Home Ownership Downside
Owning a home is financially beneficial only if you have enough income to both use the tax deductions and pay for the utilities, taxes, insurances, and maintenance. A large risk associated with property ownership is that it will decrease in value. Yes, I said de-crease. It happens. It happens all the time somewhere. During my married life we managed to purchase and lose money on three homes — two of them in Florida! All of the losses were related to one of us chasing jobs. We owned the first home too short a period of time to overcome the upkeep expenses and closing costs when we had to sell it. Ditto the second and add a slow housing market that year. The third home took us four years to get rid of and yielded a substantial loss due to it being in a rural area that had not recovered from a 20% drop in property values when the major employer folded its tents and crept out of town, along with the breadwinner’s job. Before you buy a house, think about all the events that could happen. How will you pay all the expenses (and the mortgage) if you lose your job? What will you do when the house needs a new roof, plumbing, slides off its foundation, cracks appear in the walls, termites invade, the paint peels, the furnace gives out? Who pays for all those now, where you rent?
I have to be how old?
When I first started putting money in a Roth IRA for retirement, I definitely didn’t understand the concept. I didn’t even buy stocks with it at first. I couldn’t figure out why my money wasn’t growing until I realized that it was just essentially sitting in a money market account. Oops. Guess I should have really read those books my brother-in-law gave me, or at least the information on the website.
Many of my family members have discussed the importance of starting my retirement fund early. I’ve seen the charts and graphs of how money can compound exponentially; I think I even did a few story problems about it back in middle school math class. And, while the current stock market hasn’t exactlly proven itself to me yet, I am a firm believer in saving for the future. Personally, I don’t want to wait until I am 65 to retire, or worse yet, not be able to retire at all! In fact, if I had the choice, I’d retire tomorrow. Think it’ s possible?
Throwing it all away
One of my good friends recently told me that she is looking to buy a condo within the next year. At twenty-four-years old, I am proud of her ambitiousness. When i was younger (granted I am only 25 now) I never realized how smart it is to actually own your own home. Growing up in suburbia, I just assumed that everyone owned their houses. I remember the first time my mom and I lived in a rented home…it seemed so wierd to me. I just didn’t understand the difference between renting and owning. Now, with a mortgage of my own, I am starting to get it. Sure, I still write “rent” checks every month that are considerably higher than actual rent, but I am building equity. I will admit that I still don’t understand it all fully but I am proud of my home and the fact that I own it.
There’s a quote that says “youth is wasted on the young.” How true. We don’t truly realize the advantages of saving for a home until we are older and we have wasted so many years of saving that can really add up. My advice–when you write your rent check, try to put at least that same amount in a savings account for your future home. And if you can put more in, do so. Don’t throw your money away on rent for the rest of your life!
Every time!
Why is it that every time I decide that it is time to save money, something breaks or needs replacing?! Just yesterday I wrote a post detailing a reward program that I thought would help me save money. Depending on how often I used or how much I put on my credit card, I would reward myself. Well then today I had to go out and buy a new cell phone and a new memory stick for my computer. There goes $200! And it’s not like I can be without either of those items for very long. Argh! I guess I’ll just have to start my reward program today.
Spending like I have the money
Logically I know that I have to stop spending money. At least I am aware of it and that is, I suppose, half the battle. Well, if not half the battle then it is at least the first step. It’s just that I am able to justify my spending most of the time. That weekend seminar? I need to register for it to further my career. That bookshelf? That will help me organize my office. Going out to dinner? I deserve a little treat.
What gets me is that these things all add up and I end up in quite a pickle at the end of the month when my credit cards are all due. Perhaps I can come up with some sort of a reward system. Like, if I don’t use my credit card for five days in a row then I can take myself out to dinner. Or if I keep my spending under a certain limit for the week or month, then I can buy that new shirt that looks so cute. And as long as I can remain disciplined enough and not cheat a little bit here and there, this system just might work.
More on being debt free
I tried to post this as a comment but, unfortunately the system wouldn’t let me.
So, that really was great advice and I thank you for it. (I hope everyone reads it…it was the first comment to my last post.) I’ve actually been doing just what you said. Luckily, the two credit cards that I use have 0% interest rates for at least a few more months. I have been paying as much as I can on one card (trying to get it to zero) and paying at least the minimum balance on the other (so they don’t punish me by raising my interest rates!) Hopefully they will be cleared before the rates go up. And, fortunately, I am in a period of job transfer over the next couple of months that will increase my income. So, for the months of May and June I will have extra money to put towards my credit cards and then after that I will hopefully have a new job that pays more and I love. Here’s hoping!
