Pay the right price for you home

This post is not about setting your budget for a mortgage, taxes, insurance, etc. That is a number you need to come up with before you start even looking for a home. You need to determine what you can afford then follow this golden rule, SPEND LESS then you can afford.

What this post will do is help you find the right home for the right price with in your means. So let’s begin.

First, write down what you want this includes,

• What area you want to live in
• Your price range
• Bedrooms, Bathrooms, Garage, etc

The typical things you are looking for in a home.

Second, start to form your own idea of what is available in your area. Cruise over to Realtor.com and search properties. Drive the neighborhoods you are interested in and get prices on the houses with signs in their yards. Do your home work before you speak to a realtor. Visit new model homes, get pricing on everything. Learn what homes are like just above and below your target budget. If you are going to spend about 150K, then look at homes in the 90-250K range. Learn your market before you even think about spending a penny. Take as long as you need to do this well. Write down homes you could see yourself buying and see how long they take to sell at their price point.

Third, call a few different real estate agents (get referrals if you can). Talk to at least three, tell them exactly what type of home you want to buy, the neighborhoods you want to look it and the schools you want, etc. Be very specific. Tell the agent that you know about the phrase, “buyers are liars” and find it offensive! (I will explain buyers are liars at the end of this article). Then ask the agent what price range you should expect to have to pay to get that type of home.

In other words DO NOT let your agent start the whole interview by asking you what you can afford, you tell an agent you have a 125-150K budget and odds are you will find yourself in a 160K home! Remember you now know your market and you should get a number back from your agent that matches what you already know. Many times the number is much higher and this tells you that your agent is NOT LISTENING TO YOU, they are not understanding you. In many instances they are therefore not right for you.

Never let your agent call the shots control the relationship from the get go. They are experts, they are supposed to know more then you your preshopping will tell you if that is the case. Just because they know more then you does not mean they know what you want. Never let an agent say crap to you like, “you don’t what this” or “you really need to consider paying a bit more”. My accountant knows more then me, my financial advisors do to. Yet they work for me and are employed at my pleasure, I do not let them forget it.

Your agent may want you to sign a buyers agent contract. Never sign one that forces you to buy a home via them, one that protects you from going direct to the seller is fine. So is one that requires that if you buy a house they show you that your work with them on it but stay away from those that want a 180 day exclusive agreements. Explain you will be fair, that you want the right place for the right place and will give them the time they need to get the job done. Yet be clear they work for you and reserve the right to fire them at any time.

Fourth, choose the agent you get along with best that was at least close to the price range you expected to hear when you answered the question. Now take your maximum budget (lets call it 150K but it could be anything based on where you live and your income level, etc) and cut it by 10%! So that would in our example mean down to 135K and now your mission is to find a home that compares well with others selling at 150K. You can ALMOST always do this. Not in every market and not all the time but in most instances you can always find a deal like this.

Fifth, when you find the home you want to buy make your offer at least 10% below the asking price. So on this 135K home you now offer about 123K! All the seller can do is say no, you can always offer more, what do you think is going to happen? Do you think they might be so offended as to raise the price to 180? The only risk is someone else will buy the home. So what you must be willing to walk away from any deal. Most times when you low ball at precisely 10% the agent on the other end “gets it”, they generaly counter offer in the middle some where, you just might get that home worth 150 that is listed at 135 for 130.

There are always deals

Such deals are possible and in fact anyone can get one! I have done it on the last three homes I purchased. I bought one for just 84K and sold it for 109K just two years later with no improvements other then a deck. I bought another for 135 that was appraised at 159 and sold in three years later for a few pennies under 200K.

My latest find was a house easily worth 170 that was listed for 139 and I paid get this 120! How come, the listing agent was an idiot! The home had a second living area, a huge yard (1/3rd of an acre average lots are 1/10th), and a home office. The listing agent listed the house as a 3 bedroom, 2 bath, 2 car garage home, brick and vinyl. Nothing more! The guy should have been shot but it was my gain, we offered 115 they countered at 120 and I jumped on it.

