Solar Update – April 2017

solar-panels

My favorite time of year has come! The days are longer, the snow seems to be gone for good, and birds are chirping on my way to work. Spring is upon us. I’ve always loved spring and summer, but now I have even more reasons to embrace the seasons. No, not just because the kids are out of school and there will be less traffic. Because it’s sun season! As you know, we got some solar panels last summer and we enjoyed many months of free electricity. It was truly a sad day when I had to pay for my first electric bill in months after the start of a frigid winter. These things will spoil you…

But the sun always shine eventually and, boy is it shining! My March 2017 electric bill was $38. We are retiring the heating for the season and thus expecting a much lower utility usage, until late June when we have to kick on the AC. Even then, I’m thinking that the 12-13 hours of sunlight that summers in New England graces us with should be sufficient to offset the worse of the damage. I might have reached the electric bill break even point. If so, I am looking forward to negative balances (I don’t say that very often) for many months to come so I can run my heat for free in November.

Let’s raise our glasses to sunny days, tax credits, and free electricity.

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Student Loan Update – April 2017

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When I graduated in May of 2017, I chose not to think about my student loans. It was a hot humid day but people traveled from different states to come see me complete another milestone. I was juggling full time work and a part time MBA program right when my husband was settling into a new job. I had a lot to be thankful for and a number of people were proud of me. The Department of Education was going to grant me 10 years starting in December 2015 to agonize over student loans but I was never going to get another graduation day.

I picked up my diploma after the ceremony and I sat in the front seat of my husband’s car running my fingers on it back and forth as my parents sat in the back. I was pretty impressed with myself. Not in a gloating kind of way but more so in a “I actually did it…” Almost as if I couldn’t believe it.

The next day, things went back to normal and I decided that the honeymoon period with the diploma was over. Real world responsibilities required me to know what my balance was and what my monthly payments were projected to be. It was nothing that I could not afford but it was painful. Over $350 a month a and $40k+ balance. I could get a whole new car with that! I devised an aggressive pay down plan as follows:

  1. Start paying immediately rather than waiting for the grace period
  2. Apply all raises to the monthly payment and all bonuses to the balance
  3. Apply all tax refunds if any to the balance

3 simple steps. The toughest part was the discipline of not eating out as much as we would have liked and not splurging at the mall. However, 23 months later, that plan has worked so well that I am dancing for joy.

Capture

In case you are having trouble reading the small font, this says:

Current balance $11,641.17 & Due date 7/18/2020

While there are no guarantees, these numbers indicate that I am likely on track to finish paying the debt off by the end of the year if all goes as planned. That will be 8 years ahead of schedule. This is more than I could ever hope to achieve. When I said I was determined to pay and save myself an astronomical amount of money in interest, I was not joking.

I am grateful for the discipline I have that allows me to focus on long term independence goals rather than instant gratification. I’m also thankful that I have a supportive husband who understands my goals and can see my vision for our family. Some people would have valued the high life over a debt free life and it could have been a source of friction. Instead, he trusts my judgement and is happy delaying a little bit of gratification in favor of peace of mind.

Dear DOE, thank you but no thank you. I will decline your offer to take a 3-year hiatus from my obligation. You’re going to collect these payments and you’re going to like it. But better yet, you will set me free.

 

Knowing the Investment Products

Investing can be overwhelming. The key is knowing what is available and where to start. There are many investment products. I will list them below and provide a high level overview of some of their features and inherent risks.

INVESTMENT TYPE FEATURES COMPANY BENEFITS BENEFITS RISKS
Stocks Capital appreciation & Dividend payments Capital & Market expansion Growth potential Volatility
Bonds Steady income & Capital preservation Capital investments Predictable returns Interest Rate Risk
Certificates of Deposits Steady income & Insured balances Low cost access to liquidity No risk Low returns
Real Estate Investment Trust Investing in commercial real estate Access to capital Diversification & real estate income Lack of transparency

De-clutter Challenge

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In a previous post I briefly discussed money challenges and how people use them as extra motivators to either boost savings or pay down debt. Whether you’re saving for a vacation, a house or just want to improve your money management skills, you can never have too many tools or tricks at your disposal. This is why I encourage people to get creative about improving their financial behaviors. Not everyone gets as excited about personal finances as I do, so it doesn’t hurt to find a way to spice it up.

