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Winning the Mortgage Game

Finance

There’s a game that’s often mistakenly called “The American Dream”.   This game is expensive to play and fraught with risk.   It single-handedly ties up more resources for most people than anything else they ever do.

Conway's Game of Life
Image via Wikipedia

The game is called Home Ownership.

At some point, most people consider buying a house.   On the traditional, idealized life-path, this step comes somewhere between marriage and kids.   That’s usually the easiest way to organize it.   If you have kids first, you’re much less likely to buy a home.  This is a game with handicaps.

Once you get to the point where you are emotionally ready to invest in the 30-year commitment that is a house, your first impulse tends to be to rush to the bank to find out how much money you can borrow.

That’s a mistake.  If you take as much as the bank will qualify you for, you’re most likely to overextend yourself and end up losing your house.   That’s the quick way to lose the home ownership game.

The best thing you could do is figure out how much you can afford before you visit a bank.   Conventional wisdom says that your mortgage payment should be no more than 28% of your gross income, but that’s absurd.   Who builds their budget on their gross income?  I like 28%, but only of your net income.    To make the numbers easier to remember, I’d round it to 30%.   If you take home $3000 per month, your mortgage payment should be no more than $900 per month.

From there, it pretty easy to figure out how much house you can afford.  Using this e mortgage calculator, you’d be able to afford a mortgage of $175,000 if we assume an interest rate of 4.5%.  Throughout most of the United States, that will buy you a reasonably sized home, though certainly nothing ostentatious.    Clydesdale Bank also has an excellent loan calculator.

Some people like to start out with an interest-only loan.   That same emortgage calculator shows that an income of $3000 per month would be able to afford a $240,000 with almost the same payment.  That seems like a good plan, but eventually, you’ll have to pay more than just the interest.   Taking out a loan that will one day be more than you can afford on the assumption that you’ll be making more money by then is not sound financial planning.    That’s the same logic that helped me bury myself in debt.

When you buy a house, make sure to base your payments and your mortgage on what you can realistically afford.  Anything else, and you’ll only end up poorer and less happy than when you started.

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Why I chose a prepaid credit card

Finance

 This is a guest post.

You can’t get credit without a credit card, and you can’t get a credit card without good credit. This is a dilemma that many people find themselves facing, whether they are trying to re-establish their credit or build credit for the first time. In fact, this is the dilemma that I found myself in. My solution was to get a prepaid card, and here’s why.

The Real Deal with Prepaid

Prepaid credit cards have earned a mixed reputation over the years. While it’s true that they usually have more fees than a regular credit card, they also offer a financial solution for people who don’t have good credit. And you should also keep in mind that they don’t charge interest because the cash that you are using is yours to begin with. The important thing to remember about prepaid cards is that they are a means to an end; once you rebuild your credit, you’ll find it much easier to apply for a card with better rates and fewer fees.

In addition, prepaid cards offer several advantages. The most important one for me was the convenience of having a card that I could use to make purchases. Prepaid cards look and work exactly like regular credit cards (you don’t have to enter a personal identification number to use them), so the only one who knows it is prepaid is me. And while I use cash for everyday purchases, there’s no avoiding the need for a card when you have to shop online or pay for gasoline at the pump, for example. Most digital merchants only accept payments from cards linked to large financial brands like Mastercard and Visa, and my card gives me a way to buy what I need from whoever has it in stock. In addition, my prepaid card offers me a way to keep track of all of my purchases electronically, which is helpful since I am trying to keep a closer eye on my budget.

Prepaid cards also offer security. Cash can easily be lost or stolen, but if you lose a prepaid card, you can easily get a replacement. More importantly, your balance is protected by a replacement guarantee from your bank, which comes in handy if you ever have to dispute fraudulent charges.

Perhaps the most convenient factor of a prepaid card, though, is how easy it is to get one. You don’t have to have a bank account in your name to receive a prepaid card. However, if you do have an account, you can easily link it to your prepaid card.