The owners were days from having to start paying a second mortgage and I got the place for a song. Honestly there wasn’t another house with all of this going for it under 200K with in 10 miles of it but the buyer had to sell. The house was on a culdesac so it got no drive by traffic and the agent clearly blew the marketing.

So there you go a blueprint for finding the best deal on a home. Will it work in those white hot markets where houses sell in 24 hours? Not usually but generally just outside of those areas there are deals just waiting to be had. Be flexible, consider your options and spend LESS then you can afford. With a little work you can really get a great deal and build a solid investment from day one. Just remember real estate is not a game, you are not in it to be nice or make friends or even help people. You have to be tough, stand your ground and walk away if you need to.

Filed under Personal & Home | Comment (0)

What I Blow Money On

Part of the benefit of having extra money is the ability to spend some of it. I believe in cutting costs, investing wisely and building wealth and security. Yet I also believe in enjoying life along the way, if not then what is the point? Any of us could die tomorrow so the key is to balance living for today with planning for tomorrow. So what are some of the things I spend more money on then I should or some of the stuff I just buy when I am bored? Here are a few,

• Starbucks Coffee - I will admit it, I am a caffeine fiend. When I made a lot less money Starbucks was a luxuary that I enjoyed once in a while, now I don’t go a day without a Vente Cappuccino or two. This is extravagance, a waste, a senseless spending that I end up with nothing to show for. Still it makes me happy and I have no real debt to worry about any more, I don’t stop investing to fund it and I only pay in cash so I have the money in my pocket each week to cover the expense.

• My Animals - I have dogs, cats and a lot of reptiles. As a child I wanted to be a herpetologist (a biologist who studies reptiles) but the lure of business was too powerful and I never went to college to pursue the biology degree. When I didn’t have much money and was in debt heavily I kept no pets, today I have an abundance of animals around me. I do breed the reptiles and one day they may pay for themselves but for now all the animals are an expense that never returns any money. Yet the dogs and cats bring joy to me and the family and the reptiles allow me to fufil my childhood dream of being a researcher working with snakes.

• Gadgets - I have all kinds of electronic do dads and I buy something new at least every month. Cameras, software, media players, etc. I just love technology, I like seeing what you can do with it, what you can create and what the latest craze is before it hits. Some of the stuff like my Blackberry has a real purpose for work and organization but most is just for fun. I didn’t need a Sony Alpha DSLR but I bought one because I wanted it. I always pay cash for these gadgets but I must admit I blow money on them. Most are never used to turn a profit I just enjoy having them.

Now let’s say I am bored and just want to go out bumping around with my wife to shops and what not. Doing so will almost always result in spending money! We are all human though and just sitting at home counting money can get old and you don’t always want to really plan an activity so “shopping” (our parents window shopped but we seem to have failed to inherit that ability) has become an American past time. Here are some things I have done to allow me the activity with out totally blowing it.

• Silver Coins - I am a huge fan of American Eagle Coins and often during a jaunt out I stop by one of several local coin shops and buy one or three of them. I keep them in plastic tubes and have been doing this past time for about 10 years now. I occasionally buy more numismaticly valuable coins, mostly older silver dollar and silver half dollar coins. The Eagles have a fixed value against the silver market price (at least newer ones do) so they are decent investments. The other coins have a bit of “subjective value” based on both the silver and collector markets combined. Still even they have a basis based on the price of silver. I will never make a mint on this but there is a value to these coins that will grow. So I get to browse, spend money and not just throw it away.

• Houses - I shop for houses all the time and the beauty of this is multiple. There are always countless new model homes to take a look at, walk around in etc. You never impulse buy a home so that is nice, I shop a lot and buy very seldom. The biggest value is I know my real estate market cold, I know exactly what different types of homes in different areas sell for. So I do know a deal when it pops up. This is the best rule I can give you if you want to invest in real estate some day, window shop houses for a year or so first. Record how long those “great deals” take to sell and keep your whits about you. In time you find gems and when you do you will know it.

