Organize Your Financial Life With This Money Road Map

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

Are your finances in the shape you’d like them to be?  Or, are they a disaster that you’d like to clean up as soon as possible?

If they’re a disaster, first know that you’re not alone.  Many, many people find themselves in a financial mess at some point in their lives.  There are a number of steps that you can take to strengthen your financial life and make yourself and your family more secure.  Here are the steps that I recommend you take in this order:

 

Put two to three months’ expenses in an emergency fund

If you’re a fan of Dave Ramsey, you know that he advocates a $1,000 emergency fund and then attacking debt.  My husband and I used to follow this approach, but then we ended up with emergencies bigger than $1,000, and we’d have to go back into debt to pay them.

I’d recommend instead that you first save two to three months’ of expenses, and then start paying down your debt.  That way, if you run into unexpected expenses, you can tackle them without going further into debt and erasing the progress you’ve made on paying down the debt.  (Seriously, nothing is more depressing than working hard for months to pay down your debt just to watch all of your progress disappear with one car repair or home repair.)

 

Pay down all of your debt except your mortgage

Once you have the two to three-month emergency fund, it’s time to pay down your debt.  I’d recommend paying off credit cards first, then car loans, then student loans.

While Dave Ramsey recommends using the debt snowball and paying off the lowest debt first, others have good luck paying down the highest interest debt first.  Which option is better depends on what motivates you.  Are you motivated by seeing the debts disappear one by one, or are you motivated by knowing that less money is being paid to interest each month?  Ultimately, your motivation will be what helps you through the sometimes long, painful process of paying down debt, so pick the method that works best for you.

 

If you use your credit card, pay it off each month

Credit cards can be a great tool if you use them responsibly.  If you have a cash back or airline points feature, you can even earn money for using your credit card.  The key is to pay it off each month.  If you can’t do so, it’s time to retrain yourself and start using cash or a debit card.  Once you get better control of your spending, you can start using the credit card again and reaping the rewards.

Credit cards can be a great tool if you use them responsibly.  If you have a cash back or airline points feature, you can even earn money for using your credit card.  The key is to pay it off each month.  If you can’t do so, it’s time to retrain yourself and start using cash or a debit card.  Once you get better control of your spending, you can start using the credit card again and reaping the rewards.

 

Contribute 10% of your income to your retirement fund

When you’re in the midst of financial difficulties, it’s hard to plan for the future, but if you want to be secure in the future, you must take steps now.  Ideally, you’ll want to save at least 10% of your income in a retirement fund with the eventual goal of getting that number up to 15%.  However, don’t feel intimidated by that amount.  Start slowly if you need to, and contribute just 1% of your income to your retirement fund for six months.  Then, slowly bump it up to 2 or 3% for six months.  Continue adding more every few months.  It takes

When you’re in the midst of financial difficulties, it’s hard to plan for the future, but if you want to be secure in the future, you must take steps now.  Ideally, you’ll want to save at least 10% of your income in a retirement fund with the eventual goal of getting that number up to 15%.  However, don’t feel intimidated by that amount.  Start slowly if you need to, and contribute just 1% of your income to your retirement fund for six months.  Then, slowly bump it up to 2 or 3% for six months.  Continue adding more every few months.  It takes time to get used to making retirement savings a priority.  As you develop the habit, you’ll be able to add more to your retirement savings until you get up to 10%.

 

Buy term life insurance

(Bump this step up if you have a family before you get to this point in your financial life.)  I was talking to a mom of four young kids recently.  She is a stay-at-home mom, and her husband is older than her; he’s in his fifties.  She was excitedly telling me about their new financial plan.  Each month, they set aside $100 in an emergency fund in case something happens to her husband.  That was their only plan if something happened to the sole breadwinner of the family.

I wanted to cry.  They have four young kids, she doesn’t work, and her husband is in his fifties, yet they have no life insurance!  While the money they’re setting aside is great, if her husband unexpectedly passed away, that money would quickly be consumed.

The family I’m referring to isn’t alone.  According to Fox Business, “Currently, 95 million Americans live without life insurance and only one-third of consumers are covered by individually-owned life policies.”

