Improve Your Finances This Year

Tax season is always a good time to re-evaluate your financial situation.  There is always room for improvement.  Here are some simple actions to incorporate into your life that will help improve your financial situation.

Photo credit:  getrefe.com

Change Your Attitude (Towards Money)

The attitude you have towards money can either make your life a whole lot better or a whole lot worse.  A thankful attitude will help you to see all that you do have instead of what you don't.   Consider this story from MoneyNing.com.

"I have an espresso machine that pours a set amount of water into the cup. One day, I used a huge mug and it seemed like there was no coffee in there. The coffee obviously didn’t change, but the container (our expectation) did. It seems obvious that the only way to measure how much we have is by looking at the actual volume of coffee but like many, I looked at how empty the mug was. Counter-intuitive and counterproductive."

Create A Monthly Budget

A budget is really just a plan for what to do with your income and expenses.  First, look at your take-home pay (not your general salary).  Then consider your fixed expenses like mortgage, utilities, etc.  Setting a budget for these amounts is fairly straight forward.  Next consider your discretionary spending and set budgets for those accordingly.  Anticipate changes, but base it on current use and be realistic.

Remember, for a budget to work, your income needs to be higher than your expenses.  If you're expenses exceed your income, you are in financial trouble.  You either need to increase your income or slash your expenses.

A budget should allow for some flexibility.  It is supposed to work for you, not to constrain you.  A budget gives you a reality snapshot of how you're living your life and where to make changes.  

Look for some great apps for your phone that can help you keep track real-time and sync it with other family members.

Make Saving Money a Habit

 Spending money is always way more fun than saving it.  That's why you need to make it into a fun and challenging game.  Decide to have a saving money attitude for one month and see what the end result is.  Here are some ways to do it:

• Direct deposit:  Most banks will let you set up an automatic transfer every pay period.  If you already are doing this, consider increasing it by 10%.  
• Save the change:  Anytime you pay in cash, you likely get a bunch of coins back.  Make it a habit to clean out your pockets and your purse each day and put all the coins in a jar.
• Pay yourself:  Whether you want to help stop a bad habit or want to reward yourself for doing something good, put a price tag on it.  For every swear word, add a dollar to the jar.  Or for every cookie you resist, put in some money.

Hopefully by the end of the month, you will have made a new habit for yourself and you will have saved more money than if you'd done nothing.

Tax Withholding

After your taxes are complete, take a look at how much you are withholding.  Did you get a refund?  Then you're giving the government an interest free loan, when you could have that interest making money for you.

Evaluate your tax situation and see if there are any changes that can be made.  And if you did get that refund, put it in the bank.

Max Out Your Retirement

Not investing any money into a retirement account?  Start now.  If you're already doing so, work towards maxing out what you can put into retirement.  This should be a no-brainer anytime you get a bump in pay.

Once you've maxed out your retirement savings, then you can look to invest additional money.  Find easy-to-use online options like Betterment.com that help you with investing.

Slash Your Expenses

You probably started this process when you made your budget.  But continue to look for ways to lower you expenses.  Negotiate with your cell phone provider and you cable provider.  Price shop on insurance.  Find ways to lower your food budget.  Find ways to do fun things cheaper.

Be a detective and work at finding ways to get things cheaper or free.  Don't be afraid to experiment.

Pay Down Your Debt

Don't spend that money you just slashed.  Use it to pay down your debt load.  Student loans, credit card debt, car loan, mortgage...you are paying interest on all of them.  Not to mention that there is a lot of stuff you could be doing with those monthly payments.

Determine how much money you are paying in interest on all of your debt.  Then figure out your debt free date for each loan.  By paying more than the minimum each month, you lower that total interest money, which is basically paying someone to let you loan money from them.  

Start with the highest interest loan and tackle that first.  Once that is paid off, use the money you were spending on that loan to tackle the next one.  Before you know it, you'll be debt free and feel really rich.

Increase Your Income

You've worked on one side of the money equation.  Now work on the other, the income side.  Making more money helps you achieve your financial goals faster.  Here are some things to consider:

• Ask for a raise and have the backup to show why you deserve it.
• Find a side job doing something you really enjoy like pet sitting, working at a coffee shop or freelance writing.  Remember, it doesn't have to be forever, unless you want it to be.
• Sell unwanted items on ebay, craigslist or your local paper.
• Sell things you make.  Salsa, woodworking, art, crocheted blankets...there are always people who are willing to buy.  Set up a shop on etsy, or use the avenues listed in the above bullet point.
• Unsatisfied in your current position and feel you're worth more?  Consider changing careers but keep in mind the costs of getting up to speed and on work-life balance.

Donate To Charity

No matter how much or little you make most likely there is someone in this world who is way less fortunate than you.  Take some time to write down your values.  Do your values line up with your expenses?  Are you spending your money on what you think is important in life?  If not, consider changing how you spend your money.  Your spending should reflect your values.

More than just a tax benefit, the money you give to those who need it more will always have its own rewards.  Manage your money wisely so that you can spend lavishly on those things that matter most to you.

Source:  Michelle Schwake for Stafford Family Realtors, and MoneyNing.com

Save Money By Becoming A DIYer

Some people are just not born with the Do-It-Yourself (DIY) gene.  For those deficient in the DIY gene, changing a light bulb can even present a challenge. If you fall under this category and you like to save money, I urge you to at least try to learn a few basic home fixes. Why?  Because paying someone to do something you could learn to do yourself wastes a lot of money.

We've outlined some common home maintenance/repair items that are usually easy for a regular DIYer and how much it costs to farm out that work.  You'll see that if you could bone up on your skills, you could save a lot of money by just paying for materials and skipping the labor costs.

