Home Improvement Projects That Provide The Best Return On Investment

The following is a post by MPFJ staff writer, Toi Williams, who is a professional personal finance blogger of Fine Tuned Finances. She has backgrounds in personal finance, sales, and real estate.

Home improvement projects can cost a lot of money when done correctly. Homeowners that are interested in selling their home for a profit in the future want to focus on home improvement projects that are going to provide them with the best return on their investment.

Larger endeavors like renovating kitchens and bathrooms are commonly chosen as the main projects to improve a home, but these projects can often cost much more money than you will get back when you sell your home. Focusing on home improvement projects that boost your property value is a smart way to ensure that your money continues to work for you, even after it has been spent on labor and materials.

According to research conducted by Remodeling Magazine (www.remodelingmagazine.com), which has been tracking these trends since 2002, here are the home improvement projects that will provide you with the best return on your investment.

Entry Door Replacement (steel) 96.6% (Entry Door Replacement (fiberglass) 70.8%)

According to the study, the single best investment that you can make in your home is replacing the entry door with a steel entry door. Homeowners that make this investment can expect a return of 96.6 percent on the money spent. The average price of the project investment is $1,162, making it a relatively low cost home improvement project to undertake. Replacing your entry door with a fiberglass entry door will only return 70.8 percent of your investment.

Replacing the entry door will also enhance the curb appeal of the home by transforming its appearance, potentially increasing the interest of potential buyers. If you are replacing a door that has been on the home for more than a decade, it may also give you significant energy savings by reducing the amount of air escaping your home from around the door.

Deck Addition (wood) 87.4% (Deck Addition (composite) 74.3%)

The addition of a wooden deck to the home is another home improvement project with an excellent return on investment, averaging an 87.4 percent ROI. Decks and patios are a great way to expand living space at a low cost, generally costing about a tenth as much as expanding rooms in a home. These are also versatile spaces that can be used throughout the year for different functions. The addition of a composite deck has an ROI that is a bit lower at 74.3 percent.

Siding Replacement (fiber-cement) 87.0% (Siding Replacement (vinyl) 81.6%)

Another good home improvement project with an excellent return on investment is replacing the siding on your home, which can significantly enhance the curb appeal of a home that is being sold. You want potential buyers to see siding that is clean and well cared for, giving them confidence that the rest of the home has been cared for as well. On the other hand, worn or damaged siding can reduce the value of your home by about 10 percent.

Replacing the siding on your home with new fiber-cement materials offers a return on investment of about 87 percent. Fiber-cement siding is generally viewed as high quality and quality is one of the most important traits considered by buyers when searching for a home to buy. Replacing damaged siding can also improve the energy efficiency of the home, resulting in savings on your utility bills after the project has been completed.

Vinyl siding is less expensive than fiber-cement siding and is easy to install, allowing many homeowners to tackle the product themselves with the help of a few friends or family members. The types of vinyl siding available today have long warranties and fade resistant finishes, guaranteeing that your siding will look great for years to come. Replacing the siding on your home with vinyl siding gives you a return on investment of about 81.6 percent.

Attic Bedroom 84.3%

Adding an extra bedroom to your home can result in a significant boost to your property value. Turning an attic into an attic bedroom is a great way to take a rarely used space and turn it into something that is functional for your family or for the people that will be purchasing your home from you. This project has an average return on investment of 84.3 percent and the project costs are generally low because the walls and ceiling of the room already exist.

Minor Kitchen Remodel 82.7%

Remodeling the kitchen area is a task that many homeowners undertake before attempting to sell their home. This is because the kitchen is one of the most used areas of the home, resulting in wear and tear on everything from the counters to the floor to the appliances. Doing minor remodeling to a kitchen area provides an average return on investment of 82.7 percent. Minor remodeling involves replacing the appliances, the lighting, the flooring, the countertops, or the cabinetry.

The average cost of the minor kitchen remodels in the report was $18,856, including labor costs. However, many of the tasks required for a minor kitchen remodel can be completed by the homeowner in a few hours, which can significantly decrease the cost of the remodel. Any tools that are needed can generally be rented from a home improvement store like Lowe’s or Home Depot.

Knowing which projects offer the best return on investment will help you make better decisions on where to invest your remodeling dollars. Whether making your space more livable for your family or improving your home to get a better sale price, focusing on the projects that give you the best return on investment is a smart way to increase the value of your property.

How about you all? Which home improvements projects have you completed which you felt like provided a good financial reward?

Share your experience by commenting below! 

Picture: http://en.wikipedia.org/wiki/Handyman#mediaviewer/File:FEMA_-_42428_-_Home_Repair_after_Flood.jpg

How I Saved $40 A Month By Reviewing My Cable Bill

The following post is by MPFJ staff writer Travis.  Travis is a customer blogger for Care One Debt Relief Services, and also appears weekly at Enemy of Debt.  Travis candidly shares his personal journey to pay off $109,000 of credit card debt and the tips he’s learned along the way. As a father and husband he provides a unique perspective on balancing debt, finances, and family.

“Dad, my TV stopped working,” said my son as he came down the stairs.  No investigation was necessary, because I knew exactly what had happened.

A letter had arrived a few weeks prior stating that our cable company was going completely digital, and as of a certain date every TV was required to have a digital cable box in order to receive the signal.  One box would be provided free for a year, but any additional boxes would cost $6.99 per month.

We currently have three televisions with cable boxes attached as part of our multi-room DVR system, but we have two TVs that did not; my son’s TV, and one in our guest bedroom.  I wasn’t particularly happy with the requirement to have a $6.99 a month box attached to every TV.  The reason given for dumping the analog signal is to free up bandwidth for more high definition stations and faster broadband service. Seems like progress, but with progress comes a price tag.

