- I tried to avoid it. I really did, but I’m still getting a much bigger refund than anticipated. #
- Did 100 pushups this morning–in 1 set. New goal: Perfect form by the end of the month. #
- RT @BudgetsAreSexy: Carnival of Personal Finance is live 🙂 DOLLAR DOODLE theme: http://tinyurl.com/ykldt7q (haha…) #
- Hosting my first carnival tomorrow. Up too late tonight. #
- Woot! My boy won his wreslting match! Proud daddy. #
- The Get Home Card is a prepaid emergency transportation card. http://su.pr/329U6L #
- Real hourly wage calculator. http://su.pr/1jV4W6 #
- Took my envelope budget out in cash, including a stack of $2s. That shouldn’t fluster the bank teller. #
It’s Better to Buy a House than Rent
This guest post is brought to you by Lender411.com.
The debate is ongoing about whether it’s better to rent a home or buy one. Which is best?
To start, identify your goals. This includes short-term goals and long-term goals—anything relevant to your living situation or your finances. Are you someone who likes to move around and explore new areas, or have you put down strong roots in a specific location? Are you planning to raise a family? Is that family going to grow over the years? Do you plan to build up wealth? Are you aiming to retire a few years early? Work these things out as best you can. You need to know where you’re headed.
Beyond these life considerations, there are some specific facts about homeownership that typically make buying a house a better choice than renting one indefinitely. Specifically, you’ll save money in the long run if you buy a house. Studies have shown that if you plan to remain in a residence longer than five years, you’re better off buying than renting. Here’s why.
Equity. When you own a house, every dollar you put toward paying off the principal of your mortgage is actually going right back to your pocket in the long run. A house itself is an investment—it is a thing that holds value and, in fact, often gains value over time. It’s almost like a savings account. When you put money into a savings account, it stays there. Sure, you don’t exactly have access to the money, but it’s still there and, in the long run, it’s still yours. You don’t gain this value when you’re renting a piece of property. The money you pay out is simply gone.
Value. As mentioned above, a house, like any other financial instrument or investment, can actually increase in value over time without any effort on your part. Sometime property values just go up. Historically, in fact, just about all property gains value in the long run—often significant value. Real estate is a very popular form of investment even separate from the fact that it provides your family with a place to live. Even with a mortgage, the ultimate return you can get for your money is typically very good, especially if you’re able to find the best mortgage rates when you enter the loan. Renting doesn’t give you this opportunity to someday capture increasing property value.
Stability. One of the most appealing perks of home ownership is the consistency of payments month to month. If you have a fixed rate mortgage, your monthly payment is locked in at a certain amount for the next thirty years or so. This can be extremely comforting for some people and extremely helpful when it comes to budgeting long-term. When renting, prices may fluctuate from lease to lease, or you may move from one place to another and constantly have to readjust your budget and lifestyle. Also, mortgage payments on a house will, at some point, end. When those thirty years are up, chances are you won’t need to make any payments toward your house beyond property taxes from then on. Renting, however, never ends. You’ll never truly have a place of your own.
Despite the strength of these three facts in favor of home ownership over renting, the choice is ultimately one that must be made by individuals and families. Everyone has different long-term goals, and those goals must be identified first. But make the decision wisely. From a financial perspective, home ownership is the better of the two options long-term.
Update: I just realized I didn’t include the link to the Festival of Frugality that included this post. That’s fixed.
Babies Are Expensive
From the comments here. The discussion is on how much it costs to have a baby. Edited for clarity.
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Actual birthing costs vary. We’ve had three kids over ten years and birthing costs have varied from $250 out of pocket to $8500. Our highest and lowest price births were 20 months apart. The highest price birth involved induced labor with an epidural. For the lowest out-of-pocket price, I added my wife to my policy before the birth, so she was double-covered. If one of your policies is less than ideal and there are multiple policies available, I recommend doing this. It saved us thousands. All told, If things go well, you could slide for as little as $1500 total.
For the highest price birth, we threw ourselves on the mercy of the finance department. They have a charity fund to pay the bills of the less fortunate. We qualified…barely. If you have a medical bill you can’t afford, ask if there is a grant or donation you can apply for. Always ask if there is some way the bill could be lowered.
Breast-feeding beats the heck out of formula, financially, but breast-feeding doesn’t always work. Ignore the boob-nazis who insist you are slowly killing your kid by using formula. I’ve got 3 kids, and each had different feeding issues.