1.  Replace Toilet Fill Valves

Source:  yogisplumbing.com

That annoying sound of water continually filling and draining from your toilet tank is often caused by leaky fill valve, which a plumber can replace, stopping water waste and restoring quiet. Plumber rates vary widely around the country, from $45 to $150 per hour, and the job will take about two hours — the minimum some plumbers require just to take the job.

Labor: $50 to $200

Materials: $11 to $23

Total:  $66 to $223

2.  Repair a Leaky Faucet

Source:  bluletter.com

The water torture drip-drip-drip from a leaky faucet won’t just drive you insane, it can drive up water bills, too. Depending on the type of faucet you have, fixes typically involve replacing damaged rubber washers (10 for $2), O-rings (10 for $2), or a faucet cartridge ($8 to $30).

Labor: $95 to $300

Materials: $2 to $30

Total: $97 to $330

3. Replace Ceiling Fan

Source:  diynetwork.com

If you’ve got a ceiling fan, sooner or later the motor will burn out, the blades will warp, and fashions will change, so you’ll need to replace it. Replacing isn’t a big deal, because upgraded wiring, a reinforced ceiling box, and a light switch with ceiling fan controls are already in place. What you’re paying for is an electrician’s time — one or two hours — and a new fixture.

Labor: $50 to $200

Materials: $54 to $1,000 and up

Total: $104 to $1,200

4.  Repair Drywall

Source:  youtube.com

Nicks, gashes, and smashes inevitably mar your beautiful walls. You’ll have to patch and paint to make them look as good as new. A painter can do both jobs and will probably give you a flat rate that will include patching or filling blemishes, then sanding, priming, and painting. 

Painters charge $25 to $62 per hour for labor or $2.68 to $4.60 per square foot including materials. Figure it will take about three hours to repair a wall, including drying time for the patching compound and paint. It’s a good idea to save up painting chores so you have enough to keep a painter busy while repairs cure. 

Materials include paint at $12 to $50 or more a gallon, which should cover about 350 square feet; plus another $10 to $50 for brushes, rollers, drop clothes, and drywall patching compound.

Labor: $75 to $186

Materials: $22 to $100

Total: $97 to $286

5.  Repair Cracked Tile

Source:  integraltile.com

Tile is hard and durable, but drop something heavy on it and it’s likely to crack — a reason to always order more tile than you need so you’ll always have spares. To replace cracked tiles, a handyman must pry out the damaged tiles, scrape away old fixative, re-glue new tiles, and spread new grout. Replacing a 2-foot-by-2-foot section of tile should take one to two hours, not including the drying time required for the adhesive to set.

Labor: $30 to $125 per hour; with possible $150 to $350 minimum charge for a handyman

Materials: $1 to $20 per square foot

Total: $34 to $430

6.  Replace Caulk Around Tubs, Sinks, and Showers

Source:  diynetwork.com

Caulk is the waterproof seal around sinks, tubs, and showers that prevents moisture from seeping through gaps and onto drywall and flooring. When caulk cracks or peels, it should be replaced immediately to prevent mold and rot.

A handyman can dig out old caulk around a tub and reseal with new in about an hour. 

Labor: $30 to $125 per hour; with possible $150 to $350 minimum charge for a handyman 

Materials:  $1 to $4 for a tube of bathroom caulk

Total: $31 to $354

7.  Fix Gutters

Source:  redbeacon.com

Gutters and downspouts carry water from rain and snow away from your house and onto the ground. Sometimes the weight of wet snow and soggy leaves puts too much pressure on gutters, causing them to pull away from the house or pitch at inefficient angles. 

A gutter contractor will clean gutters, and replace or reinstall supportive hardware and hangers. To restore the correct pitch, the contractor must detach and reattach each gutter section.

Labor: $127 to $282 (depending on length of gutter)

Materials: $10 for five hangers; $6 to $9 for gutter sealant

Total: $143 to $301

8.  Fix Out-of-Alignment Doors

Source:  diyadvice.com

Over time, your house moves as its foundation settles and building materials expand and contract with changes in humidity. The movement often is noticed when doorframes shift slightly, causing hinges to creak and doors to not shut properly. 

Adding wooden shims to frames and hinges can bring doors back into alignment and let them easily open and close once again. Replacing worn-out screws with longer screws helps secure hinges tightly.

A handyman can fix a door in about an hour. Materials will include shims and screws.

Labor: $30 to $125 per hour; with possible $150 to $350 minimum charge for a handyman

Materials: $5

Total: $35 to $355

9.  Repair Ice Damming

Source:  bobvila.com

If your house isn’t insulated correctly or your roof isn’t designed correctly, melting roof snow can run off and freeze around roof edges. Eventually, this can form an ice dam that creeps up your roof, damaging shingles and forcing melting water into your home.

One popular solution to ice damming is to install a heating cable along the roof’s edge, which warms the area and prevents freezing. It’s not a DIY job. Roofing contractors will install the cable, and an electrician will install outlets that will juice up the cable. If you want a thermostat to turn the cable on and off automatically, that’ll be extra, too. 

Labor and materials: $30 to $60 per linear foot

Total: $371 to $1,319 (average job cost)

10.  Fix a Faulty Light Switch

Source:  danramsey.com

Sometimes you turn on the light but nothing happens; or sparks crackle, and the light turns on. It’s disconcerting, but most likely it’s an easy fix. An electrician will turn off the power, take off the faceplate, check and perhaps tighten wires; or replace the switch. All told, it will take less than an hour.