Term life insurance is relatively inexpensive, especially if you’re young and healthy.  While experts recommend you take out a policy for 10x your income, you can use an online calculator and talk to an expert to help you determine how much you actually need based on your life circumstances.

If you have dependents who rely on your income, you must make buying term life insurance a priority.  I would move this to the first step in this plan, even before creating a two to three-month emergency fund, if you have dependents.  Life insurance and the financial security it can bring your loved ones is that important.

 

Build an eight-month emergency fund

For ultimate security, you’ll want to bulk up your emergency fund once your debt is paid off, you’re adding to your retirement regularly, and you have term life insurance.   Some experts recommend an eight to twelve-month emergency fund, but start with an eight-month emergency fund first.  This money will be essential if you unexpectedly lose your job or suffer an injury.

Remember, when you’re measuring a month’s worth of expenses, you want to consider the essentials.  If you were suddenly laid off, you’d probably cut non-essentials like eating out and buying new clothes.  Base a month’s worth of savings on how much money you’d need to pay the essentials.  While your current monthly expenses may be $5,000 a month, you may find if you cut non-essential line items, your expenses drop down to $3,800 a month.  The latter amount should be the amount that you consider a month’s worth of expenses.

 

Pay off your house

When all the steps above have been achieved, it’s time for the biggie—pay off your house.  While some people prefer to pay off their house right on schedule thanks to low mortgage interest rates, why not pay it off if you’re otherwise financially secure?  Think what you could do with that extra money in your budget each month if you didn’t have to pay your mortgage payment?  You could invest it, give to charity, travel the world.  Once the house is paid off and you’ve completed all of the steps above, you’re truly financially free.

The best way to become financially secure is to create a map for yourself with financial goals that you want to achieve.  While the steps above may take as little as 10 years to complete (depending on your current financial situation), or as long as thirty years or more, the point is that you have a plan that you’re following.  It’s imperative that you’re continually making financial progress throughout the years rather than squandering money and going through life without a plan to guide you on your journey.

What do you think?  Do you agree with these financial steps, or would you rearrange them?  If so, what order would you put them in?

***Photo courtesy of http://www.idpinthat.com/edit/4335

Smart Ideas to Stretch Your Holiday Budget

The following is a guest post by Vera. Vera is a blogger trying to lead a frugal (but not frustrating) lifestyle. For her, frugal living does not mean living a life you dread waking up to, or thinking that money controls you, when in fact, it’s the other way, you control the money. You can find her at Frugal Frogs.

When it comes to the holidays, most people spend more money than they intended to. Of course, that cuts into other bills, savings or something else that you didn’t intend to be affected by your holiday shopping. But you can make your holiday budget work for you with these smart ideas to stretch your budget. You may even have some money left over after the holidays have passed.

 

Set a Realistic Budget

The first thing that you have to do to make sure that your money stretches far enough to cover your holiday shopping is to set a realistic budget. This is something that many people have trouble with, and it is a common cause of running out of money before the holiday shopping is done.

Make a list of everyone that you have to buy for, and then take a few days to ensure that you have remembered everyone. You will probably have to add a few more names to the list. Once you do that, set a limit on how much you are going to spend for each person.

Some people will have a higher limit than others, and that’s fine, but make sure that you don’t regard the limit as an “about” amount but as an actual limit. Then you’ll know that you won’t go over your budget. If you do find the perfect gift for someone and it is a little over the limit, then make sure that you reduce the limit on someone else on your list to keep your budget the same.

 

Shop Online More Often

You also want to shop online more often, particularly with the site-to-store feature that many department stores are now offering. You can often find a much lower price this way and always check Amazon before you buy anything because they will often have a lower price and if you are a Prime member ($10 a month), you won’t have to pay for your shipping ever.

 

Find and Clip Coupons

This doesn’t necessarily mean scouring the local paper and physically clipping coupons. These days, with Groupon and other money-saving websites, coupons are more likely to be found online. There are apps for your phone that give you coupons, even those that check which store you are in and offer you coupons for that store as you shop, as well as member websites that give discounts on most of the well-known chain stores.