Today’s post is dedicated to the de-clutter challenge.

What is it: This challenge requires a little bit of elbow grease, but besides needing some motivation and patience, it  is not very difficult. We tend to acquire a lot of things over the years and the less we move the more we accumulate. Given that spring is in full swing, I think this timing is appropriate. Regardless of your financial goals, I think anyone can benefit from this activity.

This is spring cleaning with a purpose! Make a pile of everything you have not used in 12 months and separate the pile into 2 more categories. One is what you think you will use in the near future (maybe you broke your arm this winter and that’s why you haven’t used your skis, but you’ll be done with rehab soon and will be hitting the slopes for sure in 2018). The other pile what you don’t foresee yourself using, or anything that you have 2 of (newly weds, this is where you will shine! When I got married, I suddenly ended up with 2, if not 3, of everything. Seriously… I have 2 microwaves & 3 toasters). Take very good pictures from various angles (the more valuable, the better the pictures should be) and post your items on various sites for sale. I use Facebook, Amazon and Letgo. While I generally don’t mind ebay, I do not like that their listings expire every 7 days, making me a slave to continuously have to go back and relist the items.

Outcome: Results will vary, but the more items you have and the better the quality, the higher your revenue will be.

Variations: If you’ve already done that, try the same challenge with unused furniture. This will work well if you live in a college town where young students cannot always afford new furniture.

Why I like it: This is a great way to hit two birds with one stone.

If you love cash and your messy garage has been driving you crazy, this is the challenge for you.

Selecting the Right Investment Property

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I’ve brought up real estate a number of times. It is a great tax saving tool, appreciating asset and source of income. I’ve also brought up the role that real estate plays in my life, whether it’s through me getting a good deal on my primary residence, helping clients with their real estate transactions or being on a quest to find a good rental property that will increase my household income without requiring too much more of my time. However, knowing that real estate is a wealth building tool is only the first step. To be successful, you must know how and when to select the best property to maximize your dollars. I will give you some of my tips for choosing the best investment properties. It doesn’t mean that’s all you’ll have to do. Buying real estate is an important step. But these are going to be some of the most basic things to consider to avoid what could certainly be a disastrous choice.

Location – Location for the house you’ll rent out is not going to mean the same as location for the house you intend to rent out for income. You need to determine what will work for most people because it’s a numbers game. You don’t want to reduce your pool of potential tenants because your location is too restrictive. Buy in an area that is convenient to accessing the biggest city or town in your area. Whether it’s quick highway access, availability of public transportation or a walkable neighborhood, you need to make sure that your tenants can go to work and get their errands done with ease. Safety also makes a difference. A questionable tenant who is up to no good himself or a police officer might not mind a bad part of town, but young professionals, particularly women, and young family will cross you off the list.

Size – You want to pay attention to what is renting in the general area. You also want to be careful with the price. Personally I think 2-3 bedrooms are best. Those sizes make it easy for a wide variety of tenants to afford the rent: young working roommates who want to split a 2 bedroom, a couple with no children who want a guest room and/or office space. A young family who might want to rent a 3-bedroom. If you go with a 1-bed or a studio, you may inadvertently reduce your pool because you’re pricing people out of the apartment. For example, a 1-bed in the most affordable part of Boston can cost $1,500. However, a 2-bed will run between $1,800-2,000. A pair of roommates can split the 2-bed and pay $900-1,000 each, $500 less than each would in a 2-bed. Once you start going any larger than that, you run the risk of not having a large pool of tenants because most people who need to live in a 4-bed are usually looking to buy by the time they get to that point. At least in my area, that’s how it is. Large rental homes (4-beds+) usually perform better in the parts of town that are walking distance to a university. Anything of that size further away will struggle.

Price – Being a landlord is a business. Your goal is to maximize profits. While you set your rent price, the most realistic rent is mostly dictated by the market. That means, you can only ever charge so much. The only other way of increasing your margin is by controlling your expenses. You need to make sure you are at least breaking even on your monthly expenses (including variable and estimated incidentals) with the lowest possible rent in the area. Don’t let your mortgage be equal to or greater than average rent, let alone more with the expectation that you’ll get top of the market rent; because, if that doesn’t happen, you could be in serious trouble.

