- Freedom is that instant between when someone tells you to do something and when you decide how to respond. #
- RT @keepinspiringme: Win a Canon EOS 450D SLR camera by simply tweeting the #kimcanon hashtag. #
- RT @mbhunter Carnival of Personal Finance: Parts-of-speech abuse edition http://bit.ly/7cyAqV #
- Note to self: While misusing the faucet sprayer may make me giggle, my wife is not so appreciative. #
- RT @copyblogger On Dying, Mothers, and Fighting for Your Ideas http://bit.ly/7gZgW3 #
- Blackberry? Good or Evil? #
- Round 1: Me v Snow. Winner: Me. #
- RT @The_Weakonomist: Men, I've learned that in relationships, you can be happy, or you can be right. #
Saturday Roundup
- Image via Wikipedia
Last weekend, we had 2 birthday parties. In two weeks we are having our biggest party of the year. I’m going to try to get our yard done this weekend, while my wife and a couple of her friends decorate inside the house. October is still nuts at Casa del Myhouse.
Today, I found out that I accidentally made a huge extra payment to my car. $650 too much. I thought I had deleted the auto-payment series from the bank’s site, but I only deleted September’s payment. Hopefully, I can find enough slack in the bills to make up the difference, instead of hitting the emergency fund.
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The best posts of the week:
J. Money’s doing a series on side hustles. The latest one is about chicken farming. If I lived in a more reasonable city, I’d have some chickens of my own.
Self-improvement is always good for you, kind of by definition. Here are a few ways to pick up some interesting certifications.
Lifehacker posted on Squaretrade. I can tell you that, without a doubt, I’ll never again get an extended warranty in-store.
Mortgaging a Rental Property
Now that we’re down to the last ten grand on our mortgage, we’re starting to look into getting another rental property. The one we’ve got has worked out pretty well over the last two years, giving us about $800 extra each month. We broke even on all of the repairs we had to sometime in the spring. That’s almost $5000 in pure, almost-passive income.
With numbers like that, if we can get a similar property and keep the mortgage under $800, we should be golden for getting another property and avoiding having it as a new drain on the budget.
However…
There’s always a however.
Our current tenants are moving out at the end of the month, which means the passive part of the income is over while we either find a renter or hire a property manager to do that for us. Since that came at the same time I got the opportunity to be unemployed, there was a bit of panic at my house.
The idea of having a mortgage, no job, and no renter scared us into waiting to buy another property.
It’s not stopping us from getting ready for the next property, though.
We live in a fairly high-cost area. Our house is on an eighth of an acre and is valued at around $250,000. Our rental is on a slightly larger lot, but is a smaller house valued at around $200,000. We don’t have a quarter of a million dollars laying around waiting to hatch into a new house, so we’ll be getting a mortgage. A mortgage for a business property is a bit different than one for a home you’re planning to live in.
First major difference? You need a 20% down payment, with a 25% down payment getting you a much better rate. We don’t quite have that, but if we pushed, we could have it in 6 months, I think. And then we’d have no cushion if anything bad happened in our lives.
The next thing is that we’ll need a reserve that covers all of our expenses–personal and investment–for 6 months. That can be home equity, savings, cash, or retirement accounts. We’ve got this one covered.
We don’t qualify for a standard mortgage plan right now, but there are options:
- Live poor and save hard for a year. We could make it happen in 6 months, but I will still want an emergency cushion just in case a job or tenant go away.
- Buy as an owner occupant. This would mean we buy a new house, then move into it and rent out our current house. We’d have to stay there a year before we’d be allowed to rent out the new property.
- Compare mortgages online. The internet is a wonderful thing, full of the complete knowledge of the human race. There is no better way to try to find an affordable mortgage than hopping on the net. Just make sure you’re looking at a reputable site and dealing with a legit mortgage company.
- Live comfortably and save slower, then buy the property in 2 or 3 years.
Honestly, of all of the options, we’re probably going to do a combination of 3 and 5, but 2 is a serious consideration, since we’ve talked about moving out of the suburbs a bit anyway.
Did I miss anything? How would you fund a rental property?
Payday Loans Suck
- Image by vonglee via Flickr
A few weeks ago, I was approached about placing ads on this site. I was excited when I read the email. It came from a real domain, didn’t involve any Nigerian princes or wire transfers for overpayments.
Over the course of the email conversation, it was determined that, for a fee, I would place some links in a few archived posts. It would just be links to improve search engine ranking, without being an eyesore for my current readers. I don’t have a problem with that. The intrusiveness is similar to Chitika ads, which are only visible to search traffic. It’s a nice way to advertise: monetization without alienation.
Then I saw the links. I was being offered money to promote payday loans.
