Sunday, September 6, 2015

5 Habits to Financial Freedom

It was January 2014 and my doctor scolded me for high cholesterol (250), being 20 pounds overweight, and threatened to put me on cholesterol medicine.  I knew I needed to change my lifestyle habits.  I cut back on red meat and sweets, got a personal trainer, started taking omega-3 daily, and began working out 3-4 days per week.  The first 3-4 months I didn’t feel like I was making great gains, but slowly I was losing one pound at a time and changing my metabolism.  When I went back a year later for my annual check-up, my cholesterol was down 54 points, I lost 15 pounds, and my doctor was surprised she didn’t have to put me on cholesterol medicine.  If you’ve ever tried to start a workout routine, you’re familiar with the inner struggle that occurs when you’re looking back and forth between your tennis shoes and the couch. You start to wonder how much one little workout really matters in the long run.  It isn’t until exercising becomes a habit that you are able to silence the persistent voice that swears your time would be better spent zoned out in front of the TV or computer vs. the gym and salad bowl.  Today, I have it on my calendar to workout every Monday, Wednesday, Thursday, and Saturday.  It’s a habit now, but it wasn’t easy. Financial freedom is built from the same foundation: positive habits molded from persistence chipping away one day at a time.  Here are five habits to start implementing today.

Habit 1: Performing Routine Check-Ups
Monthly automatic investing is helpful, but you should never fully remove yourself from the money management process.  Spending habits change, income fluctuates and bills have the tendency to increase without notice, so it’s important to get in the routine of doing a monthly money check-up. Compare your actual spending to your budgeted spending, assess and pay in-coming bills, ensure that all accounts are in good standing and you aren’t being charged unnecessary fees. If you notice that something isn’t working with your overall plan, now is the time to make the necessary changes.  Without this money habit, you can’t truly be in the driver’s seat when it comes to your finances.  With today’s automatic payment/billing with service providers linked directly to your bank account, it’s easy to overlook.  Don’t get lazy on the couch, stay focused on your tennis shoes to ensure you’re not overpaying, and your monthly expenses are not increasing per your budget.

Habit 2: Spending Less Than You Earn

It’s a simple equation: if you have more money going out each month than coming in, you will end up in the red. Ending up in the red for one month can quickly turn into a seemingly insurmountable pile of debt and no designated savings for the future.  If you’re already in this boat, there are two solutions: spend less or make more.  Getting into the habit of spending less than you earn, banking influxes of cash from things like bonuses and pay increases, and avoiding the ever-present temptation of lifestyle inflation is the cornerstone of creating a financial cushion you can count on now and into the future.  One service that I use to keep track of my net worth and monthly spending vs. income is Personal Capital.  There are other online services out there such as Mint, but the important piece is understanding your monthly income vs. spend.

Habit 3: Paying Yourself First
Just like your personal health, making positive decisions for your money when faced with the temptations of everyday life comes down to two things — willpower and creating systems to make up for the days when your willpower just doesn’t exist.  One such system is paying yourself first, meaning you deposit money into your savings account (or investment accounts) before anything else. It essentially makes saving an expense just like your electric bill or mortgage payment – before it can be haphazardly allocated to random and unnecessary purchases.  Once this habit is established, you’ll adapt to your new spending limit, and your savings will steadily increase without any additional sweat or hard work on your part.  At Real Estate Concierges, we call this our 20/30/50 financial plan where the 20 is paying yourself 20% of your take home pay first, before any other bills are paid.  Invest in yourself first!

Habit 4: Avoiding Buyer’s Remorse

Considering the vast number of people who struggle under the weight of consumer debt, overspending is a significant issue in the United States. Much of this spending is habit-based — not need-based.  Get in the habit of asking yourself these questions:

1) Does this purchase have a positive purpose?
2) What will I need to forgo in order to make this purchase?
3) Will I save more by purchasing this item elsewhere or at a later time?

Often times, simply stopping to think before whipping out your credit card will be enough to realize how unnecessary so many purchases actually are.

