Category Archives for Invest & Retire
Millennial Money Problem: Saving Up 20% For a Down Payment on a Home
The following post is by MPFJ staff writer, Chonce. You can read more articles by Chonce over at her personal blog, My Debt Epiphany. Enjoy!
Purchasing your first home is a huge milestone and the ultimate sign of adulthood. Many people like homeownership over renting because it allows them to have more freedom over what they can do with their home.
With that being said, home ownership is quite expensive, and according to Apartmentlist.com, of the millennials who want to be homeowners, a whopping 79% can’t afford it.
This is due to a variety of factors including the cost of living around the U.S. If you live in a busy metropolitan area, houses may be expensive near you.
Not to mention, you may need a sizable down payment to purchase your home. It’s best to put at least 20% down if you want to avoid paying private mortgage insurance.
But if homes are priced around $250,000 in your area for example, that can mean you’ll need a down payment of around $50,000 which is a huge amount to someone who has student loans and an annual salary around $50,000.
Needless to say, purchasing a home is hard for millennials from a financial standpoint which causes them to rent longer than they wish. If you’re trying to come up with a way to afford your first home, here are some options to help you come up with a down payment.
Get an FHA Loan
I wanted to mention FHA loans early on because you don’t absolutely need to put 20% down on your new home even though it’s highly recommended. The Federal Housing Administration is a government agency that helps homebuyers (especially first time home buyers) get approved for a mortgage.
With an FHA loan, you are only required to put down at least 3.5% as long as you are a first-time homebuyer or military service member. While this type of loan helps make owning a home much more affordable for millennials, they’ll need to find a property that accepts an FHA lender first.
Also, putting less than 10% down on your home can be risky because you won’t start out with much equity. If the value of your home started to plummet and you barely put 4% down, you may be underwater for a while.
Also, when you put less than 20% down on your home, you’ll need to pay private mortgage insurance (PMI) which can add to the cost of your mortgage even though you can probably get rid of it later.
Given all the downsides of using an FHA loan, it’s still a solid option for millennials who don’t think they’ll be able to afford a home anytime soon. Plus, if you are planning on getting a starter home to occupy only for a few years, you might want to use the FHA loan since it won’t be available to you if you purchase a second home later down the road.
If you are not sold on the FHA loan yet or would prefer to consider other options to help you come up with a 20% down payment, here are some alternatives.
Extend Your Timeline
If you can’t afford a home right now but really want to be a homeowner, it can be hard to extend your timeline but it can allow you to save up enough money and make a wiser purchase. If you have kids, debt, or other expenses like planning a wedding, for example, it’s best to tackle one major goal at a time so you can dedicate all your attention to it.
It’s important to determine what your budget is for a home and how much you’ll need to put down. Then, set a timeline based on how much you can afford to save each month and not your emotional connection with a pretty home across town.
For example, if your budget for a home is $200,000 and you’d like to purchase a house in the next 5 years, that means you’ll need to save $40,000 for your down payment or $8,000 per year which adds up to $666.66 per month.
Let’s say you don’t want to wait 5 years and think you can do it in 4 years instead. That’s $10,000 that you need to save every year or $833.33 per month. It can be doable if you split that monthly amount with your partner and your income and living expenses can support that goal.
Cut Down on Living Expenses
Cutting down on living expenses is one of the best things you can do to boost your savings so you can reach that 20% down payment. You may want to cut or reduce smaller expenses like cable and other subscriptions, your shopping budget and other impulse purchases, and your daily coffee habit.
You can even cut larger expenses like your current living expenses. Living in a basic apartment that falls way below 30% of your income can help you save a ton or you can even become a one car family or see if you can move in with your parents or other relatives in order to save more.
Live on One Income
If you want to purchase a home with your significant other or spouse, you can leverage both of your incomes to help you reach that goal quicker.
Living on one income and using the other income to save is a strategic way to round up enough money for a 20% down payment.
My husband and I started living on one income when we got married and as a result, we paid down $4,000 in debt within our first 3 months of marriage.
You may need to cut some of your expenses and make some sacrifices to make it work, but you can start out by saving the lower income and living off the higher income.
Start Side Hustling
If you’ve cut expenses all you could and still need money to live off, you can always try to earn extra money through a side hustle. If the income from your full time job isn’t getting you to your goal quick enough, look into freelancing your skills whether it’s freelance writing, graphic design, photography, dog walking, or babysitting.
There are tons of things you can do in your spare time to earn extra money and you can throw all your earnings toward your down payment fund.
Again if you are planning to purchase a house with a spouse, both of you can establish a side hustle so you can earn twice the amount of extra money and avoid burnout.
When my husband and I were planning our wedding, I did freelance writing and blogging as a side hustle and he tested websites online and took surveys. Now, he is looking into becoming an Uber driver to earn extra money so we can pay off our debt quicker.
Use Extra Lump Sum Payments
If you receive any extra lump sum payments like a tax refund, bonus at work, or commission, you can put it directly in your house down payment fund.
If you have a birthday or special event coming up like a college graduation, you can request that family and friends make a contribution to your house down payment fund instead of buying you a gift.
The money can really add up.
How about you all? Can you think of any other great ways to save up for a down payment on a home? What has worked for you in the past?
Share your experiences by commenting below!
***Photo courtesy https://www.flickr.com/photos/76657755@N04/6881505052/
The Worst Financial Advice I’ve Ever Received
The following post is by MPFJ staff writer, Chonce. You can read more articles by Chonce over at her personal blog, My Debt Epiphany. Enjoy!
People love to give advice. It’s natural. On the other hand, not everyone should offer up advice about every subject, especially if they aren’t confident their advice is completely sound.
Before I started educating myself about personal finance in order to improve how I manage my money, I received some pretty crappy advice from other people who seemed pretty misinformed about personal finance.
