Saturday, December 31, 2016

2016 Financial Year in Review

On so many levels 2016 has been a pretty difficult year.  It seems like each time I log into social media or turn on the news, I am hearing about some sort of heartbreaking loss.  While I know that many of you are looking forward to seeing 2016 go (and I must say that I pretty much agree), I'd like to take a moment to reflect.  Along the path to financial freedom, there are obstacles, and at times it seems like you're not getting anywhere.  It feels like a ginormous treadmill to nowhere...  But that's not true.  The path is taking you SOMEwhere.  It is taking you to the destination you choose.  I am choosing the path to financial freedom, and while 2016's victories can feel like a splash in the bucket, I feel that it is important to recognize them for what they are, VICTORIES!

So, without further ado, here are my 2016 victories:

  1. Started our Emergency Savings:  Remember, starting it doesn't mean it is complete!  This is still a work in process, but it is well under way!
  2. Contributed to a Roth IRA:  This is one of the best retirement accounts to have!  If you aren't contributing yet, you should absolutely start doing so!
  3. Picked up several "side gigs":  Side gigs are what help to keep us ahead!  It makes it easier to fund things with cash, paid debts faster, etc.
  4. Went to the UK and paid for it in cash!  Gone are the days of using a credit card for vacation.  This was literally the best vacation of my life because the bill was paid in full.
  5. Bought a new roof for our rental property and paid for it in cash!  A lot of folks finance an expense like this.  I saw it coming and arranged our finances to accommodate paying for it in cash.
  6. Maintained a life that is free of credit card debt.  It is one thing to pay off a credit card.  It is something else entirely to keep it paid off!
  7. Paid off 1 of 2 private student loans.  One down and one to go!  Hopefully before 2017 is over, I will have paid off the second one as well.
Now that I see what we've accomplished in 2016, I feel confident that my partner and I can do just as well in 2017.  It motivates me to set some goals for the year, and work toward meeting them.  For right now, I am going to take a moment and enjoy recognizing the work that we've done this year.

What have you accomplished this year?

Wednesday, December 28, 2016

Why powerful people donate...

My apartment is driving me crazy.  I feel like there are piles of clutter closing in on me.  That's what happens to me when I finally have a week off from my primary job as well as my side gigs AND the holidays are happening at the same time.  When I am working a ton, I put off "picking up" as much as I normally would.  Then, I take some time off, and find myself irritated by the disaster I allowed myself to create.  I also moved from a 1600 square foot house on the west coast, with my partner and cat, to a 1 bedroom, NYC apartment.  We pared down, but there is still work to be done.

In addition to being a personal finance writer, I am a believer in The Law of Attraction.  The basic idea that I am a powerful manifester of my own destiny appeals to me, and when I sit back and use my imagination to picture my ideal life, the one I am working to create, it always contains a lot less stuff than what I currently possess.  The answer to the question I haven't bothered to ask seems obvious, doesn't it?  Get rid of some of it!

Why don't I?  Why don't many of us, just get RID of it!?  Well, I am no psychologist, but if I were to dive into the rabbit hole of my own mind, I would say that it is some sort of fear or anxiety.  I grew up pretty poor, and it taught me a lot of habits that I wouldn't trade for the world, but a few that I am working to get over.  One of those habits in the "get over it" category is the feeling that I need to hold on to things.  When money is tight, we teach ourselves to hold on to what we have because it will be hard to replace.  As a result, it is really easy to get stuck in a trap of keeping things because I "might need it."  Now, the truth is that I am not in that position any more.  If I accidentally got rid of something and later found that I needed it, I CAN afford to replace it.

If I am holding on to possessions because I am fearful, than I am not behaving in a powerful way.  If I am not powerful with my possessions, I am not powerful with my money.

That was really important.  That's why I made it it's own paragraph.  If it didn't sink in, read it again:

If I am not powerful with my possessions, I am not powerful with my money.

If I am going to be financially free, I must be powerful with my money.  People that are powerful with their own money are very deliberate with their time, money, possessions, and other resources in general. With that being said, I need to be deliberate in creating the picture I see in my mind, the picture of my ideal life.  By ridding myself of things that I am only keeping "in case," I am choosing to be powerful with my environment, my possessions, and my money.  I am also making room for abundance, which I am also creating.

The last week of the year is the best time to "clean house" so to speak.  Spring cleaning is fine, but I think the best time is now.  This is the part where I step away from being so philosophical, and come back to some no-nonsense financial strategies..

If you haven't written a check to a charity yet this year, or have more to give, this is the time to do it, and have it count for this year's tax return, just get it done by December 31st (and get a receipt).  This is also a brilliant time to clean house!  Don't just clean up from the holiday chaos that may have erupted in your living room (as in mine), but go far deeper.  It is time to start a RID project (Reduce Inventory Drastically)!  Many of you can donate your unwanted items to a charity, and write the donation off on your taxes (if you itemize).  For those of you who itemize, the really simplified version of what happens is this:

Let's say you make $73,000 a year, and donate $6000 worth of stuff to a registered charity, your tax accountant will plug it into a formula (along with a bunch of other stuff) when they itemize your return, and it will reduce the amount of income Uncle Sam is going to tax you on.  So, rather than taxing you on the full $73,000 maybe Uncle Sam will only be taxing you on $69,000 (remember, it's a formula, not a dollar for dollar thing).  This can reduce your "tax bracket."  You know, the percentage of taxes you are on the hook for..  Maybe you were sitting at 25% before, and get it down to 20% by reducing your taxable income..  You see, this percentage goes up and down along with your taxable income.  When your taxable income goes up, so does the tax bracket.  Donating to a charity can make  these numbers go down.  You can makes this happen  by writing a check (some employers will actually match funds donated to a charity--ask your HR department if your company does this) or by donating some of your belongings.

I do itemize my taxes.  So, this RID project of mine is going to do a number of things for me.  It is going to help me to gain power with regards to my money, possessions, and environment.  It is going to reduce my taxable income, and help me to save some money on my taxes.  Finally, it is going to bring me much closer to the picture in my mind--the picture of my financially free life.

(Side note:  You might want to take a picture of what you donated for your tax records, this will help with assessing the fair market value of the goods (which is what you receive credit for, not what you paid when you bought them), oh yeah and make sure you get a receipt for the donation. )

Sunday, December 18, 2016

Why You Need An Emergency Fund

A friend of mine has been having quite the year.  She has spend the majority of this year battling a life-threatening illness, and I'm thrilled to say that she has recently (within the past month) received news that she has won her medical battle, and is recovering nicely.  No sooner does she receive this wonderful news than she finds herself on the side of the road (the freeway no less) with car that has decided it will no longer run.  There she is, emotionally distraught and alone.  People are kind enough to pull over to try and help, but the car won't start.  She has to call a tow company, and has her car towed to her mechanic's garage.

Everything about this scenario stinks.  It's embarrassing.  It's frustrating.  It's expensive, and unfortunately, it's extraordinarily common.  The towing expense alone could set you back plenty, not to mention the mechanic's bill.  If this happened to you, would you have the funds to cover it?  Would you have to charge it on a credit card?  This is where your emergency fund comes into play.  You absolutely need one of these.  It's not about whether or not one of life's "what ifs" occurs, its about WHEN, because an emergency WILL happen eventually.  Whether it be a medical bill, a car problem, or something else unforseen, you can guarentee something will come up eventually.

On the positive note, this friend HAD the money.  She's been diligently squirreling away little bits of money every month for a few years now.  While her emergency fund is smaller than she would like, it has been enough to see her through a difficult year.  Can you imagine what would have happened to her if she hadn't been saving these little bits every month?  What would happen to you if you were in her shoes?

Emergency funds are about more than life's "what ifs."  It is about no longer living in fear.  I have lived in fear in the past, fear of a car issue, getting sick and not having enough PTO to cover it, fear of a roof leak, you name it.  I always felt like I was walking on financial eggshells.  I no longer feel that way.  One of the reasons that I no longer feel this way is because I do have an emergency fund.

Now that you know why you need an emergency fund, read Roth IRAs and Emergency Savings a Clever 2-in-1 for an easy strategy to make the most of your savings!

