Browsing Category: "Spending"
Consider other expenses when buying a bigger house.
So you’re ready to upgrade your home and buy a bigger house? You have lived in the starter home for a few years, got a little equity in your house and think it’s time to upgrade. You’ve got it all planned out and found the perfect house and have some money to pay down on your dream home. Only one problem, you haven’t thought about all the extra expenses that come with a larger home.
There is nothing wrong with buying a bigger home if you can really afford the price tag as well as all the extra expenses. From personal experiences here are some extra expenses to consider before purchasing that new home.
- Larger home means a larger heating and cooling bill. No matter if your new home has electric or gas you’ll be guaranteed to pay some extra cash for the utility bills. The larger the home the more you will pay.
- More furniture or new furniture. Most of the time when you move into a different house you will want at least a couple of new pieces of furniture. If you are purchasing a larger home with more rooms to fill you will probably have to buy even more furniture and furniture isn’t cheap.
- Home maintenance will increase. From cleaning to yard work to structural upkeep you’ll pay more the bigger the home.
- Property taxes will increase. Property taxes are based on a percentage of the value of the home. Buying a bigger home will increase your annual property tax bill.
- Insurance costs will increase. Just like property taxes insurance costs are based on the value of the home. A bigger home will cost a little more to insure. Don’t forget you will also have to increase the value of the valuables inside the home, since you just bought more.
Before you decide to buy your next home make sure you consider all these expenses. Many times people calculate exactly how much money they can spend on their monthly mortgage payment and these extra unplanned expenses can push you over you budget.
Just bought some land to build a future home
Most of my blog entries on this site are not very personal, but this one is all about me. It’s related to finances of course so it still fits into the site. It’s one of those situations where I’m not 100% convinced that I did the right move but from most viewpoints it seems financially logically to me. Let me give you the rundown and let you decide.
Background information: My wife and I have always wanted to own about 1 acre of land to build our home, but with living in the “city” land doesn’t come at a cheap price. We live in Kentucky so the cost of living is low compared to major cities such as New York, LA, and San Francisco, but for an acre of land here you’ll pay about $100,000. With that said we purchased our first home just before we were married about 6 years ago, a starter home for about $112,000. Two years later we sold that home for a profit and purchased a slightly bigger home in a little nicer neighborhood for about $150,000. Two years later we sold that home for a little profit and buit our current home for just over $200,000. The only problem is that it sets on less than .125 acres of land, not much of a yard for a backwoods Kentucky boy.
We started looking around for some land to build another home in the futre and found the perfect plot of land just a few minutes from our current home. Only problem…. it was listed at $80,000 for 1 acre, not a bad deal for the area but still out of our price range with already owning a home. We talked to the selling realtor but pretty much wrote off the land.
About a week later the realtor called us back and said they had dropped the price of the land $10,000 and told us the land was a forclosed property owned by a bank that was struggling. He suggested we make an offer on the land for what we could afford and see what happens. Remember the land was still listed at $70,000 but we sent him off with an offer for $54,000. The next day the realtor called us and told us our offer had been accepted! The land is appraised at $92,000 so I know we got a great deal, but I’m still not 100% sure we did the right financial move.
We recently paid off a car freeing up $400 per month, about what the payment on the land will cost us, but should we have used that extra $400 per month to pay off our mini van we just purchased a few months ago? Or did we do the right move by buying this land at a big discount and having almost $40,000 in a piece of property that we just bought? My financial instinct tells me it was a great investment, but in the back of my head I hear Dave Ramsey saying we should have passed, any thoughts????
Reduce Debt and have fun!
Tired of the monthly budget? Want to something a little out of the ordinary when it comes to saving money or reducing your debt? I just went for a three hour drive today on my way to a business trip and came up with this idea. What if there was some type of incentive every month for you to save money, wouldn’t it make it much more fun? So what’s fun and different about this idea you ask?
First, you’ll need to do a little research into your budget. If you’ve kept a good budget then this shouldn’t be too difficult. Break down your budget into three categories:
- Completely Mandatory - This category contains all the necessary bills such as home, auto loans, electric, water, credit cards, etc. This does not include cable, phone or internet.