There are several myths out there about personal finance that need to be debunked so I’ll start by sharing some of the worst financial advice I’ve ever received and what
Don’t Worry About Taking Out Student Loans Because They Will All Be Forgiven in 10 Years
One day one of my coworkers who is really into education told me this. She had just received her MBA and was a huge role model and inspiration to me. Luckily, I didn’t listen to her advice though. I took out some student loans to help me get through college and I didn’t really think about the debt until it was time to pay it back.
However, I refrained from taking out more student loans just for the sake of having more money and I attended community college for two years and applied for scholarships and financial aid to keep the cost of college low so I didn’t have to take out tons of loans. I attended a state school and avoided expensive degree programs but still graduated with just under $21,000 in student loans which is a fraction of what some of my peers graduated with.
Once I started learning more about student loan debt and took on some more personal finance writing gigs, my research led me to find out that not everyone qualifies for student loan forgiveness. Actually, only a select few do and they must meet strict standards like working a government-funded job for 10 years.
There are quite a few federal student loan forgiveness programs available for government workers, teachers, and doctors but since I don’t work in those fields and don’t plan on having student loans for 10 more years, I don’t really qualify for forgiveness.
Keep Your Car for Two Years, Then Trade It In For Another One
This unhelpful piece of financial advice came from another coworker and my own mother shockingly enough. When I graduated college, I couldn’t afford to pay for a new car in cash but I desperately needed one since my current car had broken down for good.
I remember asking around and researching car loans as often as I could to learn more about what I could potentially be getting myself into. I remember asking one of my coworkers how someone is supposed to pay their car loan off before the car breaks down for good and she smiled and me and said ‘never’. Her advice was to do what she had been doing for the past 10+ years and finance a fairly new car, then wait a year or two and trade it in to get an even newer car.
Her car had all the bells and whistles like heated seats and windows, built-in navigation and so on. The idea of having a car note for the rest of my life didn’t appeal to me so I chose to finance a cheaper car with the hopes of paying off the loan quickly.
When I went into the dealership with the intention to refinance my car loan for a cheaper rate, the sales reps suckered me into considering the idea of trading in my car for a newer car with a higher loan. Their argument was that my car’s value was depreciating every day and the newer car they proposed would last longer.
The huge problem was that trading in my car for a newer one would have added around $4,000 to my loan at the time. While at the dealership, I called my mom for advice and she actually seemed like she was on the car salesman’s side and wasn’t opposed to me financing a newer car that would potentially last longer.
Again, thankfully, I chose against this, ignored the sales pressure and just kept paying off the current car loan I had. My car is a 2010 so it’s not super old. I really didn’t see any value in buying a newer car when I was already in enough debt as it is. The truth is, all cars depreciate in value over time and there’s no way around that fact. You can’t beat the system by leasing cars and trading in your current vehicle. You will end up spending a boat load of money in interest. If you always have a car loan, you’ll never be able to truly enjoy the perks of outright owning your own car and getting to ride the wheels off it.
I ended up making extra payments to pay off my car loan last year and I’ve never looked back since then. It was the best decision I could have ever made.
Wait Until You’re Old Enough to Save For Retirement
Retirement is probably my weak spot when it comes to financial literacy. I still have many working years left before I can consider retirement so I used to refrain from learning anything about retirement.
Whenever I was interested or mentioned investing money into a Roth IRA I had a certain friend who would make comments about me worrying too much about the future.
“Why are you worrying so much about retirement when you have so much time? You sound like an old lady,” she once told me.
Now, I resent the ‘old lady’ comparison, but one thing she said was right. I do have plenty of time…plenty of time to get started with investing early that is. With retirement, the earlier you start contributing to your 401(k), Roth IRA, or any other retirement account, the better because you give your money more time to compound and grow over the years.
Yes, the market fluctuates, but it always consistently improves year after year which almost guarantees if you invest a lump sum amount today, your contribution will grow significantly over the next 10-20+ years.
By investing in retirement early in my 20s, I’m practically ensuring my chances of becoming a millionaire by the time I reach traditional retirement age. If I invest aggressively, I may even be able to retire early.
Once people reach the ‘old lady’ stage and start thinking about retirement, it’s often too late to grow their wealth. This is why I look forward to investing as much as I can while in my 20s.
Be Careful Who You Receive Advice From
This is my big takeaway after receiving some pretty bad financial advice over the years. Most family members and friends mean well and want to help, but it’s important to educate yourself about personal finance by utilizing credible resources that are available on trusted websites, at institutions like your bank, and from financial experts with a proven track record.
Yet and still, you shouldn’t always believe everything you hear and take the financial advice you do receive with a grain of salt. Most financial topics and issues don’t have a one size fits all solution because everyone’s situation is different.
How about you all? What is the worst financial advice you’ve ever received?
Share your experiences by commenting below!
***Photo courtesy https://www.flickr.com/photos/87913776@N00/6928145100/
When is it Investing? When is it Gambling?
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.
With the stock market being at record highs, now is an outstanding time to pose this question. Market tops bring out excesses. This includes investors who are looking for easy money profits. But that’s not investing – it’s gambling.
In truth, your objectives and strategies will define whether or not you are an investor or a gambler. Let’s review some of the parameters that will help you to understand which.
When Is It Investing?
Investing places value on many of the following strategies:
Investing in fundamentals. You’re looking for companies with a strong track record of increasing earnings, strong brand loyalty, and solid financials. If the fundamentals are strong, the day-to-day price fluctuations are less important. The long-term deck is stacked in your favor.
Understanding that price does matter. You recognize that just because a stock is a good investment of $30 a share, doesn’t mean that the same will be true when the stock is trading at $60. Stock value must be considered relative to fundamental value.