That afternoon, I picked up a cable box for my son’s room.  My wife and I decided that the guest room would no longer have a television, since it’s silly to pay $6.99 a month for cable to a room that is used only a couple times a year.  Even though our cable bill would not be changing due to the extra cable box for a year, we used this opportunity to review our cable package and see if there’s anything that we could do to decrease our overall bill.

I opened our latest cable bill, and went through it line by line.  We evaluated each service for value in relation to how much it cost and how much it was used.  Like an episode of Bar Rescue, I’ve agreed to open the books and share the process with you, the readers of My Personal Finance Journey.  Let’s get started.

• Cable TV Service Gold Package: $99.99
• DVR Service: $19.99
• Digital Receiver Rental: $27.96
• Internet Service: $49.99
• Phone Service: $19.99
• Taxes and Fees: $20.44

Total Bill:  $238.36

Package Summary:

We currently have a cable TV, broadband internet, and landline phone service bundle through Charter Communications.

TV Package Analysis:

Our cable company has really simplified its offerings in the last two years.  Gone are the seemingly limitless ala carte options to choose from.  We now have three packages to choose from:  Select ($79.99 per month), Silver ($89.00 per month), and Gold ($99.99).   We currently have the Gold package, giving us every channel offered by our cable company.  However, in reviewing the channels offered by each package, we only watch the channels in the Select package.  I can’t remember the last time I found something on the premium movie channels that I wanted to watch, and I never watch the obscure sports channels.  We have an opportunity to save $20 a month if we move to the Select package.

Equipment Rental Analysis:

Honestly, I was shocked to see how much I’m paying for the combination of the DVR service and the equipment rental.  We could dump the DVR service, but given the new requirement of having a digital converter on each TV, we’d just exchange the DVR boxes for basic digital tuner boxes which cost the same amount each month to rent.  We’d save the $20 a month without the DVR service, but we actually use that all the time.

Phone Analysis:

I honestly cannot believe we still have a landline.  I think the only reason I keep it is because we’ve had that number for close to 20 years now, and I’m afraid that someone won’t know how to get a hold of us.  But honestly, the only non-telemarketer that calls our home number is my parents and they could simply be told to call my cell phone number.

If we dump our landline, we’d save an additional $20 per month.

Broadband Analysis:

There’s really no option here.  My cable company used to have different speeds available for different prices, but that’s no longer the case.  We currently have 30mps service, and it’s scheduled to move to 60mps by the end of the year as part of their system upgrade.   The only other option we would have is DSL, which isn’t fast enough to support my connection to my employer.

Final Analysis:

Our analysis shows that we could easily cut $40 a month from our cable bill, and not even have to alter our lifestyle or television viewing habits.  That means that right now we’re really just wasting $40 each and every month.

The point of this article isn’t to debate whether cable TV is worth the money, or if we should go with a different solution.  That is a different post, one that I’ve already written and concluded that at this time, cable television fits our family’s lifestyle the best.  It is within our budget, and we consciously choose to spend our money on it.   It could very well happen that sometime in the future we may decide that cable TV is no longer worth the money we spend on it, and go in a different direction.  The point of this article is to drive home the fact that my wife and I periodically review all our expenses and look for ways to get as much value as we can out of the services we choose to have, and look for ways to maintain the lifestyle we want while not wasting money in doing so.

During this review cycle, we have identified $40 that we could cut from our cable bill without affecting our lifestyle at all.  Our family’s lifestyle and needs are constantly changing and evolving, meaning that evaluations of this kind are always a good idea from time to time.

Now, it’s time to give my cable company a call.

How about you, readers, do you periodically review your monthly expenses?  How often?

Share your experiences by commenting below! 

***Image courtesy of NayPong at FreeDigitalPhotos.net

How to Determine Which Home Improvement Projects to Tackle First

The following post is by MPFJ staff writer, Melissa Batai.  Melissa is a freelance writer who covers topics ranging from personal finance to business to organics to food.  She blogs at Mom’s Plans where she shares her family’s journey to healthier living and paying down debt.

We bought a house in August, and while it is a nice house overall, it is 18 years old.  There have been no significant renovations, so much of the house is out of date.  There is definitely room for improvement.

Here are some of the projects we’d like to tackle:

Replacing Broken and Green Blinds.  We bought the house with all the blinds included.  After the sale went through, the owners e-mailed and informed us that the large blind in the master bedroom and the blind in the guest room are broken, so they will fall down if you try to open them.  (We’d already discovered this with the guest room blind during the home inspection.)  The rest of the blinds work fine, but they are a deep hunter green.  In some rooms, that color works.  In my daughters’ pink and purple room?  Not so much.

Lack of Sun Screens.  Many houses in Arizona have sun screens on them.  These are dark screens that go on the outside of the house and keep out the intense UV rays, protecting items in your home from sun fading, and more importantly, reducing how much the sun can heat up your house.  With sun shades, your cooling bill can be reduced substantially.  Our house had no sun screens.

Our home had a few other issues too.

Faucet that Hangs to Low Over the Sink.  The space from the faucet to the bottom of the kitchen sink measures 10 inches.  That means it’s impossible to fill the sink with soapy water to wash and still be able to rinse the dishes.  Even without water in the sink, rinsing a large pot is nearly impossible and involves me putting water in my hands to splash the soap off the sides of the pot that I can’t reach.

Pale Pink Kitchen Cabinets.  The kitchen cabinets are a pale pink, and the finish is coming off in many places, exposing the wood.  It’s ugly, and I would like nothing more than to paint all of the cabinets white.  The cabinets also lack hardware, so I’d like to add handles and knobs, too.

