My 401(k) loan got approved so next week we’ll have enough money in the bank to pay cash for a house. A “paid for” rental will be a nice little income stream and hopefully will help boost my poor credit rating. The plan is to pay cash for 1 house and then in July (if I still have my job) put 10% down on a second rental. Houses are so cheap in Reno and Sparks right now that you can actually cash flow with only 10% down if you’re patient to find a good deal. All income (and other spare cash) from the 2 rentals will go into paying off the second 1; the hope is to pay it off in 2 years along with the 401(k) loan so I can quit my job without getting hit with taxes and penalties on an early distribution.
My wife and I are buying a rental house. Instead of a mortgage, we’re borrowing the money from my 401(k) plan at work. Normally borrowing against a retirement plan is a bad idea, but in our case it makes sense. We don’t have enough money to pay cash for the house so we have to borrow it somewhere. A conventional mortgage would cost us about 5.75% (the house isn’t our primary residence and my credit is still less than wonderful) plus various fees. Borrowing from my 401(k) will cost $187 in admin fees over the life of the loan (5 years) and 5.25%. However, the interest goes back into my account so essentially I’m paying myself interest. Of course we’ll be losing the potential gain from the amount that is no longer in the 401(k) but this should be more than offset by the rent we’ll be collecting on the house. We plan on paying around $70,000 so if we net $500/month our return will be 8% – not as good as what the stock market “could” do but probably a lot safer and certainly a lot better than what CD’s are paying.
I remember when my wife and I bought our first new car. We were so excited. Previously our vehicles had been basically junk – a rusted out Chevy pickup, a worn out Plymouth Valiant, and a mid 80′s station wagon that ran poorly and ate starter motors for breakfast. My wife is Chinese and she doesn’t like the idea of paying interest, so we saved up until we had enough money to pay cash for our new car. We made a token effort at looking over newer used cars, but ultimately decided on a brand new 2002 Subaru Outback station wagon. Out the door price was around $26K, or $28K with taxes and licensing. We’ve had it for 9 years, and according to Kelly’s Blue Book the most I could sell it for today is around $8,000. In other words just owning this car has cost us over $2,200 per year, and that doesn’t include higher registration fees, full coverage insurance (about $800 per year), and 2 expensive repairs we’ve had to make. When all the costs are figured in, just owning the car has cost us almost $3,700 per year for 9 years.
By contrast, a year after getting the Subaru we bought a used Toyota Corolla for my wife to drive. We paid $2,500 for the car and had to get a valve job and timing belt for $1,500. Because the car was 10 years old, registration fees for the Corolla were much less than the Subaru. Also it’s a beater so we only carry liability insurance. We’ve had the car for 8 years at an average cost of less than $700 per year. In other words, our Subaru cost us around $3,000 more per year than the Corolla.
New cars simply aren’t a good deal. They depreciate quickly – 20 to 40% just the first year. After that the depreciation slows down somewhat but buying a new car is still a losing proposition. The 2 things a new car has going for it are reliability and the factory warranty. This is not as big a factor as it has been in the past though. Most new cars come with a 5 to 6 year/50K to 100K mile warranty. Since the warranty applies to the car, not the owner, your best bet is to find a low mileage used car that has 2 or 3 years left on the factory warranty. A good chunk of the depreciation on the car will already have occured, and if you maintain it well, chances are you’ll be able to drive it for many trouble-free years.
Are you getting a tax refund this year? If so, are you happy about it? Almost every one I know who is getting a tax refund this year is absolutely thrilled about the money they’re “getting” from the government, while those I know who have to pay aren’t too thrilled about it. Actually the reactions should be reversed, and here’s why: the amount of your refund or payment due has nothing to do with your tax liability. It only has to do with how much you over or under paid during the previous year. In other words, if you owe money it’s because you underpaid your taxes during the previous year. If you’re getting a nice big refund it means you under paid – in other words, you let the government use your money interest free for an entire year. Wouldn’t it have been better to have that money sitting in some type of interest bearing account? Think about it for a minute. Now, are you still so happy about getting that tax refund?
Many people think that money problems are the leading cause of divorce. If you Google the term “money problems cause of divorce” you will see many sites claiming just that. In fact, that’s what I did when starting to write this post. Most of the arguments in my marriage are over money issues. While looking for information to back up my thoughts on the issue, I found an interesting article that claims money issues aren’t a leading cause of divorce. It makes for an interesting read, and I agree with it – partially.
According to the article, money issues account for 5% or less of divorces. Other issues – incompatibility, lack of emotional support, abuse, and sexual issues all rank higher than money problems as causes of marital problems and divorce. Except for sexual issues though, it’s been my experience that disagreement on money issues can be a big contributing factor in the other 3 issues mentioned.