 

Strategize Your Travel

Saving money on travel is just as important as saving money on gift purchases and other holiday expenses. First, if you are traveling somewhere by plane for the holidays, make sure that you get your ticket far, far in advance and at as much of a discount as you can.

Even if you are not traveling any farther than around town to buy gifts, you can still strategize your travel and save money. Figure out which stores you are going to hit and then put them in order by creating a route that will take you to all of them without wasting any gas – which also allows you to spend your time wisely and avoid wasting it running all over town.

 

Seasonal Jobs

If you want to make your holiday budget stretch a little further a great way to do that is by getting a seasonal job. There are some great part-time gigs out there that last just throughout the holiday season like playing a mall Santa or elf, working at a gift-wrapping counter or hiring on at a store that needs extra help during the holidays. Holiday jobs are easy to find, and the employer usually doesn’t care that you plan to quit after you have earned enough extra money to complete your Christmas shopping.

 

Use Pre-Owned Gift Cards

Believe it or not, you can get gift cards, with the full balance still on them, for pennies on the dollar. There are a few websites out there like Raise.com that allow users to buy and sell their gift cards for any price that they want, even some that hook up local buyers and sellers so that you can instantly get the gift card in your hands when you fork over the cash.

 

Look for Rewards When You Shop

You want to keep an eye out for rewards and always buy with earning some type of reward in mind. You don’t want to go out of your way or spend more money than you would somewhere else, but try to earn credit card rewards, rewards from websites that pay you to shop and rewards from apps that offer everything from prizes to actual cash.

 

Buy Expensive Gifts Inexpensively

You can visit any of the multitudes of discount websites that offer anywhere from 50% to 90% off the purchase price (and in some cases, have free items that you only have to pay to ship) like Wish.com. These websites sell new items, so you aren’t getting something that is used and the person that you are getting the gift for will never know that you got it at a discount.

***Photo courtesy of https://www.flickr.com/photos/gotcredit/33887741275/sizes/l

4 Questions to Ask Yourself Before Buying Your First Rental Property

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.

There’s a certain appeal about owning and managing rental properties as a source of semi-passive income. Brick and mortar book stores, online websites and late night infomercials boast a luxury life where rental property owners do very little work and spend all day cruising around in their yachts, heading off to exotic destinations while the money just magically appears in their bank accounts.

The truth about rental property ownership is that there’s a little more to it than just buying a house and collecting rent checks. Before you jump into purchasing a rental property, it might be a good idea to ask yourself some questions such as the ones listed below.

 

Do I Thoroughly Understand How the Rental Property Business Works?

Before purchasing a rental property, it’s smart to educate yourself on how the rental property business works. What are the laws regarding tenants and evictions? What responsibility does a rental property owner have in terms of keeping the property in good condition? How can a property owner proceed legally if rent isn’t paid?

There are many legal and financial obligations surrounding rental properties that you should know about before jumping head first into this popular business venture. Checking out books by experts on the subject and reading past the benefits and discovering the risks will help ensure you don’t go into rental property ownership with rose-colored glasses or without an understanding of what your legal rights are – and what the legal rights of tenants are.

 

Does the Property Make Financial Sense to Purchase?

In other words, does the property “cash flow”? Will the property net you an income each month after the mortgage and taxes are paid, and additional money is subtracted for potential repairs and to cover potential vacancies?

One mistake many first time rental property owners make is that they buy a property based on potential appreciation of that property and don’t consider the cash flow aspect. However, assessing the cash flow potential of the property will help you avoid getting into a situation where a rental property is costing you money instead of making you money.

As you assess the price and maintenance costs of a property, it’s a smart idea to balance that with average rental costs in the area the home is located in so you have a good idea of what a reasonable monthly rent expectation is. Knowing what rent you can expect for the location, size and condition of the property will help you better determine whether or not the property will cash flow. If it won’t, you might want to offer a lower bid or avoid the property altogether.

 

Do I Understand the Financial Responsibilities of Purchasing/Owning the Home?

Purchasing a rental property will cost money out of your pocket if you don’t have an investor waiting in the wings to cover the costs. Most mortgage lenders require 20% to 25% down on rental property purchases.

