Category Archives: Personal Finance

8 Smart Alternatives to Wasting Your Money on a Lavish Wedding

I don’t like weddings.

Call me cold-hearted, but I don’t find anything enjoyable about having to put on a suit and tie in the middle of a heat wave in August while two people profess their undying love for one another outdoors. Meanwhile, I’m over here sweating bullets and swatting insects away from my face wishing they’d hurry up and put the sand in the damn bottle already. Afterward, I’m served a small meal thats totally not going to satisfy my hunger, before being forced to make a fool of myself while I Hully Gully on the dance floor.

And don’t even get me started on the bar. If it’s not open, I’m not coming to your stinkin’ ceremony.

When I got married, we skipped the pomp and circumstance and headed straight to the courthouse without anybody knowing. Better to ask forgiveness than permission, right? We both agreed that we didn’t need a lavish wedding for one mutual reason: We’re not stupid.

I’m not suggesting that you’re stupid — it’s just that, by forgoing the formalities, there are plenty of other things to do with the $32,000 that people spend on the average wedding. Take a look:

Put a Down Payment on a House

After purchasing a condo in Manhattan, making sure we could pay the mortgage was priority number one. Our finances would have been seriously compromised if we had funneled cash to an overpriced wedding reception. That logic applies if you haven’t bought a home yet too. Unless someone else is footing the bill for your wedding, chances are you can’t afford it — so why pretend you can? Rather, put that money where you really need it. Thirty-two thousand dollars will cover the down payment on a fairly nice home in most of the United States — or you could own a tiny home almost outright, since the average cost is around $40,000 all in.

Eliminate Existing Debt

I’m 35 years old and still paying off my student debt. If you are too, instead of saving for a wedding, use the cash to pay off your college loans early or eliminate credit card debt, especially if you’re racking up massive interest charges by making minimum payments.

Upgrade Your Honeymoon

Ask any couple and they’ll tell you that the best part of getting married is the honeymoon. Obviously you’re not going to go on a $32,000 honeymoon — it doesn’t have to equal the amount you would have spent on the wedding — but you can have an amazing getaway filled with romance and adventure for a fraction of that cost.

Start a Business

Are you and your partner thinking about going in to business together? If so, that’s good a reason as any to squash the wedding plans, elope or have a very small ceremony for family and close friends, and put that money toward a business. I’m an entrepreneur myself, and I encourage everyone to become their own boss by any means necessary. This is the perfect opportunity.

Purchase Undeveloped Land

I believe that real estate is the best investment you can make. There are many considerations that go into making a smart real estate move, my suggestions for which are better saved for another article. You can pick up an investment property that will bring in additional income each month, but that comes with a certain amount of overhead. If you don’t have the capital to pull that off, considering purchase a bare parcel of land with which you can do anything you want — I hear acres in places like West Virginia are dirt-cheap these days.

Make Home Improvements

If you bought a home before you got married, good on ya; you’ve got at least some of your ducks in a row. If that house needs improvements, now is a good time to remodel a bathroom or kitchen. For $32,000, you can do a decent amount of improvement.

Establish a College Fund

Tuition and fees in 2017 are $33,480 at private colleges. Public schools for out-of-state students come in a little lower at $24,930. So, instead of spending money on ice sculptures that will literally melt into a pile of nothing by the time your best man and bridesmaid start tearing each other’s clothes off during the last dance, get ahead of the game by starting a college fund for your future children.

Splurge

What do you actually get from a wedding versus going to the courthouse to say your vows? OK, you get to satisfy your family because they’re witness to your commitment. Fine. But what else — besides a hangover and the bill? Bump that. Take that money and run. If you’re debt-free, buy an item or two that you really want — a Jet Ski, a backyard Jacuzzi, or whatever else your little hearts desire. It’s your money, after all.

Whatever you do, don’t let anybody guilt you into an expensive wedding you don’t want to have. Because I’m still not coming.

Photo Credit: MarriagePursuit

 

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Reasons Renting Is Better Than Buying

A lifelong goal many citizens strive to achieve is homeownership. While many people in North America own their own homes today, this wasn’t always the case. Historically, families either needed to build their own homes or rent a home from someone else. While both renting and buying have their own sets of financial advantages, renting does appear to have an edge when the economy is poor. There are tremendous financial benefits to renting as opposed to buying a house of your own. Here is a look at ten reasons why renters can have the better financial deal than homeowners.

No Maintenance Costs or Repair Bills

A definite advantage renters have over homeowners is that they have no maintenance costs or repair bills to pay off. When you rent a property, your landlord is responsible for all maintenance and repair costs. If an appliance stops working or your roof starts to leak, you do not have any financial responsibility to have these things fixed. Homeowners, on the other hand, are responsible for all of their own repair, maintenance and renovation costs. Depending on what the repair is, these costs can be quite extensive.

