Blunt Money

I remember the day I first considered buying instead of renting. I was sitting on the floor of the 1-bedroom apartment my then-husband and I shared, looking at the free newspaper I’d snagged from the laundry room. We’d just received notice that our rent would be going up, and so I was looking for somewhere to live that might be more affordable. One ad in particular caught my eye. “Cheaper than rent!” it proclaimed. I doubted that it could really be true, but gave it a read anyway.

It turned out to be an ad from a real estate agent who offered to help buyers bid on HUD homes that had been foreclosed on. I gave her a call and she quickly determined that yes, we probably could afford something, and that yes, that something could in fact be cheaper than rent.

(That happened to actually be true in our case, but of course it depends on individual circumstances. Just because someone SAYS you can afford something doesn’t mean that you really can.)

So we started our home-buying journey, even though I was completely clueless about the process.

Here are the things I learned:

You need a down payment. In our case we qualified for an FHA loan, which required 3% down. Since our loan amount was ridiculously small, that wasn’t very much at all. (People pay more for CARS now than we did for that condo.) A more traditional down payment would be 20% down.

You need money for closing costs. These can be tricky to pin down until the very last minute, and are almost always MORE than you’d expected. 3-5% of the purchase price is a pretty typical amount. Sometimes the seller will pay all or part of these. It doesn’t hurt to ask.

You need good credit if you want to get a decent interest rate. (And you want to get the best interest rate possible.) This means that you should check your credit reports (at annualcreditreport.com) to be sure there are no errors on them. You should also pay your bills on time and in full for a long period of time so that you don’t have any black marks on your report.

Shop around for a good mortgage. Do this within a short period of time so that all the dings on your credit are lumped together. Don’t be afraid to negotiate. Not all mortgages are created equal. Be sure you understand exactly what you’re being quoted and what the quote applies to, especially if the rate you’re quoted seems MUCH better than the other rates you’ve gotten.

There is a lot of paperwork involved. You should READ and be sure you UNDERSTAND it all before signing. Don’t take the word of your Realtor or mortgage broker as to what the paperwork means. They may mean well, and they may be completely honest, but they are also not the people who wrote those documents or who will be signing them. Plus they have a vested interest in the process. Talk to a lawyer if you have questions, or at least consult a variety of sources that don’t have an interest in you obtaining a loan or buying a house. Also, be sure the paperwork that you do sign is correct. I’ve yet to sign a mortgage that was 100% correct at first. (And I’ve signed quite a few over the years.)

An emergency fund is an essential component of owning a home. (You need one anyway, but you especially need one if you’re planning to be a homeowner.) Owning a home brings with it a horde of accompanying expenses that you might or might not have thought of: deductibles when part of your roof is ripped off by a freak wind, service calls when the water heater springs a leak, increased water bills due to the many gallons of water that leaked down your driveway for an entire day, etc.

Your general expenses are likely to increase. These include things like insurance premiums, property taxes, PMI if you didn’t do a conventional loan, HOA fees that can be raised annually, special assessments, higher heating & cooling bills (since most people buy larger places than they rent), replacing old appliances, buying new furniture to go with the house, maintenance (paint, carpet cleaning, lawn care), improvements (new windows, new flooring).

Hope for the best, plan for the worst. You need to be sure you can afford those planned and unplanned expenses WITH money leftover in case you’ve underestimated. (Or in case you’d like to have a life outside your home.) This means that you need to have a decent job with prospects for increases in salary as time goes on. You also need to have your debts under control, and to be managing your money wisely.

There is nothing urgent about buying a home. Prices go up, and prices go down. There are always bargains to be had if you’re patient enough. There is no such thing as the perfect home. Just be sure you get an inspection, and be prepared to let the house you’re looking at go if the inspection does not go well. If you feel an almost panicked urge to buy, that is probably exactly the WRONG time to buy.

Location location location really is extremely important. Be sure you are buying in a good location. Don’t buy the nicest house on the block. Check out the school district, even if you don’t have kids. Visit the neighborhood at different times of the day & night before putting in an offer. Talk to the neighbors if you feel comfortable doing that. Compare crime statistics (usually available online or from the police department) with other neighborhoods that you can afford. If you’ll have an HOA, be sure you agree with all of the bylaws. It’s a lot easier to leave a rental than it is to sell a house, so be sure it’s an area you feel comfortable with.

With all that said, the home-buying process is not as intimidating as it seems. There will be plenty of people willing to help you through it, and at the end of it all you’ll have a house that you can make a home. (A house that may even add to your bottom line as the years go by.)