Respecting risk. You have a keen understanding that stocks can fall in value as easily as they can rise. For this reason, you are highly selective as to what you invest your money in. You will always do your best to be invested in stocks that have minimum downside risk.
Building a balanced portfolio. This is really the process of investing around risk throughout your entire portfolio. You work to make sure that your portfolio is balanced between growth and income, as well as between various market sectors. While this may limit growth in bull markets, it also minimizes risks in bear markets. You’re willing to maintain that balance because you’re in for the long haul.
Having a long-term view. You understand that stocks fluctuate in value. For that reason, you absolutely favor investments that are likely to perform well over years, and not just the next quarter or two.
Understanding a sector, or the general market. You recognize the value of investing in different sectors, but you also know that sectors can fall out of favor. For example, you understand that just because energy is critical to the economy, doesn’t mean that it’s always a good investment. You also recognize that while you can’t time the market, there are better times to be buying than others.
Having well-defined investment goals. You’re not just investing to make money, but rather to reach specific goals. This can include investing to pay off your mortgage, pay for your children’s college education, start a business, or to retire. The existence of investment goals forces you to create specific strategies that enable you to reach those goals with the highest level of predictability.
Minimizing trading. True investors don’t trade. They invest in companies for the long-term. They recognize that trading is highly speculative, and subjects you to paying very high transaction costs, which lowers your overall investment return.
When Is It Gambling?
Gambling is more opportunistic in nature, and often includes the following practices:
Betting on trends. If a stock or a sector is doing well at the moment, you load up your money there. In fact, you’re on a constant lookout for trends that can be exploited for fast profits.
Following the herd. This can include jumping into popular stocks or sectors, but it can also involve investing primarily in rising markets. You wait for bull market trends to be firmly established before getting in, then often follow the herd by selling only after crushing losses. The emphasis on following the herd often sees you buying and selling at the worst possible times.
Ignoring yield. Not that growths stocks are bad investments, but you may ignore dividend yield in favor of the prospect of bigger returns from price gains. But though dividend paying stocks may grow more slowly, they’re often better long-term investments because they maintain the practice of returning some of the profits to shareholders.
Ignoring fundamentals. If you’re investing in trends or following the herd, the underlying strength of the companies may not be critically important. But while the trend may produce impressive short-term gains, it’s the fundamentals that make for the best long-term plays.
Timing the market. The problem with market timing is that it’s impossible to call with any real accuracy. And even if you get it right from time to time, it’s totally impossible to do with any consistency. Timing also ignores the underlying strength of individual investments, as it emphasizes price swings more than anything else.
Buying stocks on tips. Though you may not know much about a company, you’ll buy the stock if you hear about it from a source you consider to be credible. Or at least you buy and hope that the source turns out to be credible.
Looking for the quick hit. This is probably the most defining characteristic of a gambler. While an investor will develop a long-term strategy to earn steadily compounding returns over years or decades, a committed gambler is always on the prowl for a quick profit.
Investing in what you don’t understand. A gambler may not be terribly interested in specifically what it is he’s putting his money into – the main consideration is the potential of the stock to produce a positive return, and in the shortest possible time frame.
It may be that the main difference between investors and gamblers is emotion. While the gambler thrives on the prospect of a quick profit – even if it doesn’t happen often – the investor is mostly looking to remove emotion from the investment process. She’s more interested in steady, if unspectacular returns over the very long-term, to keep her portfolio moving steadily forward.
Both the gambler and the investor see themselves as investors, but guess which one does better over the long-run? That message may once again assert itself with the market flying so high as it is. Gamblers tend to be the biggest victims when record markets reverse.
How about you all? Have you ever seriously analyzed if you’re an investor or a gambler? What did you discover?
Share your experiences by commenting below!
****Photo courtesy https://www.flickr.com/photos/101332430@N03/9677861633/
How We’re Teaching Our Kids Good Money Management Skills
The following post is by MPFJ staff writer, Laurie Blank. Laurie is a wife, mother to 4 and homesteader who blogs about personal finance, self-sufficiency and life in general over at The Frugal Farmer. Part witty, part introspective and part silly, her goal in blogging is to help others find their way to financial freedom and to a simpler, more peaceful life.
As we work our way out of tens of thousands of dollars in consumer debt, we’re keeping our kids informed of nearly every step along the way. We’ve been open with them about our situation from the beginning of our debt payoff journey, from the starting debt numbers to the drop in debt, to some increases in debt due to family crises and the subsequent drop in debt again.
We’re keeping them involved in hopes that they choose to avoid debt and not make the same money mistakes that we’ve made over the course of our marriage. We’re using several different strategies in order to teach the kids good money management skills while they’re under our roof, hoping that they’ll bring those skills with them as they head out into the adult world. Here’s a list of some of the more important things we’re teaching our kids about good money management skills.
We Teach Them About Debt’s Consequences
When we first began our debt payoff journey, we sat down with the kids and explained the perils of our debt situation. We started with a sixty-five percent debt-to-income ratio and LOTS of consumer debt. We told the kids our debt numbers and how much in monthly payments we were paying each month. We also explained to them what interest was and how much of our monthly payments were going to the loan and credit card companies via interest each month.
When we first began our journey, our interest payments totaled nearly $1200 a month. The magnitude of that dollar amount and what other more fun things we could be doing with that money shocked them, just as it shocked us when we sat down and figured it out.
We want our kids to know how much an excessive amount of debt affects current and future wealth-building goals so that they work to avoid debt, especially “bad” debt.
We Don’t Let Them Borrow from Us – Usually
One of the house rules for our kids is that if they want something, they have to save for it. We want to teach them to get into the habit of saving for things instead of borrowing for things. Yet on occasion, if one seems set on borrowing money, we’ve let them borrow it.