Baby formula runs $19 for a big container at Sam’s Club, or a large percentage of your soul at most other big box stores. Formula alone will pay for your membership in under a month. For a big eater, that’s $20-30 per week. For a normal eater, 2-3 weeks. For planning purposes, assume $100/month in formula costs for the first six months, when food starts coming into play heavily. After that, the formula expense goes down, but not away for at least 6 more months.
Diapers are painful. Not just the smell–though that hurts, too, sometimes–but the expense. I currently have 2 in diapers; one is potty-training. Our monthly costs for diapers, now, are about $75. It was easily twice that when they were younger. Figure at least $100 per month in diapers. Unless your baby has irritation problems, go with cheap diapers. Leak-guard is a joke. If you are relying on leak-guard to keep the contents inside the diaper, you aren’t changing your baby often enough.
I couldn’t begin to guess at how much you’ll spend on baby clothes. I have never bought clothes for our kids. Whatever didn’t come free from friends and family walked into the house of it’s own volition, following my wife home from the store.
Toys are an almost purely voluntary expense. You’ll get as much as the kids needs free, as presents. You’ll go overboard and give the kids 10 times that, without realizing it. Don’t. For the first four to five months, its fingers and toes will be entertaining enough. After that, if there are more than about ten toys, it’s too many; the kid will never get attached to any of them. Keep it small. It’s better for the kids and the budget. Little kids prefer boxes to toys, anyway. Give the kid a shoebox instead of a Leapfrog. Really.
Portraits suck, too. If you have to get them done professionally, get a membership that covers sitting fees, and use coupons. I recommend JC Penney’s. Using judicious coupons and the membership, we get portraits for under $20.
Baby food is probably cheaper to make in a food processor, but you can’t beat the convenience of the little jars. If you watch sales, you can stock up affordably. Mix every meal with some rice or oatmeal mush to stretch it, without making it unhealthy. Depending on your kids, and how much you listen to the “experts”, this is a nonexistent expense before six months. Our kids started eating baby food in their second months, at least a little bit.
Babies are expensive. Don’t doubt that for a second, but ignore the polled averages when it comes to expense. Hand-me-downs, thrift stores, and good sales cut the expense a lot.
How do you save money and value with a baby in the house?
Don’t Screw Future-You
A conversation between me and my temporally displaced self.
Future Me: Excuse me, Jason?
Me: Yes?
FMe: <Slap!>
Me: May I ask what that was for?
FMe: Of course.
Me: What was that for, jerk?
FMe: That was payback for all of the hell you have put me through.
Me: What?!? I’ve never even met you, before.
FMe: Of course you have. I am future-you, and I’m sick of getting screwed by past-me, that is, you.
Me: Huh?
FMe: Listen close. You’re not the sharpest brick in the box and I don’t want to explain this twice.
Me: ???
FMe: A long time ago, when you first met our wife, you were dumb.
Me: I don’t appreciate….
FMe: Shut up. I was dumb then, too. Remember? You…err…we bought a new truck, built an addition on our…err…your…err…whomever’s house, got married in the same year. On top of many other expensive decisions. Do your recall?
Me: Yes, I do. So what?
FMe: If that wasn’t enough, you and your smoking-hot bride are still shopping like you’re rich. You drive a new car. Your kids wear new clothes. You’ve got a house full of new furniture. How did you pay for all of that?
Me: Naturally, I charged it. Zero payments, zero interest for a year! Pretty smart, huh?
FMe: What happens in a year?
Me: I don’t know. I’ve got a full year to figure that out.
FMe: <Slap!> I’ll tell you what happens! Future-you, that’s me, gets screwed! Your raise didn’t come through. You had a baby. The truck broke down. Your wife took maternity leave. A roommate moved out. You took a loss in the stock market. You didn’t plan! You had no savings to cover any of those problems because you were too busy servicing debt to pay for your current life.
Me: How was I to know?
FMe: <Slap!> Life happens! You never know what is coming next. You need to plan and save for what might happen. Otherwise, you’ll just accumulate more debt to be serviced by yours-truly. That is not acceptable.
Me: So? What are you going to do about it?
FMe: <Slap!>
Me: Really? Again?
FMe: <Slap!> I’m struggling to pay your debt. Your son starts college next year, but you’ve left me completely unable to help. Your daughter wants to get married in a couple of years, but the Father-of-the-Bride can’t afford a tux. My wife, your beatiful bride, wants a vacation that I can’t afford. You’ve screwed me, dude.
Me: I’m sorry. What can I do to fix it?