AS for that house you are saving for…keep at it. As I said before, I bought a condo in January and it is the best thing I have ever done for myself. Not only am I no longer “throwing my money away” in rent (which everyone will point out to you at least three hundred times) but I love the feeling of it being my home. There have been many times when, instead of hitting the town and spending money like crazy, I have chosen to stay in my hoome, sit on my couch and drink a glass of wine or two. It’s truly fabulous! I hope you are keeping us up to date on your progress. And if you need a good real estate agent or a mortgage guy, just ask!
I used to be debt-free
It wasn’t so long ago that I had paid all of my credit cards down to zero. Considering the six months I lived in Europe, financed almost entirely on credit, that was no small task. And yet I am now back in a bit of debt. It’s not nearly as much as it used to be, probably less than a third of my worst debt ever. But still, it’s there, looming over my bank account every time I swipe one of my cards. (One of the first signs of danger is that I have multiple credit cards.) It seems to add up so quickly–groceries, gas, and oh yeah, that iPod purchase probably didn’t help matters. I am envious of my best friend, who doesn’t even have a credit card. But it seems like a necessary evil. When I bought my condo, my real estate agent told me that having credit cards would actually increase my credit score and help me get my loan. Of course, it only helps your credit score if you pay them on time every month (which I do) and don’t carry too high of a balance (which, obviously, I am working on.)
I thought I would be able to zero my accounts again last month but, much to my horror, I ended up having to pay five times what I expected in taxes. So the minimum balances were paid and not much more. I don’t really have an answer to this quandry I find myself in, other than to follow the advice of one of the funnier commercials I’ve seen about this and literally freeze my credit cards in a block of ice. Judging from my lack of self-control when it comes to luxuries such as that ever-important-iPod, maybe that’s not such a bad idea.
New Fees
The ways banks find to earn more from customers truly boggles my mind. On bank-issued credit cards, we used to receive the lowest exchange rate when purchasing something abroad. It made sense to use your credit card when traveling outside the U.S. Recently banks changed which exchange rate will be used, and beginning this month, they have the option to add an “International Transaction Fee” for any purchase made in currency other than U.S. dolars.
According to a notice from the Bank of America, N.A.
“We may add a 1% fee to the U.S. dollar amount of any transaction that is made in foreign currency or that is made outside the United States even if you pay in U.S. dollars … “
Considering the cost of already-expensive foreign travel, this extra one percent charge on top of an unknown exchange rate might make American touists think twice before whipping out the old credit card when traveling abroad.
How do Credit Cards Work?
If you are ever a little lost and can’t figure out what that finance charge on your credit card statement means, or what that section on your credit report is, try How Stuff Works. This website provides all the information you need to understand everything finance-related (along with info about other things from computers to health). It’s a great way to get some basic understanding of a money topic.
It’s Time to Get Some Help
This article from Bankrate.com lists 15 clues that you might need assistance in clearing your debt. Here’s a glimpse:
When do you need to call in a financial fitness expert? Here are 15 instances that could indicate that your balances are getting the better of you and that credit counseling might help:
1. Your credit card balances are rising while your income is decreasing.
2. You are only paying the minimum amounts required on your accounts, or maybe even less than the minimums.
3. You’re juggling bills. For example, you apply for another credit card and use cash advances from it to pay an existing card.
4. You have more credit cards than a successful gambler has poker chips.
5. You are at or perilously near the limit on each of your credit cards.
6. You consistently charge more each month than you make in payments.
7. You are working overtime to keep up with your credit card payments.
8. You don’t know how much you owe and really don’t want to find out.
9. You have received phone calls or letters about delinquent bill payments.
10. You are using your credit card to buy necessities like food or gasoline.
11. Your credit cards are no longer used for the sake of convenience, but because you don’t have money.
12. You are dipping into savings or your IRA to pay your monthly bills.
13. You are hiding the true cost of your purchases from your spouse.
14. You’re playing the card game by signing up for every credit card that sends you an unsolicited offer.
15. You have just lost your job, or are fearful that you are about to, and are concerned about how you will pay all your bills.