Sunday, December 11, 2016

Retirement Planning: Do I really need to contribute to a 401K?

There's all of this pressure out there about retirement accounts, and how to save.  You have SEP's, IRA's, Roth IRA's, 401K's, 403B's, TDA's...  The list goes on and on.  It can really make your head spin.  In this blog, I DO talk about which accounts to use, and when, but there is one much more fundamental question that we have not addressed.

Do I actually NEED a 401K?

The short answer is "no."  You don't actually need a 401K.  Are you having a heart attack yet?  I can't think of many financial advisers that would like the fact that I'm telling you that right now.  In fact, I can feel the cyber "stink-eye" coming my way.

There is a big BUT coming..  You were waiting for that weren't you?  You could almost feel it, I bet.

You do not need a 401K.  You need to replace your working income with another income source.  You need "passive income," if you will.  Passive income is income that you receive without actively participating in a business.  This could be investment income, rental income, etc. 

To further illustrate my point, a story... 

Once upon a time, people graduated from high school.  Once gainfully employed, the person would dedicate their lives to one company, work there for 30+ years, collect a gold watch, a "going away" party, and a pension with which they would live out their retirement.  This pension would act as a steady paycheck from the company they devoted their lives to, only they didn't actually have to punch the time-card any more.  Great deal, right?

Well, it is a great deal, but like many beautiful animals on our dear earth, that deal is more or less extinct...    Employees stopped working for the same companies for their entire careers, and employers stopped paying pensions...

Enter the 401K...  So, out rolls this new idea.  Employers offer this "investment opportunity" to employees.  Employees contribute their own money to it, and let it grow for retirement.  In order to entice employees to pay into this investment, the employer (sometimes) agrees to contribute some matching funds as well.  

So.....What was the point in this little story, you ask?  To point out to you that YOU are most likely already funding your OWN retirement.  There are a few employment situations that offer a proper pension plan, but if you aren't in one of them, you are on your own.

If your employer offers you a 401K plan that has a match, you need to contribute AT LEAST enough to get the maximum matching funds.  Otherwise, you are ignoring free money.  You should NEVER ignore free money!

If you don't work for an employer that offers a 401K, don't worry about it!  Here's what you should worry about:  replacing your income.  You need to invest your money in a way that will allow you to collect checks when you retire.  This is where you have decisions to make.  HOW are you going to put all of your dollars to work for you?  You can use an investment account, and contribute regularly to a 401K or IRA at regular intervals so that your money will grow enough to meet your needs in the future.  You can contribute to non-retirement investments (though you might lose certain tax advantages).  You can invest in rental properties.  You really have a lot of choices.  Don't misunderstand me.  I am NOT telling you to ignore a perfectly good 401K plan.  What I am suggesting, is that you consider the BIGGER picture when it comes to replacing your income.  Your retirement is about more than a 401K plan, and one size does not always fit all when it comes to your money.

Sunday, December 4, 2016

5 Gifts for Adults: Clutter-Free & Financially Responsible

As I grow older, I find myself cutting back the number of holiday gifts I give to others.  At this point, I've cut it back to half a dozen key people in my life.  While the load is manageable, there is one thing that I find tricky when it comes to adults on that list.


I'm serious!  This is difficult!  I keep thinking of what I don't want to receive myself.  I don't want any more clutter.  In fact, I could stand to get rid of some things.  I mean, when I picture my most serene, peaceful, ideal future, it doesn't usually contain very much "stuff."  Interestingly, the "stuff" I most struggle to get rid of was gifted to me by someone else.  For some reason that T-shirt that I now wear mostly as PJ's that I got for Christmas seven years ago is still around.  Why?  Because I have some over-inflated sense of duty when it comes to things other people got for me.  If people realized how guilty I feel about getting rid of a gift, they'd just save us both the headache, and not send me anything.  It seems strange doesn't it?  A gift-giver buys you something out of obligation that you feel the need to keep out of obligation (ironic isn't it?).  They spent their money, and you are spending your space on something that doesn't improve your life.  Now, if it brings the gift receiver pleasure, that's another thing, but what happens when the pleasure runs out?  Is it safe to get rid of the gift?  As a gift-giver, I don't want to promote needless clutter, nor do I want to promote the feeling of guilt when it comes to getting rid of something.  I want to promote healthy, financially responsible lives that are to be enjoyed.  I want any gift that I give to reflect that.  So, here is my list of gift ideas for adults:

  1. A Special Outing:  Nothing is more valuable than time.  My partner and I have birthdays fairly close together.  We opted to buy tickets to a play and dinner before it.  We made our choice of play based largely on sale price tickets (buying the week-of can result in discounts), and shared some appetizers for dinner.  The appetizer route and discount tickets kept the prices reduced, and there was NO CLUTTER to deal with later!
  2. Your Labor:  Now, you have to base this one on knowing your intended gift receiver, but I have to tell you, I have a very special friend in my life that would be more thrilled to have me come over and clean her gutters or do some yard work than to receive literally anything in the world from me.  All it will cost me is a few hours of my time.  She gets a chore done (without doing it herself), and I get some exercise.  That's a win all the way around.
  3. A Charitable Donation:  If there is a person in your life that has EVERYTHING, consider donating to a charity that will be meaningful to them.  Put the donation in their name, and they can benefit from the tax break.  This gift promotes financial AND social responsibility.  Another win-win.
  4. Magazine Subscription:  A couple of years ago, a family member did this for me.  I was thrilled!  Reading magazines is a guilty pleasure for me, especially when I travel.  I read them cover to cover, and when I am done I either recycle them, or place them on a "give one, take one" book/magazine shelf to be read by someone else (just  remove your address from the cover).  You can gear the choice of magazine toward financial responsibility in several ways.  Going with a finance magazine is an obvious choice, but there are some others that also promote a healthy financial life.  A friend of mine set a recent goal to take her lunch to work 4 out of 5 days a week.  Cooking on the weekends is a part of her goal.  There are plenty of cooking magazines that would keep her ideas fresh, and her food healthy.  While cooking at home costs more in groceries, it is likely to be healthier, and will cost less than eating out all of the time.  Additionally, any magazines geared toward health and fitness promotes financial well-being.  Remember, the cost of healthcare is huge, even with insurance.  The more we do to stay healthy, the less we spend responding to illnesses.  
  5. A Personal Finance Book:  If the adult is a reader, consider the direct approach at promoting financial responsible living.  Obviously, you have to know the person you are giving the gift to well enough to know that it would be read and well-received.  If you are fairly certain that both are true, think about an author that has inspired you, and ideally, choose something you have read.  Include a personal message about how the book has inspired you, and that you'd love to discuss parts of it along the way with them.  
These are the top five strategies that have worked for me in the past.  They eliminate clutter, and promote living healthily and happily while on the road to financial freedom.  

Sunday, November 27, 2016

9 Financially Responsible Gifts for Kids

Have you ever walked into a child's playroom?  It seems like they are usually stuffed to the gills with toys.  Many of these toys are ones they no longer use.  How long does it take before the "new" toys become "old" and "unused" ones?  A month?  Two months?  Then the latest and greatest toy joins a pile of clutter.  Well, I don't know about you, but I already have my own clutter, I do NOT need to add to it, nor do I need to add to the clutter of others.  Additionally, what do parents really worry about when it comes to their kids?  Are they deeply concerned that their kids will not have enough toys in life?  Usually not, right?  Parents are worried about their children's futures and about molding them into responsible and happy adults.  Maybe the best gift you can give is one that helps with those things.  So, I've compiled a list of gifts that you can give to children in order to promote financially responsible behavior and financial education.