This has only happened once, and with our oldest. She was taking an interest in archery and wanted a bow and arrow set of her own. The price? $257. This was not in our budget at the time, so after much pleading and negotiating we allowed her to use her birthday money ($100) to purchase the set and to borrow the rest of the money from us.
She was only twelve at the time so she didn’t have a job. The money she earned at the time came from her small allowance and other miscellaneous paid-for chores, as well as from Christmas money that year.
Madelyn hated every bit of the three months it took her to pay off her debt. We required fifty percent of her allowance each week, which meant her own spending cash was cut in half. We also required all of her Christmas money that she received that year to get the debt paid in full. It may sound harsh, but we wanted her to understand the feeling of bondage that debt can have, and at the end of the experience, she did. She said, “I’m never, ever borrowing money again.” We hope she sticks to that promise.
We Have Them Help us With the Monthly Budget
Each month we show the kids our monthly budget so that they understand where our money is going that month. We also ask for their input about changes we can make to the budget that can help improve our situation. Not only does this help them to understand the restraints that debt brings, it helps them to understand why we say “no” to certain extraneous purchases. When they see where the money goes each month, they don’t complain when we’re not going out to eat or shopping frivolously for clothes or toys.
We Teach Them the Importance of Saving and Investing
Using online savings calculators and our own savings and retirement accounts as examples, we show our kids the results of saving money and the ups and downs of investing. We explain the benefits of saving, such as having money available for car and home repairs and other bills. We also encourage them to put a portion of their own money into savings.
I’m sure that each of our four kids will manage money in a different way, but we take comfort in knowing that we’ve taught them responsible money management methods and that we’ve taught them of the dangers of debt and the importance of saving. I have a feeling they’ll do much better than we have with money.
How about you all? What money management skills do you feel are important to teach to children?
Share your experiences by commenting below!
***Photo courtesy https://www.flickr.com/photos/62030038@N02/8402437512/
How to Confront and Overcome Financial Failure
The following post is by MPFJ staff writer, Chonce. You can read more articles by Chonce over at her personal blog, My Debt Epiphany. Enjoy!
Financial failure is something we all experience from time to time. Whether you manage your finances well or not, it’s natural to experience a budget failure or fail to meet one of your goals every now and then.
Financial failure is important because it teaches us very important life lessons through experiences we’d rather not relive. They key to coming out on top, is confronting your financial failure early on and overcoming it so you can continue on the path toward financial success.
Start with Confrontation
First assess your situation and accept the fact that you messed up. This is a crucial first step because it’s so hard for people to do. If you don’t accept your failure however, you can’t move on.
If you’ve been living above you means, accept that. If you’ve gotten lazy with your goals over the past few months and lost motivation, accept that. Whether you feel guilt, shame, or frustration, it’s better to acknowledge it so you can move past it and forgive yourself.
Find Out Where You Went Wrong
Sometimes it’s hard to tell when you’ve failed financially and what led to the downfall. If you set annual goals like I do, you may not see the results you’re looking for until later in the year.
However, if you realize your situation has changed and your goals now seem unachievable, you’ll have to realize that and make some changes.
For example, I originally planned to have all my student loan debt paid off by the end of the year. Once I realized that would not be possible since I wanted to pay for my wedding in cash, I realized I needed to make some changes to my goal. That’s not necessarily a financial failure as it’s more of a shift in priorities.
On the other hand, if you set out to save 30% of your income this year and that involved cutting back on expenses like dining out and you failed to do so, you need to identify what caused you not to meet that goal.
Maybe it was the fact that you got tired of budgeting some months or failed to meal plan and got tired of cooking. The convenience of restaurant food is very tempting and odds are there are some factors that led you to give in to that temptation and dismiss the other intentions you had for your finances.
Scratch Everything and Come Up With a New Strategy
Once you’ve confronted the issue and determined what led you to fall short, you’ll be ready to scratch everything and start over. This involves finding better ways to maintain your motivation and developing more realistic goals.
For example, a solution to your excessive dining out issue may be limit dining out instead of trying to cut it out completely. Track how much you spend on restaurant food each month and try to cut that number in half and assign that expense a budget category that way you don’t feel deprived but you’re still saving money.
Other financial failures may be more serious like messing up your taxes or having to pay more interest on your debt since you didn’t prioritize it and pay it off the previous year. It’s crucial that you come up with an effective and realistic game plan to bounce back from your financial mishaps.
Also, start tracking everything more closely and paying yourself first. Have weekly budget meeting either on your own or with your partner to make sure you’re staying on track. You can also team up with an accountability partner so you can motivate each other and track your progress.
I also take care of my financial priorities before anything else when new income hits my bank account. It’s not only fun but it also ensures that I’m staying on track with the goals I set for myself and I can avoid financial failure.
Continue to Educate Yourself
Financial education is the key defense mechanism to financial failure. I’ve made quite a few financial mistakes in the past and most of them were due to the fact that I wasn’t financially literate.
Yes motivation and realistic goal setting could have very well helped me succeed, but it’s hard to be motivated when you don’t understand what you are actually working toward. When it comes to my debt, I’m motivated to pay it off not just so I can say I’m debt free and be able to go on shopping sprees whenever I want.
I want to pay off my debt because I understand interest is eating up my hard earned money and debt is holding me back from other things I want to do with my money like save up for a home and invest. I understand that if I apply for a mortgage, lenders will look at my debt to income ratio and it will factor in what type of loan I’ll be able to get.
I want to retire some day, and I can’t do that with debt. If I pay off my debt earlier, I might even have extra money to put toward retirement so I won’t have to wait until I’m 65 to stop working. These are the true driving reasons behind wanting to pay off my debt aside from wanting a better life overall for myself and my family. All of these reasons help motivate me, but I never would have understood their importance if I didn’t educate myself about personal finance and continue to seek out more knowledge and information.
