The Bondage of Debt

Would you agree that debt is modern day slavery? Sure, there are some stark differences. For example, in most cases, one chooses to go into debt rather than being kidnapped and forced into it. Furthermore, there are no threats of corporal punishment and you don’t live in squalor. However, you work to hand your money over to another entity and if you’re severely indebted, you may have to make a choice between eating and remaining current on your obligations. You can be humiliated publicly should your home or car get repossessed to be sold off at auction. Your family can end up homeless. You may have difficulty finding work, because some potential employers are now including credit checks as part of their background screenings.

You’re probably thinking that you can be “emancipated” through bankruptcy, however, bankruptcy will only eliminate some unsecured debts. Your real estate will be foreclosed upon, your cars/RVs/bikes, etc. will be repossessed and your student loans cannot be discharged under any circumstances. Knowing this, are you comfortable piling on more debt? If you are still struggling, have you resolved to get out? If you broke free, what’s your plan for staying free?

Some will say there is a difference between good debt and bad debt. I don’t think there’s such a thing as “good” debt. You still have to pay it back, and you have to pay back more than you borrowed. The only good debt is an interest free loan. Let me know where they’re giving those out so I can get one. What you have is necessary debt and worse debt.

Necessary debt, which I’m too cautious to characterize as good, is the kind of debt that you have to take out because you can’t afford something on your own, but it’s ok, because it will (hopefully) make your life better. For example, borrowing money to develop a skill, get a degree or certificate has the ability to increase your earning potential. Furthermore, while your payments will eventually fade away, your education and/or skill can never be taken from you. So you spend 10 years paying for an income generating product (degree) that you’ll use for 40 years. It’s very similar for a house. You buy a home that you will hopefully live in for the next 30-40 years, and while it may go down in value, you’ll always need a place to stay so you might as well set yourself up for some fixed payments.

Bad debt is pretty  much everything else. How much is your car worth after you’ve paid it off? Will it ever generate income? Does it have a 40-year lifespan? How about a new pair of shoes or a flat screen TV? What do these things really cost after interest and other fees? Do you really want to be at the mercy of someone else over a few little trinkets? Do you want to be told what to do with your money when your check comes in? Because, that’s exactly what happens when you are in debt. To avoid repossession or a black mark on your record, you allocate that money to repayments. This form of bondage, while more mental than physical, is just as damaging. Finances drive a lot of the divorces in our country. People kill themselves and their whole families when they can’t pay their bills. I wonder how many people would think twice before borrowing if they weighted all these factors.

I have given myself 2 years to pay off the $35,000 I owe on my MBA. While there’s nothing I can do about my mortgage, my husband and I have an understanding that we will not charge anything to our card that we can’t afford to pay off at the end of the month (we love those points, so I don’t think we are going to get rid of plastic in the near future). We work hard for our money and want to keep it.

Are you willing to swear off debt? If so, what’s your game plan?

Advertisements

What Is Your Holiday Budget?

I was reading an article about retail spending over the Thanksgiving weekend which had me thinking that maybe Americans are coming to their senses. The article started off by saying that retailers have experienced slower sales this Black Friday and the days that followed. At least that’s what I thought it was saying… until I continued reading and saw that holiday shoppers are simply spreading out their shopping, rather than knocking it all out in one day.

One of the people interviewed for the article has a $4,000 budget for the holidays. Given that the average household had over $7,000 in credit card debt, I can think of many more ways one can spend $4,000. Of course, I don’t know this woman’s particular situation. She may very well be financially secure enough that 4 grand doesn’t put a scratch in her budget. But I certainly know plenty of people who barely break even during the year and subsequently spend beyond their means during the holiday season. Whether it’s hosting dinners for large crowds, attending year-end galas which require new outfits, and buying gifts, I wouldn’t be surprised to see that many people are adding on to their troubles by overspending and charging it all on plastic.

I’m curious to know if this woman is an outlier, or if $4,000 is customary. What’s your budget?

Happy (belated) Thanksgiving!

image

Yum! 

It wouldn’t be much of a holiday if I spent it away from my family and on the computer blogging. As a result, I didn’t have time to live blog or live “gram” my activities. However, in the spirit of “better late than never”, I want to say that I hope you had a great thanksgiving and you’re having a safe Black Friday.

I’m not much of a homemaker. In fact, my friends were all chocked that I made so much food to begin with and that it turned out so well. But my husband loves these holiday traditions and I never want him to feel like he’s missing out. The fact that he’s married to a woman who is very busy outside of the home, means that he doesn’t get to see me in the kitchen as often. However, when I go in there, I want to make sure I knock his socks off. So I may have gone a little overboard… but at least we’ll have leftovers for days! Lol

Although the day is over, I’m taking this opportunity to share what was on the menu. Believe it or not, with just 5 days of planning, we were able to put food on the table by 4pm.