  1. U.S. Savings Bonds:  I have siblings that are significantly younger than me, and I used to buy them savings bonds.  There were always so many people buying them clothes and toys that I didn't need to, and I lived in a different state and struggled to keep up with their latest likes and dislikes.  The funds can be used for anything, but must be cashed in, so they're unlikely to be used for an impulse buy.
  2. A Piggy Bank:  Filled of course!  This is fun for littler kids.  I remember the child of some dear friends.  She got a piggy bank as a gift, and spent the next several months carrying around her piggy, hitting adults up for change.  whenever someone would give her change she would joyfully announce "It's time to feed the piggy!"  As silly as it may sound, this piggy became like  a toy for her, AND she learned the joy of saving at a very early age!
  3. A Treasure Chest:  If you are the crafty type, you can have a great time making one.  Go to a local craft store (or raid you own craft stash) and look for supplies to make a little "treasure chest."  Go to your local bank or credit union and get a roll of dollar coins.  A full roll is $25, and they're gold in color now.  Crack it open, and dump them into your box.  You can either wrap it up and give it that way or you could get creative create your own treasure map in order to make a game of it.
  4. Money Tree:  My step-mother did this for me as a teen.  She wasn't sure what to get me so she went to a craft store and bought a small, artificial Christmas tree and hung two dollar bills from it.  You can certainly choose your currency and get as fancy or as simplistic with decorations as you would like.
  5. A Savings Account:  There is nothing that says financial responsibility like a good old fashioned savings account, complete with initial deposit!  
  6. A 529 Plan:  It is never too early to start planning for the future, and with rising costs of education, the earlier the better.  A 529 plan is a special investment account that allows you to save for college in a manner that has tax advantages.  If the child in your life doesn't have one, consider being the person to start it.  For more information about 529 plans, read the Question and Answer Section written by the IRS.
  7. A Special Outing:  While this suggestion may seem out of place among these more "financially minded" gifts, the truth is that there is nothing more valuable than time.  Consider some experiences you would like to have with them:  tea parties, skating, sporting event, theatrical event.  The options are as expansive as your imagination.
  8. Cash:  Perhaps this is the least creative item on the list, but this can be accompanied with a conversation about the value of saving.  If this child is older, perhaps they are working toward a car.  If younger, perhaps a bicycle.  Regardless, it is likely there are some big ticket items on their radar, and you can be a part of teaching them about how they can get it.
  9. Stock:  This one sounds a little wild, right?  Buying stock for a kid?  Hear me out.  Pick a company that you KNOW the child has a connection to: a sports fanatic, try NIKE...  Cartoon lover?  Maybe Disney.  You can use this gift as a tool to teach a child about investments.  What does it mean to own a share of a certain company?  When people buy products produced by that company, how does it impact them as shareholders?  I sure wish someone had taught me about stocks when I was little!
Any of these monetary gifts will be best accompanied with a conversation about why you have chosen it.  Maybe it is a conversation about saving our money, or how to budget the amount to spend vs. the amount to save.  Perhaps you talk to the child about investing, or college savings, or about how time together is to be valued above possessions that create clutter and that we don't need.  I could go on and on about which conversations you might pick, but I think you get the point.

Sunday, November 20, 2016

The Landlord Files: Location is Key!

A lot of people want to get into the real estate game, and some actually do.  Of those that actually do, I am always amazed at the sheer volume of investors that  have set their sights on sites located in their own city.  While that maybe a great idea for some, it is a terrible plan for others.  If you live in a city where purchase prices are high, you might not really make enough on monthly rent to make it worthwhile as an investment.

That is why I suggest, expanding your search to include cities that are NOT your own.  While, being a landlord in your own city may make it easier for you to be "hands on," is that really what you want?  Personally, I am in favor of using a management company.  That being said, the property does NOT need to be in the city I live.

So, what are you looking for in choosing a city to buy rental property?

  1. Find a city with a low purchase price and a high rental price.
     Start looking at various cities on the internet.  Some real estate search engines will actually tell you how much like properties rent for in the high-medium-low price ranges.  Alternately, search for properties for sale, then follow it up with a search for rentals with similar attributes in similar areas/zipcodes.  Once you get really serious, there are several calculations you will want to make, but let's assume for now, you are just zeroing in on cities of interest as far as investing is concerned.  After you've completed this step, go on to the next steps if it is a city you are actually interested in.

     2.  What is the unemployment rate of the city you are investigating?
     This is really important information.  It gives you an idea about the economy in a place you may have never lived.  Just to give yourself a clearer idea, compare the unemployment rate there to cities you know or have lived in.  This should give you an idea of what you are looking at.  Use government websites and filter for the current year for the most accurate data.  Remember, unemployment rates are skewed because it considers you "employed" if you work even 1 hour a week (which you could never actually live on) and doesn't count the disgruntled folks that have more or less given up on their job search.

     3.    What is the average income in the city you are investigating?  
     Again, consider comparing this information to that of a city you know.  This will also help shape your idea of the local economy. This information is usually available on government websites which also tell you about unemployment rates.

    4.  Research foreclosure rates.

     By doing so, you might get an idea how the city is bouncing back from the recession.  You don't want to invest in a situation where there are blocks upon blocks filled with empty, vandalized houses and one or two houses with people living in them.  That is a recipe for disaster.  You may be able to get this data from state or local bureaus in statistical form, but I also recommend looking for local news articles to get "the real story" about what's going on in that realm.

     5.   Research rental vacancy rates vs. occupancy rates.

   Ideally, you want to know if places in this city sit unoccupied for long periods of time, or if a ton of people are constantly looking for rentals.  Real estate companies and news articles are sometimes good sources for this information.

Once you've done this sort of research, I recommend setting some automatic alerts on your favorite real estate search sites so that you can keep an eye on the market in your chosen location while you make your plans to move in on it!

Monday, November 14, 2016

Grocery Spending- Part 2: The 50% Challenge

Update:  Alright, it's week two for me on the 50% Grocery Challenge!  I know that next weekend, I need to shop for all of the Thanksgiving ingredients needed for my contribution to our annual Thanksgiving Potluck.  So, I decided to try it again.  Could I hit my goal a 2nd week in a row?

Now, last week, I told a lot of you that I spend about $100 per week on groceries.  If I could cut that by 50% for a couple of weeks, I could easily buy these extra items needed for the Thanksgiving Potluck without exceeding my "normal" grocery budget for the month.  Given the fact that November and December hold two major holidays that I celebrate, PLUS the birthdays of both my partner and myself, NOT exceeding my regular grocery budget would be a huge help.

Since I am someone that loves "rules" or "guidelines," here are the ones  adopted.

The 50% Challenge

  1. Analyze your assets!  You probably have tons of things that you can use to your advantage in your pantry, freezer, or refrigerator.  Go rummage through them.  You will build your week around the things you already have working in your favor.  It turned out that my assets included tons of grains, beans, canned tomato products, and pasta (frozen and dried).
  2. Decide how many different meals you need.  They key word here is different.  Our breakfasts and lunches are identical 5 days a week.  What about dinner?  As a time saver, we cook 2 big meals on the weekend, and reheat them for dinners during busy week nights.  So, for my household, that's 4.  We need 4 different meals!
  3. Decide WHAT those meals are going to be based on your assets.  My breakfasts and lunches will be the same that they have been, and dinners will be based on a big pot of chili, and pasta if we run out (didn't use any of the pasta last week). 
  4. Make a grocery list.  Only write down realistically what you need to fill in the gaps.  The point in the list is to avoid impulse buys.
  5. Buy only what is on the list!
  6. Be willing to compromise on brands in order to get sale prices.
  7. Buy in bulk.  It's cheaper than prepackaged most of the time.
  8. NEW:  Consider how might you use the same set of ingredients to create two different things?

I went to the grocery store, setting out on my weekly grocery mission.  I also needed to build in the ingredients for a special birthday brunch for my partner.  The addition of number 8....Same ingredients, two meals... proved to be extremely helpful.

The results...
and drumroll please.....


Mission Accomplished!


Sunday, November 13, 2016

Student Loans: Repayment Plans Explained

For those of you that read every week, recently discussed how to figure out where your money is going, and setting a budget (Financial Freedom: Finding a Starting Point and Creating a Budget: The 50/30/20 Budget System).  The whole point of setting a budget is to give every dollar a name, and the reason for doing THAT is to set yourself up for financial freedom.  This means freedom from debt, and freedom to do the things in life that you really want whether it be travel plans, early retirement, start working part-time so you can write that book you've been dreaming of....  One of the things that holds you back from living the life you really want is debt.  Once you've established the dollar amount in your 20% "Goals" category, you can choose to allot a certain amount of "extra funds" to paying off your debt.