Orange and Brown Sponge Painted Living Room.  Finally, the living room is sponge painted ala the 1990s decor style in shades of orange and brown.  No thanks.

Choosing What Renovations to Make on a Limited Budget

While I would like to make all of the changes to our home at once so I could live in the house I want, that’s not possible thanks to budget constraints.

We’ve created a hierarchy of renovations.

Those That Will Save Us Money

The renovations and improvements that we are making a priority are those that will save us money.

Sun Screens.  We had a few hundred dollars available when we first moved in, so we immediately bought sun screens for the five windows that receive the morning and evening sun.  Doing so helped keep those rooms cooler and saved us on our electric bill.

We are now saving so that in March, when the temperatures in Arizona ramp up again, we’ll be able to buy solar screens for the three windows that receive the afternoon sun and heat up the master bedroom.

Kitchen Faucet.  Water is precious everywhere, but even more so when you live in the desert like we do.  Having a kitchen faucet that gives us so little room to manipulate pots and pans underneath it wastes a lot of water.  This is another priority repair, though this renovation may have to wait until after we install the sun screens.

Those That Will Increase the Value of the House

Next on our list of renovations are those that will improve the value of the house.  (This is important because we know this isn’t our forever home.  We will likely move in the next 5 to 7 years to be closer to family.)

Painting the Kitchen Cabinets.  Our kitchen has a lot of great features–open concept, huge island, eat-in dining space.  However, the cabinets are a real eyesore.  We plan to DIY paint the cabinets white and also install knobs and handles on the cupboard doors.  Just doing this, assuming we do it well, will increase the value of our home when we get ready to sell it.

Painting the Living Room.  Remember that sponge painted living room in desert brown colors?  That definitely has to be repainted before we sell.  In fact, when we were house hunting and I saw the pictures of the home online, I didn’t even want to look at the property because the living room was so ugly.  The sponge painting didn’t look like sponge painting in the picture but rather like some hideous wallpaper.  Besides being aesthetically pleasing to us, painting the living room will make the house more marketable in the future.

Those Projects That Will Wait

The Blinds That Fall Down.  The guest room is rarely used, so for now, we will leave that blind and not replace it.  I do want to replace the blinds in the master bedroom, especially since the window with the broken blind is the one that brings in the most sun light.  However, there are only a few months of winter left now, and in the summer we don’t open that blind to help keep the house cool.  Therefore, this improvement will wait until at least next winter.

The Green Blinds.  I really hate the hunter green blinds, but they’re functional, so they’re at the bottom of our renovation/improvement list.

Renovating and improving your house on a budget requires a great deal of patience, especially when it seems like several projects are important.  It also requires discipline, because as much as I know that the sun screens are important, I would much rather have a living room that I like to look at!

Make Those Home Improvements That Increase the Value of Your House First

If you, too, have a list of home improvements you’d like to make, the best bet from a financial stand point is to first make the improvements that increase the value of your house.

In general, these areas offer the most bang for your buck:

1. Home systems. These include things like replacing hot water heaters, air conditioning/heating systems, and plumbing.  If you can replace the current model with an eco-friendly version without wrecking your budget, you’ll likely get even more value for your money.  However, don’t overspend for a “green” system because you won’t recoup that much.
2. Kitchens. The kitchen is the heart of the home, so you want to make it as nice as you can.  This is one area where you’ll definitely improve your resale value.  Minor upgrades like painting the cabinets and installing hardware don’t cost that much money yet can dramatically improve your house’s value.
3. Curb appeal. Finally, consider making your home more friendly from the outside.  Install outside lights, plant some greenery, consider adding a tree.  The front of the home is most important, and first impressions only happen once.

Deciding which home improvement project to tackle first is an individual decision, but financially, consider the one that will most improve the value of your home or will save you the most money.

How about you all? Do you own a home that needs or needed renovations or improvements?  If so, how did you decide which project to tackle first?

Share your experiences by commenting below! 

Six First-Time Homebuyer Mistakes To Avoid Like The Plague

The following is a post by MPFJ staff writer, Kevin Mercadante, who is a freelance professional personal finance blogger for hire, and the owner of his own personal finance blog, OutOfYourRut.com. He has backgrounds in both accounting and the mortgage industry.

Remember a few short years ago when millions of people were losing their homes to foreclosure?

Some of them were hit by unfortunate circumstances – others simply walked away when the value of the property fell below the amount of the mortgage that they owed on it. But, it’s likely that most of them lost their homes because they made one or more major mistakes at the time they bought the property.

If you are in the market to buy a house, there are steps that you can take now to avoid falling into a similar trap. Here are six first time homebuyer mistakes to avoid like the plague.

1. Over-Buying

This is probably the single biggest reason why people get into trouble with homeownership. Simply put, they buy more house than they can comfortably afford.

They do this by buying at or above the highest house price level that they are qualified for. They may be pre-qualified to buy a home for $300,000, but end up buying one for $320,000.

That actually understates the problem. Whatever property value they are qualified to buy, they always have the option to buy beneath it. For example, they can easily buy a house for $240,000 and that will leave them plenty of room in their budget for non-housing expenses, including saving money.

But by buying at or above their highest qualification level, they essentially doom themselves to a life of always needing to stretch to meet their monthly budget. And should an emergency come along, they will be completely vulnerable.

Moral of the story: when buying a house, always leave yourself plenty of financial margin for error. You will probably need it.

2. Buying a House Before You’re Ready

A lot of people buy a house because of peer pressure, and not for legitimate need. The pressure often comes about from parents and from other family and friends who are certain that it is “the right thing” for everyone to become a homeowner, and to do it as soon as possible. You may even be persuaded to buy a home because of the tax benefits that it offers.