Read books and blogs, listen to podcasts, talk to you bank, attend financial literacy events in your area, and do everything you can to learn more about how to manage you money so you can overcome financial failure and avoid it in the future.
Stay On Top of Everything
Your money issues could also be improved quicker once you become more alert and realize that you can make changes every single day as opposed to just once a year. If you want to refinance your debt, create a new budget, or ask your employer for a raise, you can do that at any time, not just in December or January when everyone is reflecting on their goals and plans for the year.
Try to view each month, week, and day as an opportunity for a fresh start, that way you have nothing holding you back from overcoming financial failure.
How about you all? Have you experienced financial failure before? How did you overcome it?
Share your experiences by commenting below!
***Photo courtesy https://www.flickr.com/photos/86530412@N02/8226451812/
Making Early Retirement Happen When You Have Kids
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.
Nearly everyone it seems is holding out for early retirement. But what happens when you have kids? It’s not impossible, but it is admittedly more difficult. You have to rearrange your finances and your timing to accommodate the raising of children. It can be done, but it requires more creativity.
Think of Your Kids (and Grandkids) as Motivation for Early Retirement
While most people focus on the financial costs of having children, the flipside is that you think of them as being one of your primary motivations for early retirement. If it will be possible for you to retire while your kids are still fairly young, that will give you more time to be with them, and to raise them the way you want.
It will also eliminate the career stress and the financial uncertainty that can go with the dual obligations of child rearing and having a career.
And even if you are unable to retire when your own children are young, your Plan B can be to retire early and spend more time with your grandchildren.
You May Have to Adjust Your Independence Date
It probably won’t be possible to early retire on your own specific timetable. You’ll have to work your independence date around your kids.
Much will depend upon how far along you are in the planning process, but you may have the need either to accelerate early retirement to be home with your children, or to delay it until they are emancipated.
Flexibility will be a critical part of your early retirement planning strategy when you have kids.
You Know Those Kids Who Seem to Have Everything? Yours Won’t
In every neighborhood (or classroom or extended family) there’s always that one kid, or family of kids, who seem to have everything. It might be the latest and the best bicycle, motorized Kiddy car, cell phone, laptop, sporting gear or clothing. Such a child or group of children have a way of “setting the standard” for just about every other kid in the group.
That’s a game that you will not be able to play with your own children. It’s an arms race for the best stuff, and it’s a very expensive lifestyle. If you plan to retire early, you’ll have to prepare your children to live more conservatively.
That’s not being selfish on your part either. A conservative outlook when it comes to finances is a life strategy that will benefit your kids throughout their own lives.
Preparing for College on the Cheap
It can cost well over $100,000 to send a child to a state college, and more than $200,000 for a private college. Those are options you may have to scale back on.
You might want to start your kids at a community college for the first two years. From there, you might encourage attendance at a state school to finish their undergraduate degree.
You should also encourage any efforts to get scholarships or grants. And even though it’s fairly unusual these days, there’s nothing wrong with having your kids participate in providing at least some of the cost for their own education.
Your Time WILL be More Limited
This is a limitation that there is no skirting around. While a childless person may be able work two or three jobs, 100 hours per week, your life will require more balance.
Though you may have to work more than the average person does, such as a full-time job plus a side business, you will have to allocate plenty of time for your kids.
No matter how important the goal of early retirement is, this is a challenge that you will have to meet successfully. The time that you don’t spend with your kids when they are young will be gone forever!
This will perhaps be the biggest challenge you will face as a parent preparing for early retirement. And there’s no sugarcoating the fact that you will have to make trade-offs. Only you can decide what the specific balance between work and child rearing will be.
Think carefully, because there’s no do-over when it comes to kids.
And So Will How Much Money You Have For Savings and Investing
There’s also no debating that children will leave less money available for savings and investment. Children mean higher medical costs, disposable diapers, a succession of clothing and toys, afterschool programs, tutoring, day care and higher-than-you-think costs for participating in high school sports.
All of that will be less money available for savings and investing. But you must view the money that you will spend on your kids as an investment in their future. That’s no less an investment than preparing for your own retirement.
Do As Much As You Can Before Becoming a Parent
If you don’t already have children, but you want to, you will help your own cause considerably if you can do as much retirement preparation in advance as possible.
This will actually have to advantages:
- The more that you can do before you have kids, the more likely it is that you will retire early in their lives and have more time with them, and
- The more that you can do in advance will mean less pressure later on, enabling you to spend more stress-free time with your kids, while still being on track for early retirement
Advance preparation will include minimizing debt, and frontloading as much retirement and investment savings as possible before your kids are born.
This will not only give you a head start, but it will also set you up in the right life patterns. This will be extremely important once your first child arrives. Having children very much puts you in a position where you are dealing with the unexpected. If you already have your early retirement plans in a row before they are born, you can continue to make progress even as you deal with the uncertainties that children bring.
A Scaled Back Version of Early Retirement is OK
If in spite of your best efforts, you are unable to reach your early retirement age goal as a result of having children, you can simply regroup.
No major financial milestones are ever achieved without building a healthy dose of flexibility into the plan. If you have to delay your early retirement by five years, that will be a small price for properly raising your children.
And even if you are forced to accept an early semi-retirement – in which you mostly scale-back on your career in favor of more time off – you’ll still be better off than you would have been if you never prepared for early retirement.
Early retirement is a worthwhile goal, but it should never be seen as more important than raising your children. It takes some real talent to balance the twin goals of child rearing and early retirement. But if you can, you’ll be well prepared for whatever life throws at you.
How about you all? Have you or anyone you know planned an early retirement successfully? What roadblocks have you encountered along the way? Do you have other strategies for planning for an early retirement not listed above?
Share your experiences by commenting below!
