Financing a Home Sale
Times are scary now, many people don’t know whether they will still have a job next month let alone money for the house payment, food, bills, etc. Because of the fear of the unknown, people are hoarding what they have and turning to other methods of getting what they need. Thus, people are saving all their money, some may have it in the bank, trusting the FDIC to keep it safe, a few may put some in the stock market hoping for a nice profit when things turn around, and some may have it in their mattresses. Wherever it is, people want easy access to it in the event something happens.
One group of people that has been hit particularly hard during this recession are retirees. These are people who usually live on a fixed income from the government and supplement it with part time jobs or savings that they invested previously in their lives. However, many of these are faced with a situation where their savings and investments are worth pennies on the dollar compared to what they were worth just a couple years ago. The snowbirds of Florida are now stuck with two houses that have declined rapidly in value, a reduced income due to savings and investments disappearing, and very few job opportunities. As a result, many are trying to sell one of their homes, but in this market it is difficult to find a buyer and even if they can find one, the buyers aren’t willing to pay the same prices they would have paid a few years ago.
Another issue that has arisen recently is a difficulty in getting financing. Conventional bank financing now requires larger downpayments for purchase of properties rather than the low downpayment mortgages that avoided PMI or required PMI for the mortgage. Thus, unless a purchaser has a downpayment amount of at least 10%, although 20% is preferred, the purchaser will have difficulty getting a conventional loan. The seller may consider seller financing. Many sellers may not have the expertise or want to deal with this option though.
Exploring Individual Retirement Accounts
1. Who can contribute?
IRAs are a great way to save towards retirement. Taxpayers younger than 70 1/2 on December 31st are eligible to contribute to an IRA.
2. How much can I contribute?
If you do not have a retirement plan with your employer, you can put $5,000 a year in an IRA ($6,000 if you are 50 or older) into a traditional IRA as long as you make at least that amount of taxable income during the year. Contributions can be made for a taxable year any time from January 1st of that year to April 15th of the following year when taxes are due.
3. What’s the benefit to having an IRA?
IRAs are a great way to save towards retirement. Traditional IRAs allow people to save money with pretax dollars. Roth IRAs allow people to put money into an account with after tax dollars and the money grows tax free. That means that you won’t have to pay taxes on the interest that accrues on your investment. Another great benefit of an IRA is because it is a way to save for retirement the money in your IRA will be protected from bankruptcy.
4. When can I get my money out of the IRA?
Money put into an IRA generally can’t be taken out before you reach 59 1/2 years old without a penalty. However, there are a few instances where the IRS will kindly give you a pass to use the funds before reaching before reaching 59 1/2 without a penalty, these include:
* distributions for the cost of medical insurance while unemployed,
* distributions to buy a home for first time home buyers (this is limited to a distribution of $10,000),
*distributions to pay for a qualified higher education for your education, your children’s education, or your grandchildren’s education.
5. How do I get an IRA?
Talk to someone at your local bank or check out opening an account online through a trading company like Scottrade or Sharebuilder. The process is very simple and only takes a few minutes. Once you set up your IRA you can use the money deposited in the account to invest in stocks, bond, mutual funds or just leave it in your money market account to accrue interest.
Making a Budget Stick
Budgeting is like dieting, people always start out with good intentions but often fail to see it through. One reason for this is unrealistic expectations. The best way to budget is to make it a life change by doing a lot of little things to save money and live within or under your means.
One problem I have noticed is debit cards. Yes, they make life easier, but people no longer keep track of everything in the bank account. With checks you saw the money coming out of your account with each purchase, at least if you kept a running balance in your checkbook. If you aren’t keeping track of what you make and what you spend, you will be more likely to run up excessive fees for overdraft or other bank goodies. One way to avoid this is to create envelopes.
Envelopes? Yes, when you deposit your check, take out your money budgeted for food, groceries, and other items you usually purchase with your debit card. Put the amount for each category into an envelope and when you go to the store, don’t take your debit card. Instead, take only your envelope so that you can’t spend more than budgeted. This way, when you are tempted to purchase those chocolate chip cookies and the roasted chicken, you will have to decide what you can really afford and which item you can live without.
As an added bonus, put all the money left in the envelopes at the end of a month in a special savings account to save for a rainy day and watch the funds grow.