Author Archives: Common Cents

Begin Retirement Savings Early

Start a Roth the first year you’re working…

Although retiring seems decades away…and it is… the time to start saving for it is now. This is because if you are now in your mid 20’s, what you save has about 40 years to grow. And if you are consistently diligent about doing so, you will have a nice nest egg to enjoy in retirement.

If you’re not sure where to start, a Roth might be a good idea. Get it opened and contribute to it — as much as you can. There is a $6,000. annual limit, so aim for that. Each year, add to it. Since the money is earned income, you pay income tax on it, but when you put the $6,000. into a Roth, it grows throughout the years tax free. This means that when you start withdrawing,  (the earliest age is 59 1/2), but you aren’t required to withdraw from it until you want, it is tax free.

Even if you are contributing to a 401k or other retirement plan, a Roth is a smart idea too. As your career advances, and your income grows, put as much as you possibly can into your retirement fund(s).

If you have a plan that your employer contributes to as well, sometimes referred to as a matching plan, which means for every dollar that you put in, your employer matches that dollar amount for you too.  It’s free money from your employer, so you put in all you can up to the maximum allowed and in essence, you’d be saving twice as much.

You should rely on only you for your retirement. So start saving as early as you can and save as  much as you can.

It will be the difference between doing things you’d like to do to enjoy your retirement, or having to budget and not being able to enjoy your retirement.

The choice is ultimately yours, so choose wisely. What you save now is a gift to you later.

Multiiple Savings Accounts

See at a glance savings….

Since there are different reasons why we are saving, there should also be different accounts…. one for each reason…. because we are less likely to dip into any other than the one that is specifically set aside for the intended purpose. It also means that we can, at a glance, see how we are doing with each of our savings goals.

The Emergency account should have at least $1,000. in it. This would allow you to dip into that should a dental problem, or a need for new tires for your car, or a plumbing issue etc arise.  It means that you’d be able to take care of the problem, pay for it and not worry about it again.  But don’t forget to replenish the account should you take any money out…. after all, stuff happens.

You should have an account set up for at least 6-9 months of your take home income… then strive for 12 months.  Loss of a job, can and does happen, usually unexpectedly. So, to have the money you’d usually bring home, already there, will take the added stress of wondering how you’d keep a roof over your head and pay your other bills. However, this does not mean that you start (or continue) to eat out, do take out or any other entertainment spending). And, you should not utilize more money in a week’s time than you normally would. This account is solely for necessities while you’re unemployed. So, live frugally.

If you’re saving for a new house, figure an approximate price range you think you’d be able to afford. Check online for homes for sale in the area you’re thinking of. This will give you an idea of the cost in that area. Now save 20% of the cost of what you think you could afford. Above that, save about an added $5,000. for legal fees at the time of the purchase. And have some extra in the account for lawnmower, patio furniture etc., to complete the picture.

A retirement account is, although decades away, important to start and then continue to add to so that when you do retire, (and it comes quicker than you’d think), you have money set aside to live and do some things you didn’t have time for before. If you have a retirement plan at work which your employer matches, do not neglect to add to that. If not, a Roth IRA is a good start, where you contribute $6,000. annually, paying taxes on it now, and it grows tax free. Don’t rely on social security or company pension plans. Rely on yourself only. Anything else is a bonus.

Be diligent about your savings…. it’s a gift to you.

 

What Are HOA Fees?

Buying a Condo? …. Check HOA Fees

When purchasing a Condo as opposed to a free standing home, note that there are HOA fees… Homeowners Association Fees. These are monthly fees paid by the owner of the condo unit which will be in addition to your mortgage (PITI … principal, interest, taxes, insurance).

However, the monthly fee is paid to the Homeowners Association or Condo Management Company.  It usually covers inside and outside maintenance  for the building(s) and grounds (landscaping, snow removal) and electric and heat for the common areas of the building (hallways). Some will also cover water and heat. So before you sign on the dotted line, know what it covers, because what it doesn’t is yours to pay.

Usually, there will be an Annual Homeowners Meeting where the Management gets together with the unit owners and gives them a rundown of the past year costs and the outlook for the costs for the coming year…. it is also where they will let you know if there will be an adjustment of the cost of your HOA fees.  Note: They never go down, so expect to pay a little more each year.