FMe: Buy me dinner, first.
Me: Huh?!?!?
FMe: Stop the excess spending. Spend less than you make, for a change. No credit.
Me: None?
FMe: None. Nada. Zip. Zilch. Only spend what you can afford. Budget. Pay off those nasty bills. Don’t leave me hanging.
Me: So, what you’re saying is that, if I don’t have the money, I shouldn’t buy it?
FMe: Exactly. That’s the path to wealth, freedom, and financial independence. Live in the real world.
Me: Gee, thanks, Future-Me! Now I know.
FMe: And knowing is half the battle.
What would your future-you have to say to you?
Birthdays on the Cheap
Birthdays are expensive. Shoot, I’ve said that before. It’s usually true, but it doesn’t have to be. Here are five ways to cut birthday party costs. Note: If you’re trying to cut costs on an adult party, just replace the word “kid” with “guest of honor”.
1. Location, location, location. The amusement park/pizza place is nice if you like bad pizza, but it’s certainly not cheap. The inflatable playground may be the talk of the school for a day or two, but it’ll flex your debit card in ways it’s just not used to. Why? Kids, being kids, are capable of entertaining themselves. They’ve got imaginations that should make most adults weep with envy. If that fails, make them play a board game or in the worst case, some video games. Lock the wild young’ns in the basement and let ’em go nuts for a couple of hours. It’ll be a blast, I promise.
2. Why invite the world? How many friends does your kid actually have? I’m not talking about all of the kids in school he’s not fighting with or every kid on the block that hasn’t TP’d your house. I mean actual friendship. If they don’t play together regularly, nobody will be offended about missing an invitation. Invite the entire class? That’s just nuts. Thirty ankle-biters smearing cupcakes on the wall? No thank you. You kid will have more fun with 2-3 close friends than 20-30 acquaintances.
3. Toy flood. What was the last toy your kid played with? The last 10? How many toys have been completely neglected for months or years? How many stuffed animals are buried so deep in the pile in the corner that they are wishing for a fluffy Grim Reaper to come put them out of their misery? Don’t buy your kid clutter. It’s a hassle to clean up–and you will–and it trains them into bad habits for a lifetime. One or two things that they will treasure(or, better yet, wear!) will work our much better for everyone than a dozen things to forget in a toy box. Too many toys guarantees that the kid won’t get attached to any of them. Down with kid-clutter!
4. Designer Cake. Who needs a fancy cake? Correct me if I’m wrong, but aren’t you going to start a fire on the thing, then cut it up and give it to a dozen little runts to rub in their hair? If you can’t bake it yourself, a quarter sheet is cheap at the big box grocery stores and will guarantee leftovers. Nothing starts the week better than chocolate marble cake for breakfast on Monday.
5. Food. Don’t. That was easy. Scheduling is an important way to keep costs down. Don’t have the party at lunch time. For small children, 1:30 PM is about perfect. The parents won’t stick around once the kids are ready for a nap. For older kids, 4PM means they will need to be home for dinner. That cuts the menu down to kool-aid, light snack food, and cake. It also ensures that the party won’t drag on forever.
It’s possible to have a budget birthday party without being totally lame. Give it a shot. Your kids won’t mind.
This post is a blast from the past.
Christmas for the Destitute
First, my disclaimer: I’m not destitute.
However, I’m trying to spend Christmas acting like I am a pauper.
Why, with small children and beautiful-and-more-than-deserving wife, would I want to deprive my family of a bountiful holiday?
Before we get into the reasons for being a horrible grinch bent on depriving my children of their god-given right to rampant consumerism, let’s look at the Philosophy of Destitution.
The primary reason to pull back and tone it down is basic frugality. Excessive anything is not frugal. I am training my children–and for that matter, my wife and my self–in the finer arts of personal responsibility and frugality. Accumulating debt for a fleeting holiday is insane. If we can’t afford to buy it, we certainly can’t afford to give it. Anything else would be setting a bad example and children learn best by example.
Another piece of the Philosophy of Destitution(when I read this word, I hear a deep, booming voice in my head, like a 30s radio superhero voiceover) is “green”. I consider myself a conservationalist rather than an environmentalist, so don’t read too much into that color. I try to be responsible, instead of destructive and I try to avoid being wasteful. Toys that won’t be played with are wasteful. A garbage can full of packaging for those same toys costs money. It is much cheaper to avoid the landfill here.
Back to “Why”. Why would I be willing to deprive my family?