Labor: $50 to $100 per hour

Materials: $1 to $6 for a single pole light switch

Total: $41 to $106

If you had to fix every one of these problems in one year the cost to have the work hired out versus the cost to DIY would be:

Total Cost to Hire Out:  $1,019 to $4,904

Total Cost to DIY: $137 to $1,257

That's a significant savings!  So get on the internet and find some DIY videos and articles, go to your local library and find some books, and even find a DIY mentor to show you how it's done.  Learn some of these basic fixes and you'll save a lot of money.

Source:  Houselogic.com and Michelle Schwake for Stafford Family Realtors

Square Footage: What Is The Right Number For You?

www.savvyandcompany.com

Not too long ago, big houses were the thing.  And I mean BIG.  People who had the means (and many who didn't) were going as big as their lots would let them.  Yes, the housing bubble had a drastic effect on that.  And then the Great Recession hit and pretty much forced Americans to rethink how much house they needed.

As the economy recovers, house sizes are creeping back up again.  But having been burned once, many are opting to keep the size of their home to the Just-Right range.  And what is that just right range?  Obviously it varies based on the size of your family, how you live, hobbies and activities, and what your future holds.

If you go too big, you run the risk of having higher mortgage payments, higher taxes, higher insurance, more space to heat and cool (leading to higher utility bills), more space to clean, more space to maintain, more space to furnish and more detriment to the environment.

If you go too small, you run the risk of lack of space for storage, lack of space for entertaining, lack of personal space, and lack of space to expand if your family expands.

To get just the right amount of space, first take a look at some of the questions below.  The answers will start to shed light on what you want and need for your family.

Family Size

Are you married or single?  Do you have children?  Will they be leaving the house soon or are you soon going to be having another?  Do you currently or have plans to have aging parents living with you?  How many pets do you have (I'm serious, they take up space)?  All these factors will help you determine an appropriately sized house for your family.

Lifestyle

Do you travel a lot?  Do you work from home?  Do you entertain a lot?  Do you live in a warm location where you can be outside a lot?

Hobbies and Activities

Some hobbies take a lot more room than others.  A woodworker will probably want a large workshop whereas a sewer can make do with a machine that they can pull out of a cabinet from time to time.  Piano playing, scrap-booking, video gaming...they all take varying amounts of space.

Future Goals

Are you close to retirement?  Are you planning to have more kids?  Do you want to devote a large amount of time to travel?  Are you trying to save more money?

Get Out Your Calculator

Once you've found answers to the questions above, you can start to picture the size of the home you might need and want.  Architect Dan Maginn in the article, "Square Feet, Foot Steps" recommends starting with your current home and following these five steps:


1.  Identify and measure the rooms dedicated to these functions:  Cooking, Dining, Bedrooms, Closets, Bathrooms, Living, Storage, Circulation, Mechanical/Utility.

2.  Note whether each of these rooms currently feels too small, too big or just right.

3.  Note how each of the functions in number 1 might change in the future based on the Future Goals you listed above.

4.  Based on numbers 2 and 3, adjust the size of the rooms until you feel they would be just right (or add, or eliminate rooms as needed.

5.  Add up the numbers and that is your just right size house.

Are you surprised?  Is the number bigger or smaller than you were expecting?  This isn't the perfect right answer for everyone, but it's probably a pretty good indicator of the right sized home for your family.

Source:  Michelle Schwake for Stafford Family Realtors

Minneapolis and St.Paul Rank High In Quality Of Life

People who live here in the Twin Cities know that its a great place to live.  But it appears others have declared it a great place to live, too.

Source:  Minnesota Monthly

According to Nerdwallet, a financial website, both Minneapolis and St. Paul Ranked in the top five of US cities that offer the best quality of life.  In fact all of the top 5 cities are in the midwest.

So where did we net out?  Minneapolis came in 3rd and St. Paul came in 4th behind Madison, WI and Lincoln, NE.

The financial website looked at  income and health benefits, local economic strength, as well as work-life balance to find the best places for quality of life.

Here's what Nerdwallet had to say about Minneapolis:

"Workers in Minneapolis enjoy a healthy work-life balance, a relatively low cost of living and high rates of health coverage. The city also boasts a vibrant culture with a strong arts scene: Minneapolis is home to the second-highest number of live theaters per capita in the U.S. after New York City. The University of Minnesota, one of the largest public universities in the nation, is located in Minneapolis, which helps boost the local economy."
And here is what they had to say about St. Paul:

"St. Paul offers the same attractive qualities to workers as Minneapolis, its twin city, scoring especially highly in the income, affordability and health insurance coverage factors. Outside of the office, people here can enjoy many cultural and outdoor amenities, including performing arts centers, parks and more. The city also boasts 26 miles of Mississippi riverfront, the most of any city on the river."

Give yourself a pat on the back for choosing to live in one of the greatest metropolitan areas in our country!  To read more about the other cities listed and pour through the data you can link to the article at Nerdwallet, HERE.

Source:  Michelle Schwake for Stafford Family Realtors 

Home Office Deduction Change for 2013 Tax Year

If you work from home, you may qualify to use a new, simplified option for claiming the home office deduction when you file your 2013 taxes.





 How much simpler is it? It lets you claim $5 per sq. ft. for up to 300 sq. ft. instead of having to compute the actual expenses of your home office using a 43-line form. To calculate the square footage of your office, just multiply the length of two walls. For example, an 8-by-10-foot room is 80 sq. ft. And at $5 per, that’s $400.
Although using the simplified option is obviously easier, the basic requirements for claiming the home office deduction haven’t changed. Your home office still must be used for business purposes:

• Exclusively, 
• and On a regular basis. 