  1. The main event: Rosemary-infused honey glazed turkey. Which was of course the highlight of the day. At least for my husband. Not so much for me because I was the one who had to make it.
  2. The starch: Potato salad with bacon bits on top
  3. The greens: Keeping it simple and giving options with steamed green beans & carrots as well as an easy garden salad topped with raspberry vinaigrette
  4. The “something different”: Scotch eggs
  5. The pie: bucking tradition and staying away from the sweet, I opted for a savory bacon and scallion tart
  6. The dessert: sweet potato pudding

It was a busy few days preparing everything, but look at this man’s happy face as he tears into the bird… it was all worth it!

(Let me know if you’re interested in any of the recipes…)

Monday Manners: Tipping

shutterstock_579718541-1280x960

Tipping is always a hot topic for people. We all know that most service worker don’t get the minimum wage the rest of us gets, which makes tips a necessity for making ends meet. It seems like once a week, there’s some cheapskate being shamed on social media for not tipping at all or not tipping the way they should. In more recent and verifiable news, a couple of NYC restaurants did away with tipping altogether.

While we all know to tip between 15-25% at restaurants depending on the quality of service, a couple of bucks at the coffee shop or to the bathroom attendant, what about the less common transactions no one taught us about? I might need to replace my dishwasher. I was looking at some prices online, I settled on one retailer with the best price. After reviewing the fine print, I saw that, if I didn’t pick up the appliance at the store myself, they would charge me $85 to bring it and install it at my house (1.5 mile away from the store) and carry out my old one.

Should I still tip under those circumstances? And it certainly doesn’t cost $85 to drive less than 2 miles, therefore why should I tip? I would say that being overcharged for delivery should be sufficient to cover the drivers, no? If not, the how much should I tip? 20%? They’re not waiters or waitresses, meaning it’s unlikely they make less than minimum wage. Should I really give a fully compensated person $80 for a 30-minute installation, on top of their hourly wage?

This link suggests, $20 per person for a total of $40 (my guess is that it’s likely to be 2 people). I wonder what other people’s experiences have been.

Too Many Plans

business-plan-no-watermark-small

Does anyone like plans as much as I do? I love plans! I think a solid plan is a foundation for success. “I’ll just wing it”, says no successful person, ever. It helps you stay organized, it gives you something to look forward to and it helps reduce uncertainties. Sure, things will always come up, but better spend time managing the unpredictable rather than spending your time trying to guess the things you could have planned for. At the same time, I do think there is such a thing as making too many plans. I mean, it’s no coincidence that people who say they want to be doctors become doctors, but those who say they want to be president/truck driving end up having to pick just one…

Anyhow… from my experience, I do better when I have a short list of plans.  The longer my list of plans or things to do, the less likely I am to do anything on the list, let alone achieve them all. The failures I encountered trying to do too many things at once have taught me to tackle one thing at a time, and truth be told, I have never been this successful and happy in my entire life. I don’t want to solely attribute that to my great planning skills. Because some of it also has to do with age, as we learn to get more established in our careers and become more content with ourselves.

While my mental state and level of satisfaction with my life are a matter of  opinion, my milestones are not. I want to say this as the holiday season approaches, because I know many people will be tempted to have an endless New Year’s resolution list. I want you to know that you’re more likely to do well when you set realistic goals and just a couple of them. You don’t want to be slowed down or discouraged by your own ambitions. Take a look below at how realistic, achievable and specific goal setting changed my life.

Here is my list of goals around the time I finished undergrad:

  1. Get a job
  2. Go out all summer (I live in a cold climate so summer is prime socializing season)
  3. Get promoted
  4. Get a boyfriend
  5. Get my own place
  6. Travel the world
  7. Get a new car
  8. Blog

The only thing I managed to do was get a job, which I hated.

Here’s my list of goals a few years a later:

  1. Get a job I like. I will take my time to interview with different places. I have a job right now and I am not desperate. There’s no need to jump at the first offer. I will assess the organization, their values and the entire package, not just the pay. Because no matter how much money I make or how easy the work is, being miserable somewhere I spend 40 hours a week makes no sense.
  2. Go to grad school. I’ll study for the GMAT and apply to a couple of different schools. I will take it seriously and will do research to know what to expect in interviews and essays. Because my job will pay for it, so there’s no sense in leaving free education on the table when it makes me more marketable .
  3. Meet my future husband. I will invest no time into men or relationships that will lead nowhere. My time is precious and a finite resource. Once invested, I can’t get it back. I will not settle, because consequences can last a lifetime.
  4. Buy a house. I will save for a 20% down payment. That will ensure the best rate and it will ensure I get a place I can afford the monthly payments. Because if I get it in a good location, it could be a lifetime investment.