But none of these are legitimate reasons to take on a financial obligation as great as owning a house. Buy because you are in a position in your life – such as marriage or the arrival of children – that make it desirable. Or buy because it’s less expensive than renting a similar property in your area.

There are times in your life where owning a home can be the absolute wrong course of action.

Unfortunately, it isn’t a decision that is easily reversed. Be sure that you are ready for the commitment of both time and money that owning a home requires. If you’re not, relax and take your time.

3. Not Doing a Home Inspection

There are at least two reasons why homebuyers pass on having a home inspection done on the property they’re buying:

1. They don’t want to spend the $200 or $300 that it will cost, or
2. They are so in love with the property that they don’t want to learn any bad news that might cause them to not buy it.

Neither are legitimate reasons to not have a home inspection. That inspection will be your last opportunity to back out of what could very well be a very poor deal. Pay the extra money, or have a family member pay for it, but get a home inspection done, and pay close attention to what it contains.

Not having it done can cost you thousands of dollars later on – money that you may not have.

4. Ignoring the Possibility of Living on a Single Paycheck

This gets back to over-buying, but it’s more specific. If you are too tightly stretched on your house payment, there will be no room in your budget if one parent wants to stay on with a new baby, or even if one wants to quit his or her job to start a new business.

In an ideal world you will qualify for the house payment based primarily on a single income. While this is not always possible, doing so gives you the flexibility that may be absolutely necessary at a later date. At a minimum, try to get as close to qualifying on a single income as you can, which may allow you to make other arrangements in the event that it becomes necessary.

5. Buying a Bunch of New Stuff for the New House

Many homebuyers feel the absolute necessity to fill the new home with all kinds of new stuff. This can include new furniture, new window treatments, and even a brand-new car. It’s also not uncommon for new homebuyers to pull out perfectly good carpet and to replace it with new carpet or with wood floors.

That kind of activity costs money at a time when you’re probably already stretched thin. And you certainly don’t need to be running up credit card balances to make it happen.

After you buy your home, you should plan on being extremely conservative spending your money. It would be far better to put any extra money into savings, that way you will have a cushion in the event of unforeseen circumstances. After that, you can begin to make gradual improvements to the property, as additional funds become available.

6. Closing Broke

Next to over buying, this is likely the second-biggest mistake that first-time homebuyers make. Owning a home cost money, generally more than renting does. After all, if the heater melts down and needs to be replaced, you won’t be able pick up the phone and call the landlord to have it taken care of.

Mortgage lenders typically require that you have “cash reserves” – liquid savings equal to somewhere between two to six months of your house payment. Many homebuyers will show this amount only for qualification purposes, then the cash quickly disappears.

Owning a home requires that you maintain a certain amount of liquidity, and that needs to start from day one of your ownership. It sets a positive pattern, if you have money available right after the closing. Take this seriously, because trying to save up money when you’re broke and taking care of a home is not an easy task.

The standard advice from financial planners is to have somewhere between three and six months of living expenses in an emergency fund. The advice works extremely well for first-time homebuyers, even if lenders require far less.

Follow these six steps, and your life is a homeowner should be a relatively stress-free experience.

How about you all? What mistakes did you make when you first bought a house? Any of the ones above?

Share your experiences by commenting below! 

PHOTO: https://www.flickr.com/photos/editor/6148335002/sizes/n/

Is Starting A Silver IRA A Good Idea?

The following is a guest post. Enjoy! 

When looking at your retirement portfolio, it’s important to ask the following question…How are my investments protected?

The harsh reality is that most people don’t think about protection with regard to their retirements. Instead, when markets tumble, they take losses and do their best to make up for down time when things pick back up. However, it is possible to purchase investment vehicles designed to protect your funds should something happen in the stock market. One of those investment vehicles is a silver IRA.

How Can A Silver IRA Protect My Retirement?

The basic concept of silver being a protective investment is tried and true through history. The strategy here is really based on supply and demand. The laws of supply and demand tell us that when demand goes up, or supply goes down, the price for the product must go up as a result. Well, when the stock market starts to generate losses, it prompts a sell off. Investors who have decided to sell their stocks look around for the best safe haven investments out there. One of the most common is precious metals including silver, gold and platinum.

When investors become more interest in silver, the demand for the product increases; as they buy silver, the supply decreases. As a result, over a short period of time, silver increases in value. Therefore, the gains from your silver investments can offset any losses you may experience in the stock market if you’ve diversified your portfolio properly.

The Stock Market Looks Great…Why Is This Even A Topic?

Have you ever heard the term “Don’t judge a book by its cover”? While the stock market may look great from the outside, digging into the details can bring up some pretty startling concerns. First off, we have a major valuation issue in the stock market right now. Over the past several years, the bulls have increased the values of stocks almost on a non-stop basis. The only problem with this movement is that corporate profits haven’t been able to keep up. As a result, stocks today are grossly overvalued. When investors start to see this overvaluation reach a certain level, it could prompt a sell off.

Aside from stock valuations, there are also geopolitical, economic, and market concerns around the globe. To give you a few examples, think about the Russia and Ukraine dispute, ISIS and other terrorist organizations, the struggling Eurozone economy, and the falling oil prices. Any one of these issues could be devastating to the stock market, but all of them combined is a sign that something big may be on the horizons.

Final Thoughts

While the market continues to climb for now, it’s never too early to start thinking about protecting the retirement dollars you’ve worked all of your life to save. Silver, gold, and platinum can all act as a great way to hedge against losses!

How To Save $200 On Your Grocery Bill Each Month

The following is a post by MPFJ staff writer, Derek Sall. Derek is the owner of the blog, LifeAndMyFinances.com, where he teaches people how to get out of debt, save money, and become wealthy.