Changing my spending habits and getting out of debt hasn’t been easy for me, but one way for me to show creditors that I am getting better at managing finances is to build my credit with my prepaid card. It’s also a way for me to eventually be able to make big purchases that are necessary, such as a car, and hopefully one day, a home. Prepaid isn’t for everyone, but if you find yourself considering this option, it’s worth a second look.


Selling Your Car

Finance

English: Jalopy car in Joshua Tree National Pa...

English: Jalopy car in Joshua Tree National Park in Hidden Valley Campground (Photo credit: Wikipedia)

When it’s time to replace your car, most people focus on the new car, instead of the old, but that is ignoring real money.  Your old car–unless it has disintegrated–still has value.  Sometimes, it’s just time to ask yourself, “When should I sell my car?”

When you’re looking to sell your car (like with We Will Buy Your Car), you generally have several options:

  1. Tow & crush. If your car has been wrecked, doesn’t run, or is just old and beat up, you may be stuck with calling a junkyard and accepting $50 for them to pick up your car and crush it for scrap.
  2. Trade it in. This is probably the least hassle, but–other than #1–doesn’t pay well.  Dealerships are willing to pay something under what they will get at a wholesale auction, which is quite a bit less than the blue book value.
  3. Sell it yourself. Now you’re thinking, “He’s going to buy my car! Oh, bother.”  It can be a pain, but it’s also the best way to get a decent price for your wheels.

When you sell your car, there are a few things to keep in mind, much like when you sell something on Craigslist.

  • Don’t be alone. There are bad people in the world, but they don’t like witnesses.  Bad things are much less likely to happen if you have company.
  • Know your price. Specifically, know three price: your dream price, the price that would make you happy, and the absolute lowest price you are willing to accept.  Make sure you figure these numbers out ahead of time.  Know what you are comfortable with before it comes time to close the deal.
  • Check IDs. The buyer is going to want to test-drive your car.  That’s fine, but you want to make sure you know who is driving off in your car.  “Officer, Sumdood took my car.  He was wearing jeans.”  That won’t get your car back.
  • Clean it up. Get the car detailed before you show it to a potential buyer.   A sparkling-clean car will almost always bring in a few hundred extra dollars.  It’s well worth the expense.

Following this plan should make the sale go as smoothly as possible and bring you the most possible money.

Readers, what have you done to dispose of an old car?

This is a sponsored post written to provide some insight into the world of used car retail.

 

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I’m the Bad Guy

Finance, Life, Relationships

My wife and daughters are active in a saddle club, even though we don’t own any horses.  We’ve been borrowing them for shows when my girls compete.

Two young Nokota mares
Two young Nokota mares (Photo credit: Wikipedia)

My wife’s cousin has been trying to sell one of her horses for a few months.   Because this horse has alpha-male problems, it has to be kept in a stall.   Stall boarding runs $450 per month as opposed to $200 in a group paddock.

Since my girls love this horse, Cousin continually tries to convince my wife to buy it.

My wife’s response is “Jason won’t let me buy a horse, yet.”   Then all of her friends get to complain about how I’m not supportive.

Uhhh, no.

We are $10,000 away from paying off truck.   We’re $23,000 away from being mortgage-free.   After that, we’re planning to rent out the house we’re in and buy a hobby farm.

Yes, Mr. Unsupportive is planning to uproot everything and move to the country so my wife and daughters can have horses on site.

Shame on me.  I’m such a jerk.

In a couple of years, I want to buy a $450,000 spread on about a dozen acres and let my wife’s dreams come true.

Or, we could buy a couple of horses now and never have the money for a down payment.

Or, we could buy the farm now, buy the horses now, spend every last cent of our savings on a down payment, spend more than half of our income on our mortgage payment, never get ahead, and end up losing everything.

Such a jerk.

This is a case where we have to do everything in the right order, or it will all come tumbling down on our heads in a few years.   If I have to be the bad guy to avoid screwing ourselves later, so be it.

 

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Babies Are Expensive

Finance, Parenting

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?