People view money differently. Some think of it as security, some think of it as freedom, some people just like money for it’s own sake. I tend to think of money as freedom. Having money gives me the freedom to buy things, go places, and generally do what I want to do. If someone (for example my wife) prevens me from using money like this, I feel like they’re trying to control me. My wife, on the other hand, looks at money as security. It’s something to be saved in case you need it in the future. From her point of view, not saving money is akin to not having emotional support.
In our case, we had to reach a compromise. I can’t spend as much as I want and she doesn’t get to save as much as she wants. The magic number seems to be $10,000. As long as we have this much in reserve savings, my wife is happy and feels “safe.” She lets me spend pretty much what I want (within reason). When our reserve drops to less than $10,000 we start having problems. Every little purchase I make is second guessed, she finds other things to pick at or fight about, etc. As long as we keep $10,000 in reserve though our marriage is very smooth.
Ten dollars doesn’t seem like very much. If you’re like a lot of people, if you found ten dollars on the street it likely would be spent by the end of the day. If you lost ten dollars, it probably wouldn’t seem like a huge loss. If you spent ten dollars on something you didn’t really want or need, you probably wouldn’t feel it was overly extravagant. The problem, though, isn’t that ten dollars isn’t very much money. The problem is that ten dollars doesn’t seem like very much money. Actually, ten dollars can break you or make you, because over time ten dollars a day can add up to a lot of money.
Let’s say you’re like a lot of people, living paycheck to paycheck. You’re not racking up any bills, but you’re spending everything you earn – nothing is going into savings. Then, something or a combination of things happen and your living expenses go up by ten dollars a day. What happens? Unless you can increase your income to match or get the money from family or friends, you’ll probably have to put the extra spending on a credit card. Let’s assume the interest rate on the card is 17%. In just one month, that will bring your unpaid balance to $300, which will start adding around $4.50 in interest each month to your balance. If this continues for just 10 months, you could have an accumulated unpaid balance of about $3240, wich will generate about $45 in extra debt every month until you get it paid off. I know this can happen because I let it happen to me a long time ago. Spending ten dollars a day more than you make, over time, can easily break you.
Let’s look at it from the opposite side though. Let’s say you’re spending what you earn each month and you have $3240 in credit card debt. If you could figure out a way to cut your spending by ten dollars a day and apply that ten dollars to your credit card, you could have the debt paid off in about 11-1/2 months (it takes longer to pay it off than it did to accumulate it because the unpaid balance keeps racking up interest charges). So, while over spending ten dollars a day can get you into substantial debt very quickly, under spending by ten dollars a day can get you out of that debt almost as quickly.
If you have no debt, ten dollars a day goes back to not sounding like very much. Even saving for a month and having $300 to show for it may not sound like much. But think about it. If you did it every month for 10 months, you’d have over $3000 saved. Even if you only did it for one month, the $300 could be leveraged. For example, if you wanted to take a shot at making money by blogging, $300 would easily pay for a domain name and hosting for a year with enough left over to have a custom logo done for your web site. There are other part time businesses you could get into as well for $300 in startup costs.
The other thing about small amounts of money (snowflakes) is that over time they can snowBALL. It’s really easy to come up with a few ways to make ten dollars, but dificult to do it consistantly every day. Over time though it gets easier, and you eventually could find yourself making an extra ten dollars each and every day. What then, quit? I’d suggest start working on ways to make a second extra ten dollars a day. How far can you go with this? That’s up to you. The sooner you start though, the faster you’ll get there.
I got my Discover bill last month, and oops… $708??? I’d gotten in trouble the month before for a $1500 bill, even though my purchases were things for my Barracuda, which my wife had agreed I could start fixing up. Well, you can’t fix up an old car without spending money on it, and she had also agreed to a general budget for the project as well. The problem was I hadn’t told her I was going to buy the stuff, and she kind of freaked out when she saw the withdrawal from our bank account.
When I got this month’s bill, I new she’d freak out again. Besides some stuff for my car, I’d also bought a model airplane engine and some books without telling her. I knew she wouldn’t be happy, because I hadn’t mentioned the purchases – yet I feel I have the right to buy stuff without getting her approval for every little thing. To fix it this time, I used money from my cash stash to pay part of the bill and paid the rest from our bank account.
This kept my wife happy because she only sees a withdrawal of about $300 or so for the Discover payment. I’m not happy about it for several reasons. First, I don’t like doing things like this because I know it only leads to problems. Second, it does nothing to help us resolve our differences over how money should be spent. Third, I shouldn’t have to do it – I should be able to spend some money without being questioned about it. We’re not living paycheck to paycheck any more.
I haven’t decided the best way to handle this yet. For now it seems like I dodged a bullet, and I don’t like dodging bullets. Doing so is a good way to get hit.