This is why it is imperative to realize that when you purchase your condo, the fees will go up and so keep this in mind to adjust your budget accordingly.

There should be a considerable amount of money set aside for larger emergency items (roof, parking lot paving etc), in a bank account for this purpose, but if there isn’t, there will be an assessment charge to each condo unit owner to pay for the needed expense….it will be split evenly or by the square footage of each unit. This cost can be several thousand, depending upon what is needed and its’ cost.

HOA fees for a condo takes the place of inside and outside maintenance costs for a free standing home. The difference between the two is that if you own a free standing home and want to save money, you will do the landscaping and snow removal yourself, as well as if your home needs a new roof or a new paint job. That will, of course, fall completely on you.

So, no matter whether you buy a condo or a home, there is upkeep and cost associated with it.

 

Cars…..To Buy or Lease??

Pros and Cons…. Which Works For You?

Whichever you choose, buying or leasing, there is a ‘down payment’ involved.  If you already have a car you’re trading in, that is your down payment whether you choose to buy again, or lease.  If you don’t have a trade-in, you need to put a down payment of cash (an amount you choose) on a purchase. But if you’re leasing, the ‘down payment is a given figure by the dealership.

Cars are very pricey, and are usually put on a financial payment schedule at the time of sale. The length of the loan varies, typically from 2 – 7 years … so choose whichever time frame and its’ cost fits into your budget.  However, when choosing you don’t want to choose say a 7 year loan if you intend to trade it in sooner, leaving you with a balance on the car you will no longer have.The best loan length is probably 2 – 5 years. Then if you choose to trade it in, you have the full amount of the trade in value to put towards your next purchase (a larger down payment).

But buying isn’t for everyone.  When leasing, the dealer sets the cash down payment, and a 2 or 3 year lease. The monthly payment is usually cheaper than a purchase loan, but when your lease is up, you have no car to trade in, so you start again from scratch with a down payment for your next car. Continuous leasing also means you will always be paying a monthly bill for the lease, whereas a purchased car will, when the loan is paid off, you will have the car and its’ trade in value to use towards your next car.

And remember, you don’t need the top of the line, nor do you need all the bells and whistles.  A car with good brakes, a gas tank, and comfortable seating will get you from point A to point B just as well….and the insurance and excise tax will cost somewhat less each year.

So figure out what works best for your budget….. and…..happy and safe driving!

What Exactly Is Your Asset Worth?

Know your asset worth and how to handle it.

We all have assets….possessions. Whether they consist of material things, or financial things. Make a list of your assets…your bank account(s), stocks, bonds, retirement accounts, car, home, and all that is in it.  These, are your assets….your estate.

What you want to do is have more in your financial assets than in your material assets.  Reason being, that you will need your financial assets down the road, when you retire (and it comes quicker than you think).  Having a decent financial portfolio (savings, iRA’s, stocks, bonds etc., is what you will use to live on in retirement. So, how you save now will mean how well you will live later.

You have only you to depend on for this. Pensions, and even social security is not a definite part of your future income, so you can’t depend on it.  It is why it is imperative to be diligent and save as much as possible now and as you move forward in your working years.

You should also speak to an Estate Planner. Check around, and find one you trust. After all, they will be guiding you with your financial matters.

You should have your accounts include a beneficiary and a contingent beneficiary should the inevitable happen. This is done so that your assets will go to those you choose, rather than having the state take over and your assets will go to someone you may not want to have them.

A Trust is a good idea as it is private, and does not go through Probate after your death. A Revocable Trust can be drawn up and it can be changed at any time if you change your mind for any reason about your choice of beneficiaries. Probate is costly and is not private. A Will is not private and has to go through Probate. And Probate Court costs are pricey. Therefore, stick with drawing up a Trust.

 

Add Climate/Climate Change To Your Home Buying Plans

Future climate/climate change is important…

You thought you had it all set…… but did you think to add in what the future holds in terms of climate for the state / area you chose?

Every state, and every area in each state has its good and bad points.  It’s usually at the top of the list of reasons why people choose that area or state where they’d like to spend their money on a home. But the climate is shifting some, and though it can be years down the road before any noticeable shift is seen, it is happening…. there are also annual natural disasters occurring in some states.