Also, many properties require upfront repairs and modifications to make the home ready for tenants. If the home has a homeowners association (such as a condominium or townhome) there will be monthly HOA costs and potential larger costs for replacement items such as roofs. And let’s not forget the aforementioned vacancy costs and home repair costs. If the home is vacant for any length of time, the monthly mortgage payment on the property comes out of your pocket.  If the water heater goes out, you as the property owner are responsible for paying for a replacement.

Knowing all of the financial responsibilities before you buy will help you be prepared to shell out the cash needed to buy and maintain the property.

 

What’s My Plan if I Discover Rental Property Ownership Isn’t for Me?

Many investors have bought into the real estate rental game only to discover they weren’t cut out for the business. If that happens to you, what is your plan? Will you have a rental management team take over? If so, how will that cost affect your bottom line? Will you sell to another investor? If so, how will realtor’s fees and closing costs affect you financially?

It’s good planning to have an exit strategy mapped out before you purchase your first rental property so that you can work to absolve yourself of the property with minimal financial and other ramifications.

Rental property investments can be a great way to grow your wealth, provided you know what you’re getting into before you buy that first property. Spend plenty of time educating yourself on the ins and outs of rental property ownership before you invest, so that your experience as a real estate investor will be a good one.

How about you all? Do you think owning a rental property would be right for you?

Share your experiences by commenting below! 

***Photo courtesy of https://www.flickr.com/photos/gold-beach-real-estate/4641338334/sizes/o/

7 Tips for Helping You Sell Your Home Quickly

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.

Real estate experts say spring is the busiest home buying season, with June being the peak month for home sales. However, simply listing your house for sale during the busy season won’t necessarily get it sold quickly. Appearance and marking still play a part.

Here are 7 things you can do to help your home sell fast no matter what the market.

  1. Use a Good Realtor

As with any other profession, not all realtors are good at what they do. Ask for referrals from friends and family, and interview at least three realtors before choosing the one who will help you sell your home. A good realtor can mean the difference between a pleasant home selling experience and a not-so-pleasant one.

  1. Stage Your Home Well

Staging your home means making it look as much as possible like a model home you would see in a new housing development. Staging well involves taking special care to make your home shine using the following techniques.

Do Some Serious Decluttering & Depersonalizing

The goal with staging is to enable those who view your home at showings to be able to see themselves living there. Put away all items that personalize your home, such as family photos, monogrammed items and stuffed animals.

Also, minimize the amount of stuff that is in your home, even in closets and storage areas. You want your home to appear as if there is plenty of room in it and as if it is well taken care of and kept super clean. This might mean needing to rent a storage garage or having to give away lots of “stuff” to local thrift stores. Your home should look its very best, being clean, shiny and uncluttered.

Remove Overly Worn and Tacky Furniture and Accessories

That singing fish you got from Uncle Joe last Christmas? Yeah, that needs to go while your house is on the market. So does any overly worn furniture or accessories. If you need to replace overly worn items, do so by buying stuff you were going to purchase anyway or by getting super good deals on replacement items at thrift stores or on Craigslist. Make sure any new items you bring into your home match the current décor and don’t carry with them any odd smells or stains.

Update the Interior

If you’re still boasting mint green and peach walls and bedding, now might be the time to change things up. Paint where necessary using modern and neutral colors that appeal to a large variety of tastes on your walls and for your bedding, etc.

Don’t Forget Curb Appeal

The last but possibly most important part of staging your home to sell is to make sure your lawn looks neat and attractive. Make sure that the lawn is mowed, weeds are eliminated and any flowers or bushes are well trimmed. Remove and clutter from the yard and be sure the entrance area appears welcoming by adding a small mat, sitting bench, flowers or other accessories. Your house should shine on the outside as well as on the inside.

  1. Price it Right

Your realtor should be able to show you comparable sales and listings that can give you an idea of what price you should list your house for. Use your own research too, checking online for similar sizes and conditions of homes in similar areas to help determine what you should price your house at. Pricing too high will result in a longer market time, and pricing too low will mean you lose out on thousands in cash.