Source:  Houselogic.com

Should You Move For A New Job?

Most people would agree that it makes sense to keep your eye on the job market even if you're happy in your current place of employment.  It's just sound reasoning to know what the going rate is for your position and if there is a better offer out there somewhere.  But what happens when you find a job that pays higher than your current salary for the same responsibilities and it's in another town or even state?  There are many factors to consider before making a big move, and money isn't always the deciding factor.



Ask For A Raise

The first sensible thing to do would be to ask your current employer for a raise, citing that there are other companies paying higher wages for the same work.  If your boss goes for it, then great!  Case closed, right?  Not so fast...

Evaluate The New Location

So, your boss is willing to pay the same as the new job offering.  How far will your money go where you currently are and how far will it go in the new location?  Is the standard cost of living less in the new community?  Is the new town a place you've always wanted to live?  If you have kids, how are the schools?  What is the crime rate?  Is the town on the rise or is it stagnating or slowly losing residents?  If you should lose the new job, would you be able to easily find another job in the new community?  Would your spouse be able to find work in the new community?  How far away would you be from family?  Would you always be traveling on holidays and would you always have to hire a sitter because you can't call grandma to pop over?

Evaluate The New Position

It sounds like the job is the same as your current job, but is it really?  Are there other responsibilities involved?  Will you have to travel more?  Does the workplace culture support families or do they all seem to be workaholics?  Do you want to move your entire household for a job at the same level or should you only move for a step up on the job scale?

What Do You Stand To Lose?

If, after evaluating the new job and the new town, you find you're still interested in the new job, there are a few final questions to ask yourself.  Will you lose a significant amount of money if you sell your house and would the higher salary at the new job compensate for that loss?  If you're being offered $5,000 more per year but you stand to lose $50,000 on your house, it would take you 10 years of working at the new company to make up for that loss.  Is it worth it?  Additionally, what is the housing market like in the new town?  Can you get a lot more house for the money?  If you had to, would you be able to sell a new house in the new town or is the market there very tough?  If you can make up the loss of any money on your current home with a gain in equity in your new home, it might end up being a wash or even a gain.

Think about your family and the ages of your children.  Is this a good time in their lives for making a move?  Sure, kids can adjust at any age but some ages are harder than others when it comes to making a transition.  Also, consider the long-term benefits and drawbacks for your family.  Maybe your family is currently on the go, constantly spending time in the car driving to activities because you live in a big city and nothing is close to your house.  If you crave more family time, maybe a move to a smaller town with a less hectic pace is the right choice for you.  Or maybe you live in a crime ridden town and long for the peace and safety of small town living.  Conversely, maybe you live in a small town a long for more culture and learing opportunities that a larger town can offer.

Is your spouse on board?  Will they support you or will this drive a wedge between you?  Will they be happy in a new environment?  Are there job opportunities for them?

This by no means is a comprehensive list of the questions you should ask.  But it's a great starting point.  The idea is to try to think about all the different aspects of a big move so that you can make the most informed decision.  No matter what you decide, you can feel more secure in your decision once you've weighed all the pros and cons.  A higher salary does not always outweigh all the other factors when it comes to making a big move.

Source:  Michelle Schwake of Stafford Family Realtors 

Best Places To Buy International Vacation Property

More and more people are feeling more confident in our economy and as a consequence are feeling more secure in their personal finances as well.  Maybe you already own your home, are actively investing and saving.  In other words, you're feeling pretty secure financially.  Many who find themselves in this position decide to travel.  But what if your traveling could also be a way to invest wisely?

According to an article at EscapeHere.com, there are deals to be had out there when it comes to investing in vacation properties.  Check out the article HERE if you want the full list of 10 that the article highlights.  But here are their recommended top 3 and what makes them so appealing.

Argentina



With mountains, jungles and big cities, too, Argentina has something for everyone.  And with the Argentinian economy being healthy and growing, it makes a great place for investing in property.  So what are we talking about, moneywise?  How about $75,000 USD for a vineyard or $65,000 USD for a 2-acre lot in the coveted patagonian region with it's snow-capped mountains and beautiful thaw lakes?

Costa Rica



Costa Rica has a very low standard of living so you can afford a lot here.  And it is one place that should stay green for a long time to come...Costa Rica is very forward thinking in sustainable technology and environmental practices.  Doing a quick search on Viviun.com, which lists international real estate, shows that you can buy 3 acres of land with a waterfall, ocean views, bordering a biologic reserve and overlooking the Baru River Valley for $195,000 USD.  That's cheaper than a lot on any of the popular lakes here in Minnesota!

Albania



Albania borders Greece and is across the sea from Italy.  With it's mediterranean climate and lifestyle, it's like a much cheaper version of Greece.  And according to the article, "For $50,000, you can get a beach-front apartment, and since the country’s successful transition to capitalism, the economy is just going up, and bringing property values with it."

Source:  Michelle Schwake for Stafford Family Realtors, and EscapeHere.com

LED Lights - Are They Worth It?

You've heard time and again how energy efficient LED lights are.  Most incandescent lights are around 60 watts, while an LED is around 10 watts.  In addition, an incandescent light will typically last about 1,200 hours while an LED will last around 50,000 hours before needing to be replaced.



The one major disctinction between the two bulbs is price.  An incandescent light will cost around $1.00 while an LED light can run you as much as $10 (we checked on amazon.com for the above pictured bulb).  That's a big price comparison!  In fact, switching all the lights in your house to LED's would cost a small fortune.  So, how should you decide whether to switch out an incandescent light for an LED?  It all comes down to...math.  (And you thought you wouldn't need math after barely passing algebra.)