Access to Amenities

Another financial benefit to renting, over buying a house of your own is having access to amenities that would otherwise be an enormous expense. Luxuries such as an in-ground pool or a fitness center come standard at many midscale to upscale apartment complexes with no additional charge to tenants. If a homeowner wants to match these amenities, he or she can expect to pay thousands of dollars in installation and maintenance costs. Similarly, condo-owners need to pay monthly fees to pay for access to these amenities.

No Real Estate Taxes

An obvious benefit that renters have over homeowners is that they do not have to pay real estate taxes. Real estate taxes can be a hefty burden for homeowners and vary by county. Although property tax calculations can be complex, they are determined based on the estimated property value of your house. With houses getting larger and larger, property taxes can be a significant financial burden.

No Big Down Payment

Another area where renters have the better financial deal is upon signing. When purchasing a house with a mortgage, you’re required to have a sizable downpayment, ideally 20%.

However, you do not have to have a huge down payment saved up to move into a rental property. While the exact amount you need to move in varies from case to case, the total amount is significantly less than you would need to buy a house.

According to a graph released by the New York Times, many landlords require a rental deposit equal to the amount of one month’s rent while a down payment for a house is much higher. For example, with a 5% deposit on a house that has a market value of $175,000 your move-in costs start at $8,750, which is much more than the average one-month rent rate. Also, those buying will want to save up much more than 5% for their initial down payment because the bigger the down payment, the better. In short, bigger down payments can save you thousands of dollars in interest.

Shaky Market Creating More Renters

While many experts claim the U.S. Housing market is making a full recovery, others aren’t so sure. An article written by International Business Times claims that the market is just now stabilizing and the word ‘recovery’ is unwarranted. As foreclosures continue, many citizens are scared off of buying altogether. By renting, citizens are avoiding potentially owing a mortgage that is more than the house’s worth.

Decreasing Property Value

Property values go up and down, and while this may affect homeowners in a big way, it affects renters substantially less if at all. Home value determines the amount of property taxes you pay, the amount of your mortgage and more. In a rocky housing market, renters are not as adversely affected.

Flexibility to Downsize

In today’s economy, many people struggle to make ends meet. By renting, citizens have the option to downgrade into a more affordable living space at the end of their lease. When you are a homeowner, it is much more difficult to break free of an expensive house because of the fees involved with buying and selling a home.

Fixed Rent Amount

Rent amounts are fixed for the span of the lease agreement. While landlords can raise the rent with notice, you can budget more efficiently since you know the amount of rent you are required to pay. Meanwhile, mortgages and the amount of the property tax can fluctuate.

Lower Insurance Costs

While homeowners need to maintain a homeowner’s insurance policy, renters would be wise to invest in a renter’s insurance policy. Luckily for renters, renter’s insurance is much cheaper, and it covers quite a lot. The average cost of renter’s insurance is just $12 per month, according to the Independent Insurance Agents and Brokers of America. Meanwhile, the average homeowner’s insurance policy cost ranges between $25 to $80 per month.

Lower Utility Costs

With homes getting larger and larger, it is often much more affordable to heat and power an apartment or small rental home as opposed to a larger home. Rental properties typically have a more compact floor plan, and renters can expect lower utility costs.

The Bottom Line

While owning a home may be beneficial for citizens over a long period, for many people renting is the better option. There are plenty of examples that show how renting can save consumers a considerable amount of money. The choice of whether to rent or buy your own home is a personal one. Before making a hasty move, review the details and make the financial decision that is right for you and your family.

Should you Pay Off your Mortgage Early?

A few years ago, my wife and I paid off our mortgage early.

This is the first we’ve broadly shared it.

We purchased our home for $185K and made a 25% down payment (effectively allowing us to avoid PMI). That left us with a 15-year mortgage of about $140K. The interest rate on the balance at the time we took out the loan was 5.83%.

We could have gone with the standard 30-year mortgage, maximizing the overrated mortgage tax deduction we all hear about.

pay off mortgage earlyWe could have re-financed once or more, at the cost of a few thousand dollars each time, to lower our interest rate.

And we could have done as most others do and “up-sized” to another home after a few years (on the contrary, we had already done the opposite and down-sized after buying too big of a home the first go-round.)

Thankfully, we did none of those things. Instead, we executed a mortgage payoff with 11 years remaining. Let’s call it the “4-year mortgage”.

Here’s why we did it:

1. Paying Off your Mortgage Early Results in Guaranteed Returns

Guaranteed returns, even if small, are still guaranteed.

If we had kept our mortgage for the full length of the loan, we would have averaged 5.83% in interest payments per year (or about 3.25% if we had paid the fees to go the refi route).

That’s far better than the near zero interest rate returns we’ve seen on CD’s, savings accounts, and money market accounts.