• Books - I love knowledge and I love to shop for books, both audio and print. To help with my addiction I shop mostly at Half Price Books so I pay less per book then buying new. A used book is no big handicap to reading it so I just can’t see paying full price unless I want a new book. Then here is the best part, some of these go into my home library but others I read, am done with and sell them back to half price books. They generally pay about 20% or what I bought them for.

So there you go some ways I admit to just blowing money and other ways I stave off boredom with shopping that doesn’t just reduce my net worth dollar per dollar.

Filed under Personal & Home | Comment (1)

Your job is not secure

Let me be clear I don’t think you have a safe, secure job today if you work even say for the Post Office or even a State Government agency. I believe firmly with the toxicity of debt in both the consumer credit card market and the sub prime lending market a major recession is coming. We won’t die off, no one will jump from tall buildings on Wall Street and the dust bowel is not comming back but there also may no longer be “two chickens in ever pot”. Todays “chickens” are Plasma TVs and other do dads.

Right now there is over 1 Tillion Dollars in toxic debt in the consumer credit market, that is money that will NEVER get paid back. The American tax payer has had enough, we won’t bleed money any more. Social Security is getting to where you as a working member of society have you “own old person” to provide for, it will change and that will be good but short term it will hurt.

The dollar weakens almost daily now! Canada now has a stronger dollar then the US that has never happened. The weak dollar is supposed to help fix the multi trillion dollar trade deficit we have with the world, it does nothing of the sort. The biggest potential export markets for us are China and Japan and both artificially tie their currency to the dollar. When the dollar drops so does the Yen by an equal amount. All a weak dollar does is make your money worth less and less in the global market.

My point is this can’t all just stand as the house of cards it is today and there will come a time soon when some of the bills will have to be paid. When that happens there will not be enough money to pay it. At that point employers are going to feel it hard and tough decisions will have to be made. Your boss might love you but if it comes down to the company surviving and your employment he will have that hard talk with you about some measly severance package. Odds are in many instances he will then get to have the same talk with his boss and so on.

How bad will it be? I do not pretend to know but it will be worse then it is today, that I am sure of. My real point though is it doesn’t really matter does it how many people loose jobs? All that matters to you is if and when you loose yours! It can happen to the best of us, it happened to me and because I live by the things I teach and write about it just wasn’t that big of an issue.

My point is you need to live as though you are currently in the hight of summer. You must buget and make spending choices with the view that you are right now at the peak of your earnings, you must plan for a big decline that can come at any time. This does not mean that you live in fear only that you live free from illusions.

If right now this second you or your spouse lost a job and were unable to replace it quickly how long would your last before you started to go negative on paying your bills. How long till you lost your house or got evicted from your apartment? The average American could scarcely make it 30-60 days! Many are but one or two paychecks from bankruptcy!

How do people get in this position? The belief that a paycheck is an entitlement that’s how. It amazes me how entitled employees tend to be in relation to their employers. Just look at the auto and airline unions, they keep getting more and more from their employers but the problem is the airlines and the car makers no longer can pay the bills. They are putting their very security in jeopardy by always wanting more, more, more.

So what is the solution? - Here are ten things you should be doing starting yesterday.

First - Never see yourself as secure in your job, have a plan B. Always know which competitor or similar company would be best for you to go work for. Cultivate relationships within said company, don’t act like you are ready to switch if you are not but be on the radar.

Second - Build a big network of contacts in your line of work, I don’t care if it is packing boxes or running companies as a CEO. Build network of people around you that can help you if you ever need a new job.

Third - Live below your means! Nothing is more important, make sure you buy less house then you can afford. Buy a cheaper to own and maintain and fuel car that you really have to settle for. In short never buy what you can afford today, buy what you should still be able to afford with far less then you have.

Fourth - If you deep in debt get out now! If have home equity and large credit card debt refinance your house and pay off the cards, then cut them to pieces.