Today, I would like to start addressing on kind of debt in particular: student loan debt.  With the cost of tuition on the rise, wages are simply not keeping up.  Parents frequently don't have the money to foot large tuition bills.  The end result being college graduates that are crippled by student loan debt.  For those who have it, getting out of student loan debt is key!

If you have federal loans, step one is  knowing your payment plan options.  The federal government has generously placed a ceiling on their student loan rates (6.8%) and offers a large variety of plans under which you can keep current on your payments (keeping current is really important).  The only drawback is that choosing a plan can be confusing.  So, here is the breakdown.

Standard Repayment Plan:
The standard repayment plan offers the highest monthly obligation.  The benefit is that it is over in 120 payments (if you don't pay anything extra).  That is 10 years.  It sounds like a long time, but it can certainly be lessened with extra payments.  It is important to note, that this is the plan you are automatically placed on, if you do not take any action to "choose an alternate plan."  This plan is likely to have the lowest interest payment over the life of the loan.

Note:  In some cases, it could be a 5 year repayment term, but that is not typical.  The 5 year term, is generally for borrowers with very low balances.

Graduated Repayment Plan:
Under this play, the payments are less expensive than in the standard repayment plan for the first two years, then they jump up to an amount that is higher than the standard.  This payment plan is good for graduates that want to begin payment right away, and expect their income to raise within a couple of years of graduate.  If working in a field that offers a good income increase with a couple of years of experience, but lower starting wages, this could be a good choice.  This payment plan is typically structured for 120 months as well, so the loan is paid off in 10 years.  Additionally, this plan does cost more in interest over the life of the loan.

Extended Repayment Plan:
This payment plan is usually a fixed monthly dollar amount (although graduated is possible), and usually spread over a 25 year term.  While it doesn't sound great to be in repayment for that long, it is useful for people that have gone into fields with lower salaries, or those with very high loan balances.  The drawback is that this does create a much larger interest payment over the life of the loan.

Income Based Repayment Plan (IBR):
This plan sets the borrowers monthly payment obligation to approximately 15% of their discretionary income.  In order to calculate this, the borrower is required to submit proof of income on an annual basis.  In other words, the payment can change each year, but it should be within the realm of affordability.  Be careful, if you are on this plan and fail to submit your proof of income on time, you will become automatically enrolled in the standard plan, which would clearly create a huge increase in payment amount.  If the borrower is enrolled in this payment plan, and the loan still isn't paid off in 25 years, it will be forgiven by the federal government.  That's a pretty good deal for those who anticipate continuing to be in a lower wage profession for an extended period of time.  The drawback is obviously, making payments for almost as long as a mortgage!  On the other hand, if you work for a non-profit of some sort, being enrolled in this plan is a huge bonus because your balance will be forgiven after only ten years (assuming you make 120 consecutive payments that are on time, and continue to work for a non-profit).  Another important thing to note, you will end up paying taxes on the amount that was forgiven (it's basically considered income).  In order to be eligible for this plan, you must demonstrate a "partial financial hardship."

Pay As You Earn Repayment Plan (PAYE):
This is a plan that is not available to everyone.  In order to be eligible for this plan you must have been a new borrower as of Oct. 1, 2007, and had your loans disbursed on or after Oct. 1, 2011.  This plan works much like the IBR.  Monthly payments are approximately 10% of discretionary income.  Borrowers must  prove their income on an annual basis.  Remaining balances are forgiven after 20 years, 10 for public service (non-profit) employees.  In order to be eligible, you must demonstrate a "partial hardship" financially.

Income Contingent Repayment Plan (ICR):
Under this plan, borrowers pay for up to 25 years (then balances are forgiven if still in existence).  The monthly obligation is calculated to be based on discretionary income (approximately 20%) as well, so the payments can be cheaper, similar to PAYE and IBR.  The benefit to this plan is that you don't have to prove a financial hardship in order to qualify for it (which is a requirement of IBR and PAYE).  Public service employees (non-profit) can have their loans forgiven after 10 years under this plan as well.

Income Sensitive Repayment Plan:
If you don't qualify for ICR, you may qualify for this one.  Monthly payments are from 4%-25% of total gross monthly income.  The payment amount must be greater or equal to the amount of interest accruing on the loan.  There are some extra rules to this one that makes it very different from the others.  For example, you need to qualify again each year, and you can only be on this plan for 5 years, then you are literally required to enroll in a different plan.

In general, the standard payment is going to get you out of debt the fastest, however if you have a relatively low income, and expect it to stay that way, several of these plans will offer you a lower monthly obligation.  This can be a great strategy if you work as a Public Service employee (for a non-profit).  Either way, several of these plans will allow you to kiss you debt goodbye after a fixed period of time.  You will be taxed on the amount forgiven, but the loans WILL be gone.  If you work in the public service arena, I definitely think you should take advantage of this, because you loan forgiveness occurs after ten years.  For everyone else, if you can manage the payment under the standard plan, please give it heavy consideration.  While having your loans forgive is great, do you really want to pay them for 20 or 25 years?

If you want to do more research on payment plan options Federal Student Aid is a government website that offers a lot of additional information.

Saturday, November 12, 2016

Student Loans: Paying Off Private vs. Federal Loans

Financially, I have accidentally done a lot of things right.  I'm not sure that student loans were one of them.  I got out of my bachelor's degree with very few loans (all federal), but went on to pursue my theatrical dreams.  The tuition was higher than what the federal government would loan me the money to finance, so I had to go back to the financial drawing board.  I was dead-set on attending this specialized school, and it's intensive programming wouldn't easily allow for me to work part time on the side.  My parents didn't have the finances to contribute.  Since I had good credit, I was able to qualify for a private student loan.  So, I took the loan, and never looked back.  I wouldn't change the education or training for anything in the world to tell you the truth.  I still use my theatrical education to this day, and the schooling was among the best experiences of my life.  That being said, I was still being fairly naive when I took out that loan.  Regardless, it's mine now, and I need to deal with it!

So, for those of you in the same boat as me and have both private and federal student loans, it is essential you pay the private loans off first.  They are typically variable rate, and do not come with the same deferment options that federal loans allow you. It is a tricky choice to make (paying them off before the federal ones) because on the surface, they look cheaper.  Right now, I am paying 3% interest on the private student loans.  That is a pretty cheap loan, comparatively.  The catch is, that since it is variable, they can raise it on me as much as they want, whenever they want.  I mean, they have to give me notice, but they can still increase it on me!  Secondarily, they have very limited deferment options, if any at all.  My private loans can be deferred for 12 months over the ENTIRE life of the loan.  That pretty much buys me one year of hardship, or unexpected life event of ANY KIND.  The federal government is much more generous and offers a plethora of deferment choices to keep you out of trouble if something terrible happens and you cannot pay your loans.  For example, you can defer for up to 36 months for financial hardship, or unemployment (among other reasons), and then set your payment plan to adjust based on your income.  While, you don't really want to stall paying them, because the interest will keep adding up, if you have a total and complete life disaster, you won't go into default (which would destroy your credit).

So, the moral of the story is that if you have private loans, they come first.  Please tune in for a explanation of your repayment options for federal student loans.

Sunday, November 6, 2016

Retirement Investing and Fees: What are "loads" and "expense ratios"?

I don't know about you, but I've been wanting to deal with investing my money for some time (both creating new investments and tending to old ones), and admittedly, I have been dragging my feet a bit because there are a few things I've felt I didn't completely understand.  One thing is fees and expenses that come with buying stocks, mutual funds, etc.  Your money can quickly get eaten up by fees.

I've been doing my research for several months now because I feel the need to take a more active role in my investments.  Right now, I have a Roth IRA that is invested in the stock market (mutual funds), and a 401K from a previous employer.  I should probably roll the 401k over and would like to move the Roth IRA into a different investment.