Habit 5: Creating and Sticking to a Plan to Eliminate Your Debt

If you’re simply paying the minimum monthly amount on your debt, you might think you’re following a solid repayment plan set forth by your creditor. The truth is, it is in your creditor’s best interest to keep you in debt for as long as possible – and collect massive amounts of interest in the process.  Instead, you should be the one in charge of determining how much you can pay monthly (above and beyond the minimum due) and when your official date of debt freedom will be. One strategy that I like is to start with your lowest balance and apply the maximum amount per your budget to pay it off.  So if your budget is only $50/month above all your monthly minimum debt payments, apply that $50 to your lowest credit card balance to pay it off first.  Then apply that $50+min payment of the credit card you just paid off to the next lowest debt balance that you have (credit card, car loan, etc.).  It’s gratifying to eliminate each debt/loan and move on to paying off the next.  Get in the habit of regularly checking your repayment progress, revisiting and recalculating your plan, and – most of all – making sure you are the one fully in charge of your debt repayment journey.

Just like your personal fitness plan, chip away one day at a time as results don’t happen overnight. It’s the daily habits that will transcend across everything you put your mind to; health, wealth, and achieving financial freedom.  Here’s to your health and future wealth!

Thursday, September 3, 2015

Here are 7 ways owning a home is a smart money move.

I never wanted to be a ‘renter’, but rather a homeowner and landlord.  I graduated college in June 1993 and purchased my first home in January 1994.  Since January 1994, I’ve always been a homeowner and landlord building wealth through owning real estate for the past 21 years.  I always wanted a long-term relationship with a mortgage broker giving me money vs. a landlord taking my money.  My goal was never to make someone else wealthy by lining their pockets with my monthly rent check that pays their debt while their home appreciates in value over time.  The financial benefits of homeownership are evident year-round. Let’s examine how homeownership makes “cents” — from tax benefits to financial stability.
1. Homeownership builds wealth over time
We were taught growing up that owning a home is a financially savvy move. Our parents and grandparents thought so as well. But this past decade of real estate turbulence has shaken everyone’s confidence in homeownership. That is why it’s so important that we discuss this again now that we’re in a “new” market.  Homeownership can be a very savvy financial move — but only if people buy homes they can actually afford.
2. You build equity every month
Your equity in your home is the amount of money you can sell it for minus what you still owe. Every month you make a mortgage payment, and every month a portion of what you pay reduces the amount you owe. That reduction of your mortgage every month increases your equity. That is especially true now with the elimination of risky mortgages like negative amortized and interest-only loans — thanks to the new “Qualified Mortgage” rules. The way mortgages work is that the principal portion of your payment increases slightly every month year after year. It’s lowest on your first payment and highest on your last payment. Thus, as the months and years go by, your equity grows!
3. You reap mortgage tax deduction benefits
Mortgage deduction: The tax code allows homeowners to deduct the mortgage interest from their tax obligations. This can be a huge deduction, since interest payments are often the largest component of your mortgage payment in the early years of owning a home.
Some closing cost deductions: The first year you buy your home, you are able to claim the points (also called origination fees) on your loan, no matter whether they are paid by you or the seller. Since origination fees of 1% or more are common, the savings are considerable.
Property tax is deductible: Real estate property taxes paid on your primary residence and a vacation home are fully deductible for income tax purposes.
4. Tax deductions on home equity lines
In addition to your mortgage interest, you can deduct interest paid on a home equity loan (or line of credit). You can transfer your credit card debts to your home equity loan, pay a lower interest rate, and get a deduction on the interest as well.
5. Capital gains exclusion
If you buy a home to live in as your primary residence for more than two years, then you qualify for this deduction. When you sell, you can keep profits up to $250,000 if you are single, or $500,000 if you are married, and not owe any capital gains taxes. It may sound ridiculous to say that your house actually appreciated after these past several years of falling house prices. However, if you purchased your home prior to 2003, chances are, it has appreciated in value and this tax benefit will come in very handy.
6. A mortgage is like a forced savings plan
Paying your mortgage every month and reducing the principal is like a forced savings plan. Each month you are building up more valuable equity in your home. In a sense, you are being forced to save — and that’s a good thing.
7. Long term, buying is cheaper than renting
In the first few years, it may be cheaper to rent. But as the interest portion of your mortgage payment decreases, the interest will eventually be lower than the rent you would have been paying. But more importantly, you’re not throwing away all that money on rent. You have to live someplace, so instead of paying off your landlord’s home or building, pay off your own!
I’ve always looked at a home as an investment, not a house I would live in forever.  Even if I move in three to five years, can I rent the house to cover the mortgage and create a positive cash flow investment for my future wealth building goals?  Real Estate is a long-term investment growth strategy, so approach it as such vs. just a home purchase.

