Category Archives: Financial Independence

financial freedom

Financial Freedom, Real Estate

Home Buying: Survival of the fittest wallet

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They say home is where the heart is.

However, in current economic times, I have learned that home buying is not for the faint at heart.

The process of buying a home today is treacherous because banks have once again started lending more than you can possibly afford to repay. Proceed with caution.

Due to the cost of renting increasing into the stratosphere, it makes owning almost inevitable.

Buying a home now is like playing Russian roulette with your finances. Eventually, your wallet can’t dodge the bullet.

After speaking with numerous colleagues, friends, family, and acquaintances it is safe to say that the subprime mortgage crisis is roaring back into people’s lives like a lion.

Housing prices are getting out of control again in America.

This is some of what I have uncovered so far.

Rent too high, houses too small.

Rent is too high. There is no cap on rent. Sky is the limit. And that limit is going to the ceiling. It is no secret that renting can be expensive. This is acutely felt when living in high cost areas such as San Francisco and New York. Rent has doubled in the last 20 years. Read this article Rent is totally out of control. Making it harder for folks to save and buy a home of their own.

Low cost-housing is shrinking. As neighborhoods around the country gentrify, more people are being displaced. I actually saw blogs and articles about people discussing living in cars, vans, and in their cubicles!  That’s no joke. Read the article here I secretly lived in my office for 500 days.

The country is also losing 125,000 affordable rental units a year. Read all about it  The affordable housing crisis.

Amount of homes available to buy is too small. Not only are there not enough homes for sale on the market, but the ones that are more affordable tend to be on the smaller side.

Location, location, location. Many are priced out of major metropolitan cities where the jobs are plentiful. I work in the Washington, DC area and the location I commute to has homes on the market in the millions! That’s right folks, if you can write the next hit song for Beyoncé, then you can afford the housing prices in certain parts of the District.

Applicant pool shrinking. The amount of folks actually able to buy a home is getting smaller. Financing may be a little harder to come by when you owe tens of thousands in credit cards, auto loans, and student loan debt. Fewer people are able to not only apply but be approved for home loans. Thus, creating a vicious cycle of not being able to afford to rent but not having enough to buy.

Prices of homes on the market are increasing. This is where I get steamed. I have heard of people being approved for anywhere from $250,000 to $625,000. Even on one salary! Come, on. This is not legit. It makes no economic sense to put yourself into a mortgage that you can’t afford or that would possibly lessen your quality of life.

I read that it is best to purchase a home for about half of what you are approved for so that you will not become house rich, but cash poor.

In addition, you should put no more than 20 percent down as anything more could expose you to unnecessary risk. Should the market go down and your home goes under-water so too does your down payment as it now sleeps with the fishes. This means you got too much skin in the game.

A house is not a home. Fill it with love and laughter. Easier said than done. First, you have to find a partner. If not, you have to be able to afford to live alone until you find one and that my friends can be expensive. Don’t believe me, then read this It’s getting very expensive to live alone.

Foreclosure. You go and get a piece of the American Dream and buy a home. Congrats! You own a slice of American pie. Then it all comes crashing down as your home plunges under-water and your adjustable rate mortgage loan ballooned your payments from an affordable $1,200 a month to $3,000. This not only displaces your family, but hurts your credit.

Short sale. Due to circumstances that may be beyond your control; you lose your home. You owe more than the home is worth prompting you to decide to sell at a loss. The added pressure of a lender sending an eviction notice and threatening foreclosure aggravate this process.

Save for a home. For all the reasons stated above is why you must save for a home and not let your eyes be bigger than your wallet. Forget the Joneses. I mean what did they ever do for you anyway. Are they going to take you in when the sherriff shows up to evict you? No way!

My advice is to put aside the 20 percent down payment over a two to four-year time period. Find a home you like. Get the price and figure the amount you need to save over four years to have the down payment. That would mean saving five percent of the purchase price annually.

For example, $180,000 x .20 = $36,000/4 = $9,000 per year or $750 per month. This decreases the amount you have to finance and lessens the amount of interest you pay over the life of the loan.

You can use these posts to help be your guide and inspiration toward saving a down payment.

Getting back to cash only

How to build an emergency fund

Morale of the story: Let the American Dream be whatever and wherever you want it to be as long as it’s in a neighborhood you can afford.

Financial Freedom

How to Build an Emergency Fund

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Whether or not you call it an emergency or rainy day fund it is all the same.

Basically, it is a pot of money set aside just in case something happens that is unforeseen i.e., a job loss or illness.