Sometimes people feel like it’s too late to fund retirement — like they’ve missed the retirement boat and so they may as well not bother at this point. But there’s an old saying that goes, “The best time to plant an oak tree was twenty years ago. The second best time is now.”

The same thing is true for retirement.

If you’re in your twenties and just starting out, realize that you have the best shot at painlessly funding retirement NOW — because this IS your twenty years ago. Even small amounts put away regularly at that age will add up to ENORMOUS amounts when you’re ready to retire. For example, if you have an IRA that you add $1000 to per year starting at age 20, by the time you retire at 65 you’ll have over $400,000 in your account (assuming an 8% rate of return). That’s only about $83 per month to end up with over $400,000. You could spend more than that on a couple of nice dinners out. Up your IRA contributions to the current max of $5000 per year, and you’d have over $2 million in the account at that same rate. Of course you can contribute more than the $5000 too if you’re eligible for a 401(k) plan or other plans.

But all is not lost even if you’re long past your twenties. It’s not too late. That’s the thing to keep in mind. Yes, you’ll have less time before retirement, but chances are you’ll also have a much larger income than the typical 20 year old would. If you are over age 50, you’ll also be able to make catch-up contributions. This increases the amount that you’re allowed to contribute to IRA & 401(k) plans. You can always beef up your investments in non-retirement accounts as well. (There’s no rule that a retirement account has to be labeled as such to be used for retirement, although you’d want to take advantage of all the tax-advantaged methods of saving for retirement first.)

I know that I personally feel like I’m behind on retirement, so I’m really playing catch-up now. I did begin contributing in my twenties, but then stopped almost immediately. Then I had to cut my retirement account in half during my early thirties (due to divorce). I’ve since resumed making contributions, and am working on making up for lost time. After all, what’s my alternative? Just throwing up my hands and saying oh well, I didn’t save enough before so why start now? That’s a guaranteed way to end up with nothing. I prefer to have something. As large a something as possible.

The key thing is to start now if you haven’t already, no matter when “now” is in your life. Get that oak tree planted.

The following is a guest post from Kimber Chin (http://businessromance.com/) who writes romance novels based in the business world. She also blogs at http://www.nolimitsladies.com/.

As a romance writer, I LOVE this time of year with so many couples getting married and buying homes. It makes me think back a decade when the hubby and I were doing the same.

We didn’t really know what we were doing but figured out some cost saving tips along the way. I thought I’d share them with you.

Basic White

Before our wedding, friends and family asked us about our dinner pattern. I said white with pink flowers (having found a beautiful pattern at an antique shop). We received just about every color pink and every kind of flower available, nothing matching.

If I could do it all again, I would have chosen basic white. White is white, it always matches and even if the plates are different shapes and sizes, they still look good on the same table. Break a dish? No problem. Buy some other white plate. Want color? Add a charger plate or fancy placemats with matching napkins.

Classic Furniture

This is something the hubby and I, being antique freaks (and careful about the environment), did right. We bought classic furniture, usually used (estate sales and auctions). The pieces are made of real wood and real metal. They can be sanded, bent back into shape (don’t ask), and refinished. It did take time to find them but every single one has a story behind it. Oh, and we can resell the furniture today for more than we paid for it. Not bad.

A loved one and his wife went to one of those no-money-down furniture places. Instant house but by the time the payments came due (a rude awakening there), the veneer off the furniture was already peeling.

To spruce up the classic furniture, we use trendy pillows and runners.

Ask For Plants

I am the plant pusher. You want a plant? Come to me. I’ll give you one of my babies (all tested to go two weeks without watering). There are many of us out there so please, don’t pay for plants. Simply ask around. Someone will happily give you more than you can possibly take care off. Oh, and in cute little pots too

What advice would you give a young(ish) couple starting out?

Whether you’re saving for a down payment or wanting to lose weight, the principle is the same. You can change your life with one simple question: Does what I’m about to do line up with my goals?

It’s just a matter of priorities. You CAN do the things you want most, but you have to make them a priority. This means not allowing a series of little things (that you don’t really care much about in the long run) to derail you.

For example, if you head to the mall to keep a friend company, and see something cool that you’d like, don’t tell yourself “Oh, but I can’t get that because we’re saving for a down payment.” That’s just likely to depress you, and put the focus on all the things you “can’t” have.