Can you tell the differences between the first 2 lists? I don’t know if you can pick up on them, but I’ll say that everything on list #2 has been accomplished. I like my job, I graduated with my MBA in May, I’m married and I bought a house (not in that order ;P).

What’s your trick for keeping your eye on the ball?

“Use this one simple trick, banks HATE it!”

reversemortgage

I can’t be the only person who has seen those ads around the Internet. Usually they’re referring to mortgages and as a result, they’re one of the most successful click-baits. Why? Because whether you own or rent, housing is usually your biggest expense. And if you made the mistake of buying too late in life, you might be one of those people who is worried about retiring or even dying with mortgage debt. This means that articles or services promising to teach you about how you can eliminate that debt as quickly as possible will get your attention.  Unfortunately, many of these people are also trying to sell you something. Well, I’m not, and today, I decided that I was going to make sure you never have to click on those links again, by telling you these “simple tricks banks HATE!”

Before I start, let me highlight the importance of eliminating mortgage debt.

  • Housing is not just a huge expense, it’s also a necessity. You’ll always need a place to live, and given the way rent and housing prices are, if you can have a roof over your head for only the cost something as relatively marginal as property taxes, you are doing better than most.
  • You’re less likely to lose your house if your debt is paid off. Think about how many people lose their houses to banks because they couldn’t afford the mortgage, versus house many people lose their house to a tax lien.
  • It’s one of the few things you can guarantee will pass on to your heirs. The building might fall apart, but barring an environmental crisis in your immediate area, the land will always be there. If you can help it, don’t pass on debt.
  • Depending on houshing type, location and maintenance costs, it could become a good source of income. (More later on how I became an accidental landlord.)

The “tricks”

magic_feature

With these reasons in mind, the point is to pay off your mortgage as quickly as you can. The following methods will help you achieve that goal. Some of these rely on good habits and discipline. Others rely on a windfall and some rely on your type of financing. You may even do a combination of them to see which one suits you best.

  1. Your terms are key. Do you have a 30-year mortgage or a 15-year mortgage? What’s your interest rate? If you have a 30-year mortgage, you will be in debt for twice as long and you will pay more in interest. You’ll also have a much lower monthly payment. What about your rate and down payment? If you have great credit (740+), steady employment and a low debt to income ratio, you’re almost guaranteed the best available rate. This means you’re paying as little as possible on your debt and may be able to own for as much or even less as you would rent (depending on your local housing market.) And of course, the more you put down, the less you have to borrow. So the key to borrowing cheaply for a shorter period, really starts before you get a loan. It’s about cleaning up your credit, saving as much as possible and choosing the mortgage that is right for you.
  2. But what if you already bought a house? Fret not. You can always refinance. Those who bought back in 2005-2006, were borrowing money at ridiculously high rates. Although I didn’t have any money to buy a house at that time, in 2007, I had a CD that was paying me 5%. If you know anything about banking, you can try to guess how much mortgages were. If not, you can look up historical mortgage rates and get confirmation right here. So what would a smart person have done in 2012 if they bought a house in 2006? Assuming they kept their credit clean and continued to qualify for great rates, they would have refinanced their mortgage to a 15-year mortgage at 2.5% and NOT TAKEN ANY EQUITY OUT. What would that achieve? It would have not only sliced their rate in half, but also their term. This would have probably kept their mortgage payment close to the same but they would be out of debt in before 2030, instead of after 2036. If you think about how much you pay towards your mortgage (or rent) every month I want you to multiply that by 72. This is all the extra money they could save, reinvest or use toward something else over the course of 6 years.
  3. At the same time, some people just wanted a break. Many of us really over extended ourselves when we bought homes before the bubble. This means we wanted relief from our high payments, not to keep them the same. Good news! You can also refinance to another 30-year mortgage. You do the same thing above: apply for a new rate, don’t borrow against your equity but keep your 30-year. You don’t get a 2.5% rate, but you might have been able to get 3.5%. Anyone looking at houses now might find it hard to believe, but these rates were definitely available as recently as 2012. I got my house in 2013 and I have 3.75% fixed. But ultimately, going from 5-6% to less than 4%  reduces your monthly payment amount. The biggest benefit is that you can continue to pay the difference towar your principal balance IF you can afford it. But if a bi expense comes up and you need that money for something else, you can reallocate your finds accordingly. You are not bound to the bank to make the higher monthly payments on their schedule.
  4. But what if you already have a great rate and refinancing makes no sense? Well I have a “one simple trick” for your situation too. Before I go into it, let’s remember this basic principle of time: 12 months and 52 weeks in a year. Say your mortgage is $1,000 a month. You can pay $1,000 a month so $12,000 a year ($1,000 x 12 = $12,000). Or you can pay $500 every 2 weeks, so $13,000 a year (52/2 = 26 payments, $500 x 26 = $13,000). It’s like magic! So it’s like making one whole extra payment a year. You can also achieve this same result by making your payments as scheduled, but for the last payment of the year, making an extra payment and applying it to your principal. You can also take the extra payment and divide by 12, and add that number to your principal every month. (In our example this would be $1,000/12 = $84, monthly payment = 1,000 + 84 = $1,084). This can and should shave years off your mortgage. Will it be 6-7 years? Probably not. But if you can save 2-3 years or even 1, that’s 12-36 payments you don’t have to make. That’s money you don’t have to pay interest on. That’s 1-3 years of worry free living.
  5. What if you can afford extra payments on a regular basis? Take advantage of windfalls. This doesn’t require any math or the same discipline as making extra payments, and it doesn’t even rely on you having good credit. The point is to take any and all unexpected monies and put it towards your house.  Gifts, inheritance, bonus, lotto winnings, tax returns, that $100 bill you found in the parking lot of the grocery store, etc. As long as you weren’t relying on it as s regular source of income, if it comes in, pay your debt.