To compare the cost of LEDs with incandescents, let's offer up 2 scenarios and calculate the difference in cost between the two bulbs.

Scenario 1:  5 Hours/day for 2 Years

Let's say you're going to use this light bulb for 5 hours every day for two years.  To determine the total cost over the 2 years you would need to add the cost of the bulb with the cost of the electricity over that time span.  And since electricity costs are in kilowatt-hours (kWh) we'll need to make sure to convert to the proper units (all that math horror is coming back to you now, isn't it?!)  We'll use an energy cost from my last bill of 13 cents/kWh.

Incandescent Light Bulb

Cost of electricty = 60 watts / 1000 watts/kilowatt X 5 hours/day X 365 days/year X 2 years  X $0.13/kWh =  $28.47

Cost of bulb(s)  = 3,650 hours/1,200 hours/bulb X $1.00/bulb = $3.00

Total cost of bulbs and electricity for incandescent bulb = $31.47

LED Light Bulb

Cost of electricity = 10 watts / 1000 watts/kilowatt X 5 hours/day X 365 days/year X 2 years X $0.13/kWh = $4.75

Cost of bulb(s) = 3,650 hours/ 50,000 hours/bulb X $10/bulb = $10

Total cost of bulbs and electricity for LED bulb = $14.75

In this scenario, clearly you have a decent cost savings for LED bulbs compared to incandescent.

Let's now look at another scenario where the bulb is not used quite as often.


Scenario 2:  30 minutes per day for 2 years

Okay, same bulbs but we're going to only use them for about a half hour per day in that 2 years.  What is the cost comparison?

Incandescent Light Bulb

Cost of Electricity = 60 watts / 1000 watts/kilowatt X 0.5 hours/day X 365 days/year X 2 years X $0.13/kWH  = $2.85

Cost of bulb(s) = 365 hours/1,200 hours/bulb X $1.00/bulb = $1.00

Total cost of bulbs and electricity for Incandescent bulb = $3.85

LED Light Bulb

Cost of Electricity = 10 watts / 1000 kilowatts X 0.5 hours/day X 365 days year X 2 years X  $0.13/kWH = $0.47

Cost of bulb(s) = 365 hours/50,000 hours/bulb X $10.00/bulb = $10.00

Total cost of bulbs and electricity for LED bulb = $10.47

Clearly, the cost is much higher for an LED bulb in the second scenario.

Final Decision....It Depends

Whether or not you trade out your incandescent bulbs for the very energy efficient LED light bulbs clearly depends on how you're going to use that light.  If you will use that light every day for several hours, such as in the kitchen or in your office where you work all day, an LED light may be the way to go.  But for the hallway light or a closet light, an incandescent is definitely the way to go....unless you tend to forget to turn the light out (hint: invest in an automatic timer for the light switch in those areas).

Of course, if your ultimate goal is to save the earth and money doesn't even factor into it for you (and if that is the case, who are you???) then by all means, when your incandescents finally die, then switch them out for LEDs.  The earth will thank you.

Source:  Michelle Schwake, Stafford Family Realtors.  For our scenarios, we used www.wikihow.com and www.eartheasy.com.

Piggyback Mortgages

In 2005, many people qualified for a piggyback loan.  They would take a traditional 80% mortgage on a new house, and also a 20% mortgage in the form of a higher-rate home equity line of credit to cover the “down payment.”  This option was a way of avoiding mortgage insurance for those who didn’t have enough money saved to cover a down payment.

This 80/20 type of piggyback mortgage was quite popular before the housing crash, as it allowed borrowers to buy a house with no money down. Of course, we all know what came of it: borrowers who took on more house than they could afford. When these borrowers defaulted, our economy took a major hit.

You might think that lenders would’ve banned piggyback mortgages forever because of the housing crisis, but apparently these types of mortgages are making something of a comeback. While you can no longer get the kind of 80/20 mortgage described above, there are still some piggyback options available to homebuyers in 2013.

Here’s what you need to know about the return of the piggyback mortgage:



A Lower Combined Loan-to-Value

Banks no longer want borrowers to show up with no down payment when buying a house, which is why the 80/20 piggyback mortgage has gone the way of the dodo. But if you have some portion of a down payment, you may be able to find a bank willing to finance a piggyback mortgage with a combined loan-to-value of 85% or 90%.

Basically, this means that you’ll need to come up with a down payment of 10% to 15%, and you can get 85% to 90% financed through the first and second mortgage. This is actually beneficial for both you and the bank; the financer takes on less risk, while you start off home ownership with more equity than with a  80/20 piggyback.



Tighter Borrower Requirements

One of the reasons why piggyback loans had such disastrous results during the housing bubble was that credit was so easily offered and accepted. Banks have (theoretically) learned their lesson, and have tightened up the borrower requirements for piggyback mortgages (not to mention traditional mortgages).

According to Bankrate.com, “For a borrower to get a piggyback loan today, lenders typically require a FICO score of at least 700. As well, they typically look for a total debt-to-income ratio of no more than 43 percent and expect borrowers to have some cash reserves.”

It’s important to note, however, that these typical rules might not be as stringent as the ones you encounter at your bank. Banks don’t want to get burned again, and so even though the piggyback mortgage may be making something of a comeback, you may find that the stringent requirements make it basically impossible to take advantage of one.



The Bottom Line

While piggyback mortgages are becoming more common — they accounted for 3.8% of loans originated in 2012, as compared to 1.7% of loans in 2010 – they are still a pretty rare banking product.

Borrowers with excellent credit, a low debt-to-income ratio, and not quite enough money saved for a down payment might be able to make good use of this type of loan — but it is ultimately smarter to simply save a little longer until you do have the down payment necessary for your dream home.