And because of that, homeowners insurance costs should be considered as there is word out now that in at least one state, (and maybe others), you cannot buy homeowners insurance through some insurance companies. That of course means that if a natural disaster happens, and you own a home which gets damaged, or destroyed completely, you have no insurance coverage. If you are able to insure it, you can be sure that the cost is high.

Now there is no crystal ball telling us exactly where these natural events will happen, but the reason it’s brought up is that you should at least think of that when you’re planning.

Maybe an option might be to buy in a different state / area where most of your likes are checked off, except for the weather there, so it is your second choice.  But this could work if you buy in your ‘second choice’ area and go to your favorite area or state on vacations.  And there are those of you who will say it doesn’t matter because if may never happen anyway. And, you may be right. The idea is to bring it to your attention, and then you decide what works best for you.

Are You Living Paycheck to Paycheck?

You need to redo your budget….

Sometimes we think there’s nothing else I can take away….. but if you scrutinize your budget, there’s always something you can do without or at least trim back…..   We know the essential expenses…. rent/mortgage, heat, light, phone, medical, gasoline are the necessities which are there every month.

But the other things, cable, gift giving, eating out, getting coffee, lunches, take-out suppers, and even some groceries can be cut back. Some completely, and others sporadically.

Make coffee at home, and put it in a travel mug, make lunches from leftovers and enjoy them. Cook easy quick meals and save $$ on take-out dinners. Stop buying bagged snack items…they’re expensive and one can go through a bag without even thinking. Cut back on your cable bill, probably even drastically as there are so many cheaper apps with tons of programs to choose from. If you take walks or exercise you can do that instead of sitting watching TV, and it’s better for your health.

Cut back or cut completely gift giving. As nice as it is to give/receive gifts, if it’s cutting into your budget and paying your bills and saving, then it’s time to cut back on them. If you really think you need to give a gift to someone special, then have them over for dinner with a special dessert, or make muffins they can bring to work.  Or if your crafty, make something you made especially for them.  Any of these things will be much appreciated (and they may also need to cut back and didn’t want to say).  People do understand even if you just say your budget needs some trimming.

The essential thing is to pick your budget apart, and cut back every dollar you possibly can. There will come a day when you’ll be retired and you’ll say to yourself “I wish I saved something from every dollar I got”.

Start saving now, as much as you possibly can.  Be disciplined and it will become a habit.

Paying for the Mortgage

Have a plan….. it’s key.

Most people have a 30 year mortgage. There are other time frames to choose from, depending on the lender, such as a 15 year or 20 year.  The interest rate on these is a slightly less percentage point, but unless the monthly payment figure for them is within your budget, stick with the 30 year mortgage. The length of the loan can be changed down the road, as your budget allows, but don’t bite off more than you can chew now.  There is another way to do this yourself, and it will be explained at a later date.

The figure you pay each month is figured out by your lender. They take into account your credit history (credit score), down payment, and your income to debt ratio. Then, the difference between your down payment and the cost of the home is your mortgage (Principal and Interest), added onto that is Escrow (your Real Estate Taxes and Homeowners Insurance)…. these figures they get from your insurance company and the City where your home is located.

The escrow is held by the lender in a separate account, and when the taxes and insurance are due, they pay the bill from your escrow account.  These 4 things are also known as PITI… (principal, interest, taxes and insurance).  The figure for principal and interest remain the same throughout the length of the mortgage loan, but the taxes and insurance figure can fluctuate some each year, which is the only reason your full mortgage payment may change.

An easy way to avoid missing a payment is to set up a separate auto-deposit mortgage account, rounding up the figure is a good idea. Have the mortgage automatically withdrawn by the lender when each payment is due.  Just remember to have a bit extra in the account so if your pay day or holidays overlap when the payment is due, there is still enough in the account to pay the entire bill.  A good rule of thumb is to leave the equivalent of an extra payment in the account as a cushion to begin with.

Usually, once a year, the lender will notify you if any changes, either more or less, is required for your real estate taxes or insurance. They will then update your mortgage account and that would be the new figure until and unless the insurance or taxes change the following year.