  1. Make it Easy to View Your Home

Be accommodating to prospective buyers and be ready to leave your home for showings on short notice, keeping it clean and organized at all times. Prospective buyers who have to try two and three times to see your house may just give up and shop elsewhere.

  1. Remove Evidence of Pets

Where possible, remove all pet paraphernalia such as litter boxes, pet toys and feeding bowls. Also, make sure your house is thoroughly vacuumed and get the carpets cleaned if necessary, so that pet evidence is minimal to none.

  1. Ensure the Listing Has Good Photos

Photos on your listing should be of good quality, accenting the best features of your home. Have a large kitchen? Make sure your realtor takes the picture from the view that will best highlight that. Does your master bath have a Jacuzzi tub? If so, include that in the pictures. The photos on your listing should help your home put its best foot forward.

  1. Be Willing to Negotiate

When buyers make an offer on a home, they will often ask for perks such as seller paid closing costs or the inclusion of furniture or other items. Your home will sell faster if you are flexible on your price and/or other aspects that make potential buyers feel like they are getting a good deal.

By taking the steps above you are creating an environment that will help your home sell quickly and easily.

How about you all? What features attract you when you are home shopping?

Share your experiences by commenting below! 

***Photo courtesy of https://www.flickr.com/photos/cloneofsnake/727899051/sizes/l

Cost of Education

The following is a guest post. Enjoy!

In Bob Dylan’s memorable song Mr. Tambourine Man there are some interesting verses such as, ‘How many roads must a man walk down before you can call him a man…’. The path to growth and enlightenment, and certainly to financial independence is education. Wisdom is the sum total of our life experiences – both theoretical and practical, while success comes from a clearly formulated plan. Very little comes from haphazard behavior, unless of course it’s a windfall payday off a lucky lottery ticket.

For most of us, achievement is the result of working intelligently towards an objective. With this in mind, it’s important to formulate a blueprint for academic excellence. In the United States, tertiary education is a major expense item. By the time a young adult enters high school it is important to start planning for college. Unbeknownst to many students, the federal government offers many programs to assist students in paying for their schooling. These include grants, work-study initiatives, and loans. This federal aid is often what makes the difference between being able to pay for college education or not.

Understanding What Options Are Available for FAFSA

Depending on what type of education a student is looking for, costs can vary from a couple of thousand dollars a year to tens of thousands of dollars per year. Community colleges offer an alternative path to regular college, after completing 2 years before credits can be transferred over. This is an affordable option for many folks, and a workaround to the high costs associated with traditional colleges. There are several ways that students can enjoy federal aid, including the Free Application for Federal Student Aid. Otherwise known as FAFSA, this determines your personal eligibility for different types of student aid. The form can easily be completed online and can translate into free money for a college education. Students who apply for these forms of government aid may be enrolled in work/study programs or approved for different types of loans.

The bureaucratic red tape surrounding many federal aid programs is a disincentive to many folks. Fortunately, there are services out there that make it relatively easy to determine qualification for student aid, given specific criteria. The application process is 100% free, since there is an official federal government site available. Even universities and colleges across the United States use FAFSA applications to determine a student’s eligibility for non-federal student aid. Once the low-interest loans have been approved, students can use that as a tool to build their credit scores. The competition to enter US colleges is fierce. Students who show initiative by actively applying for student aid often fare better in admissions than others. Since the application process can typically be completed in under 30 minutes, it is an easy way to begin taking meaningful steps towards a college education.

Facts and figures:

  • Students can apply early for FAFSA loans – as early as 1 October
  • The deadline for students is 30 June
  • Corrections must be made by 15 September
  • Early applications do not guarantee early loans
  • Tax forms from the previous 2 years must be presented
  • Every year $150 billion is dispersed in federal student aid
  • You don’t need to apply to a college before you apply for Federal student aid loans

There are many benefits to receiving one of these loans, including no payment until graduation. It is also possible to temporarily postpone payments, or even lower payments accordingly. If a graduate works in public service, a significant chunk of the loan may be foregone. In an era of rising interest rates, such as the present, FAFSA loans are offered at a much lower rate than credit cards and personal loans.