Many couples don’t think about their grocery bill when they first start out since they are only buying food for the two of them .The major bills like the mortgage and the cars are much more expensive, and therefore get more attention.

However, when these young couples have children and their family grows, the food bill gets noticeably larger and can hurt the bank account quite handily with each trip to the grocery store.

Food is food though right? There can’t be that much that you can change in order to save money on filling up your stomachs is there? As you may have already guessed from my rhetorical questioning, there actually is. By implementing the tips below, many families have noticed a sizable savings in their food bill each month, often to the tune of $200 or more. Take a look and see how much you can save!

1) Stop Going Out to Eat, Even to McDonald’s

Restaurants can absolutely kill your grocery budget, especially the finer ones. But, even McDonald’s can end up impaling your bank account as well. Think about it. How much does it cost to feed your family with sandwiches and crackers for lunch? A family of four will spend about $6 all together when you factor in the slices of bread, cheese, meat, and crackers. So what if you went to McDonald’s? How much do you typically spend there? If your children get kid’s meals and you and your spouse order off the value menu, you will still end up spending around $18 on your meal, which means that you are spending three times more at McDonald’s than you would at home! If you stop eating out, you will see a huge improvement in your food bills each month.

2) Stop Shopping At Walmart for Groceries

Everyone wrongfully assumes that Walmart has the best prices on everything. This is simply not true. Sure, some of their items may be cheaper than other retail stores, but their food is often much more expensive than the discount supermarkets across the street. I personally shop at Aldi. The prices are cheap, the service is fast, and the customers are ten times more classy than the Walmart crowd. As a single person, I can get away with spending only $30 a week on groceries. Therefore, your family of four can easily get by on less than $120 each week, which means your monthly food expense could be $500 or less. I bet that’s a severe improvement from what you are spending now.

3) Plan Your Meals in Advance

In order to eliminate waste, plan your meals in advance. If you know exactly what you will eat each week and buy only food for those meals, not only will you avoid buying the extra junk food that otherwise finds its way into your cart, but you will have less food that gets pushed to the back of the refrigerator and gets forgotten about. You will buy less food and waste less food, which of course saves a quite a lot of money each week.

4) Keep the Groceries Cheap, Yet Healthy

For some reason, many people get the idea that in order to eat healthy they need to spend more money. Actually, I have found the opposite to be true. Often times, prepackaged foods are more expensive because they are convenient for you to pop in the microwave and eat in just ten minutes. If you instead buy the ingredients individually and prepare the meals yourself, you will be able to make your meals with less money and with fewer preservatives (ie. sodium). Your food will be tastier, your wallet will be thicker, and your bodies will feel younger. It’s a triple win if you will just take the time to cook the meals yourself.

How about you all? Are you ready to save money on your food each month? Which of the tips above impacted you?

Share your experiences by commenting below! 

***Photo courtesy of http://www.flickr.com/photos/jlarnos/8200880966/in/

Time For A Real Education

The following is a guest post by Ivan Serrano. Ivan is a personal finance, business, and social media journalist living in the Bay Area in California. Enjoy! 

It turns out the goal of your college career was just getting to the starting line.

Most college graduates agree; the real education starts when you graduate. That might be why it’s called commencement.

Now that you are at the starting line, where do you start? It’s a big crazy world out there, and it’s nothing like college. In fact, it’s more like high school in some ways. But, in other ways, it is like an alien world from a post-apocalyptic fantasy novel with dragons on every roof-top. Maybe that was a bit of an exaggeration…

The game has changed, and yet it hasn’t changed at all. You’ve always had to prioritize, and that’s still the name of the game. Focus on what matters most. If you’re paying your own way now, budgeting is as good a place to start as any and is better than most.

So, let’s begin with your first post-graduate course; A Survey of Budgeting Best Practices.

The big riddle you need to solve with your budget exercise is how to stretch those limited dollars and still be comfortable. Will there be compromises? Absolutely! Will it be easy? Well, it depends.

Here are some guidelines to help you develop a budget that works. The first two priorities may have to be juggled for your particular needs, but they are still the top two priorities that will have long-term impact on your quality of life. Let’s look at the top two and then take a closer look at the adjustments in priority you may have to do for your situation.

Save

Top priority. Saving. This is like paying yourself, and it’s something just about everyone, in business or employees, ignore to their detriment.

Do not think of saving as saving; think of it as paying yourself. Everyone else is going to get a piece of the pie you carve up every month, and unless you pay yourself first, you are going to wind up with none of it. Only you can make you a priority. No one else is going to do it. Who do you think their priority is? You got it. If you don’t prioritize yourself, you’ve already started losing.

Make yourself a priority, put that money away in an investment vehicle of some kind, and forget about it. You may want to leave a portion of it accessible for emergencies, but the bottom line is make sure a portion of your wages every month is accessible by you alone and that it is not spent.

If your employer offers a 401K plan with some kind of matching incentive, contribute the maximum.

Finally, don’t tinker with your savings. Put it away and do your best to forget about it unless you have an emergency.

That leads me to priority two.

Get out of debt

Stop digging the debt hole deeper. Because of the nature of compound interest, just having debt is digging the hole deeper. The minimum you should be paying every month should make sure that the total you see owed next month is less that it was in the current month.

One strategy for getting out of debt is to get it all into one place so you can work on it all at once. Another strategy is to pay off the largest debt first. Yet another strategy is to pay off the loan with the highest interest rate.

All these strategies have worked for people, and you will have to do some calculations to figure out which will be the best option for you.

