not just go back to his country and find a job there?

Like me, their housing counselor noticed that their downfall began with the idea of buying a second home for more than $600,000!

The couple owed $$ 1,011,176.

That was 2014.

FROM $1,011,176 TO $1,371, 813 OF DEBT 

By 2015, they owed $257,776 on the Germantown house, $969,037 owed on the Fairwood house, $55,000 in personal loans and still have the student loan debt (which is not dischargeable in bankruptcy). The couple who had never owned a credit card before moving to the United States now owe more than $1.3 million.

They currently earn about $100,000 a year.

It does not take a rocket scientist to know that they do not make enough to pay off these debts. They owe more than 10 times their gross income (what they make). And more than 19 times their net income (what they take home).

The interest on that type of debt is mind numbing. We are talking more than $50,000 a year in interest alone. That debt is likely to balloon to $2 million in another a decade. This will be during their golden years. They are building no wealth.

The reasoning for taking on so much debt was that the couple stated they saw that was how everything was done in America. You had to borrow to get ahead. Everything involved debt.

I want anyone out here reading this to take this away from this cautionary tale: Stay away from debt.

Don’t borrow more than you could ever afford to repay.

Do not borrow one million dollars, if you do not have $10 million in the bank.

You should have 10 times more in the bank than you owe, not owe 10 times more than you make.

That way if the bill comes due, you can pay it off in full.

At this point, borrowing money is strategic and not the only option.

Matter of fact, just pay of all your debt ASAP and owe no one a penny. NOT ONE RED CENT!

Financial Freedom, Financial Independence, Investing, Real Estate, Saving, Wealth

How not to be house rich, cash poor

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“If we command our wealth, we shall be rich and free. If our wealth commands us, we are poor indeed.” —Edmund Burke

I remember watching an episode of Property Brothers and they were telling this couple that you do not want to spend too much or overspend on a home and end up being house rich and cash poor.

They instead wanted the couple to buy a fixer-upper, do some sweat equity, renovate the home, and put that money into their pockets.

Basically, when you buy a turn-key home, the work has already been done and you are paying the homeowners for the money they put into the home on renovations.

However, then you buy the house at a markup.

This is due to the fact that they may pay $20,000 for renovations and then the property may increase in value by $40,000 or double what they paid. Thus, allowing them to increase the purchase price of the property, ergo you pay them to renovate.

That’s pretty steep for move-in-ready.

If you do the work yourself, you get to keep the value that the home increases by.

This means buying a fixer-upper for $300,000 and putting in $20,000 for renovations will push the home value to $340,000 and let you keep the $20k in equity for yourself instead of putting it in someone else’s pocket.

If you read my last post, Save $10,000 by Avoiding PMI, then you know I am all about saving that paper.

So, let me show you how not to be cash poor, but house rich.

WHAT DOES HOUSE RICH, CASH POOR MEAN?

According to Investopedia, “house poor is a situation that describes a person who spends a large proportion of his or her total income on home ownership, including mortgage payments, property taxes, maintenance and utilities.”

Basically, you are paying more for your home than you can afford or simply buying too much home.

If you have to pay more than 40% of your income for your dwelling, then you will become cash poor.

Matter of fact, if the value of your home decreases, you can be both house and cash poor.

When you are house rich that means all your money or wealth is tied up in your home. The home equity may be something like $150,000, but you only have $1,500 in the bank. That is not even enough to cover one month’s mortgage payment!

https://twitter.com/AP_Lifestyles/status/1051911392704499713

In order to shift this, you would want $40,000 in the bank, and to owe less than $150k on your home. That $40k would be enough to pay one year’s worth of expenses including mortgage payments ($1,600 x 12 = $19,200).

You would need a fixed rate mortgage to help you do this.

STAY AWAY FROM VARIABLE RATE LOANS

The ARM, or “adjustable rate mortgage” loan is too dangerous. Any loan product that can change at the drop of a hat and without a moment’s notice is too risky.

Let’s think about this for a second. Why is anything at a drop of a hat so bad? Well, did you ever see the movie Tombstone?