- Somewhat Mandatory - This category will include bills such as cable, phone, and internet services. It will also include grocery money, clothing money, etc. Things that you need but you could probably reduct the cost somewhat.
- Not Necessary - Finally the not necessary category includes entertainment money, and blow money. Money that if you didn’t have for a month you could live without. You really don’t need to go to the movies or spend $60 on dinner!
Now here is where the contest comes in and your reward. Total up the amounts from each category based on your last months bills. For example:
- Necessary: Electric $150, Water $35, Home $1000, Auto $400 total of $1585.
- Somewhat: Cable $40, Phone $35, Internet $40, Grocery : $400, Clothing $250, total of $765.
- Not: Entertainment $400, Blow $100, total of $500.
Now our goal is to reduce each category by a small amount each month paying down debt and rewarding ourselves in the process. Reducing all three categories may leave a good deal of leftover money. Use half of this money on paying down debt and the other half to spend on some type of reward. Something fun you normally wouldn’t buy yourself.
First, those necessary bills you can reduce your electric and water bills by simply being aware of the resources you are using. Turning off lights when you leave rooms, take showers instead of a baths, take shorter showers than usual, use lamps instead of overhead lights, don’t leave the water on while brushing your teeth or shaving, etc. As for that auto payment you may want to do something extreme like sell the car and buy something with cash you have on hand or finance something for half of your current payment. You can find decent cars for $5,000 or even less!
Second, those somewhat necessary bills can save us some major cash! Drop any premium channels from your cable service. You may be able to reduce your internet service by switching from cable to DSL or from DLS to cable. Drop that lan line phone service if everybody has a cell phone with enough minutes. Clothing is necessary, but name brand clothing is not necessary. Watch for sales and check out consignment shops for cheaper clothes. Groceries can also be a good money saver. Use those coupons you always toss out with the trash. Buy generic foods when possible. I’ve read multiple articles on saving hundreds of dollars per month on your grocery bill! It’s possible to save some good money in this category.
Finally, the enertainment/blow category can be your biggest savings area. Eating out is just not necessary and although enertainment is necessary it doesn’t always have to cost money. Limit eating out to a minimum. If you must eat out order water or get takeout and bring it home. Go to the park instead of the movies. Go on picnics and hikes instead of amusement parks. There are hundreds of ways to save money on enertainment.
Here is a revised sample budget and what can be done with the extra money.
- Necessary: Electric $145 (old $150), Water $31(old $35), Home $1000 (old $1000), Auto $175 (old $400) total of $1351 (old $1585). SAVINGS OF $234.
- Somewhat: Cable $40 (old $40), Phone $0 (old $35), Internet $35 DSL (old $40), Grocery : $360 (old $400), Clothing $225 (old $250), total of $660 (old $765), SAVINGS OF $105.
- Not: Entertainment $350 (old $400), Blow $80 (old $100), total of $430, SAVINGS OF $70.
In our sample budget we saved a total of $409!!! We didn’t make huge sacrafices just small sacrafices in each category. Now take the $409 and pay $200 toward one of your high interest rate debts and take the other $209 and spend it on something nice for yourself. You may even want to save the $209 for next month and pick up something much nicer. Reward yourself for saving money and it will be much more fun!
Buying a duplex is a great investment.
Six years ago my wife and I decided to purchase a home just before our wedding day. After a few months of looking we decided to build a starter home close to my work. It seemed like the perfect decision to make at the time. Interest rates were low, around 5.5% for a 30 years fixed mortgage. After looking at multiple apartments we realized that our rent at a nice apartment would be about the same price as 1,600 square foot home.
I’m not writing this article to tell you I regret purchasing the home, I’m writing to tell you I could have made an even better financial move than purchasing the home. We lived in the home for just over 2 years and sold it for a profit of about $8,000, not great but not bad for newly weds just out of college.
If you are ready to purchase your first house or home then you are entering the market at a great time. Right now home prices are down all across the nation, bad for those of us who already own a home, but great for those just entering the market. Also interest rates are still pretty low even for a fixed rate loan. Getting a great deal on real estate is pretty easy right now and it could be one of the most important moves you can make financially.