However, one long-term approach you should adopt, regardless of which of the above strategies you select, is called the Snowball Strategy. This means to keep paying the same amount on your debt every month until it is all paid off. Pay one credit card off and then, use the amount you were paying on the retired debt to accelerate paying off other debts.

In general, pay off revolving debt first because it usually has higher interest rates and can negatively impact your credit score to a greater degree.

Juggling Debt and Savings

Here’s where the analysis gets a little tricky. If your debt has really high interest rates; rates that make the cost of the borrowed money much higher than the rate of accrual on your savings or investments, it may make more sense in the long run to focus on retiring the debt first.

Another bit of juggling you may want to consider, too, is how much do you need for emergencies like a potential job loss. If you lose your job, for example, you still have to pay rent and pay your credit card bills. So, you may want to target contributions to a reasonable rainy day fund while still paying off as much debt as possible every month.

Living the good life

Those are the really tough decisions and the ones you want to get out of the way first. How much you can allocated to paying off debt is often dictated by how much you have to spend every month for essentials like rent, food, utilities, clothing, insurance and other required spending.

Balancing a serious approach to your future with a reasonably comfortable quality of life today is why budgeting is an art and not a science; a series of judgment calls and not a formula.

Obviously, keeping your required monthly spending as low as possible is going to give you the greatest flexibility in discretionary spending.

Here are some approaches to keeping those pesky monthly bills as low as possible.

Sharing rent and utilities-Roommates may be part of your life a little longer, so don’t burn any bridges just yet. There are plenty of advantages and disadvantages to having a roommate, and you probably know them all by now. Just hang in there for a little longer.

Cooking at home-Sure you have to eat, but eating at home is definitely a lot cheaper than eating out, especially if you like to have a beer or a glass of wine with your dinner. Learn to cook.

Brown-bag lunches-Going out with the gang to grab a sandwich or soup at lunch may seem like the thing to do until you add up how much it is costing your every month. There are some great apps (check out mint.com for example) for smartphones that will help you keep track of expenses. How much you are spending for lunches is one you will want to keep close tabs on.

Movies at home-Entertainment should be part of your spending. Recharging, reenergizing and refreshing your perspective are essential to pacing yourself and maximizing your productivity at work. However, you can keep these costs down though by reading more and watching movies at home.

Mix-and-match clothing-Clothing is not a luxury item. You have to look your best. When you look better, you feel better, and this, too, affects your productivity and overall attitudes. One way to maximize your clothing budget is to make sure every purchase can be worn in more than one way or with more than one outfit.

While budgeting is an art, it is also a skill, and skills can be improved with practice. The more you think about and practice your budgeting skills, the better at it you will become… and the better you quality of life will be. Embrace budgeting and get good at it. It’s a skill you can use for the rest of your life. Go ahead and get good at it now. It just takes practice.

How about you all? What sort of financial trouble do you run into the most? What financial tips do you find most useful?

Share your experiences by commenting below! 

***Photo courtesy of http://www.flickr.com/photos/gtalan/5304315230/in

Can Buying a House Make You More Financially Responsible?

The following post is by MPFJ staff writer, Melissa Batai.  Melissa is a freelance writer who covers topics ranging from personal finance to business to organics to food.  She blogs at Mom’s Plans where she shares her family’s journey to healthier living and paying down debt.

My husband and I have been married nearly 14 years, and throughout our entire marriage, we always rented.  We lived in the suburbs of Chicago and simply couldn’t afford to buy a house or pay the property tax, which could range in price from $10,000 to $20,000 a year depending on the home and neighborhood.  Mind you, I’m not talking about fancy homes but rather homes that were 1,500 to 2,000 square feet homes 75 to 100 years old.

When we moved to Arizona this summer, we were finally able to afford to buy a home.  We debated whether or not we should purchase a home because we weren’t in perfect soon-to-be-homeowners shape.  We didn’t have a nine month emergency fund.  We still have student loan debt to pay off.

In the end, though, we decided to buy a house.  We’re both happy with the decision, even though we both feel a bit like tight rope walkers since we don’t have a large emergency fund yet.

However, one surprising result of home ownership is that it has made us more financially responsible.

Let me clarify that we weren’t financially irresponsible before.  We always pay our bills on time and have a great credit score.  However, we’re not savers by nature.

I have to admit, when we rented, always in the back of my mind was the thought, if my husband lost his job and we got desperate, we could always break the lease and move somewhere cheaper.  Sure, breaking a lease does have some financial penalties, but they’re finite.  When we made the decision to own a home, well, we also lost the possibility of an easy out.

Perils of Earning a Variable Income

My husband is a post-doc researcher, and I’m a freelance writer.  As you know with freelancing, some months are great, and others, well, others are painful because not enough cash is coming in.  In Chicago we used all of our money–my husband’s income and mine–to meet our bills and responsibilities.  During the months where my income was small, our budget was insanely tight.  I hated the wild swings in income and the budgeting difficulties that go with it.

When we moved to Arizona and bought a house, we decided to do things differently.

Making the Decision to Live on One Income

Since my income varies so wildly, we decided once we bought the house to try to live on my husband’s income alone.  We slashed expenses and are now living on the tightest budget we’ve had since we were newlyweds.  We still couldn’t make it work to live entirely on my husband’s income, but now my income is only making up 12% of our monthly budget versus the 25% it used to.

What We’re Doing with the Extra Money

Depending on the month, this type of budget can leave us with quite a bit of surplus or just a small amount.  Since we’ve bought the house, I’ve been very busy with work, so we’re careful to manage the surplus wisely.

Created a $1,000 emergency fund.  Our first order of business was to create a liquid, $1,000 emergency fund.  We did this within the first month of owning our house.  (Moving cross country and paying for the down payment for the house nearly wiped out our meager savings.)