***Photo courtesy https://www.flickr.com/photos/8058853@N06/2289540488/
4 Ways to Save Money on Moving
The following post is by MPFJ staff writer, Laurie Blank. Laurie is a wife, mother to 4 and homesteader who blogs about personal finance, self-sufficiency and life in general over at The Frugal Farmer. Part witty, part introspective and part silly, her goal in blogging is to help others find their way to financial freedom and to a simpler, more peaceful life
Without proper planning – and even with proper planning – moving can cost a LOT of money. Between the prep work beforehand, real estate fees, moving expenses and getting adjusted in your new home, the costs can seem endless. Here are some ideas on how you can save money as you prepare to move from one home to another.
How to Save on Getting Your Current House Ready for the Market
A move to a new home often means you have to sell your current home. It’s important to maximize profits on the sale of your current home without spending a bunch of money you don’t need to spend. In order to make your house shine and save money in the process, try these tips.
- Stage your home yourself instead of hiring out. Most of home staging involves making the home look uncluttered and inviting. Check online sites such as Pinterest for home staging tips and do the work of staging yourself.
- Deep clean and organize your home. A clean, organized home where every corner has been decluttered will help the home sell for top dollar and will also cut down on moving expenses because there will be less stuff to move to your new home.
- Make inexpensive cosmetic repairs. This is another tip that will help you get top dollar for your current home. If you’ve got broken blinds, shabby curtains or ultra-worn furniture, seek out inexpensive resources for replacing or repairing them. A fresh coat of paint will do wonders. Freshly cleaned carpets (instead of replacing carpet) will make your home shine.
How to Save on Real Estate Transactions
Real estate transactions such as realtor fees and taxes can also add up when it is time to move. Try these tips for saving on selling your current home and buying your new home.
- Negotiate your realtor’s commission fee. While the regular fee for most realtors is seven percent, it’s not unrealistic to talk a realtor down to six percent or even lower if you have a good reason. What justifies a good reason for a realtor to lower his or her fee? A turnkey property, a higher end property or a home in a valuable neighborhood. The easier your home is to sell, the more likely a realtor will consider lowering their fees.
- Ask the seller of your home to pay some or all of your closing costs for your new home. By negotiating some seller paid closing costs, you can save several thousand dollars.
How to Save on the Actual Move
This is where things can get expensive. Moving companies often charge several thousand dollars to pack up and move a family from one place to the next. Here are some tips for saving.
- If you’re moving locally, consider doing the packing and moving yourself, either by asking for help from family and friends or by renting a large moving truck.
- Instead of paying for boxes, head to local grocery and department stores and ask if they have any boxes they’d like you to take off their hands. Many stores will gladly give you the boxes their inventory comes in for moving purposes.
- If you’re moving out of town, get estimates and references from at least three different moving companies, as prices and services can vary wildly.
- If you have to hire a moving company, ask if they’ll give a discount if you pack up your own belongings instead of having the moving company do it.
How to Save as You Get Settled in Your New Home
There are expenses to every part of moving, including when you’re settling into your new home. Here are some tips for saving money as you settle in.
- Get more than one estimate for local utility, cable, satellite and Internet provider companies before you choose your providers. Ask for new customer discounts such as the first three months free or a waived installation fee.
- Do any cleaning and painting yourself if possible, as opposed to hiring out.
- Know beforehand what other items you’ll need to settle into your new home, and work to buy them at reasonable prices. When we moved from the city to the country, we found out quickly that we’d need a chainsaw for tree limbs that fell during storms and a decent snow plow for our long driveway. Because we hadn’t foreseen those purchases beforehand and had to make them quickly, we spent more than we needed to.
Moving is listed as one of the top stressful times in a person’s life, but with some forethought and planning, you can help make your move less stressful and less expensive as well.
How about you all? What are your tips for saving money while moving? How do you keep moving less stressful?
Share your experiences by commenting below!
***Photo courtesy https://www.flickr.com/photos/113026679@N03/14453910557/
What Should You Expect In Retirement?
The following post is by MPFJ staff writer, Marie. You can read more of Marie’s articles over at her own blog, Family Money Values. Enjoy!
Although most of us are extremely busy leading our lives going about our daily routines, at some point, you might take a moment to wonder what to expect if and when you do ‘retire’.
Are there patterns that most people follow during their retirement years? Are there similarities in things such as what we spend money on, how much we travel, amount of time spent with family, part time jobs or volunteerism activities. Are there patterns that occur at different points in retirement – at different ages?
I’ve been retired now (or semi retired) since spring 2010. I’ve observed some changes in the way I deal with retirement and have noticed changes in other retired folks that I know as well.
The Planning Years
Before you actually retire, you are probably spending at least some time thinking about finances after you leave the workforce. How much do you need to save to quit work, how much can you spend after you retire, will your taxes be less (unlikely) or more when you do retire – all these can be ongoing concerns from the time you first start imagining a retirement.
Closer to the actual retirement date, you may spend time doing some analysis of current expenses to compare that to the income you anticipate drawing during retirement. Of course you also need to add on any additional expenses that you may anticipate during retirement – moving, travel, health spending, new hobbies, etc.
I spent quite a bit of time in 2009 pouring through checkbooks and building spreadsheets of all our expenses for the past few years – then classifying them as required vs discretionary – to see where we would stand.
The Early Years
The early years of your retirement may diverge wildly from what other retirees do.
If you are healthy, active and well funded, these years may include multiple vacations, and/or more spending on entertainment such as concerts, tours, theaters and restaurants. Some decide to pursue a dream – such as living in another part of the country or world, or selling the house and buying an RV, or pursuing more education or training.
You may decide to try to spend more time with family members, perhaps assisting with the care of your grandchildren or visiting out of town relatives or simply doing more with your spouse.