The idiom is likely to have come from the Old West, when duels would begin with a signal consisting of a man grabbing his hat and thrusting it toward the ground, before weapons are drawn.

Is this any way you want any part of your life to be lived?! Absolutely, not.

Entertaining in the movies sure, but not for real life.

This type of trickery should be left out of the equation.

First, lenders approve you for wayyy too much. Second, they tell you it’s okay to only pay the interest when it’s really not. As you cannot get out of debt, without paying off the principal of a loan.

And going for the trifecta of trickery, the third thing lenders do, and this is the hat trick, your mortgage payments jump so high Bryce Harper couldn’t catch it!

Your mortgage payments spikes upward too sharply for most folks to keep up.

A reasonable $1,600 mortgage payment could reset and go up to $2,400 in a single month!

That’s no joke.

I had a conversation with someone this actually happened to. Shocks like this are hard for most people to fathom and continue to live comfortably.

A fixed rate loan allows you to plan the monthly budget in advance.

When you how much you monthly nut has to cover, you are just better off.

HOW TO BE CASH RICH

Buying a home for less than you can afford is a start.

If you are approved for $400,000, then slash this amount by 25%. This equals $400k x 0.25 = $100,000!

You heard me. Then bank says $400k, and then you say:  I’ll go $300k.

In one fell swoop, you both cut the amount of home you buy and monthly payment by 25%

You then take that $100,000 and over the course of the 15, 20, or 30 years you are paying your mortgage, you put this same amount into mutual funds.

You could do the S&P 500 index. Do whatever you want.

The goals are to simultaneously invest that money and pay down your mortgage.

For instance, that $100k over 30 years translates to investing $277 per month for 360 months. That would allow you to save anywhere from $500,000 to over $1 million depending on your rate of return through compound interest.

That means over a 30 year time period you have paid off a worth an estimated $300,000 or possibly more as home value may increase during this time and have an additional $800,000 in investments.

You would have a net worth of $1.1 million and would put you in the top 10% of wealthy households in America. See my post; Join the top 10% club for more on this.

WORDS OF WISDOM

A few words of wisdom to follow:

  • Buy less home than you can afford
  • Spend no more than 25% of your income on the housing payment
  • Invest the difference of the savings you received from not paying the full amount approved for
  • Stick to a housing budget
  • Have a god size emergency fund of 8 months or more

It sounds so simple, but most folks are actually living beyond their means and buying my house than they can afford. I have actually seen people in their 50s signing up for 30 year mortgages! Holy crap! The odds of paying off this home are slim at that age.

If you can follow the advice I give above, you could find yourself at the top of the economic pyramid.

Don’t believe me? Read my post Join the top 5% club and find out!

Budgeting, Real Estate, Saving

Save $10,000 by avoiding Private Mortgage Insurance

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“A simple fact that is hard to learn is that the time to save money is when you have some.” —Joe Moore

Saving money is the cornerstone to building wealth.

Granted you have to have some to actually save some of it.

Regardless, the time to save is when you have it.

An ever better way to save money is to avoid doling it out in the first place. If you can slash or cut out expenses entirely, you can accumulate more wealth faster.

Buying a home is one of the reasons why people save money because buying one is expensive.

If you read my post, Home Buying:  Survival of the Fittest Wallet; then you understand what I mean about home buying.

Home Buying: Survival of the fittest wallet

Every dollar that you do not have to send out ultimately stays in your wallet.

A great way to save on money you spend on your home is to eliminate the cost of mortgage insurance, which is known as PMI.

What Is PMI?

Private mortgage insurance is something lenders use to protect their investment in your home. Until you own it or have put down a reasonable down payment, the bank wants to protect its property by making you pay insurance on it.

Most lenders require PMI if a homebuyer does not make a down payment of 20% of the home’s purchase price – or, in mortgage-speak, the mortgage’s loan-to-value (LTV). This LTV ratio is in excess of 80% (the higher the LTV ratio, the higher the risk profile of the mortgage).

Meaning if you owe anywhere above 80% of the home’s value, then you are considered risky and are a candidate for PMI.

For example, if you purchase a home for $250,000 and are unable to put down 20% ($250,000 x .20 = $50,000); thereby, owing more than $200,000 to the bank, then you would need PMI.