Source:  by Emily Guy Birken for  Moneyning.com

The Best Time of Year to Buy Household Items

Who doesn’t love a deal? I loved this article at Realty Times, which recently revealed the best time of year to buy certain household items in order to score the biggest bargains, based on research from AARP and LifeHacker.






January: Furniture, new flooring, and bedding and linens

February: Air conditioners and older model televisions that will soon be moving out for newer models

March: Gardening tools, china, and flatware

April: Vacuum cleaners

May: Barbecue equipment, patio furniture, and home office furniture

June: Tools

July: Kitchen appliances, such as refrigerators and ranges

August: Linens and storage containers

September: Grills and lawn mowers

October: Appliances and clearance patio furniture and outdoor items

November: Electronics, appliances, and tools

December: Televisions, electronics, and small appliances like toasters and blenders

Source:  Styled, Staged and Sold Blog

The Five Year Rule for Buying a House

When I first considered buying a house, my entire family got involved. I have the luck of being related to real estate agents, investors, and other experts that are more than happy to give advice about buying a property — even before you ask.

The first thing they asked me was exactly how long I expected to stay in the house. Though I didn’t know the exact amount of time, they wanted to make sure that I’d own the house for at least five years.

Why’s that? What’s the five year rule for buying a house?



The Upgrade Cycle

It definitely varies by geographic area — if not by specific neighborhood — but a lot of folks near me will buy a townhouse or condo as their starter home. After about three years, they’ll start looking for a bigger place to upgrade to, either a bigger townhouse or a single family home. This upgrade cycle will repeat itself a few times, as people work their way up to a house that they are happy with and that is big enough for their family.

The thought seems to be that if you’re making a little more money every year, you’ll be in a position to afford a bigger house in three years time. And everyone knows assumes that buying is more cost-effective than renting — as long as you’re paying down the principal on your mortgage, you’re going to come out ahead.

But with an upgrade cycle of about three years, there’s a good chance that you will lose money.

The Five Year Rule

When you purchase a house, the general rule is that you want to be sure you’ll be in the same location for at least five years. Otherwise, you’re probably going to take a hit financially.

The first hit is your closing costs. Every time you go through closing — buying and selling — money hits the table. Depending on where your house happens to be, the buyers and sellers pay different amounts, but everyone pays something. This can easily add up to thousands of dollars, and limiting how often you have to pay that kind of money is always a good idea.

And you take a second hit when you look at your mortgage statement to see exactly where your monthly payments are going. The way mortgages are structured, you pay much more interest in the first few years that you own a house. Usually, it isn’t until you’re about five years into paying down your mortgage that you’ve made enough progress on the principal to make it a better deal than paying rent each month.

David’s Note: When you take out a mortgage, you are paying an interest rate on what you owe. So, in the first year, when the principal is highest, the interest you need to pay is also the highest. However, since the monthly payment is the same throughout the term of the loan (at least with a fixed rate mortgage), more of the payment will be used to cover the interest payments, meaning less is going towards the principal. As your principal goes down, your interest payments will go down, leaving more of your check to go towards the principal.

If you can wait at least five years to move, you’re in a better position to be ahead of the game.

Defeating the Five Year Rule

Five years is a generality. If you add in a couple of other factors, you can make buying a house that you don’t plan to stay in long-term a better choice.

The biggest factor is how much you’re going to pay on your mortgage. A lot of people buy as much house as they can afford, according to what lenders offer them. That’s usually the upper end of what you can financially manage. If, however, you buy at the lower end of what you can afford and make extra payments, you can pay off a bigger chunk of the principal. You need to run the numbers for the specific house you’ve got your eye on, but you can often come out ahead.

You may also consider buying a house that you won’t stay in for five years — but that you also won’t turn around and sell. It’s not out of the question to purchase a house, start paying it down, and fix it up so that you can turn rent it out. You do need to be careful that you’re choosing a house that you can afford in addition to a mortgage for your next home, even if you can’t find a renter,. There are plenty of other arrangements that can work out similarly, but you need to study up on real estate before making such a choice.

Bottom line: if you know you’re going to buy a house based on what the bank says you can afford, and you don’t want to think about renting it out, don’t purchase a house until you’re ready to spend at least five years in it.

David’s Note: Here’s a quick and dirty formula that you can use to help you figure out whether it’s better to buy or rent, which works with any duration of ownership. Try to calculate: Seller and Buyer Agent Fees When You Sell + Purchase Price + Maintenance Cost for the Time of Occupancy + Interest Paid on Mortgage + Investment Gains from Your Down Payment + Taxes Paid (Such as Property Tax) + Closing Costs – Selling Price. This number could come out negative or positive, but if it’s lower than the rent you would have paid during the same time frame, then you would be better off buying. If the number is higher, meaning that the selling price wasn’t high enough to cover all those costs, then renting would be the more cost-effective choice.

Source:  Moneyning

9 Easy Mistakes Home Owners Make On Their Taxes

As you calculate your tax returns, consider each home tax deduction and credit you are — and are not — entitled to. Running afoul of any of these 9 home-related tax mistakes — which tax pros say are especially common — can cost you money or draw the IRS to your doorstep.




Sin #1: Deducting the wrong year for property taxes

You take a tax deduction for property taxes in the year you (or the holder of your escrow account) actually paid them. Some taxing authorities work a year behind — that is, you’re not billed for 2013 property taxes until 2014. But that’s irrelevant to the feds.