You probably are making adjustments to the absence of work related activities, associates and recognition. You may be making related adjustments to the constant presence of a spouse – finding balance between the need for your own time and the time you share.
Most start these years with eager anticipation and many change lifestyles. I dedicated time to learning how to build my website (FamilyMoneyValues.com) and finally achieving a life long desire to write and publish. My spouse, after spending 30 years encased in a cubicle, has spent his retirement so far joyously working outside on our 6 acres. A couple I know downsized from a luxury home to a luxury condo – not for the savings, but for the freedom from some of the homeowner chores. They became snowbirds – relocating from the Midwest to the Southwest during the winter. An aunt and uncle sold their subdivision home and went back to farm living – complete with vegetable gardens, fruit trees, cattle and cats.
Cautious retirees carefully track spending and income in their early years, until they are comfortable that their new levels of income will support their new lifestyles. It can be difficult to adjust to varying amounts of income as opposed to a regular paycheck. It is hard to anticipate what you can spend or what you will have to put aside for taxes when a good part of your income is paid out once a year at year end in the form of interest and dividends.
The Middle Years
After the initial thrill of not having to go to work every day wears off, retirees typically settle into a new pattern. Spouses generally will have worked out new routines of living together and may have had an opportunity to deepen their understanding of each other (or on the other end of the spectrum, discover they are really incompatible).
On the whole, more than half of surveyed retirees report being well satisfied with life.
However, questions of self-worth may start to arise during these years, perhaps causing an interest in finding and supporting a cause – leading to volunteerism. According to the National Institute of Aging’s Health and Retirement Study:
“People ages 60 to 69 at the time were most likely to have engaged in volunteer service, with one in three people in that age group having done so.”
To counteract feelings of worthlessness, some decide to take a more active role with grandchildren, or find a way to mentor others in an area of expertise.
Health issues may begin to plague us during our middle retirement years. At a minimum, incidents of arthritis, hypertension and suspicion of cognitive impairment (you know – those ‘senior moments’) increase.
Some may find themselves slowing down, becoming less physically active due to depression, flagging interest in formerly enjoyable endeavors or health issues.
Loss of physical and mental ability can be disconcerting to us as we move through retirement stages. Adjusting to fading eyesight and reduced hearing as well as increased difficulty in moving through the day can take awhile. These signs of our impending mortality can make a person seek answers to the age old question of what happens when I die, or what purpose do I have on Earth.
The Later Years
As we age through retirement, we encounter more limitations and health restrictions to our activities. However, in spite of that most of us continue to own our own homes. The Health and Retirement Survey is finding that even among those 85 and older, more than half of the study participants (which were selected to be a broad spectrum of the American population) live in their own home.
Spending on health care typically rises during these years – whether from increased out of pocket prescription and doctor costs; more frequent hospitalization; or from the need for increasing daily activity care.
That Aunt and Uncle I mentioned above that moved to back to the farm in their early retirement years later moved (in their 80’s) to a smaller home across the country to get closer to a daughter and now have settled into a graduated retirement living center. They are now in their 90’s and are in an independent living unit, but receive house cleaning, maintenance and cooking services. They are set to be able to receive more care from the facility if needed as their bodies continue to fail. For now, they still enjoy the center’s activities, their church and weekly visits to the daughter’s house – and both still drive.
A 93 year old mother-in-law, was moved to a senior living center closer to family. Although still mobile and alert, her failing eyes (macro degeneration) and unreliable knees cause multiple doctor visits a month. A decade ago, she gave up driving due to her eyes, so one of the kids escorts her around town. She has a one bedroom apartment in a multistory center and gets maid, laundry and meals and maintenance as part of her rent. She is active attending family events her many children, grandchildren and great-grandchildren generate, as well as participating in activities put on by the senior living center – such as morning exercise.
How about you all? What have you observed about the patterns of retiree’s?
Share your experiences by commenting below!
***Photo courtesy https://www.flickr.com/photos/120360673@N04/13856204644/
Buying a Rental Property for Cash Flow
The following post is by MPFJ staff writer, Jeff. Jeff has been writing online about finance related issues since 2009, and after a lot of soul searching in 2015 has crystallized his goal of financial independence and blogs about his journey to freedom at zerotofi.co
Recently after a few life changes, I started making changes to my investment strategy. I have gone head first into the rental property market, and have closed on my first 4 unit building. I was able to learn a ton during this process, and would like to show you how to properly analyze a rental property to make sure that you don’t end up losing your shirt. Some people think it’s just as easy as collecting rent and paying the mortgage (not likely) and some think its going to be awful with maintenance issues and other problems left, right and center and you’ll lose your shirt (also, possible, but not highly likely). When looking into a rental property, here are a few things you need to account for to determine cash flow.
Lets assume you have a rental property that is a single family house, renting for 1,500 per month. Here is how you should analyze to make sure you’re not going to get caught with your pants down.
Vacancy Reserves
The unit isn’t going to have people in it the day after the prior group moved out, is it? Most likely not. It may take a few weeks or a month or 2 to fill it. You’ll need to make sure you have reserves for this. Many investors use 7-10% of the rental price. Since I like easy math, we will use 10%, for a final number of 150/mo for vacancies.
Capital Expenses Reserves
Shortened to CapEx frequently, this is a reserve set aside for big ticket replacements. A new fence, a new roof, new furnace, new water heater, etc. 7-10% of the rental price is common here as well. Since we like our math easy, we will use 10%, for 150/mo.
Property Management
You may self manage because you live at the place early on, but will that always be the case? You’ll want to build in for property management as well, when your life changes. 10% (again) is common here, $150.
Since this is a single family home, the tenants will take care of the water, sewer, and electric and gas bills. Any other things (such as upkeep, snow shoveling, etc) can either be done by the tenants or the property manager.