If I could make a suggestion to those of you looking to purchase that starter home, don’t. Think about purchasing a duplex instead of the traditional home. We could have purchased a nice duplex for about $175,000 instead of our home for $112,000. It might sound like a lot more money but you live in one side fo the duplex and rent out the other side. Remember I told you our rent would be about the same for a nice apartment as a new home? Same deal here, that duplex was being rented for $1,000 per month I know because that’s where my wife was living before we got married. The payment, tax and insurance on $175,000 loan would have been about $1,200 per month, you can do the math here.
Now, of course there are many risks associated with renting especially if you depend on that income to make your payment so consider this before jumping to purchase the duplex. I’ll write another article soon about all the risks and rewards associated with renting.
Chrysler, Dodge, Jeep $2.99 gallon gas promotion, good deal?
Chrysler recently announced a promotion that guarantees you can purchase gas or diesel for $2.99 per gallon if you purchase a new Dodge, Chrysler, or Jeep vehicle. This might sound like a good deal, but do you really save a lot of money?
Do friends cause overspending and debt?
Is it possible that your friends can cause you to go farther into debt or prevent you from getting out of debt? I’m about 100% positive that friends do contribute to the problem of debt.
Continue reading »
Spending some of recession stimulius package tax rebate money
I once said that I would either save the tax rebate money from the government stimulus package, but recently I changed my mind. Well, my wife helped me with this decision, but probably needed to do this. As you all know by now the government recently passed a bill that gives most Americans $600 in the form of a tax rebate. This money is supposed to be used on a good or service in order to help stimulate the economy and avoid a recession.
Continue reading »
Harder to get a mortgage on a second home.
A mortgage on a second home is almost always more expensive than the first. Owning two homes is obviously a little more risky for banks and lending institutions, as a result, higher interest rates for the borrower. Usually interest rates on second home mortgages are 1/4 to 1/2 points higher than the first.
With today’s weak economy and the recent housing bust it will continue to get harder for investors and vacation home seekers to get good rates on a second mortgage. Banks have lost billions of dollars as a result of home foreclosures and unpaid mortgages. The government has started to impose restrictions on how banks do loans. Banks and lending institutions are now a little more hesitant on loaning money to potential home buyers and investors.
With that being said how do you increases your chances of successfully getting a mortgage on a second home, rental property or a vacation property? Here are some suggestions:
Obviously, the best option is to save a down payment for the second home of at least 20%, preferably more. Banks will be much more likely to consider your for a loan if you start out with 20% equity in your home. This way if you default on the loan it will be much easier for them to recoup their losses.
- A second option is to take out a home equity loan or a home equity line of credit (HELOC) on your first home to pay for the second home or at least a large portion. Rates for a home equity loan are a little more expensive than a first mortgage but it might increase the odds of getting the loan because your first home stands good for the loan. Be careful here though because the IRS will only allow you to deduct up to $100,000 of interest on a home equity loan.
- Decrease your debt to income ratio before trying to buy a second home. One of the factors banks and lending institutions look at when applying for a mortgage is your debt to income ratio. Paying off unsecured debt such as credit cards and student loans will increase your chances of getting approved for a loan.
- Finally, don’t try to buy a house you can’t afford. Do careful research and triple check your budget. Make sure that you are not stretching yourself too thin when it comes to buying a second home. When it comes to owning a second home, it’s ok to have dreams, but eventually you will have to face reality!
Should Personal finance classes be taught in schools
With the increasing amount of debt America is racking up, don’t you think it’s past time to start doing something about the problem? What has happened in our society to cause this out of control spending trend? What can we do to keep this problem from escalating? My solution is to put more emphasis on personal finances in our school systems.
Tax Rebate Incentive Package, Worthless
Tax Rebate Incentive Package, Worthless
Well, the government’s attempt to stimulate the economy seems to be a worthless endeavor and a recession seems to be inevitable. With rebate checks already in the bank for many of those tax payers who filed electronically much of the anticipated cash will be going to other things than toys and games.