Instead, ask yourself if buying the cool item is in line with your goal of saving for a down payment. The obvious answer (”no”) will pop into your head, and you’ll find that you don’t really WANT the item when it comes right down to it. You’d rather have the new house. You’ll get excited about reaching that goal instead.

You’ll make progress (and change your life) one decision at a time. There might be times when you do decide to buy something at the store instead of saving for your larger goal, but that’s alright because you’ll have thought things through carefully. They won’t be fleeting impulses that prevent you from doing what you really want to do. You’ll feel good about your decisions AND reach your larger goal with relative ease.

I finally logged in to my TreasuryDirect account in order to schedule a purchase, and discovered that I had a notification waiting for me there.

It said, “Treasury is now offering marketable securities at a lower minimum. Treasury Bills, Notes, Bonds and TIPS can now be purchased in TreasuryDirect for a minimum of $100 and in multiples of $100.”

That’s pretty cool, since previously you had to purchase things like that in multiples of $1,000 instead of $100. I wonder what the reason for the drop is though?

Our house was built in the late 70’s. Part of its 70’s-fabulous look included a pair of windows that weren’t even glass. (They were made from two thin sheets of decorative plastic.) But even the windows that were glass had issues: They were practically falling out of their ugly aluminum frames, and they allowed water to leak in and air conditioning to pour out. They actually shook visibly when it was windy out, and they were difficult to open & shut. So we had to do something.

We started the process with some research. Our goal was to determine what types of windows would be the most energy-efficient. The U.S. government’s Energy Star web site has a nice primer on what makes a window energy efficient. The other sites that we read on the subject agreed, and we knew we wanted the most efficient windows possible, so we moved on to the next step.

Should we do it ourselves or have someone install them for us? That question was pretty much a no-brainer. Normally I’m a big DIY person, but I draw the line at doors and windows. I’ve helped install exterior doors in the past and did not enjoy the process one bit. I might have considered installing windows, if my Dad or Grandpa had been here to help, but…eh, not by ourselves. My husband does not enjoy DIY, and I drop things way too frequently to risk breaking expensive windows. We’d also learned that doing an excellent job on the installation plays a huge part in how efficient the windows actually end up being.

So we began researching window companies. We gave several of them a call and had them give us estimates. About two-thirds of them also did impressive demonstrations involving hair dryers, heat lamps, and BTU meters. There were hard sells, soft sells, and everything in between, but since we were just in the information gathering stage, we passed on them all. No was the magic word at that point. If I remember right, we got prices ranging from about $5000 to $26,000 for 7 windows plus one oversized sliding door.

That was a pretty big range. The most expensive company offered a lifetime warranty where “lifetime” meant “as long as you own your house”. The least expensive company just gave me a bad vibe. We eliminated both those companies. We checked references on the remaining companies, checked with the BBB, and checked against their state contractor’s license for complaints. We checked for other discounts that might be available, but the only one we came up with was the energy credit that was in effect at the time from the federal government. (Although that was no longer in effect for the last stage of our project.)

I tried to do research on the different brands of windows available as well, but I have a hard time judging that because it seems like there are always both complaints and praise for each brand. I saw samples of each in person too, and they seemed about the same. In the end, we went with Milgard windows, which seem just fine. For ordering and installation, we chose a lower-priced local small company which had a great reputation, very few (or was it no?) complaints and good references. They also had no problems doing the job for us in stages, and they accepted my cash-back rewards card. Since we’d decided against replacing the sliding door, we paid just under $4000 for the 7 dual-paned, tinted, low e, argon-filled vinyl windows (including installation, gas surcharges, and taxes.) Two of our windows also included decorative rain glass, which is more expensive.

Rising gas prices affect us all, but they affect some people’s jobs (and therefore bottom lines) more directly than others.

We passed a taxi the other day that had been painted green. It was a Prius with a banner on it that proclaimed it a “green taxi”. I’m pretty sure that one reason for using a Prius as a taxi instead of the more standard Crown Victoria is to save money on gas. It makes sense.

With diesel at $4-something a gallon, I’d hate to be a truck driver right about now. It’s got to be difficult to watch your net income decrease with each passing month, even though you’re doing the same amount of work. (Or more.)

Then there are the pizza delivery drivers. I know someone who quit a part-time pizza delivery job because it was no longer worth it when taking the price of gas into account.

Oil and gas affect our lives in so many more ways than most of us realize. It’s scary. We’ll probably become more and more aware of just how big an effect they have as the years go on.

How are rising prices affecting you?