Enter on your federal forms whatever amount you actually paid in 2013, no matter what the date is on your tax bill. Dave Hampton, CPA, tax manager at the Cincinnati accounting firm of Burke & Schindler, has seen home owners confuse payments for different years and claim the incorrect amount.


Sin #2: Confusing escrow amount for actual taxes paid

If your lender escrows funds to pay your property taxes, don’t just deduct the amount escrowed, says Bob Meighan, CPA and vice president at TurboTax in San Diego. The regular amount you pay into your escrow account each month to cover property taxes is probably a little more or a little less than your property tax bill. Your lender will adjust the amount every year or so to realign the two.

For example, your tax bill might be $1,200, but your lender may have collected $1,100 or $1,300 in escrow over the year. Deduct only $1,200. Your lender will send you an official statement listing the actual taxes paid. Use that. Don’t just add up 12 months of escrow property tax payments.


Sin #3: Deducting points paid to refinance

Deduct points you paid your lender to secure your mortgage in full for the year you bought your home. However, when you refinance, says Meighan, you must deduct points over the life of your new loan. If you paid $2,000 in points to refinance into a 15-year mortgage, your tax deduction is $133 per year.


Sin #4: Misjudging the home office tax deduction

This deduction may not be as good as it seems. It’s complicated, often doesn’t amount to much of a deduction, has to be recaptured if you turn a profit when you sell your home, and can pique the IRS’s interest in your return. Hampton’s advice: Claim it only if it’s worth those drawbacks. If so, here’s what to know about what you can write off.


Sin #5: Failing to repay the first-time home buyer tax credit

If you used the original home buyer tax credit in 2008, you must repay 1/15th of the credit over 15 years. If you used the tax credit in 2009 or 2010 and then sold your house or stopped using it as your primary residence, within 36 months of the purchase date, you also have to pay back the credit.

The IRS has a tool you can use to help figure out what you owe.

Sin #6: Failing to track home-related expenses

If the IRS comes a-knockin’, don’t be scrambling to compile your records. Many people forget to track home office and home maintenance and repair expenses, says Meighan. File away documents as you go. For example, save each manufacturer’s certification statement for energy tax credits and lender or government statements to confirm property taxes paid.


Sin #7: Forgetting to keep track of capital gains

If you sold your main home last year, don’t forget to pay capital gains taxes on any profit. You can exclude $250,000 (or $500,000 if you’re a married couple) of any profits from taxes. So if your cost basis for your home is $100,000 (what you paid for it plus any improvements) and you sold it for $400,000, your capital gains are $300,000. If you’re single, you owe taxes on $50,000 of gains. However, there are minimum time limits for holding property to take advantage of the exclusions, and other details. Consult IRS Publication 523.


Sin #8: Filing incorrectly for energy tax credits

If you made any eligible improvements in 2012 — or will in 2013 — such as installing energy-efficient windows and doors, you may be able to take a 10% tax credit (up to $500; with some systems your cap is even lower than $500). But keep in mind, it’s a lifetime credit. If you claimed the credit in any recent years, you’re done. Fill out Form 5695.

The first part of the form, which covers systems eligible for a larger tax credit through 2016, such as geothermal heat pumps, can be complex and involves crosschecking with half a dozen other IRS forms. Read the instructions carefully.


Sin #9: Claiming too much for the mortgage interest tax deduction

You can deduct mortgage interest only up to $1 million of mortgage debt, says Meighan. If you have $1.2 million in mortgage debt, for example, deduct only the mortgage interest attributable to the first $1 million.

Source:  Houselogic, originally published in Jan. 2011

7 Expert Tips on How to Live Within Your Means Now

"What does it mean today to ‘live within your means’?” was a question posed by Megan of The Happiest Mom during a Women & Co. #MomTalksMoney video chat in July (2012). For our parents and grandparents, it meant only spending what you earned—hopefully leaving some financial “wiggle room” for unexpected events like a leaky roof.

But as we added credit cards to our wallet, our notion of “living within your means” somehow morphed into “living within your available credit limit”—at least for some. To regain their financial footing after the Great Recession, many families have returned to the “retro” definition.

Considering the precarious state of our economy, is living within our means good enough? Should we be aiming to live beneath our means, rather than within them? That’s the question I, in turn, posed to seven money gurus in my network. “Yes,” each enthusiastically exclaimed, and then shared with me these secrets to living a financially prudent life:

1. “Think of your ‘means’ as a pie,” suggests Carmen Wong Ulrich, President and Co-Founder of ALTA Wealth Management. “Each part of your life—mortgage, debt, education, savings, vacations, and so on—requires a ‘slice.’ If one piece of your ‘pie’ is too big, it has to come from other pieces, the other parts of your monthly budget: your take-home pay. That pie is 100%. That’s all each of us has to work with: that is your ‘means,’” explains Carmen. She cautions, “The biggest expense that we have control over is our home. Where and how you choose to live is one of the biggest decisions you can make for your budget.”

2. “Keep fixed expenses at 50% or less of pretax income,” says Jonathan Clements, Director of Financial Education for Citi Personal Wealth Management. By fixed expenses, Jonathan means mortgage or rent payments, car payments, utilities, insurance premiums, groceries, etc. “This leaves the other 50% for taxes, savings, and discretionary expenses like vacations and eating out,” says Jonathan. The result? “It gives you some room for error in your finances, such as getting hit with an unexpected expense or a sudden drop in income. If you lost your job, you could probably get by on just half of your old income, and maybe less,” says Jonathan.