Five - Buy and own a home! Renting has a place but as soon as you can afford to own a home the right way do it. Buy smart, pay less then the house is worth, find a deal, there are always deals. Know this variable rate mortgages are the devil, if you can’t afford the home with a fixed loan, you can’t afford the home!

Six - Build a second income, in other words own your own small business. You know how to do, make or advise on something better then most people. Find a way, anyway to make money with it. Do private consulting, build online income (this is what I do) hell just by blogging you can make 500-1000 dollars a month, (I will show you how in the future). Someway, somehow develop a second and even a third stream of income.

Seven - Save money outside of just your 401K, IRA, etc. The golden rule is get to where you save 10% of your income in an IRA or other tax deffered acocunt. That money is locked away until you retire though. I am all for 10% going to retirement as long as you can save say 15%. If today all you can afford to save is 10% put 5 into a long term locked away account and 5% where you can get to it with out penalty if you need it. Build an emergency fund of at least 90 days of your current income before you lower your savings contributions to liquid accounts.

Eight - Plan on being fired, your company being bought, your job being downsized, etc. It may never happen but plan on it. The very act of viewing such things as a possibility will make you smarter in your decisions every day. It will also make you more level headed and able to stand the hardship if it comes. Again do not live in fear, just follow the boy scout wisdom of “be prepared”.

Nine - Educate yourself in and outside of your current employment niche. When I lost a job about 8 years ago it became an opportunity! I went from Sales Management into online marketing and became very successful. The reason was simple in my sales career I educated myself on how to sell all the time. At the same time I taught myself how to market on and off line. I took my sales knowledge and put it to use online with my new skills. This was my “secondary income” a tiny small business that was making me about 500 dollars a month. I turned it into a new career because I had become a learning sponge. Today I own companies because of this education I gave myself. Be it online, via books, classes, seminars, I don’t care what invest both time and money in educating yourself.

Ten - Be the supreme commander of your own life and destiny. Every day think about how you can do better for yourself, your family and your employer. Your job IS NOT a right, you salary IS NOT an entitlement. Get that into your head right now this second. Would you take a raise if it was enough to damage your companies future? If you can answer that with a yes you should be fired! See yourself as an independent contractor, self employed no matter what your job is about. You should get paid as much as you can with in reason, many are underpaid but many people are also over paid. Work hard enough to be able to demand and expect more.

The key here all goes back to one thing though, no job is secure today. That false belief has put many people into massive debt and financial ruin along with a retirement in poverty. Sure this post was an ass kicking but most of America needs one from time to time.

Filed under Personal & Home | Comment (0)

Write it down and cut the spending

Here is the most painless way I know to cut your spending effectively. For the next 30 days just write down every dime you spend, every bill, etc should be in your check book already but write those down anyway too. Get a simple note book and record every single dime, read it every night before bed and just keep going. Write your required spending (bills you have to pay, light, heat, mortgage/rent, cable, weekly groceries, etc.) in one section of the book and all other expenditures in another section.

Don’t judge yourself much just record every penny. I mean if you give the kid a quarter for a gum machine write it down. That coffee at Starbucks, that bag of candy, what ever just record it. Do this religiously for 30 days, don’t cheat trust me you will benefit from this simple action.

Now try something I think might shock you. Take just the expenditures on things other then required bills and total them for each week. Make a graph of your weekly spend over 4 weeks. Odds are you will spend a lot less in week 4 then you did in week one. Remember no one told you to spend less, told you what to cut your spending on etc.

The simple act of being aware of what you spend, where and how you spend it will connect with your inner common sense. We all waste money, hell I do it! The key is to waste it consciously not unconsciously. Choose your play don’t just spend until it is gone.

Those of you who make middle to upper incomes will benefit the most with this technique. In fact the more you make the more you need to do this. This was the technique I used to reel myself back in as I went up in income. The more you have the more you tend to blow as you get to a point where you can pay all your bills easily and have good investments going on you get very complacent with what is left.