9 years ago, my father passed on, and left me a small amount of money.  I immediately made an appointment with an investment consultant at my financial institution and put the the money in a Roth IRA, in an investment that they recommended (a mutual fund).  My money has doubled, so I can't complain there, but I'm not sure this is the BEST choice for me.  You see, the investment I was placed in was an "A fund."  While this isn't the end of the world, it isn't great.  In order to explain more clearly, let me tell you what I've learned about fees that come with this type of investing.

Since I am the kind of person that will invest a certain amount per month, I should be going with a no-load mutual fund (lump sum investors should consider EFT's--more on that in the future).  When buying a mutual fund, one type of fee is called a "load."  A "load" is a commission or sales charge.  These are charged either at the time of purchase or at the time you sell.

An "A-fund" charges a load at the time you purchase the fund.  So, if the load is 5%, and you invest $1000, only $950 actually gets invested.  You've basically lost $50 before you've even started.

A "B-fund" charges a load at the time you sell the fund if you sell within a certain period of time.  Frequently, they will charge you the load at different rates if you leave within a certain number of years.  Maybe it's 5% if you leave the first year, 4% if it's the second, etc.  They also have higher expense ratios (another type of fee), so I would say "B-funds" are the worst choice.  Just avoid them.  Go for what is called a "no-load" and avoid this issue.

You will not, however, be able to avoid the "expense ratio."  An expense ratio is the annual fee you pay for an EFT or Mutual Fund.  It covers administrative and management costs.  Everyone pays it.  You can't get out of it.  So, ideally you want this to be as low as possible.  It will be expressed as a percentage typically.

I just used a Fund Analyzer that helps you to compare funds.  A side by side comparison shows that the fund I am in has an expense ratio of 1.18%.  I chose a no-load mutual fund (an index fund) as a comparison, and see that it has a .15%.  It also showed me how much money this would mean over time.  This make my decision making process really clear!  Even if you are not ready to pull the trigger yet, please log into this Fund Analyzer and play with it, just so you can practice reading it.  Compare your 401K funds or IRA funds, just for practice.  It's made my decision pretty clear!

Saturday, November 5, 2016

Grocery Spending: The 50% Challenge

Full disclosure, November always makes me feel a little insecure about my money.  Between November 1st and December 31st, our household of two encounters, Thanksgiving, Christmas, and two birthdays.  It can feel a little overwhelming.

One thing that overwhelms me is our grocery bill.  We have all of the regular breakfast, lunch, and dinner meals to account for PLUS the things we are obligated to bring with us for holiday meal gatherings we attend.  This is why the weeks preceding Thanksgiving are so important.

At our house, we go to the grocery store once per week typically.  On average, it is a hundred dollar trip.  This week, I issued myself a 50% challenge.  If I could achieve this kind of savings, I could reallocate that same money to some of the holiday extras!  That being said, could I really buy our groceries for the week for HALF of our normal spending?  If I was going to try, I would need a serious game plan!  I am one of those people that seriously likes rules.  The "do" and "don't" categories work for me, so I created some guidelines to help myself out, and if you decide to take the 50% challenge, I encourage you to follow them as well!

The 50% Challenge

  1. Analyze your assets!  You probably have tons of things that you can use to your advantage in your pantry, freezer, or refrigerator.  Go rummage through them.  You will build your week around the things you already have working in your favor.  It turned out that my assets included tons of grains, beans, canned tomato products, and pasta (frozen and dried).
  2. Decide how many different meals you need.  They key word here is different.  Our breakfasts and lunches are identical 5 days a week.  What about dinner?  As a time saver, we cook 2 big meals on the weekend, and reheat them for dinners during busy week nights.  So, for my household, that's 4.  We need 4 different meals!
  3. Decide WHAT those meals are going to be based on your assets.  My breakfasts and lunches will be the same that they have been, and dinners will be some version of burritos or rice bowls and pasta.
  4. Make a grocery list.  Only write down realistically what you need to fill in the gaps.  The point in the list is to avoid impulse buys.
  5. Buy only what is on the list!
  6. Be willing to compromise on brands in order to get sale prices.
  7. Buy in bulk.  It's cheaper than prepackaged most of the time.
I admit that I was doing a little mental math as I walked through the store, but I was still unsure of the total since I had some bulk items in my basket.  I got everything on my list for $48.06.  My goal was $50, which effectively slashed our grocery store bill in half!

Mission Accomplished!

Sunday, October 30, 2016

The Landlord Files: How do I know if this house will get a good return?

Landlording can be a very financially rewarding endeavor, but it can also suck the money and life right out of you.  How can you tell the difference before you buy an investment property?  If you already own a property that is not being used as a rental, would it make a good rental?  Here is how you can tell.

Calculate Income and "Cap Rate"
1.  Determine how much rent this property can earn in a year.

If it's rented already, you have that number.  Otherwise, research local rental values for similar homes to come up with an estimate.

2.  Determine the annual expenses created by this property.  This includes:

  • projected vacancy rate (5-10% of annual rent is typical)
  • utilities paid by you (water?  garbage?  Some localities require landlords to pay certain ones.)
  • repairs (new roof, new furnace, siding repair, emergency plummer?  These things will come up.  1-3% of the home's value is a good estimate.  I use 3% since I bought a foreclosure, and assume those numbers higher.  If your home is newer, you may use a lower percentage.)
  • property taxes
  • insurance
  • management fees (if you use a rental management company)
3.  Calculate "Annual Net Income"
  • Annual Rent minus Annual Expenses
  • Mine is:  17400-9800= 7600 (roughly)
4.  Calculate the "Cap" Rate
The capitalization rate is the expected annual rate of return.
  • Divide net income by cost of property.
  • Mine is:  7600/102500= 7.5% (approximately)
If you took out a mortgage on this home (or plan to), you still do NOT place that number in this calculation.  Once you have this calculation figured, do some number crunching to see if there is still a healthy enough return to account for your mortgage payment AND a few worst case scenarios.  One year you might have more vacancies or late rent payments than usual.  The year you replace a roof or something huge may look a little different.  You may have a series of expenses come up in the same year.   If you don't leave a significant cushion, you could quickly operate at a loss.

Personally, I won't invest in a rental property with less than a 5% cap rate, but that's just me!

Sunday, October 23, 2016

Budget Revisited: Avoiding the Trap of Two Incomes

Those of you who have read last week's blog post have probably been thinking about your own monthly spending habits, and the possibility of shoring them up.  For those of you who missed it, the concept is 50/30/20.  The jist of it is that you should budget your money so that your fixed expense necessities take up no more than 50% of your monthly budget (housing, transportation, heat/electric, or anything that cannot be trimmed or deleted), 30% for flexible, lifestyle expenses (these items maybe important, but could be trimmed or have payments altered if needed; think: minimum credit card or student loan payments, cable, cell phone, groceries, dining out, entertainment), and 20% for goals (paying down debt and saving for your future).

I want to revisit the 50/30/20 idea for a moment.  Hopefully this doesn't throw a wrench into your budgetary plans.  What number are you calculating your percentages based upon?  We have two incomes in my household for the first time in years.  My partner went back to school a number of years ago, and we lived off my income during that time.  Now that we are both working our income has literally doubled, but I didn't update our budget.  "BAD!  Bad personal finance writer!"  It's okay, I know you were thinking that.  Let me explain.  This move is totally on purpose.

I'm tempted to offer you a catchy anecdote that explains to you exactly WHY you should create a budget based on one incomes, but I think we should just let the numbers speak for themselves.

Let's say I take home $3000 per month after taxes.  According to the 50/30/20 guidelines, I have:

  • 50% Fixed-Cost Necessities:  $1500
  • 30%  Flexible Lifestyle Expenses:  $900
  • 20% Goals:  $600
Those numbers look familiar, right?  We used them last week.  Now, let's say we have two incomes of $3000 per month after taxes.  That makes $6000 per month incoming.  If we apply our formula (50/30/20) to it, it looks like this.
  • 50% Fixed-Cost Necessities:  $3000
  • 30%  Flexible Lifestyle Expenses:  $1800
  • 20%  Goals:  $1200
I know what you're thinking "WOOHOO!  THAT'S the lifestyle I'd really like!"