10 Reasons to Make Repairs before You List.

If you’re planning to list your home for sale, it’s time to tackle all the necessary repairs. These repairs can save you money in the long run — money spent on improvements now will be far less than the cost of that first price reduction if your house sits on the market. When my wife and I sold our second home in 2005, it was a seller’s market, but we knew adding fresh mulch in the flower beds for curb appeal, repairing a few boards in the front of the house, and repairing a few window latches would reduce the items in the inspection and increase the buyer appeal for our home.
Even if your home doesn’t linger on the market, you run the risk of a buyer asking for concessions and credits for items you didn’t fix, and the quotes from experts doing the work will almost certainly be higher than your own out-of-pocket cost.
If you still need convincing, here are 10 reasons to make repairs before you put your house on the market and get top dollar.
1. You’ll have to fix problems anyway — or make concessions
Your buyers are going to do an inspection, and the inspector will be able to identify all the issues and suggest needed repairs. There’s no avoiding it. You will have to fix any problems, credit money back to the buyer, or drop your price to compensate.
2. It will save you money
Many common repairs are easy to solve, inexpensive, and can be tackled in a weekend. They’re likely to be the things that were already on your list of weekend projects for the past year, and if they bother you, they’ll also bother a buyer. Leaky faucets, ripped window screens, ceiling stains, cracks in the plaster — they may seem like minor issues, but when you’ve got a whole house full of problems like these, they add up to one big seller headache.
3. Your home — not its flaws — will be the focus
Eliminating distracting drawbacks will allow buyers to have a positive experience as they tour your home. That means open-house visitors will be able to focus on your home’s positive, not negative, features.
4. A well-maintained home gets better offers
Getting your home completely prepped and ready will increase its perceived value because you’re showing buyers that your property is well maintained.
5. You can hold firm on your price
You won’t have to do a price reduction to reflect the estimated (and often overinflated) cost of repairs!
6. Rush jobs cost more, every time
Last-minute repairs done on a tight timeline are almost always more costly since you don’t have time to shop around for estimates. Plus, your time crunch begs for tradespeople to charge higher rush fees for squeezing the work into their schedule.
7. Actual costs and estimates don’t always match
Your actual cost to fix an item will almost always be less than a buyer’s estimate after their inspection — but since you won’t necessarily have time to fix everything before closing, you risk losing the sale if you don’t agree to the estimate.
8. You won’t risk losing the deal
You’ll avoid credits back to the buyer for problems identified during the inspection and haggling that drags on and on over minor issues, possibly costing you the deal. (You’d be surprised how ugly things can get when you’re down to the wire negotiating the added cost of repairing the cracks in the chimney.)
9. You’ll get more potential buyers in the door
Your Real Estate Concierge will love showing off an impeccable home, and buyer’s agents will be dying to get their clients in the front door. That brings in more potential buyers — which equates to more chances of finding the right one willing to pay your sale price.
10. You’ll sell your home faster
And for a higher price. Ka-ching.  The goal is to get more than one buyer interested in your home to create a bidding war and maximize your return on your home sale.