And it looks even better when you consider interest versus principle payments for the first half of the loan. Amortization schedules lead to you paying nearly one-third (15-year mortgage) or two-thirds (30-year mortgage) of your monthly payments towards interest instead of principle for a number of years. Banks win, you lose.

2. No Mortgage Payoff Penalty

Many mortgage lenders will pre-emptively try to block you from paying off a mortgage early by putting in a penalty-clause for early mortgage pay-down. This can be negotiated away by simply saying, “I won’t sign if all mortgage payoff penalties are not removed from the contract”. We did, and removing this negative reinforcement penalty freed (and motivated) us to pay off our mortgage as early as we could.

3. Enhanced Cash Flow Brings New Opportunity

By making the move, we were strengthening our balance sheet considerably. Paying off the mortgage early effectively wiped out almost half of our expenses. This allowed us to save more than ever before. This went a long ways towards my wife being able to quit her job and go back to school to become a nurse.

We had already known how tough things can get when you unexpectedly lose a job. If one of us had lost a job after paying off our mortgage? We’d have gotten by just fine with the enhanced cash flow. It’s a game changer. And a huge stress reliever.

4. It Helped Prevent Lifestyle Creep

If we had ever had the urge to “upgrade” and move in to a bigger, nicer, sexier home, it would have come at a big expense – going from zero mortgage back to a mortgage. We rather liked our new less-burdensome lives. Paying off our mortgage early created a massive disincentive to get sucked in by lifestyle creep.

5. Freedom!

Last, but definitely not least, paying off our largest debt was an incredible weight off our shoulders. The liberation in doing so is hard to describe in words.

Note: many financial gurus will encourage you not to make this move, and invest your savings instead. In hindsight, if I had instead invested 100% of what I put into paying off the balance, I would have financially come out ahead. But there were no guarantees that would be the case. And if I had gone that route, I would have missed out on all of the lifestyle improvements highlighted here. So, crunch the numbers for your own analysis and factor that in to your personal decision – we have to choose what is best for us individually.

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5 Ways to Survive a Money Emergency

Nearly everyone will experience a serious money emergency at some point during their lifetime. Something financially catastrophic happens, like your car breaks down or you have to pay a huge medical bill. Afterward, you may be left with little or nothing in your bank account. If there’s still a week or more until your next payday, you’re going to have to be creative.

With that in mind, here are five of the best ways to survive a money emergency:

Ask for an Extension

Start off by looking at your bills that are about to be due. If you want to avoid late fees for credit card payments or other monthly bills, take action and call your creditors. Explain the situation to the customer service representative, and ask for an extension. In most cases, you’ll get one. Just don’t ask too often.

Visit Family and Friends

Next, you’ll need to come up with a free or low-cost way of eating your meals until you get paid again. If you have family members or friends nearby, this may be a great time to stop by for dinner and offer to do the dishes afterward. If you are able to get a few meals covered this way, remember your friends and family members when they need some help in the future. While it may not be in the form of food, you should return the favor any way you can.

Look for Help

After food and recurring bills, the next thing to take care of are essentials like gas and heat. In these situations, you may need to be ready to ask for help. Look for a carpool buddy until you get a few more dollars in your pocket, or scrape up some change to take the bus to work or school. In the winter, you can get heating help typically by asking your local utility provider. Most locales offer heating help to people who are low income or in dire straits financially.

Discuss Ways to Save

In the meantime, you should investigate ways to reduce your chances of being short of money for the future. Look at your monthly expenses, and see what you can cut out. Renegotiate monthly bills to get a lower payment temporarily. Talk to your insurance agency to see how to qualify for a discount if you have multiple insurance policies, like auto, renters, or life. There’s also the option of asking your boss for that raise, but avoid using your financial situation as the primary reason for asking for more money.

Make Money Fast

In some cases, you’ll need to get some fast cash to make ends meet. If you’re not sure how to make a few extra dollars quickly, look at some of your most valuable possessions. Offer some of your treasures for sale online to make some quick money without having to get a second job. You can offer up old clothes, tools, sports equipment, baby toys, or more to stretch your budget even more this month.

Having a serious financial emergency can be a stressful situation, but following these tips will help stretch the few dollars you have left in your bank account during a tough time.

Photo Credit: Suzy T

 

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100 Words On: Why You Should Never Ever Be Afraid of Failure

Most of us learn to fear failure and avoid it at all costs. During our quest for financial freedom, however, well encounter plenty of failures. Usually, we learn from them and move on. Sadly, the fear of failure is also used as a convenient excuse for some folks who dig themselves into a deep financial hole and are looking for any reason to avoid the hard work of overcoming their oppressive debt.

The bottom line: Success earned in spite of failure is the ultimate reward. Failure, in its purest form, will only become reality for those who are willing to accept defeat.

Photo Credit: cdharrison

 

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