Our card that was canceled last month was one that earned rebate rewards, between 1 and 3%. We used that card a lot, and had earned a little over $200 as of our January statement, which had a little flyer telling us we would receive the rebate coupon with our February statement.
We got our February statement this week, and… no rebate coupon. I figured that maybe since they canceled the card, they were withholding the coupon until we paid our balance. In looking over the statement, though, all references to the rebate cash we had earned was gone. Hmmm, not good…
I called Customer Service. The first (English as a second language) person I spoke to said I’d have to call a different number, which he gave me, and turned out to be a wrong number. I called Customer Service again. This time the person I spoke with (also English as a second language) told me I had to talk to a different department, but at least he was able to transfer me instead of telling me to hang up and call someone else.
The person I was transferred to was understandable, but I didn’t like what she had to say. According to her, since the card company had cancelled our card before the closing date for the February statement, we forfeited our rebate cash, almost $200. I explained that we had never missed a payment, had never been late with a payment, had done nothing wrong in fact, and they were taking money away from us that we had earned by using the card in good faith. “Sorry, Mr. yyyyy, that’s our policy. It’s in the card holder’s agreement you signed when you applied for the card.”
My first thought was to go ballistic and curse her out over the phone. Not a very Christian thing to do, and would probably do nothing except make my blood pressure go even higher. Instead, I asked to speak with her supervisor. I explained my tale of woe to the supervisor, and to make a long story short, I was eventually able to get them to apply our rebate to the remaining balance on the card. Here’s what I’ve learned from this experience:
- If your card is cancelled, check your final statement carefully for any extra charges or omissions
- If you feel there are any problems with the statement, call the company and get them resolved as soon as possible
- If the first person you talked to can ‘t or won’t help you, keep working your way up the chain until you get someone who will
- Don’t lose your temper – just explain your situation in a calm but firm manner
- Get the problem fixed before you make your final payment – once you’ve paid off the balance, you no longer have an account with the company and your chances of getting anything back from them are small
- Pay off the balance by the due date (see second and fourth items above though) – don’t give them an excuse to hit you with a late fee or the chance to earn interest
- If you feel the company is acting unethically, you might consider filing a complaint with the Better Business Bureau
Hope this helps.
Because frugality can only get you so far, I’m always looking for new income streams. Earlier this week, I came across a short post on (link)Christian Personal Finance on trading freebies to earn extra cash. I like free stuff, and I like the idea of bartering or trading – one of my favorite books when growing up was Alvin’s Swap Shop. I don’t have speakers on my PC, so I couldn’t listen to the podcast, so I downloaded the report. It’s an interesting read, and I’m sure there are some people who actually make money doing this. It’s not something I’ll be trying any time soon though, for several reasons.
First of all, according to the report, you’re required to give “accurate” information when filling out the offers. I don’t have a problem with giving out my mailing address, but I have a huge problem with giving out my phone number. I work as a PBX technician at a community college, and bogus charges on phone bills by illegitimate companies is a problem that I deal with every single month.
Second, it seems that in order to successfully complete the offers, you must set up your computer and browser in such a way that it would be especially vulnerable to viruses and other mal-ware. If you have a spare system you can dedicate to freebie trading, this might not be a concern for you. I don’t, and I’m not willing to risk my home system.
Finally, and this is the biggy, participating in freebie trading requires you to give the companies either a live credit card number or a live ATM/debit card number. According to the report, the companies don’t allow you to use prepaid cards. Some of them even consider it “fraud” to use a prepaid card. To me, this is a HUGE red flag. If the offers are really free, then why do the companies need my credit or debit card information? Even if not completely free, for example shipping charges on an otherwise free item, what difference does it make to the companies what kind of card I use? Given this condition, I don’t think I would touch this one with a 10 foot pole.
I could just be overly paranoid, and I’d love to hear from people who have actual experience with freebie trading. For those who want to try it, I would make the following recommendations:
- Have a dedicated computer and email account just for freebie trading.
- Check your phone bill each month for unexpected charges. report any that you find to the phone company and try to get them reversed.
- Keep a separate, low limit credit card to use for this activity. alternatively, keep a dedicated bank account with a really low balance.
When it comes down to it, there are many other ways of making extra money that don’t expose you to the risk that this method would seem to.
One thing I’ve noticed about most of the personal finance blogs I read is that they tend to shy away from politics. In a way, this makes sense. They are, after all, Personal Finance blogs, not political blogs. Also since people reading the blogs probably have a wide range of political opinions, bloggers may be reluctant to post something that might offend a large number of their readers.
On the other hand, what is going on politically (at least in the US) is going to have a huge impact on people’s personal finances. I can’t see how legislation and policies that have an effect on the economy on every single level could not be of interest on a personal finance blog. Anyone who got shafted last week by the Federal government’s “deal” with Bank of America may agree…
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