3. “Strive to save 20% of your after-tax income,” recommends Manisha Thakor, Founder/CEO of MoneyZen Wealth Management. “Most people don’t want to hear this,” acknowledges Manisha, “but in a world where we are increasingly responsible for our own retirements and healthcare, anything less is a precarious place to be. Admittedly, saving 20% means your life probably will not look like that of an A-list celebrity. And, it probably will mean that, like your parents and grandparents, it may take some years to obtain a certain standard of living, so you will have to adjust your expectations. But, you will have a healthy financial safety cushion and more financial flexibility should life toss you a curve ball.”

4. “Don’t buy it if you can’t pay for it in cash, with the exception of your house and education,” say Fab & Fru co-founders Stephanie Berenbaum and Brandi Savitt. “Our grandparents had the right idea: before there was fake food and fake money, they ate only real, identifiable food and paid for things with cash. Follow this rule and you’ll be living within your means, not to mention eating healthy.”

5. “Keep your overhead low so you can stockpile cash for living,” believes Amanda Steinberg, Founder of DailyWorth. “At the end of the day, maintaining a life that you can barely afford isn’t much fun. We also know from dieting that deprivation doesn’t work. Everyone needs a treat from time to time—I know that I do! So I keep my fixed expenses as low as I can and I save, save, and keep saving. I even keep separate banks accounts, each earmarked for a specific goal, from emergencies to my future home to a week at the beach in the summer.”

6. “Be intentional in how you use money,” encourages Caryn Effron, Founder of GoGirlFinance.com. “Living within your means has a great deal to do with becoming thoughtful about what is truly important in life. Family, friends, my work—that is what brings joy to my life. Stuff is just stuff—don’t get caught up in consumerism. Hold onto who you are and what is important and use your money to create experiences aligned with your values.”

7. “Drop the financial baggage when talking to your kids about money,” advises Amy Moses, CEO and Founder of Ballooning Nest Eggs. “When we say ‘no’ to our children, it’s often without explanation. We trot out clichés—‘Money doesn’t grow on trees’ or ‘It’s never enough!’—or our own childhood financial baggage, ‘When I was a kid I didn’t have half the things you have.’ Soon, words like ‘budget’ register as negatives in our children’s minds. All they hear is ‘no fun.’ But, if chats about money weren’t shrouded in anxiety, then we could help them, help us live within our means. This doesn’t mean you have to share your pay stub or whip up a PowerPoint presentation on balancing a checkbook. It means including the kids in on some of the choices. Name some fun summer activities and attach a cost to each. Set the limit that you can spend and allow them to pick the activities they want most. And, of course, sprinkle in some no-cost, high-fun stuff like bike riding, butterfly catching, and hiking.”

Source:  Women & Co., a service of Citi

7 Reasons Your Neighbors Have More Money Than You

You look out the window of your home each night after dinner, staring across the street at your neighbors. You long for the cars they drive, their weekly manicured lawns, and even the vacations they seem to take several times a year.

You’re not alone.

I often look out my window, too, staring at the gorgeous homes and cars wondering how they manage to pay for them. After all, we live in the same neighborhood, our kids go to the same schools, and their salaries aren’t that much more than ours.

There are several reasons our can neighbors afford so many of the things we would love to have, but could never fathom splurging on:


1. Perception is Everything

Your perception may be skewed. You see fancy cars in the driveway, and the trim lawns you can almost feel between your toes. You watch work crews going in and out of the awesome remodeling projects happening inside. Yet, none of that means your neighbors are wealthier than you are. Just because you see them as more affluent, doesn’t mean they are.

You are only able to see above the surface of their spending, meaning you have no idea what’s happening down below.

2. Allocation is Essential

While you choose to consistently save money for your kids’ education, and retirement later in life, they are spending what they believe are excess funds on their cars and homes. They might be making the shallow choice to spend their money on what people can see, while you are spending your money on the life you want to live, both today and tomorrow. You choose to pay for peace of mind.

It’s how your neighbors allocate their income that makes them seem richer than they are.

3. Perks Matter

While Your neighbors’ salaries might be slightly more than yours, it isn’t enough to justify the massive leap in spending. However, fringe benefits can greatly widen the gap. Perks such as cars, phones, laptops, and more can give the recipient an amazing leg up when it comes to freeing money for other pleasures.

4. Luxuries of the Mature

As families mature, houses get paid off and savings grow. Even if your children do go to the same school, their children are older, and they have a few years on you as well. Those could be years spent paying on their house and putting money in the bank. Imagine how much more freedom you would have without also having to manage your monthly mortgage.

5. Their Lives Might be Plastic

Your neighbors might be disciples, worshiping the power of the plastic. While you are smart enough to understand the headaches of undisciplined credit, your neighbors might be living carelessly, buying short-term luxury today in exchange for a meager tomorrow.

6. They Know Where to Find Deals

I consider myself a connoisseur when it comes to finding great deals on groceries and kids clothing. Perhaps your neighbors also know something about finding deals on the things they need, freeing up more money for things they want.

7. They Pay for Their Immediate Wants First

Your neighbors could also have more money than you do because they prioritize differently, and pay from their savings for projects and luxuries that they want done.

While my neighbors may or may not make have more money than me, I don’t let it influence the way that I live. I spend money in the way that’s most important for me and my family, both for a better, more comfortable today, and for a brighter tomorrow.

As “The Millionaire Next Door” and “Rich Dad, Poor Dad” point out, those that spend on things like homes, cars, and clothes are spending on material items and living on “rented” lifestyles. Instead of building assets, these people are living on liabilities and that can be a dangerous mindset. You don’t have to live like a king today, if it means you’re going to live like a pauper tomorrow.

It doesn’t matter what the Jones’ are doing. Not now, or ever. Save where you can, spend where you need, and live a life you want.

Source:  Moneyning