Maintenance Needs – Know what you will need to meet your city or town’s habitability standards and to provide adequate service to your tenants. Some properties are cheap for a reason. If you save $15k but it will cost $25k to make it an adequate residence, the property might not be such a good deal.

Quality – One of the worst things you can do is price yourself out of the rental market. The way to make that mistake would be to either buy the best house in the worst neighborhood, or to spend an great deal of money turning a property into the best house in a bad neighborhood. Your potential for rent will be limited although you need a certain amount of money to recoup your costs. The quality of the property should be reflective of quality of the neighborhood.

How Minorities can close the Wealth Gap

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In America we always hear about the wealth gap along color lines. Whether we hear it all year from activists or during election season from politicians pretending to care, we all have some level of familiarity with the concept that, minorities, particularly black people, in this country are far behind white families when it comes to wealth building, accumulation and retention. There is no denying the facts or ignoring the systemic policies and practices that keep the divide alive. You can’t enslave a particular group of people for centuries, marginalize them for decades and vilify  them in the media and still expect them to thrive. However, there is a point where people of color have to make an effort to improve their situations.

I will acknowledge that  I know very well that the gap will not close in my lifetime. Furthermore, as a black daughter of immigrant parents, I face sexism, racism and other forms of prejudices because of my family’s background. So I want to be clear that this is not a “blame the victim” bash-fest. I am not ignoring the very real biases that are woven into the fabric of American society. On the other hand, I also don’t think it makes any sense for people to throw their hands up and simply give up on putting forth any effort because the system wasn’t design for them. Is it fair that you have to work twice as hard to see half of the result? No. It also doesn’t mean that you should throw in the towel and stop playing the game. Fighting to see a change in the way things work and working towards self-improvement are not mutually exclusive. You can hate the rules of the game and still participate. A second place trophy is better than being disqualified. So I will continue to advocate for accountability as much as I do for equality.

With that said, I am going to list some of the things that middle class black people can do to ensure that their children are better off in the future.

Get life insurance – Often times, people die and leave their young children with nothing. Sometimes, they die and become a burden to adult children who now have to bear the costs of burials. Unless you are terribly old or ill, life insurance is relatively inexpensive. It’s not tremendously risky given the fact that we will all die eventually. Should you die unexpectedly, your young children can have sufficient funds to ensure they are provided for, and if you die at a more advanced age, your older children will have somewhat of an inheritance.

Stop kicking your kids out at a young age – No one expects you to have your bum do-nothing children mooching off you for the rest of your life. However, regardless of what the government says about their adult status, 18 year-olds are still clueless about life. They do not have the maturity or the earning potential to have a full life outside of your home. They do not have any skills to get an adequate job, they are likely still in school and lack the experience to avoid life-ruining mistakes. There is a reason why the drinking age is 21. They are not done growing. I have heard plenty of stories of young black children being kicked out at 16 or even as young as 14. That is absurd. Give your children a chance to thrive. They did not ask to be born. You brought them into this world and it is your responsibility to provide for them and care for them until they have all the necessary tools to brave the world with high likelihood of success. Don’t be surprise that your child is not thriving if they’ve had to pay rent since they were 18. They will never have sufficient savings or good enough credit to get ahead in life.

Give your children meaningful gifts – Struggle does not build character. There is no glory is struggle. It may build resentment, snowball into more struggle, reduce quality of life, but it doesn’t build character. Knowing the value of a $1 and the importance of hard work are not the same thing as struggling. Building character is making your children do chores. Building character is making them get a full-time job in the summer. Not letting them suffer because you didn’t have anyone to take care of you. Help them buy their college books so they don’t rack up credit card debts they can’t afford. Put money away for them over the course of their lives so when they get married and/or buy their first house, you can have something substantial to give them.