And unlike most types of insurance such as automotive or renter’s, the policy protects the lender’s investment in the home, not yours.

However, PMI makes it possible for people to become homeowners sooner because they can put down less than 20% such as 5% and still purchase a home.

FROM RENTER TO HOMEOWNER 

PMI allows borrowers to obtain financing if they can only afford (or prefer) to put down just 5% to 19.99% of the residence’s cost, but this ca be costly.

The home will now come with an additional monthly cost.

Borrowers have to pay their PMI until they have accumulated enough equity in the home that the lender no longer considers them high-risk.

Homebuyers who put down less than 20% of the sale price will have to pay PMI until the total equity of the home reaches 20%.

This means you have to pay 20% of your home’s value or have enough equity to build to that amount before PMI is no longer required. This can take years.

And your heirs also get nothing out of this.

Unlike most insurance policies, all proceeds go to the bank. The heirs get nada, zip, zero, nothing.

The lending institution is the beneficiary. PMI only helps the mortgage lender.

It is also not cancelled automatically.

You have to draft a letter to the lender explaining that the LTV of the home is now 80% or less. This usually requires getting an appraisal done. This could take months!

Or the other hand, if you wait until it automatically cancels, you would have to hit 22% equity. That is a full 2% higher than the 20% that is mandatory!

Meaning you essentially paid 2% more or $5,000 that was not even required!

Some lenders even request that you pay for a certain time period. So, if your home goes up in value and just absolutely skyrockets, you could zoom past the 20% minimum needed, but still be on the hook to pay.

How fair is that?

It’s like that scene out of Wedding Crashers, “I earned those miles.”

It would be not good at all. I earned those miles.

Now let’s talk the cost of PMI.

HOW MUCH IS PMI?

PMI acts just like the Red Hot Chili Pepper’s song Give it Away, in that you are giving this money away to insurance companies and that’s it.

PMI can cost on average between 0.05% and 1% of the entire loan amount annually. In some cases, maybe even more.

This means if you purchase a home for $250,000 and owe 1% annually for PMI, you will have to fork over $2500 per year. This equates to $208 monthly!

The more house you buy, the more the cost goes up.

If it takes 5 years to build up enough equity in the home to stop paying PMI on a $250k mortgage, that would mean paying $208 x 60 (months) = $12,480! And that money is burnt. You cannot get it back.

Did I also mention that as of 2018, PMI is no longer tax deductible?

That’s right. Insurance is just in case. And in this case, that is like throwing out two hundred dollar bills out your car window once a month!

So, you have to find a way to roll up those windows and plug that money leak.

HOW YOU CAN SAVE $10,000 BY AVOIDING PMI

You have to find a way to keep your money in your pocket and not the insurance companies.

Better yet, find a way to not only keep it, but make money with it.

Putting that $208 into stocks over the course of 10 years could net a return of over $37,000 with an 8% return!

If you can avoid PMI all together, you could save yourself over $10k!

For example, let’s say you have to pay $250 per months for 4 years, that is $250 x 48 (months) = $12,000.

In order to save $10,000, you would need to eliminate paying $208.33 a month for 4 years, that is $208.33 x 48 (months) = $10,000!

HOW TO AVOID PAYING PMI

There are a few ways to avoid paying PMI and they are the following:

  • Put down a 20% down payment.
  • Lender paid mortgage insurance (LMPI) where the cost of the PMI is included in the mortgage interest rate for the life of the loan.
  • Get a piggyback mortgage where a second mortgage or home equity loan is taken out at the same time as the first mortgage.
  • Find a lender willing to forgo PMI.

The last one is a little tricky.

There are not many places I could find that allowed this. However, there are some financial institutions that will offer a 100% conventional mortgage without PMI. You will just need to do an online search in your state.

So, there you have it.

I have showed you several ways to avoid PMI.

Now, I have saved you $10,000!

What is my fee for this service?

Only for you to share this with someone else.  And by doing so, help them save $10,000 as well.

She then takes a bow and says thank you for taking the time to read this post. I’ll be here all week!