During the economic crisis this was some people’s only and best line of defense against the loss of their income or investments.

Emergencies are part of life. Being prepared could make all the difference.

What is an emergency fund?

An account that is used to set funds aside that are for the worst case scenarios, such as medical illness, job layoff, or other major expenses.

What is considered an emergency? It depends. An emergency to some may not be considered one to others, but a short list includes the following:

  • Job loss
  • Medical emergency
  • Unexpected home repairs
  • Automobile issues
  • Unplanned family emergencies

For example, if you get a flat tire or have a leaky faucet, you should have the funds readily available in a savings account to use instead of putting these or other expenses on plastic.

Here’s some food for thought. Studies have shown that people have recently or will at some point in the near future have one of the following occurrences:

  • More than one in five Americans have unpaid medical bills: 21%
  • Nearly half of all adults that are high school graduates could not come up with $2,000 in 30 days from an emergency: 45%
  • The percentage of adults with a college degree could not scrounge up $2,000 for same time period: 18%
  • Late mortgage payments for the age group of 18-34: 29%
  • Respondents that have used high-cost forms of borrowing like payday loans and pawnshops: 21-39%
  • Financial Literacy rate of respondents: 37%
Source: FINRA Investor Education Foundation National Financial Capability Study, 2016.

Consider the Alternatives. Having no savings at all.

This means if Aunt Sally calls and asks you to visit or help her pay for a leaky roof repair, you can’t do either. Let alone, pay for your own emergencies or travel plans.

You are also more likely to borrow, most especially at high and egregious interest rates, when an emergency arrives.

Due to the lack of time or preparation to shop around for better rates or leverage to get a better deal, you are unable have any bargaining chips to bring to the table.

Worst case is that you will be unable to borrow at all and could fall prey to unscrupulous loan sharks or be unable to receive help when needed.

Benefits of having emergency savings

You are less likely to make bad financial decisions. I am sure no one wants to let the lack of money cause them to make bad decisions. No knee-jerk reactions required if funds are set in reserve. Read about finances, save, then invest. When you know better you do better.

Less stress is a huge benefit. High stress can trigger all types of health problems from headaches to heart disease. An emergency fund can help alleviate stressors such as these.

Being able to help others. You can now volunteer, donate, or help family and friends when people are in need. Helping others makes you feel good too. This is also a stress reliever.

How much should you have in an emergency savings?

I recommend 3-12 months’ worth of expenses. I have a preference for 8 months because when I lost my job during the recession, it took me that long to land a new job.

You should start with a specific goal in mind such as $500 and continue saving from there. NerdWallet columnist, Liz Weston says $500 is a good place to start, will get you out of most predicaments, and usually keep you out of the hole.

If you use direct deposit and automatically transfer $10 per week into a savings account, you can save $500 in a year.

How to save for an emergency?

  • Slash expenses. Probably self-explanatory, but it bears repeating and repetition. Cut any expenses down to the bone if you have to. This includes cutting cable, dry-cleaning, eating out, clothes shopping, and out-of-town vacations that you cannot drive to get to your destination.
  • Keep the change. Start a change fund. You can use a piggy bank or jar, but instead of spending change bank it. Once you fill the jar, you can take it to the bank and deposit it into your savings. FYI: a gallon jug can hold around $400, give or take.
  • Save your tax refund. Enough said.
  • Additional income. If you have the time, get a second job or start a side hustle. You can also sell used items online.

Where should you keep your emergency savings?

Somewhere that you can get immediate access to your money. However, not so accessible that you can easily access the funds to use for non-emergencies such as a vacation, shopping, or a new car. A savings or money market account would be preferable. If you have to jump through too many hoops to get your money, then this is probably not the best place to keep your funds for emergency purposes.

Do not let the bank or anyone hold your money hostage. You need to be able break the glass in case of an emergency.

You can hedge your bets by keeping emergency funds in both a savings and money market accounts. Having more than one fund like two or more beats having none any day of the week.

So remember this: Murphy’s law states whatever can go wrong, will go wrong. An emergency fund is your insurance policy against this law.

Automobiles, Financial Freedom

I won’t stop now, cause it’s Ford cars for life

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If you have been reading my posts, by now you know I think the worst waste of money by far is a car.

Money and relationships 3-2-1

A car and nothing more

If you want to be wealthy drive a Ford

Life is good without a car payment

This is my latte factor. I call it the fancy car syndrome. If it’s shiny and new, people want it. Especially, if it’s a car. People can waste a couple hundred-grand just to be able to drive from the corner store and back home. I think people should examine the amounts spent on buying and leasing cars over a lifetime not just over the next 36 to 72 months.