Grow a 9 month emergency fund.  We put the bulk of the extra money in a savings account.  This is where we are growing our emergency fund until we reach nine months of living expenses.

Put aside money for home repairs.  I’ve heard horror stories about big home repair bills that people just didn’t have money to pay.  My husband and I planned, once we bought a house, to set aside money every month for home repairs.  We’re doing that now.

Our first week in the home, our water heater went out and flooded part of our pantry.  (Welcome to home ownership!)  Luckily, we had a home warranty, and our realtor hired her contractor to handle the water damage pro bono.  Still, we had to pay nearly $400 out of pocket.  I know this is small change compared to some home repairs, so we’re diligently setting aside money every month for the unexpected.  This is money outside of our emergency fund.

Put aside money for home improvements.  Our house was built 18 years ago, and while it’s fine on a functional level, there is definitely room for improvement cosmetically.  Our realtor mentioned some fairly inexpensive updates we could make such as painting the kitchen cabinets white (the cabinets have never been updated, and in some places the coating has completely worn away leaving the wood exposed), replacing the outdated light fixtures, and painting the living room (which is sponge painted in shades of brown a la the 1990s).  These repairs won’t cost more than a few thousand dollars, if that, but we’re setting aside the money every month so we can pay out of pocket rather than using credit.  Of course, having had all the changes made before we moved in would have been easier, but I’d rather be patient and financially responsible.

Save for annual expenses monthly.  Another strategy we’re using is to save for annual expenses monthly.  For instance, our HOA dues are $300 a year.  Each month, we set aside $25, so when we get the bill, we simply clean out the designated savings fund and pay the HOA fees with no impact to our budget that month.

Contributing to our retirement fund.  My husband and I have always benefitted from employer matches.  When I was the primary breadwinner for 10 years, I set aside 8% of my salary for my retirement fund, and my employer matched it, giving me 16% of my salary per year saved for retirement.

Now my husband is the primary bread winner.  He’s contributing 7% of his salary, and his employer is matching it.  Even better, his new employer immediately vested him, so even if he leaves the job in less than five years, he’ll be able to walk away with his employer’s contributions.

We have never contributed more than 7 to 8% to our retirement (not including the employer’s match), but now that we’ve tightened the budget so much, we’re starting to invest a small amount in our Roth IRAs.  Though the amount is small, the important thing is that we’re taking the step to invest in a Roth.  As my husband’s salary increases, we’ll contribute more.

Since we finally took the leap to buy a home, we’ve become even more financially responsible.  Unlike renting, there is no easy out from home ownership.  Buying a house has caused us to seriously tighten our budget and set aside more for savings than we ever have before.

This first year, while we’re growing our savings will be financially tight, but the rewards are worthwhile.

How about you all? What do you think?  Do you think home ownership can make people more financially responsible?  Or do you think owning a home can more often lead to financial ruin, especially if the new homeowner does not have his finances in order and a large emergency fund?  What is the minimum emergency fund you’d recommend someone have before they buy a home?

Share your experiences by commenting below! 

***Photo courtesy of http://www.flickr.com/photos/jwthompson2/139445633/in/

Budget Breakdown: What Do You Really Buy With Your Grocery Budget?

The following post is by MPFJ staff writer Travis, who also blogs at Enemy of Debt .  Travis candidly shares his personal journey to pay off $109,000 of credit card debt and the tips he’s learned along the way. As a father and husband he provides a unique perspective on balancing debt, finances, and family.

You can’t change what you don’t track.

The concept of tracking your spending is one that I’ve both read and written about many times, but I just heard the above phrase for the first time recently.  The premise behind tracking your spending is fairly simple; write down everything you spend, then use that information to build a realistic budget.  If the number for a particular expense seems too high, you need to put some effort into determining how you bring your spending down for that category.    This is where my opening statement comes into play.  If you don’t know how much you’re spending, or what you’re spending it on, there’s no possible way you can make any kind of educated decision as to whether your spending is in line with your expectations.

I’ve been thinking a lot about the above statement as I haven’t been very happy with the results of my grocery shopping lately.  When we finished our debt management plan paying off over $109,000 in credit card debt one area that we immediately increased in our budget was the weekly grocery amount.  Adding some extra special items to our meal planning each week was something we determined was a good use of some of the extra funds we had available after that final payment was made.

The problem was, as I looked at my grocery cart waiting for the cashier, I saw a lot of things in the cart that had nothing to do with making actual meals.  I will admit that when I say the term grocery budget, I really mean pretty much anything I’d by at the grocery store including food, snacks, toiletries, and pet supplies.  I started wondering what percentage of my grocery budget each of those categories represented.    That opening phrase popped into my head again.

You can’t change what you don’t track.

It was time to go to work on my grocery spending.  Even though I was staying on budget with my overall grocery spending, I wanted to ensure I was getting what I wanted out of my trips to the grocery store.  I decided that I was going to shop as normal for three weeks, and save my receipts.  After that third trip to the grocery store I would sit down and analyze what I was purchasing and see what revelations I could find.