Hold it right there.  Not so fast.  Let's have some fun with numbers for a second.  What if you had both of those incomes, and budgeted to ONE of them, placing the remainder of the money into "Goals"?  It would look like this:

  • 50% Fixed-Cost Necessities:  $1500
  • 30%  Flexible Lifestyle Expenses:  $900
  • 20%  Goals:  $3600
In one year's time, that goals category would amount to $43,200!  Can you imagine what you could do with an extra $43,200?  I sure can!  While I know these were made up numbers, and your situation is different, I just want you to let this sink in for a moment.  This is house down-payments, student loan payoffs, a fully funded emergency savings; the possibilities are nearly endless.

If you are single, you likely won't be forever.  Maybe you should consider THIS strategy when you start to become serious with that special someone.  If you are in a couple, can you squeak by on one income?  In my household, we have done so for years.  It was purely circumstantial, but one of the smartest moves we've ever accidentally made.  Since I've always been the bread-winner, we will continue to budget to my income, and add my partner's income directly into the "Goals" category.  One year from now, we will have more than $10,000 in debt paid off, have 2-3 months of our emergency fund funded, and paid for a new roof on our rental property in cash.  That feels amazing to me.

If you are in a couple that has already bought a house, and you budgeted to two incomes, maybe you can't live off one.  Review your budget.  Could you live off 1.5 incomes?  Try it for a 2-3 months.  You might surprise yourself.

If you are in a couple, and rent.  I want you to seriously consider buying a home (assuming you have that as a goal) that could be paid for on one income even with other bills.  If you are single,  you have not yet combined finances with another person.  when that comes down the pipeline for you, don't you dare budget to both incomes.  Regardless of your goals, you will meet them much more quickly if you avoid the trap of two incomes!

Note:  I started using this phrasing "two income trap" years ago.  I didn't even realize that the fabulous Elizabeth Warren has written a book using this same title.  I have not read it, but have added it to my list.  I just wanted to point this out for a couple of reasons.  1.  Some of you might want to read it.  2.  This post is in NO way meant to relate to that book in any way.  I am sure it is fabulous, and I would like to read it, but my thoughts and ideas are not intended to relate to it in particular.

Sunday, October 16, 2016

Creating a Budget: The 50/30/20 Budget System

50/30/20 Budgeting

                Now that you have an idea where your money is going, we can zoom in on this a little.  I want to introduce you to the 50/30/20 Budgeting Guideline (initially made popular by Elizabeth Warren).  If you type it into a search engine, you will get a zillion hits.  It is basically a guideline that helps you to determine how much of your income should be going where.  Different financial writers will describe them slightly differently, but here is my version:  50% of your take-home pay should go to fixed expenses, 30% goes to flexible (or lifestyle) expenses, and %20 should go toward goals.

50% Fixed Expenses
Let’s look at the first category.  This is the 50% category, and it is devoted to fixed expenses that are needs only.  There should not be any wants in this category.  These are the things that you literally must have to function, and they cost you the exact same thing every month.  Your rent/mortgage payment, the cost of your transportation to and from work, certain utilities, etc.  I put  only a handful of things in this category because there are very few things that are fixed cost needs.  Quite frankly, I even put groceries in another category, because while I need food, I can scale back on certain items to impact the dollar amount I spend.  I do not have that kind of choice where my mortgage, rent, car insurance, car payment, or public transit pass are concerned.  Those items cost me the same thing every month, I can do literally nothing (short of moving, selling a car, etc.) to alter the cost, and I absolutely must have this in order to function in my day to day life.  Once you have figured out which of your subcategories (mortgage/rent, car insurance, etc.) go into the 50% Fixed Expense category, you need to do a little math.  If you take home $3000 each month after taxes, then this category should take up no more than $1500 per month.   If you are spending more than 50% of your take-home income in this category, you may need to face some tough choices in order to get these numbers down.  You may need less expensive transportation or housing.  Alternately, you could consider a roommate or an extra job.  You maybe wondering why it matters whether or not you go above 50%, especially when these expenses are the most fundamental to your life.    It’s a fair question.  If you are spending so much money in this category that it goes above 50%, you won’t be able to pay down your debts or save for your future.  If you are unable to do those things, you will risk putting yourself in an unstable position when you are in your golden years.  If you are struggling to make ends meet now, when you are theoretically in the best health and with the most energy to work, how do you think you will get along when you are significantly older?

30% Flexible or Lifestyle Expenses

                The next category is for Flexible or Lifestyle Expenses.  This should be no more than 30% of your after-tax monthly pay.  These could be one of two things:  a regular monthly bill that could be trimmed back if you needed to or has a changing payment amount, or things that you spend money on for recreation of some sort.  There are a few things that are in this category that appear to be REALLY important, so important in fact that you may wonder why they weren’t in your 50% category.  Let’s take a look at a few.  The first item is groceries.  You MUST have food to live, but this expense is flexible.  If you fall on hard times, you may qualify for the food stamp program which will alleviate you of some of these expenses.  You also have a huge range of choices regarding what to buy and how much it will cost you.  Perhaps dining out is a huge priority with regards to lifestyle.  That number also shows up in this category.  Another surprising item that is in this category is your cell phone bill.  You need telephone access now days, but let’s be honest.  You probably do not have the cheapest most basic plan available right?  Well neither do I, and that’s fine.  It is a lifestyle choice, and if push came to shove, and you could scale back that expense as needed.  Another expense that is very important, but flexible is your student loan debt.  It is very important that you pay on these debts, but the payments are flexible.  If you became ill or unemployed and your student loans are federal, you can have your payments reduced or deferred.  A credit card payment is also a flexible expense.  As your balance goes  up or down, your payment amount will change.  If you became ill or unemployed, these debts could be discharged in a bankruptcy (not ideal, but possible).  Other items that are flexible, lifestyle expenses are entertainment, dining out, clothing, and many others.  The basic rule of thumb is that if you could reduce the payment or eliminate some or all of the expense, then it is in this category.  Note about student loans and credit cards.  Only the minimum payment amount belongs in this category.  Once you have determined how much money you are spending in this category, compare it to 30% of your take-home income.  If you are spending too much in this category, you can easily fix it.  Decide where you can scale back so that you are comfortable within that limit.  If you are already below 30% in that category, even better.  You have more funds to allot to goals.

20% Goals

                That brings us to the final 20%.  This is for goals.  This is the category that makes me feel excited because I feel like this category is directly related to my own financial freedom and future.  If you earn $3000 per month after taxes are taken out, then 20% is $600.  That is the amount you can spend on goals.  Goals should be a combination of savings and paying down your debt.  These are both super important, and you should be doing both.  If you have money left over from another category, I recommend that you give it a home in the “goals” category.   Paying down your debt will free up some of your income for other things.  In terms of savings, you should have at least two different types:  retirement savings and emergency savings.

If you are using some kind of software to help you with this budgeting, it will easily figure these numbers for you.  If you are using pen and paper, just calculate how much is 20%, 30%, and 50% of your income, and track it.  Each month you will be able to see whether you are within the parameters you have set for yourself and adjust your spending as needed so that you can make progress toward your goals.

Sunday, October 9, 2016

Financial Freedom: Finding a Starting Point

Financial Freedom:  Finding a Starting Point

Being poor as a child taught me the value of hard work and determination.  I am not sure what having money teaches a child.  I imagine that it gives them the freedom to just be a child.  Hard work and determination were not gifts bestowed upon me.  The fact is that I earned them both.  That being said, I will also have to earn my freedom.

When people say that they want to be rich, I am not sure if that is what they really mean.  I suspect, they really mean that they want to be free.  Don’t we all want that?   It’s the freedom to do what we love regardless of what it pays.  It’s also the freedom to have control over our own time.  It’s also about opportunities.  Have you ever missed out on opportunities because you couldn’t afford them?  I have, and enough is enough. 

But where do I begin?  If my finances are a journey, and I am plotting along on a road to financial freedom, it seems vital to know where I am starting from. 