What I drive. I personally own a Ford. I have driven one for over 13 years. My car has over 150,000 miles. It has a dent in the side and costs a minimum of $1500 to fix a year, but I still drive it. Why you ask? It’s simple. I used to spend $450 a month on a car note. Now I don’t. That’s $5400 a year. I was able to direct that money into savings and debt repayment.

Let me give you something to think about it. Two people walk into a car dealership. Customer A decides on a low-cost model car with great gas mileage for $15,000. Customer B goes for the fancy BMW that costs $50,000.

Two customers. Customer A is frugal, cuts expenses and pays off the car in 3 years. The money they were paying per month got rerouted to savings. After 2 years, they save $10,000. This is added to the additional $5000 that was in emergency savings. Approximately, $5000 is used as a down payment on a FHA home loan. They have over $100,000 in a current 401(k). Within a few years, including making extra payments on the mortgage, the home has $15,000 worth of equity. Customer A has a net worth of $125,000.

Customer B likes to live for today, increases expenses, and takes 6 years to pay off their car. No money is going to savings and they have $500 in an emergency fund and $7000 in an old 401(k). The warranty on the BMW runs out as soon as the car is paid for and repairs cost $3500. This expense goes on plastic. After a 2 years, the credit card debt has been repaid. They take out a personal loan to go vacation and pay for additional auto repairs. They have to treat themselves for denying themselves a vacation while paying off the car. Carpe, diem! However, because of high fixed expenses, they continue to rent and are unable to afford to save for a home down payment. Customer B has a net worth of -$10,000.

Over a decade with my Ford. Over the years, a few people have laughed at me for driving an old Ford. Those same people have had money issues for years. Not that I have not had any but because I do not have a car note to worry about my money goes toward other things like vacations, retirement savings or an emergency fund. I have been growing my nest egg for years. While I have watched some of those same people go broke. Now, I’m the one whose laughing, all the way to the bank.

Not only are Ford vehicles affordable, but because they are American made, it is easier to find parts and cheaper to fix. My average repair bill is $500-$700. The lady I knew whose spouse’s BMW was sitting on bricks because he couldn’t afford the repairs had a repair bill of $8000.

Since, my car is relatively inexpensive to fix, I can save more. I also was able to lower my insurance due to not needing full coverage. However, I would not go this route with an expensive car. If the cost of repairs and the value of the car is a high variance, you could end up with a totaled car and still have a balance owed.

Let’s say my Ford had this issue, then I may owe a balance, but it could be more like $1500 I have to pay out of pocket. In contrast, the Beemer might be something like $7000.

My car may be getting older but at least I own it and can afford the repairs without having to go into a ton of debt to fix it. So, if a car salesman walks up to you and tries to push you toward a fancy expensive car, by saying things like just try it out and if you don’t like it you can stop. Just say no. And walk towards the Ford vehicles instead. They may not get as high of a commission, but you get to keep your shirt and the house does not win.

Financial Freedom

How to save $100,000 dollars for retirement

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They say the first $100,000 is the hardest. Believe it. It takes the longest amount of time to get to when you start investing because it’s the longest hill to climb.

After you get through this hurdle, the rest is a lot smoother sailing.

The trick is to save consistently over time and to not cash out.

If you invest $5,500 annually or its equivalent of $458 per month, then you can have $100,000 dollars saved in ten years with an investment return of 8 percent.

Basically, you would need to max out your Roth IRA or contribute to a company 401(k).

You could have even more invested if you get a match.

The Rule of 72.  You can determine how long it will take your investment to double by taking the number 72 and dividing it by the interest rate.

Years required to double investment = 72 ÷ compound annual interest rate.

For the example described above that would mean 72/8 = 9. Therefore, it would take 9 years for your $100,000 to become $200,000.

Getting over the hump. This takes time. Once you start to save, then you have to commit.

There are no easy routes or shortcuts. The path to wealth is a journey. It truly is a marathon and not a sprint.

Build $100,000 in retirement savings by age 40

Build $100,000 retirement savings    
$100,000  account
Starting Age Daily savings Monthly savings Yearly Savings
20 $5.48 $167 $2000
25 $9.59 $292 $3500
30 $17.81 $542 $6500
35  $43.84 $1333 $16000
Greenbacksmagnet.com

Make saving a priority and you can amass huge sums of money just by slashing expenses.