Help build your child’s credit – Black parents are so notorious for misusing their children’s social security number that it has become a joke that the light bill is in the 3-year old’s name. You are responsible for you child’s well-being. That does not stop at the physical state of making sure they don’t fall down the stairs and aren’t hungry. You are responsible for nurturing their mind as well as their socio-economic status. This means, that responsible parents do not damage their children’s economic standing in life by ruining their credit at birth. Instead, protect your child’s identity and when they are old enough, help them build their credit. You can contact your credit card company by asking what the minimum age is for adding an authorized user to your account. Some companies will allow someone as young as 16 to be added. Pay the bill in full every month, don’t carry a balance and make no late payments. That will not only teach your child how to use credit responsibly, it will also start to help build their history. Granted, the boost for being an authorized user will not be very big. FICO changed their scoring model to drastically cut back on the effect joint history can have on an authorized user’s score because some people with questionable credit were exploiting that feature. However, if you are responsible yourself, it certainly can’t hurt. Not to mention, it will teach them the proper behaviors for when they are allowed to strike out on their own.

Be open about money – There is often this secretive relationship with money. We tend to not discuss money in general. However,  your child is not a nosy relative or a stranger or even someone who will look to exploit you. They are part of your household. Most importantly, they can’t learn anything about proper personal finance management if they don’t know how money works. They are certainly bound to repeat your mistakes if you never share them. You shouldn’t see a financial mistake as an embarrassing failure but as a teachable moment. My parents did not talk to me about money. My money management skills developed as a result of my natural inclination to be risk adverse. I grew up afraid of financial insecurity. I grew up worrying about retiring in squalor, on the verge of eviction or having my car repo’d. That is who I am. It wasn’t a particular incident that caused me to be this way. That’s how I’ve always been in all aspects of my life. Risk adverse nearly to the point of risk avoidance. So I spent my life reading up about money, personal finance, the state of the economy and how it affects my life. But that is not most people’s nature. For many, they grow up modeling behaviors they witness. Sometimes they are “live in the moment” type of personalities and don’t put much thought into how today’s actions can have a butterfly effect on their long term financial future. I’ve had many conversations with young people who said: “My parents never taught me this. No one told me about money. I had to figure it out on my own.” You can’t teach them good habits if there is not an honest conversation happening.

Be honest – This is something I have seen in my own family. Dishonesty that sets unreasonable expectations. Your children rub elbows with peers of all walks of life. If they aren’t clear about what their socio-economic status is, they may have unreasonable expectations about what you can and cannot afford. If you spent your whole life misleading them, you might feel guilt or pressure to extend yourself and provide things you really have no business buying. I have personally witness relatives of mine buying their children luxury vehicles in high school while their cable went unpaid and their gas bills piled up. These people spent their entire lives living the lie that they could afford anything. However, as the children got older, their taste became more expensive and the parents weren’t just sacrificing savings to make things happen, but basic necessities. Those children then grow up being used to a living standard that is above their means and they have to choose between maintaining that standard they’re familiar with to keep up their peers and cutting back to something more realistic. Needless to say it’s extremely difficult and they end up on a financial hamster wheel until they can change their habits.

These are some of the ways I think black parents in America can work to improve the lives of their children. Certainly, it doesn’t guarantee success or even that the descendants of the slaves will be as wealthy as the heir of the slave-owners. But if you can’t commit to doing everything within your power to improve the lives of the children you birth, you have no business being a parent. Your job is to make sure your kids are better off than you were, and their job is to do the same for your grandchildren. Anything less is a race to become a permanent underclass.

Small Habits that will Cost You Over Time

The devil is in the details. That is also true when it comes to money. My own mother has a terrible approach to money which often frustrates me. Most of my attitude towards money comes from watching what she does and being committed to doing the complete opposite. For example, she will often say: “it’s just $10, it’s just $20.” However, it takes 50,000 $20 bills to make $1,000,000.00 While this might sound ridiculous, the point is to show that you have to start somewhere. If you can’t manage to keep control over 1 or 2 $20 bills, how will you ever get to 50 thousand? So pay attention to the details to position yourself for success. Here are some seemingly small details that could change your life if you start paying attention.

  1. Buying lunch every day
  2. Not saving for retirement
  3. Not having an emergency fund
  4. Buying more house than you need
  5. Owning a luxury car
  6. Having less than stellar credit
  7. Not knowing the difference between a need and a want
  8. Being under insured
  9. Not having a budget
  10. Not having short term disability
  11. Failing to network
  12. Failing to avoid late fees
  13. Failing to renegotiate with your providers
  14. Paying full price
  15. Not learning to DIY

These are some of the things that I have found were costing me over time. The small things add up, yet they are the easiest habits to change. What small tweaks can you make today to improve your finances?