Investing, Saving

Earn Money with High Yield Savings Accounts

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Don’t save what is left after spending; spend what is left after saving. – Warren Buffet

If you take a look at your bank accounts, you will notice that the rates on your savings accounts are minuscule.

On average, savings rates are a paltry 0.01% APY.

That means you are not even earning 1% on the money you have stashed away in most big banks.

This meager 0.01% APY is not doing anything for you.

If I put my hard earned money into a bank, I want something for it. These rates are almost no better than sticking your money under a mattress!

However, don’t do that. If the house ever catches fire, your money also goes up in smoke and is not FDIC insured.

I once heard a real estate mogul say that many years ago there was a time when interest rates were paying 10%. He was able to double his money every 7 years!

Now, that is fantastic.

However, this is not the case anymore.

Although, there are some banks that are willing to pay a fairly decent rate for the opportunity to house your money.

I found a few from doing an online search.

So, here is how you can earn money from placing your money in a high yield savings account.

WHAT IS A HIGH YIELD SAVINGS ACCOUNT

A High Yield Savings Account is a savings account with a variable rate typically higher than retail brick-and-mortar banks.

These banks are usually online and offer no physical bank that you can visit.

However, you can deposit your money online via electronic funds transfer.

Access to you funds may include a combination of wire transfers, checks, or ATM withdrawals. But this is not always the case.

For example, American Express® Personal Savings accounts are not meant for everyday spending. Therefore, debit cards, ATM cards, or checks are not provided. Transfers have to be done online. And transferring funds online can take anywhere from 1 to 3 days to complete.

Therefore, you should only deposit money in these types of accounts that do not require you to need access to these funds immediately or for daily spending purposes.

THE RULE OF 72

This rule allows you to estimate how long it will take for an investment to double at any given interest rate with the “Rule of 72”.

Knowing this will allow you to make a more informed decision before placing your money in any investment or savings vehicle.

You must also pay attention to the type of account you put your money into. For instance, a money market account or Certificate of Deposit (CD) will pay you more than a savings account.

Stocks pay you he highest rates of returns and give you the biggest bang for your buck!

The average annualized total return for the S&P 500 index over the past 90 years is 9.8 percent.

With the Rule of 72, If you use the formula, that equates to 72/9.8 = 7.34 years to double your money.

However, many banks are paying 1% or less!

Therefore, if your savings are earning only 1%, this means you money will double in value in 72 years.

That is 10x longer than if you had invested your money in stocks.

BANKS WITH HIGH YIELD SAVINGS

After doing a short search online, I found the following banks with high yield savings:

  1. American Express National Bank – 1.90% APY
  2. Ally Bank – 1.90% APY
  3. Barclays Bank – 1.90% APY
  4. HSBC Direct – 2.01% APY
  5. Synchrony Bank – 1.90% APY

HOW MUCH YOU CAN EARN

This amount can vary based on how much is deposited.

Of course, the higher the deposit amount the higher earned in interest.

You can use this money for anything you want or simply keep it invested and let the interest keep compounding on the amount you earn.

Please be advised that you still have to report this as income on your taxes. The bank will supply you with a form for tax purposes.

Now let’s show you the money.

We will use the 2.01% APY as our rate.

If you deposit $15,000, into an accounting paying 2.01% APY, you will get the following:

If you deposit $25,000, into an accounting paying 2.01% APY, you will get the following:

If you deposit $50,000, into an accounting paying 2.01% APY, you will get the following:

SKY’S THE LIMIT

All yeah! Let’s stack that paper!

Unless banks start putting a cap on the amount you can deposit, you can pretty much do this until you feel you have deposited enough in savings.

The point of using a High Yield Savings is to grow your money while you sleep.

That’s right. You can earn money just for breathing.

Merely allowing it to sit in an account paying less than 1% will not beat inflation; being its customary 2-3% rate per year.

At the very least, your money can keep up with inflation and not fall so far behind.

The goal is to always beat inflation.

Your money will have less purchasing power as inflation does its thing.

Therefore, it is your job to finds ways to keep the money train going by figuring out how to earn more, invest more, save more, and ultimately beat the inflation monster that is coming out every year to a theater near your wallet.