The biggest expenses by far are housing, transportation, and food.

If you can move into a smaller home, sell your car, and live off rice and beans you could save a small fortune.

Be that as it may, I would still suggest starting with a budget you could live with so that you will not feel so deprived.

The reason for working on the goal of saving $100,000 is to have this in principal and let compound interest do the rest of the work for you.

Since you have already done all the heavy lifting of saving a hundred grand, now you can concentrate on other goals you may have in addition to saving for the future.

Here is some food for thought: $100,000 over 30 years at an 8% rate of return can grow (thanks to the magic of compound interest) into $1 million dollars!

That’s right. You’re a millionaire. Now when they ask who wants to be a millionaire you can say your well on your way!

Automobiles, Financial Freedom

Life is good, without a car payment

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Ah yes, I can feel it in the air. Early spring. Home and car buying season.

The dreaded car note. The average car payment is now hovering around $400 or more per month.

Here’s what you can do to get rid of your car payment and where you can put that money now that it’s not being spent on a car.

Get a shorter term. Many dealerships offer 72 month terms. I see this advertised all the time whenever I research or look at purchasing a vehicle. Hogwash. You can get a car loan for less than five years. If you want to be out of debt sooner rather than later, buy a less expensive car and finance for four years or less. Preferably three as once this year comes up and is marked off the calendar you can’t stand writing out the check anymore.

Use a zero percent deal. There are dealers and credit card companies that offer 0% financing deals. The catch is that you have to pay it off with 12-15 months on average. However, if you start here, you pay less interest over the life of the loan. Better yet, if you can pay it off during this time, your done and can tell the car company to honk that horn where the checks don’t shine.  

Save up and pay cash.  I know what you’re thinking. Can’t be done right. Well, it can be. It just takes time and discipline. For instance, pick out a car, write down the price, and set a goal of 5 years. Do the math and figure out the how long it will take to save up the money monthly. For example, a $20,000 vehicle will require you to save $334 a month for 5 years. Then you can walk into the dealership and pay cash!

Invest your money in stocks instead.  Now that you don’t have a car payment, you can put that money to work. Check out some IRA’s and mutual funds with an investment company. Money not spent can become money that interest is earned upon.

Beef up your rainy day fund. It’s a jungle out there. Anything could happen so you best be prepared. Take that $334 and start socking it away in savings. Do this for three years and you will have saved $12,000! That could be a down payment on a home.

Donate.  There are many organizations and people out there who need help. You can decide to feed the hungry or become a genie and grant wishes or set up a scholarship fund. No matter what you decide it can make a difference in someone’s life. The best part is that when it comes from the heart you feel good too.

Credit Cards, Financial Freedom

Do you hear that VISA? It’s me, Greenbacks Magnet

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I like my Visa. Always have. But it does not outshine cash.

Let’s face it, Visa is everyone whether you want it to be or not. Visa is accepted at the gas station, grocery store, airports, restaurants, and shopping malls.

Even vending machines take credit cards now. I once read that if you have to put groceries and gas on plastic, then you’re in trouble.

A book I read called Maxed Out, discusses the dangers of heavy dependence on credit.

You want to get on the right side of Mr. Interest, whereas, you earn it instead of pay it.

Here’s how you do it.

Read the fine print. Make sure to read your credit card statement. Know what interest rates you are paying and pay attention to the fees.

Pay off in three years. Credit card statements now show payment information of what happens when you pay only the minimum or what to pay to pay off your account in 3 years. If you stop using your card, you can pay it off in this time and be out of debt.

Plan to repay debt. I have read over 100 finance books and many state the same messages. One in particular is to make a plan to pay off all debt if possible in 3 to 5 years. Excluding the mortgage.

Setting goals. Write down a realistic plan to get rid of credit card debt. You need the amounts owed and interest rates.  The goal has to be measurable such as 3, 4, or 5 years.

Stop digging. You will have to stop using plastic. It’s the only way.

Save for emergencies. Have a rainy day fund to help kick the credit card habit. If you can save 1-month worth of expenses, you can start to kick the habit as you can pay for what you want with cash.

Delayed gratification. Plan your expenses. If you want to go to a concert next year, then start planning well in advance and save the money to pay for it with cash. No credit equals no debt.

Right side of Mr. Interest. Once you pay off the credit card debt, you can focus on investing the money you were paying in finance charges and start earning interest of your own instead of paying it.

Simply put, you can go from paying interest to earning it on the money you invest. This 8-step plan will help you get there.