No matter your income be it 20K a year or 200K a year I challenge you to give this record keeping a try, most will be very shocked and pleased with the results over 30, 60 and 90 days. If you don’t do this all the time whenever you start to blow to much money, use it as a tune up. Remember you are your own boss and you need to be kicking your own ass once in a while.

Filed under Personal & Home | Comment (0)

Pay yourself first and last

We have all heard the saying, “pay yourself first” if you haven’t you really need a financial tune up.  Pay yourself first simply means just that, set up your savings, retirement, etc., allocate a certain amount from each check then pay into your accounts just like they are a bill.  This is the way all wise investors manage their investments that are funded by their direct incomes.

The other side of the coin though is paying yourself last.  Please note this does not mean you stop paying yourself first!  Here is how it works, this month let’s say you pay into your investments, you pay all your bills and now at the end of the monthly cycle you have a surplus of funds.  Say you generally carry 200 dollars extra between the last pay check of the month and the first check of the new month.   This month ends and you have 425 dollars in your account.

How did it get there?  Who cares!  It is there, perhaps your expenses went down, you made more money, you got a win fall, I don’t care how it showed up there is one and only one things you should do with it.  GET IT OUT OF YOUR CHECKING ACCOUNT NOW!  Move it to savings, dumb it into your IRA, move it to another account, do anything (other then spending it) to get it our of your check book.

Checkbooks are meant to manage money that you intend to spend, you will never save efficiently because your psyche says that this money is spendable.  Move the money to “savings” and even though you can move it back with a mouse click via your online bank account you mind set about this money changes.  You will ask yourself, “do I really need to move this money out of savings?”, “why am I doing this?”, “do I really need to do this now?”, etc.  In the end you will save more and spend less, you will make better decisions.

You don’t need to lock away this money until you are 59 and 1/2 years old in your IRA for this to be effective.  Just the simple act of putting it into a bank savings account will change the way you see this money and that will change how you manage, allocate and spend it.  Do it every single time you end with a surplus, be it a dollar, a dime or a thousand dollars, move it to savings and in a little as a years time you may shock yourself.

Filed under Personal & Home | Comment (0)

Spend Cash

Now this may sound a bit odd for a blog that is about saving money and building wealth but I mean what I say, spend cash. The key is spend cash rather then spending your money by writing checks or using debit/check cards.Each week plan your spending on everything, meals, groceries, etc. Then with draw the cash you need for the week and pay in cash at all times. Now this does not mean you can’t use your debit card if you need to or write a check when it is called for. It simply means to do the bulk of your spending with cold hard cash.

Why?

Simple you will spend less money!

How?

Easy you will do it yourself. It gets so easy to spend money with checks and cards. The money just doesn’t “feel” real to you. Due to this you spend more and I mean everyone (including me) does it. When you put cash in your pocket it becomes material to you and hence each expenditure becomes more personal, more real and you judge it a bit harder. You start to realize there is an “end” in a very real sense to your spending power.

Long term you will benefit as well, it will be much harder for that sales guy to sell you on how easy financing the car, vacation, etc is going to be. You mind will tune in on “real money” and such antics will cease to be effective. You will insist on control simply because money will always be a real and finite thing in your mind.

Always remember how you view, understand and think about money is more important then any other aspect of your financial success.

Filed under Personal & Home | Comment (1)

Why you should never buy whole life insurance

This is going to be a brief and short post, I am going to put this simply DO NOT EVER purchase whole life, universal life or any other name they ever come up with to try to sell it to you. This has been written on a lot so if you want to know more then I give you here, do a bit of research online and you will find a lot more information to back my suggestion.

Let me be blunt, Life Insurance is for when you die, nothing more and combining it with anything is a mistake. Your life insurance should be about 10 times your annual income if you are supporting a family. The reason for that is simple, 10% returns are quite doable with solid investments so your survivors can invest the proceeds, draw 10% a year and not deplete the money for a very long time. This effectively replaces your income for longer then your working life.