Payday loans offer to loan you–for example–$100 for the low(snort) price of just $25. That’s not bad. Only 25%. I know some credit cards that aren’t that good. The catch is that the loan is due in full in 2 weeks. That gives it an APR(Annual Percentage Rate) of 650%. That’s not so good.
When you payback the loan, your paycheck is pre-spent by whatever you borrowed, plus the pound of flesh fee and you are that much more likely to need their services again, digging you even deeper.
It’s not like the target demographic is terribly affluent. These are people who not only can’t make ends meet, but also can’t acquire traditional credit. They are left paying this insulting fee.
I consider payday lending companies to be immoral, unethical and generally, more than a bit dishonest. These are the people who give decent, hardworking capitalists a bad name. I’d rather go to a mob loan shark. He’s at least honest about what he is.
They got shot down.
Don’t get me wrong, I enjoy making money. I also enjoy the money I make here.
But not at the expense of my soul or my integrity.
No Brakes
Growing up, I was mostly poor, but I didn’t realize it. The electricity was never shut off and I never missed a meal, but there was rarely money for anything extra. Clothes were only purchased immediately before school started. Shoes were always at least one size too big. Hand-me-downs were a way of life. With very rare exceptions, new toys were given on birthdays and at Christmas. As a Christmas baby, this was unfortunate. If I wanted something during the year, I had to buy it. I had an allowance on and off–more off than on–for a few years. So, I got my first job-a paper route-when I was six. Most of the toys I accumulated as a child, I bought.
Through all of this, my parents never said “We can’t afford it.” I was simply told that if I wanted something, I could either save my money or wait for Christmas. I never saw my parents paying bills, but they got paid. I never saw a checkbook get balanced, but it did. There were only a few times money management was ever mentioned, even in passing.
Naturally, when I moved out on my own, I expected money to take care of itself, just as it had the entire time I was growing up. That wasn’t terrible until I got married, bought a house, built an addition and decided a needed a new car. There was nothing in me to apply the brakes. I can count the number of missed payments I’ve had on one hand-with fingers left over. I can’t begin to guess the number of purchases, both large and small, that I should have skipped but didn’t.
Shortages growing up coupled with absolutely no budget training turned into financial irresponsibility as an adult.
My wife grew up with almost the exact opposite training. She was also poor, but the household budget was clearly in evidence and generally taken to an extreme. Her training involved getting “the best bang for the buck”. If an item was on sale and could potentially be useful, her mother bought five. I don’t mean five similar variations. That’s five identical products, same size, same color. She still has a display box full of screwdrivers with interchangeable tips. It looked useful and it was on sale, so she bought them all.
Through all of that, the bills were always paid.
This training has made it difficult for my wife to turn down a sale price. If something is on sale-or worse, clearance-there is an excellent chance it will be coming to our house. Once again, there are no brakes.
Shortages growing up coupled with almost two decades of watching every sale turn into a purchase has turned into financial irresponsibility growing up.
Neither one of us were prepared to handle the financial aspect of being an adult. That is something we intend to improve on for our children. We intend to give them the ability to brake themselves.
Budgeting Bulimia
As the President is so quick to point out, ten years ago, there was a large budget surplus. Naturally, the government went into a massive cycle of lifestyle expansion. That expansion, combined with lower tax revenue and a recession has brought us from a $230 billion surplus to a $1.4 trillion deficit. That’s a bit above the trivial level. A definite binge.
In Minnesota, there was a $2 billion surplus just a few years ago, which was obliterated by, once again, government expansion and a recession. During the boom years, government programs were enacted with no thought to sustainability. Nobody thought about the fact that a surplus isn’t a balanced budget, either. We just kept adding to the budget, thinking the good times would last forever. Another binge.
Last year, the governor of Minnesota had to “unallot” money from the budget. He went through the budget with a red pen and struck line items until the budget was balanced, a requirement in this state. This infuriated his political opposition. They were not prepared for the purge.
Federally, the purge hasn’t happened, yet. Give it time. Excessive spending using imaginary money can only last so long. It will stop. The longer the binge, the harder the purge.
Families are doing the same thing. Four years ago, I got a raise and immediately bought a new car. Binge. Two months later, I was laid off and had to cut everything possible to make ends meet. Purge. Tax refunds, inheritances, drawings. So many of these things give us an excuse to commit to long-term expenses without planning for long term sustainability. If I inherit $5000, is that a good time to add $500 to my monthly bills? No! That’s an unhealthy binge. In ten months, if the money lasts even that long, I will be forced to purge something to keep afloat.
The responsible, healthy way is the same as healthy, responsible eating. Diet and exercise. Spend less, save and earn more. That’s the strategy that will let you level out life’s valleys, instead of puking all over the floor. Don’t spend every cent you see, just because it is there. Set some aside for a rainy day.
Leave the binge-and-purge financing to the politicians.
Update: This post has been included in the Festival of Frugality.