The Ground Rules

1. Grocery shopping is to be done normally, not altering my process or current shopping habits
2. This experiment will run for three weeks, after which I will analyze the products purchased from the three saved receipts.
3. Products will be split into the following defined categories;

• Food: items used directly for meals
• Snacks: items that are eaten between meals, or during the evening. Example: chips, snack crackers, ice cream.
• Drinks: Non-essential drinks such as bottled water, soda, Gatorade, or lemonade
• Pets: Items for our two cats such as cat food and cat litter.
• Household: Nonfood items such as laundry detergent, dish detergent, toiletries, paper towels

The Results

Week 1:

• Food: 58.8% ($95.37)
• Drinks: 7.7% ($12.60)
• Pets: 4.8% ($7.84)
• Household: 15.9% ($25.89)
• Snacks: 12.8% (20.74)

Total: $162.44

Week 2:

• Food: 51.7% ($71.38)
• Drinks: 10.1% ($13.98)
• Pets: 0% ($0)
• Household: 11.6% ($15.94)
• Snacks: 26.6% ($36.74)

Total: $138.02

Week 3:

• Food: 58.8% ($92.57)
• Drinks: 14.0% ($22.02)
• Pets: 9% ($14.12)
• Household: 4.5% ($7.11)
• Snacks: 13.7% ($21.64)

Total: $157.46

Three Week Average:

• Food: 56.6% ($86.44)
• Drinks: 10.6% ($16.20)
• Pets: 4.8% ($7.32)
• Household: 10.7% ( $16.31)
• Snacks: 17.3% ($26.37)

Total: $152.64

Analysis

I was fairly happy with the breakdown of my grocery spending with the exception of the Snacks category.   The percentage, and the raw dollar amount spent, surprised me.  We do not need to spend close to 20% of our budget on snacks, so I’ll be looking to reallocate some of that spending into the main Food category.  Ideally, I’d like to see Food at about 65%, and Snacks closer to 10% of our grocery spending breakdown.  The other categories are right where I would expect, and want them to be.

Action Plan

In preparation to go grocery shopping, my wife and I make a meal plan for the week, then I write a list of the items we need to execute that meal plan.  I then add in any additional wants or needs from the family and estimate the price.  In the past, as long as the bottom line was within our $150 weekly grocery budget (give or take a few dollars) I was ready to roll.

However this week I’m going to break down the items on the list according to these 5 categories, and then ensure that each category adheres to the following target percentages:

• Food: 65%
• Drinks: 10%
• Pets: 5%
• Household: 10%
• Snacks: 10%

The hope is that by purchasing more of, and better quality food for meals that we will need less snacks, leaving myself (and the whole family) much more satisfied with the food we have in our home.

How about you all? Have you ever broken down your grocery shopping purchases to get a glimpse as to what you’re really getting for your money?  Give it a try, you may be surprised!

***Image courtesy of Vichaya Kiatying-Angsule at FreeDigitalPhotos.net

Your Retirement or Your Stuff?

The following is a post by MPFJ staff writer, Derek Sall. Derek is the owner of the blog, LifeAndMyFinances.com, where he teaches people how to get out of debt, save money, and become wealthy.

I think about retirement all the time. I ask myself questions such as:

• When will I be able to retire?
• How much money will I need to have stashed away before I quit my job?
• What if I work to develop a passive income to retire instead of a big nest egg?
• What about medical insurance? Will I have to keep working just to have insurance?

With all of these questions swirling around in my mind, I tend to talk about retirement a lot. But guess what happens when I publish these articles?

Crickets.

Nobody really cares about retirement, that is, unless they are 60 years old and are finally starting to think about it. When young adults see an article with the word, “retirement” in the title, they breeze over it and think, “I’ve got so many years before retirement. I don’t need to think about that now.” That might seem logical to many, but this way of thinking is dead wrong!

Two Decisions: Your Retirement or Your Stuff

Every single financial decision you make in life impacts your retirement years. Since we will all make a finite number of dollars in our lifetime, that dress purchase, surround sound buy, and that car loan will impact whether you live well in retirement or whether you live on TV dinners in a 600 square foot condo.

If you work with somebody that has a similar job as you and therefore earns $45,000 a year (or whatever it is that you make for a salary), but they somehow live in a house that is bigger than yours, drive cars that are newer, and go on more exotic vacations than you, then they will most likely be flat broke in retirement. Do not envy them.

When we all talk about how keeping up with the Jones’s can be detrimental to one’s retirement fund, it only makes sense, but yet people are still begging the bank for money and are spending well beyond their means. Somehow people are not understanding the translation that their constant purchases are impacting their future retirement. If you purchase more stuff in your lifetime, then your retirement is going to be worse. If, however, you live on less, then your retirement years might actually be golden as they should be.

So, What is the Happy Medium?

I tend to be a saver, so I am content with saving almost every single penny I earn. But, this also means that I typically don’t have any fun. I don’t dine out, I don’t go see live concerts, and I typically don’t go on vacation. By many people’s standards, my life is boring and would be a prison sentence for them.

Others tend to be spenders. They spend money everywhere they go. They go out to lunch every day, they buy things for their friends at the mall, and they always drive the newest model luxury car. They are living high on the horse today, but their debt will soon catch up to them. Not only this, but by contributing very little into their retirement fund, they will have to dramatically change their lifestyle when they are older.

I, as a saver, will have a ton of money when I retire, but I likely won’t spend it since I am prone to never spend money on anything. The spender will get rid of all their money early in life and will need to live on breadcrumbs when they are older. Neither situation is ideal, so it is best to find a balance between the two lifestyles. We must intentionally save, but must also allow ourselves to splurge once in a while (within reason that is).

If you want to retire well, but also want to have fun today, don’t focus on buying big houses and fancy cars. Instead, put a large amount of money away into your retirement fund each year, and at the same time put some money aside for some kick-butt trips as well. You will be happy because you are experiencing life today and will have the means to do so in the future as well. Just never forget that there is a trade-off with every decision you make. It’s either your retirement or your stuff.

How about you all? How is your retirement shaping up? Do you think you’ll have enough to live well in your retirement years?

Share your experiences by commenting below! 

***Photo courtesy of http://www.flickr.com/photos/120360673@N04/13856204644/in/