Now to carry that much whole life insurance would be extremely expensive, beyond the budget of most working Americans. An insurance agent will try to show you how whole life builds “cash value” but this is nothing but an illusion.

Remember life insurance pays out when you die! When you live a long time (most of us do) it is good for the Insurance company, you pay and they do not. So when you buy term insurance you pay the amount that very smart economists and math PhD’s have determined will be profitable for the insurance company based on average life expectancy. In other words a fair market price that covers you if you die during the term.

Now look at whole life, you pay a LOT MORE for the same amount of insurance (the risk incurred by the insurer) but the insurance company has the same level of risk. Now if you are a good stooge and pay way to much for way to long, they will then give you some of your money back some day. In the interim they invest your money at market rates of 10-15% returns. So they make that interest, they hold your money and they tell you how great it is that they will give some back.

If you like that how about this. Go get 100,000 dollars, send it to me and I will hold it for you, I will even pay out 2% interest on it. Twenty years from now you can have your 100K back, plus 2% interest per year or you can just let me keep holding it until you die. When you die, I will give the money to who ever you tell me do. Sound like a good deal to you? Of course not! Oh and yea if you ever need the money I will loan your own money to you and you can just pay it back with a bit of interest. Sound like a scam? It’s not you just pay in your 100K in installments and they call it whole life!

So here is what you do, buy the insurance you need on 20 year level term and invest the rest of the money in good solid investments. You make the 7, 10, 12 or 15% depending on your risk tolerance and ability, you retain the ownership and control of your money. If you die in the interim your loved ones are covered, if you live till the end of the term and have invested well then you should not need as much insurance. Perhaps you might buy a bit less for say 10 years and by then if you still need insurance you have done something very wrong.

Don’t let the insurance guy tell you how hard it is for a 70 year old to get insurance! At 70 you don’t need life insurance if you have done a good job of saving and investing. You are not leaving behind a young wife and 3 kids, you just need to be buried. If you can’t save enough money to get yourself put in an box and under six feet of dirt in 70 odd years something is drastically wrong.

I won’t be writing on this subject very often as it is pretty well known and accepted by most good financial professionals today. I just wanted to get it out right away because it is a huge mistake often made by young people who end up in front of a well trained but undereducated insurance agent.

Filed under Personal & Home | Comment (0)

Start with what you use every day

Cutting the monthly cost of your expenses does not have to be difficult and it often involves just doing a few simple things that we know we should do. Often it is simply that we don’t want to take the time to make a phone call, send a letter or deal with the hassle of making a change on an account or service.Yet this is a mistake, a place where apathy can cost you thousands of dollars or more over your life time. Consider a five dollar a month savings, not much right, sixty bucks a year. Well, 60 dollars a year, times 45 working years until you retire and that five bucks a month now equals 2700 dollars you could have invested. The big things is there are lots of five bucks here, and ten bucks there you can harvest right from your own home with out any sacrifice.

Consider home phone service for instance. Do you even care who’s name is on your bill? If you get your internet access from the cable company you might do what millions already have, use your cell phone as your only phone and throw out the home phone all together. Or Consider Broadband Phone options that you can run on your Cable Internet connection, they often cost well under twenty five dollars a month or less including any taxes or fees.

If you want to keep your conventional phone service one provider I really recommend is Cleartel. They are not available everywhere but if you are lucky enough to be able to get them you can get great service at a real savings.

I bring up phone service because it is easy to cut costs on but it is only one example. Look at every recurring monthly bill and consider your options. Mortgage refinance is not a fun process but with rates where they are it might put a hundred dollars or more a month into your pocket. What is 100 times the number of months you have left to work in your career? Electric service has been deregulated in many states so see if you have options there. A simple call to a credit card company and the phrase, “can I talk to a supervisor” or “then can you put me in touch with someone that can make a decision” can shave points off a credit card rate.

You get the idea, start at home and examine every expense. Start treating your household like a business, expenses are to be examined, cut and justified. Just because our government hasn’t learned that lesson does not mean you have to live that way.

Filed under Personal & Home | Comment (0)