If you’re just looking to get started with rental real estate, don’t just think that if you earn more in rent than the mortgage, taxes and interest (Sometimes abbreviated as PITI) that you’ve got a good investment. The first blown furnace you’ve got will cause you major problems and really hamper whatever cashflow you may have.
How about you all? Are you interested or are you currently investing in real estate?
Share your experiences by commenting below!
***Photo courtesy https://www.flickr.com/photos/blapp/5802137177/
Why Your 401(k) Shouldn’t Be Your Only Retirement Plan
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.
People sometimes believe that if they have a 401(k) plan that their retirement is covered. That’s sometimes true – if you can make the maximum contribution, and you have an excellent plan with a wide variety of low-cost investment options. But if you don’t, then your 401(k) shouldn’t be your only retirement plan.
Here are some major reasons why you should accumulate retirement savings outside of your 401(k).
Increasing Your Retirement Contributions
If your company caps your retirement contributions at a certain percentage of your income, you may not get the full benefit of the maximum contribution. For example, for 2016 the IRS allows a 401(k) contribution as high as $18,000 (or $24,000 if you are 50 or older). But if you earn $60,000, and your employer caps your contribution at 15%, you’ll only be able contribute $9,000.
At the opposite end of the pay scale, if you earn well over $100,000, the $18,000 maximum contribution may not be adequate for you to reach your retirement goals.
In each situation, you may need to add additional retirement plans in order to reach your retirement investment goals.
Increasing Your Investment Options
One of the common complaints about 401(k) plans is limited investment options. In many company plans, your investment choices are limited to a small number of mutual funds or exchange traded funds (ETFs). In some plans, you are limited to the funds from a single fund family.
This can limit your investment options. For example, if your plan does not offer sector funds, you won’t have the option to invest specifically in technology stocks, energy stocks, or resource related stocks. There may also be no option available for you to invest in real estate through real estate investment trusts (REITs).
Self-directed plans, such as IRAs, allowing you to hold your plan with any investment broker you choose. As such, you can choose a broker that offers the widest variety of investments in such a way that your investment options will be virtually unlimited.
This can also improve return on investment, which can make a huge difference in the size of your retirement portfolio by the time you retire.
Adding Income Tax Diversification to Your Retirement Plan
401(k) plans are great when it comes to income taxes while you are funding your plan. Your contributions to the plan are tax-deductible, and the investment income earned on your capital are tax-deferred. From a tax standpoint, contributing to a 401(k) plan is a double win.
But the dynamic shifts when you retire and begin taking withdrawals. After all, 401(k) plans are not tax-free, but tax-deferred. “Deferred” means that the taxes are simply due at a later date, and that date is when you retire and begin taking withdrawals.
You can get around this problem by simply not taking distributions from the plan – under the assumption that you won’t need the income. But even if you do this, eventually you will be required to take distributions. That requirement will apply once you turn 70 1/2. 401(k) plans are subject to required minimum distributions, or RMDs. That means that distributions from the plan become mandatory at that age.
For this reason, you may want to have certain retirement related investment accounts that will not be tax-deferred when you retire, but not subject to tax at all.
A Roth IRA is one such account. The contributions to this plan are not tax-deductible, but the investment income you earn is tax deferred. But both your contributions and the accumulated investment income can be withdrawn tax-free when you turn age 59 1/2 and have been in the plan for at least five years.
Another alternative here is to have money invested in regular taxable investment accounts. Since you pay tax on the investment earnings in such accounts on an annual basis, you can withdraw money from them that is not subject to income tax.
Either account could be an excellent counterbalance to a fully taxable 401(k) plan.
You Will Need Emergency Funds Outside Your 401(k)
Even if you have a very large 401(k) plan, you will want to have savings for retirement that are held outside of the plan. This is because the primary purpose of a 401(k) is to provide you with income. As such, you won’t want to be withdrawing large amounts of money to cover emergency expenses. That will be a strategy for draining your 401(k) plan prematurely.
For that reason, you should plan to accumulate a significant amount of money to have available to cover expenses that can’t be paid out of regular income. Examples include large uncovered medical expenses, major repairs to your house, the replacement of one or more vehicles, or even money to help your adult children.
Other Retirement Plans to Add to the Mix
There are plenty of choices even if you have a 401(k) plan.
Traditional IRA. You can save up to $5,500 per year ($6,500 if you’re 50 or older) and put the money into a self-directed investment account, maximizing your investment options. Your contributions to the plan will be tax-deductible, however there are income limits which if exceeded will limit or eliminate their tax-deductibility.
Roth IRA. These have the same contribution limits as traditional IRAs, and you can also invest money into a self-directed investment account. However your contributions are not tax-deductible, and there are income limits after which you will no longer be able to make a contribution. But up to that income level you can make contributions even if you are already covered by a 401(k) plan. And as already mentioned, the distributions you take from a Roth IRA are tax-free as long as you are at least 59 1/2 and have had the plan for at least five years.
Regular Taxable Investments. These can include any investments are held outside of a retirement plan. This includes an investment brokerage account with stocks and funds, money held in mutual funds or ETFs, certificates of deposit, or US Treasury securities. There is no tax benefit while you are accumulating this money, but for the same reason you can access it without tax consequences. This is an important part of retirement tax diversification.
Investment Real Estate. Investment real estate accumulates value in two ways – from property value appreciation and from amortization of any financing on the property. And if you can purchase an investment property now, and pay off the mortgage by the time you retire, you’ll have the benefit of either the cash flow from the property from rents, or the proceeds from selling it.
Each of these investments represents a retirement diversification, so that your 401(k) plan won’t be your only retirement plan.
How about you all? How else have you diversified your retirement portfolio?
Share your experiences by commenting below!
***Photo courtesy https://www.flickr.com/photos/45688285@N00/970158361/