As you pay down your mortgage loan, what you pay towards your principal, is called your Equity.  When you sell the home, what is in the Equity account is yours (along with any gain on the sale of the home), but any outstanding debt on the loan is due at closing to the lender.  They’ll figure all this out.

This is why people prefer buying a home as opposed to renting…..   Renting you pay a rent and it is completely gone… to the owner of the home.  When you buy, then sell, you have your equity in your hand to use for a down payment on your next home.

The hard part is to save the 20% plus…..  so start saving!

Thinking of Buying a Home??

Make a list of  things to know and do….

Decide how much you can comfortably afford for a mortgage… and don’t budge over that!  A down payment of 20% is best because anything less than that means you’ll pay mortgage insurance every month.  There will be added expenses at the closing, so have extra money set aside for lawyer, closing costs, registering the deed etc…. approximately $3,000 – $5,000.

Compare mortgage lenders and find one you trust.  Get a pre-approval letter from the lender and have it with you when you go to open houses….do not give the letter to anyone, just show it to the real estate agent selling the home you’re interested in.  It shows that you are a serious buyer. The lender will often say you can afford more (which is good for them), but stay within your budget so you won’t find yourself house poor down the road, and then lose it all.

Don’t buy too much house.  Think of your needs.  Children/no children, single/married, etc.  Think at least 5 years ahead, and what you think you’ll need then.  You may want a spare bedroom for an office or visitors. You may have to give it up if there are children in your plans.  So think ahead. But don’t buy too big if you’re not sure. An extra bedroom is always good and can be used for a den or office or guests. But too much house is what you’re paying for in your mortgage and might be out of your budget range.

And remember to have some money set aside for a lawnmower, snowblower, etc.  Upkeep of the outside is not only necessary, but needs some equipment to do so. You may also want to redecorate some, so having the money set aside is wise.

If you’ve decided on a condo/townhouse the same 20%, closing costs and how big a place you think you’d need holds true.  Instead of your own outdoor equipment, there will be condo fees which will cover outdoor maintenance and some other costs depending on the condo association rules.  If a large issue has arisen (a roof, heating equipment etc), sometimes there’d be an assessment fee to pay which is shared among the owners, unless there is enough money set aside by the association trustees to do this.  Condos aren’t for everyone.  But if you’re not one for outside upkeep, or if you travel a lot for work and can’t keep an eye on the place as you’d like, then this may be the choice for you.

Either way, single home, or condo/townhouse, go over your budget very carefully.  And no matter the figure the mortgage lender ‘says’ you can afford, it’s you who pays the bills when they come due.  So stick to your figure as the very top of your price range.  Because if your mortgage is higher than you can afford (even if only 3-4 months out of the year, you will get into a financial hole…. one you may not recover from…… so, don’t become house poor.

Remember, stay within your budget, think of the area you’d like (and why), and although plans can and do change, plan for at least 5 years down the road to figure how much house you’ll need.

Doing these things will be less stressful during an exciting yet stressful time.

Happy hunting!

 

 

Simplify Your Life

Simplifying = Less Stress

Spring cleaning your home is such a refreshing feeling….. it looks clear and breezy.  The same holds true with all aspects of your life.  Use what you have without buying more or something similar.  Put accent pieces in another room and even small furniture pieces can be changed to another area.  It gives a whole new feeling without spending money.  This way, you don’t collect clutter that you’ve tucked away in a closet or cabinet only to be tossed a few years later.

Clear out your closets…. whatever you haven’t worn, or what is either to large or too small, bring to goodwill or a shelter where the item(s) can be used by others.  Having room in your closet(s), allows clothes to air and reduces wrinkles.  And, because you haven’t worn the item(s), you won’t even miss them.

Keep only what you use.  Do this around your whole home.  When you’re done, it is such a satisfying feeling.  It’s one of those ‘Ahhh moments’.

Keep your finances uncluttered too.  Use up what you have without buying new, and the money that you save can go directly to your savings.  That, too, is a good feeling!

Set aside even a half hour every other day to clear a drawer or two, a cabinet, or start on a closet.  You’ll be glad you did.

Keeping your life clutter free leaves more time for you to spend enjoying time with family and friends…. a bonus!