Step 1:  Track your expenses

Most of us don’t actually know what we are spending or what we are spending it on.  Spend at least 1 month doing this.  I spent several months on this activity.  In this first month, try to spend as you would normally.  Not more, not less.  The point in this activity is to find out where you are starting from.  Honesty is key.  Collect every receipt.  If you don’t get a receipt for something, keep a pad of sticky notes or something with you and immediately jot down the dollar number and what it is that you purchased.  Then stash the receipts somewhere.  I use a cigar box.  At the end of the month, make a date with yourself.  Pour yourself a glass of wine (you’ll need it), and dig in.

Sort the receipts into piles of “like purchases.”  You can take a little creative liberty here in choosing your categories.  Remember this is just a rough sort.  Now, very quickly pick up each pile and leaf through it.  Does everything you see truly belong in the same category?  My realization was that my “food” category really needed to be three categories, so it became “food”, “date night,” and “liquor”.  Now, don’t judge yourself, just be honest.  If you find that you have seven receipts for coffee, maybe you ought ask yourself “Is that a major category for me?”  Or at the very least, is it deserving of its own pile? 
Once you are happy with your categories, either grab a notebook that is designated for this purpose only, or open a spreadsheet (for those technological types).  Start writing down all of your spending categories.  This is a combination of the categories you created when you sorted your receipts, and your monthly bills.  Next to these categories, make a column for your estimated spending.  Now, do NOT calculate anything yet.  Just write down how much money you THINK you are spending in any given category per month.  After you are done, gather all of your monthly bills, and you get to start totaling.   Next to your estimated total, you will enter your actual spending amount for the month.  Then total both columns and compare them to your after-tax income.  Did you think you had a surplus?  Deficit?  What was the reality?  Do you have a surplus at the end of the month or are you in the red?  This is where the wine comes in.  Stop judging yourself and study your numbers.  Are you uncomfortable with what you see?  I was, but that’s okay.  All great journeys start with a roadmap, but a roadmap is no good to us if we don’t know where we are starting from.  Where our finances are concerned, the roadmap is our budget.  Now, of you might be thinking “Lacy, didn’t we just create a budget?”  The short answer is “no.”  We did not create a budget, we found our starting point.  We are being honest with ourselves, and have begun our journey.  We will look at budgets next.

What interesting thing did you learn when you tried doing this activity for yourself?

Tuesday, October 4, 2016

Freedom House

Freedom House

Real Estate is a personal passion of mine.  I currently rent a one-bedroom apartment in Inwood, a neighborhood in northern Manhattan.  I am also a landlord.  I own a rental property in Portland, OR. 
When I bought my house in Oregon, it was with the intention that I would live there, and I did for a few years.  It was also a move that I made not only to build equity, but also to lower my cost of living.  “But Lacy,” you might ask “How does buying a house decrease your cost of living?”
It’s simple.  Buy your freedom house.  Your freedom house and your dream house are NOT the same thing.  Your dream house is the one that has the perfect number of bedrooms, and the perfect number of bathrooms so that your twice per year guests won’t ever have to use the same toilet that you do.  All joking aside, your dream house is the one that you aspire toward, and has all of the amenities that you want.   Your freedom house has all of the amenities that you need.

For instance, I had been renting a 2 bedroom, 1 bath house in a trendy, walkable neighborhood, near buses, for nearly $1300 per month.  I asked myself “Can I get what I need for less than what I am paying now?”  Not as a rental, unless I moved to a different neighborhood, which I was willing to do, but I don’t drive, and need to be on a busline.  So, I started researching houses for sale.  I was making $25,000 per year, and because of that, I could only get approved for $120,000 of a mortgage loan.  In Portland, Oregon, housing prices are typically double that (or more) unless you strike a killer deal, but that didn’t stop me.

A few months later, I bought a Fannie Mae foreclosure for $102,500, and put about $5000 down.   The transaction was really pretty smooth, although foreclosures can be difficult for people, as can short sales.  The one thing to remember, if the bank owns the property, they really don’t plan to do any repairs.  They also don’t want to be a landlord.  Their only mission is to get the house off their books.  That means they need to sell it so that it doesn’t show as a loss that they are taking, or at the very least, they need to minimize the losses that they will end up taking.  Where a human being that owns the house may be moved by you writing them a letter about how you want your children to grown up climbing the beautiful oak tree that is in the back yard, the bank isn’t interested in this plea (to view Fannie Mae foreclosure listings in your area go to

The Fannie Mae house was my freedom home, not my dream home.  It had horrible wood paneling in the living room and faux tiles in the bedroom that matched the ones in the kitchen.  It was a real eye sore, but, it was structurally sound, and had great bones.  It had 2 legal bedrooms, 2 bathrooms, and unfinished basement with 2 bonus rooms, hard wood floors, a garage (also in rough shape) and a decent sized back yard.  It was also in an up and coming, walkable neighborhood, and near several bus lines.  This could more than meet my needs.  It also saved me $500 per month in housing costs.  Yes, I had to make the down payment and move, but that was fine since I wasn’t going to try to sell it. (If you plan to sell within a few years, you may not recover the costs associated with the down payment and moving.  So, crunch your numbers carefully.)

Now that I am living in New York, I want to buy a property to live in here.  How do I replicate the things I did right the first time, now that my circumstances have changed?

  1. Avoid the 2 income trap.
  2. Buy only what I need.
  3. Consider the “what ifs”.

Avoiding the 2 income trap

Budgeting your life to two incomes will keep you from getting ahead.  It offers very little flexibility, and is likely to keep you in a situation where you will always NEED two incomes.  This is not ideal.  When I bought my freedom house, my income was the only one being considered.  My significant other had stopped working in order to go back to school.  So, at the time, I was the only one with a steady income.  I had avoided the two income trap based on shear circumstance, rather than intention.   In order to replicate this strategy in the future, I will need to buy only as much house as can be sustained on one paycheck.

Two incomes are the norm nowadays, right?  Not if you are single.  Fully using two incomes can also prevent one or both people in a partnership from being able to take an opportunity.  For example, we came to New York because I had received an opportunity to get a Master’s Degree that would be funded by an organization.  The organization would also help me to find a job that would more than double my salary once I was finished.  I took it.  My partner and I lived one year apart (the length of time it took us each to get our degrees).  When I had secured a position and apartment, we moved our household across the country.  I would have had to decline the offer had we made different choices regarding our housing purchase.  If we had both been working, and qualified for closer to $240,000 of a mortgage, the payments would have required that we both continue to work in order to keep the house.  Since we had only used one income to buy the house, the payment was low enough not to be a burden.  I was able to take the offer in New York.  While my partner was still on the west coast, I rented a room from a friend in New York.  The rent plus my mortgage in Oregon still cost us less than the mortgage would have cost us had we used two incomes for the original purchase.  That year was certainly difficult financially, but we were able to make it work.  Once we moved, we turned it over to a management company, and have a lovely family living there.  Our monthly net profit is close to $500 per month.  This is another thing that wouldn’t have been possible if we had purchased with two incomes in mind.  If we had purchased with two incomes in mind, we would likely operate at a loss if we rented it out.  In the future, there are things that I would like to accomplish which would require me to either quit working, or scale back immensely.  I know that in order to keep those goals attainable, I must avoid the two income trap.

Buying only what I need

I made two lists.  One list was my bare essentials, my needs.  The other list was my wants.  Considering my current circumstance, my needs include two bedrooms, close to public transit, elevator (or ability for wheelchair access).  My wants include two bathrooms, extra storage, laundry in the building, outdoor space, and a dishwasher.  Getting everything from the want list is not likely, but creating it is good.  If a few items from the want list appear in a property I see, that is wonderful!  It could put the place in the running quickly.

Considering “what ifs”

I’d like to review an item on my list.  I said that I need two bedrooms.  That seems unnecessary for a couple with no children.  I have a sibling with a severe disability that lives with my mother.  If anything unfortunate should come of my mother, I will immediately become my sister’s guardian.  This may or may not happen, but I cannot afford to be ill prepared.  I need a second bedroom, and the ability to get a wheelchair into my home.  Another “what if” to consider is employment?  What if both of us become unemployed or underemployed at the same time?  A second bedroom could be rented out to help minimize costs.  It is important to consider “what ifs” that are plausible, but don’t go overboard.  Consider a few “worst case scenarios” that seem entirely possible, such as job loss or illness perhaps.  Then see how these scenarios impact your housing and budgetary concerns, and factor them into your planning.