Here you have it: my 5 “one simple trick” to pay off your mortgage faster. But remember, you must assess your own situation individually. If you get a condo, they may not have association dues or they may not include your homeowner’s insurance. Not everything works for everyone. So don’t come back here trying to sue me if you didn’t like your results lol. I am a big fan of the banking calculators. You can them on bankrate, zillow, etc. While they’re great at giving you a snapshot of your mortgage, be careful, because they don’t always included all your housing costs. You can even use them to test some of my theories.

Veterans’ Day 2015

(I’m sure you’ll figure out soon enough that this should have been posted 3 days ago but I couldn’t finish in time to get it out, so I’ll go right ahead and admit it right now so we can move on lol. Hopefully, you don’t let that detract from the message.)

Hello all! I don’t know how many people have the day off, but to those who are fortunate enough to stay home from work, I hope you’re having a relaxing time. I want to start with saying a big thank you to all of the Veterans who sacrificed their family life, health, bodies and lives to serve our country. I do not care for the politics of war, but I will urge you to keep in mind that we have a volunteer military, therefore, whether or not you support a war, you have to appreciate the millions of men and women who sign on the dotted line to risk their life for millions of other people they do not know.

But if you are a Veteran, I have to ask you: how well are you managing your military wallet? Sadly enough, there are many veterans who, after they leave the service, fall victim to bad financial decisions. They take their separation pay and buy a nice fancy ride, they don’t account for the fact that they will no longer have a housing allowance on top of their income to pay their rent and their medical expenses have become their problems. When combined with the fact that the trauma from having gone to war may have changed their personalities a bit, making it difficult to have stable, full-time employment, it’s a recipe for disaster. Although it should never happen, it’s no wonder many of the brave men and women who sacrifice themselves to serve our country end up homeless.

While I don’t have the cure for all of your financial ills, take some time to read the following advice to help you along.

  1. Plan ahead. Don’t wait until you have your out-processing papers to start planning your career. If you know you’re not signing another contract with the military, there are things you need to decide on in advance. For example, figure out where you want to go. Then, determine how your military skills translate into the civilian world. Finally start looking at what kind of jobs can use those skills. If you wait until your last day to work on that, you might find yourself without a job for a few months before you get a hit.
  2. Save your leave. By accumulating as much leave as you can towards the end of your career, you will be able to use that time to: a) get a lump sum of cash in your last paycheck when you leave or, b) take your last leave and use that time to job hunt and interview
  3. Get all your medical expenses out of the way. You don’t know how long you’ll be without health insurance. TriCare continues 6 months after you leave, but some things may no longer be 100% covered. Get your big check ups, glasses, medication, and any other expensive medical things that civilian insurance doesn’t cover BEFORE you leave.
  4. Take advantage of all benefits offered to Vets. The Federal Government gives preference to military veterans for job applications. They get even more preference if they are 30% disabled or more. Things like existing security clearances can be attractive to all kinds of employers looking for trustworthy individuals. Even some private companies are committed to hiring veterans. Don’t forget that you’re not the only one who can take advantage from these benefits. Your spouse can also get preference depending on your specific situation. Be sure to ask.
  5. Know your rights. In some states, discrimination based on your military status is illegal. Don’t let someone take advantage of you or interfere with your right to adequate housing because of your military service.

Thank you for your service, and the list of some of my favorite resources below.

Feds Hire Vets – Government-wide Veteran Employment website

USA Jobs – U.S. Government master job board

USAA – Financial Service company (They also hire Vets!)

VA  – Veterans Affairs (find information on VA Loans, Healthcare, Pension/Disability payments, GI Bill, etc.)