Many people that purchased houses in the early 2000’s found themselves buying their dream home, and quickly found the house becoming a nightmare.   Your house should offer you the security of knowing that you will eventually pay it off and not owe anyone.  It should allow you the freedom to pursue your dreams within it.  If you focus on what you need and avoid the two income trap, you can buy your freedom house.  

Monday, September 19, 2016

Personal Progress Report: Private Student Loan Debt

I would like to take a moment to share a progress report about my own journey to financial freedom.  Frequently, I am telling you about products or services that you should know about.  Today, I thought I might update you about my recent victories and how I've achieved them.

When I first started this blog, I was approximately $5000 in credit card debt plus student loan debt, which includes both private and federal loans. Last year at about this time, I had just paid off all of my credit card debt, and I have never gone back.

Today, I just paid off the smallest of my student loans!  It's original balance was around $7000 (roughly). During the past year, I paid off over $4000 of it.  I have to admit, I feel like a million bucks, because I have never paid off a student loan before!  This is one of the private ones, and I have one more private student loan to go before I only have federal loans to go.

Okay, here is where I am going to get a little educational on you,  If you have both private and federal student loans, pay the private ones off first.  Private loans are tricky.  Actually, I don't really recommend getting them in the first place, but I can't go back and UNget them.  All I can do is get them paid off.  Private student loans are tricky for a few reasons.  First, they are at variable interest rates.  Right now, I am only paying 3% interest on my private student loans!  Super cheap, right?  My federal loans are at higher interest rates than that, so what's the problem?  Well, the variable interest rate that I have on my seemingly cheap private loans could soar to rates way beyond my federal ones.  The problem is that you just never know.  My super cheap payments could suddenly swell, leaving me in a terrible position.  The other issue with private student loans is that you don't have the same deferment options with them that you get with the federal ones.  The federal government will let you stop paying your student loans for a whole bunch of reasons (unemployment, low income, going back to school again, and many more).  They have a zillion super-flexible payment plans, and ways of putting a pause one your payments as long as you communicate with them, and fill out the appropriate paperwork.  Private loans will not let you defer payment, and have less options regarding payment plans.  That being said, you should definitely pay off any private student loans first.

So, my back to my progress report.  I have one more private loan to pay off, before I move on to the federal ones, or change my game plan.  I anticipate it taking me until next year at this time (roughly) to accomplish this one (it's bigger), but I now feel as though I have the motivation (AKA mental fuel) to get the job done.  A few other victories from the past year include:  continuing to live credit card free, living on one income while having two full incomes (this is new, more on this strategy later), visiting my cousin in the UK and paying cash for it (very special circumstance, but worth taking), and paying cash for a few repairs on my rental property--to name just a few.

I encourage you all to count up your victories periodically.  Some of them may be small, but when you add up all of the things you have accomplished, it can be incredibly rewarding and motivating.

Wednesday, August 10, 2016

How to shave years off your mortgage without refinancing!

Recently, I've been seeing a lot of NY Lottery advertisements.  Apparently, the jackpot is growing and folks are getting excited about it.  I admit that every once in a while I buy a ticket and start to dream about what I would do with my winnings.  I have to admit that I am a pretty boring dreamer because the first things I think of are paying of my student loans and mortgage (then I'll plan a big vacation).

Those of you who have been reading my posts for a while know that I am ALL ABOUT paying off debt.  That mortgage debt is a big one.  Paying if off feels pretty unobtainable.  Many people just barely qualified for a 30 year fixed mortgage, let alone a lesser term.  If you started that mortgage at the age of 40 or more, you are looking at being stuck with that payment until you are 70 years old.  While, that might sound fine for some, the idea of being saddled with that payment beyond the age of 60 is daunting to say the least.  So, what do you do about it?

Perhaps you should consider making one extra payment per year.  Let's look at some numbers.  If I opened a $150K  mortgage today (8/10/16) with a 30 year fixed rate of 3.40% (APR), my monthly payment would be $532.18 (this does not include the property taxes, which many of you will roll into the monthly loan payment; the property tax amount does not matter for the sake of our scenario, just know that you will have to account for that).

If I paid only the exact payment every month my loan would be paid in full on August 10, 2046.

What happens if I make one extra payment per year.  If I paid an extra $532.18 to the principal each year (on Aug. 10), that make my payoff date Dec. 10, 2042.  I know many of you are thinking that coming up with an extra $532.18 each August is going to be difficult.  What if you divided this "extra mortgage payment out over the course of the year?  You would be paying an extra $45 per month, and your loan would be paid in full by Nov. 10, 2042 (1 month earlier this way).  I don't know about you, but I could come up with $45 per month!  If I could double that, my mortgage would be done by Dec. 10, 2039.

I know these dates seem really far away, but let's look at it another way.  An extra $45/month (or 1 extra payment/year) gets my 30 year loan paid off in just over 26 years.  When I doubled it to $90/month (or 2 extra payments/year), my 30 year loan would be paid off in just over 23 years.

So, if you cannot qualify for a mortgage term that is less than 30 years, this strategy may help you save yourself a lot of years in mortgage payments (not to mention money in interest).  If you would like to see what your own numbers would look like, I like the calculators on, but really there are a lot of them online, and you can easily change the dollar amounts, interest rates, and dates to suit your needs!

Wednesday, August 3, 2016

So, your Social Security Number may have been compromised! Now what?!

I want to share a story with you.

A couple of years back, I filed my taxes.  I was very eagerly awaiting a refund, and decided to call the IRS when a couple of months had passed and I had still not received anything.  I was placed on hold several times, and finally got to speak with a real human being.

Unfortunately, the woman on the other line had bad news for me.  Apparently someone else had filed a tax return using my Social Security Number!  They "couldn't tell me" who it was, or any information about them, but they COULD tell me that both returns were under investigation, and that it would take up to 8 or 9 months for me to get this all sorted out!  I never use my tax return to budget for necessary living expenses, so I was going to be fine financially, but I was still really scared!

I had no idea how my Social Security Number (SSN) had been compromised (I never carry it), or to what degree!  If anything like this ever happens to you, here are some important steps to take:

  1. Immediately check your credit report.  Request reports from:  Experian, Transunion, and Equifax.  You get one per year for free by going to:  There are other sites, but this is the free one!  Others will typically have other services attached to them that you do not need.  Make sure there isn't anything on the credit report that isn't yours.  If there is, you can dispute it!  It takes time, but it is completely doable.  If you want your credit score (the literal number), they will charge you a fee for that (usually $7 or so per agency), but the report itself is free, and all you really need.
  2. Call at least one of the credit reporting agencies and request a "90 Day Fraud Alert."  Once you have called one agency, they will automatically notify the other two for you.  This doesn't literally freeze your credit report, but if someone tries to get credit with your Social Security Number, a note will come up on the lender's screen saying that there is a "fraud alert." 
  3. If you feel really certain that someone is actually trying to get credit using your SSN, you can request a "Credit Freeze."  This will cost you around $30, but it will literally make it impossible for someone to pull you credit report in order to apply for new credit.  This does include you!  If you do this, you will also have "unfreeze" it if you want to apply for a loan of any kind.
  4. Get the IRS to issue you a tax ID number that is NOT your social security number.  They do this automatically if you've ever had a situation like mine, but there is a process by which you could request this if you believe your SSN was compromised in a different way.
In my situation, my SSN was only compromised for tax purposes.  This person was trying to file false tax returns in order to obtain money from the government.  They did not try to get credit using my number (fortunately).  I have been using an alternate number to file my taxes each year (as issued by the IRS), and I placed a 90-Day Fraud Alert on my account.  About a year later, the IRS did give my me return, so despite the stressful situation, all ended well.

There are tons of ways that your SSN could be compromised, and hopefully this never happens to you, but if you do have an experience that makes you think your SSN is at risk, there are some steps you can take to protect yourself.