Category Archives: Financing

How To Stop Pay Increases From Hurting Your Finances

Financing, Investing, Single Family, Tips, Uncategorized, , , ,
Photo Credit: http://xeniaword.com/wp-content/uploads/2014/10/pay-raise-ahead-300x200.jpg
Photo Credit: http://xeniaword.com/wp-content/uploads/2014/10/pay-raise-ahead-300×200.jpg

Have you ever said to yourself “If I could just make more money, then my financial problems would go away”? Or, “I’d sure be happier if my annual income increased”.

 

If so, you’re not alone. In fact, these are thoughts people often continue repeating throughout their lifetime.

 

However, most of these people are able to reference a time in their lives when they received a pay raise or had a great income year in business, yet they’re still recapping those same wishful thoughts.

 

It’s common in our society to think pay raises will immediately improve our financial issues, when in reality pay raises usually only end up creating bigger money problems.

 

This is because without an action plan for how an increase in pay will be handled, it has been proven time and time again that the extra money will be spent in ways that don’t improve one’s finances.

 

In fact, raises are more likely to be spent on things that immediately make people feel good, often hurting their finances. Besides, don’t we deserve a treat for all our hard work?!

We’re not saying you shouldn’t enjoy life or reward yourself for this pay raise. By all means, celebrate! But it’s prudent to think about the consequences before spending.

Here are a couple examples of how poor planning after a pay raise can actually get you in more trouble than if you never got the raise:

 

1)    You get a $5,000 pay raise and immediately book a one-week trip to Hawaii for your family of four. The plane tickets and hotel cost you $4,000. Then food and entertainment costs you another $1,500 for a total trip cost of $5,500. You have overspent your raise by $500 right? Not so fast. In your excitement, you forgot the $5,000 pay raise is taxable income. So it really amounts to $3,500 after taxes, which means the $5,000 pay raise ended up putting you $2,000 in debt! ($3,500 net income after taxes, minus $5,500 you spent on the trip)

 

2)    You get a $10,000 pay raise. Suddenly your 5-year old car that was perfectly reliable last week, no longer works for you. With your new higher status, you must “look the part” and drive a nicer car. So you go out and buy a new $35,000 car. This move just cost you 3.5 years of that increased pay, right? Wrong! Remember, the $10,000 pay raise is more like $7,000 after taxes. So this new car purchase just ate up five years of your increased pay. Ouch!

 
So how do you avoid this from happening to you? It’s simple. Have a plan!

The next time you get a bump in pay, make it a rule that you’ll also boost your retirement contributions. Or decide in advance that you’ll use that pay increase to get rid of your debt.

The key is to have goals for your finances. Establish in advance what your next money moves will be for those windfalls of cash!

 

 

What did you do with your last pay raise? Looking back, what would you do differently?

Solar Panels: Are They the Right Investment for Your Home?

Buying, Financing, Investing, Real Estate Agent, Remodeling, Residential Real Estate, Selling, Single Family, Tips, Uncategorized, , , ,
Photo Credit: Michael Coghlan https://flic.kr/p/fGwupJ
Photo Credit: Michael Coghlan https://flic.kr/p/fGwupJ

You don’t have to look very far to find information on solar panels. There are all types of products and low financing options that guarantee to save you money. The average home owner may see solar panels as a way to avoid the ever increasing price of energy. I am not here to tell you solar panels are or are not a good investment.  As a Realtor, I am here to give you my professional, unbiased opinion on solar panels in the housing market and how they effect sellers.

How do solar panels work? Solar panels are typically sold on a long-term lease of 20 years with a monthly payment. In turn, the solar company will use the energy captured by the panels to eliminate your monthly energy bill from your existing energy company. If you sign up for a monthly lease of $150 and your typical energy bill is $200 a month, then you save $50/month or $600/year. Multiply that over the term of the lease and you just saved $12,000. Sounds great, right? Not so fast… Remember, you signed a 20 year lease. You are bound to the payments of the long-term contract and based on the example above that would be $36,000. What happens if you decide to move? What happens if technology advances and there are cheaper alternatives?

What happens if I want to sell my home and I have a long-term lease on the solar panels?  If you do want to sell your home, the potential buyer will have to take over the solar panel lease in order to purchase it. OR the new owners could purchase the home without taking over the lease, leaving you responsible for the payments even after you moved out.  At first glance, the monthly savings look great and the innovative technology is a must, but make sure you are familiar with the long term ramifications.

What could the future hold? Pretend it is the year 2024.  You own a home and purchased solar panels 10 years ago. You are halfway through your lease. In that time, technology has advanced and we can capture the same amount of energy on one panel as you can with the 20 rusty panels currently on your roof. In addition, the cost in the solar panel market is a monthly payment of $40 a month. Now you want to sell your home. When you list your home, interested buyers are notified that the home is attached to a 20 year solar lease with 10 more years remaining. Why would the buyer take over a lease at $150 a month when they can get it at $40 a month? Why have 20 solar panels on their home when they could have one? Why spend more for old technology? These are all valid questions that will cause problems in your future sell.

Let’s say you don’t plan on selling in the next 20 years. My initial response would be: 20 years is a long time. Your plan today may not be your plan tomorrow. My second response would be: keep in mind you are leasing solar panels. Once your 20 years is up, you still won’t own them. But you have the option of forking up about $5,000 to buy them at their market value.  Another extra expense…and to add insult to injury, any repairs that need to be done to the solar panels during your lease will be at your own expense. The hidden costs are everywhere.

Know the facts before you decide to lease or buy. Ask yourself one question. Is saving $50 a month worth the long term issues? You may save on the front end, but if you ever decide to move, it will likely cost you. In my professional opinion, if you want to go the solar panel route, purchase them or avoid them all together. Otherwise, your solar panel leasing agreement could be a disaster when it comes time to sell.

Feel free to contact me directly for some personal experiences with solar panels in the housing market.

 

Photo Credit: Michael Coghlan, https://www.flickr.com/photos/mikecogh/9647603520/

Your Insurance Questions Answered

Building, Buying, Financing, Insurance, Investing, Real Estate Agent, Remodeling, Residential Real Estate, Selling, Tips, Uncategorized, , , , , , , ,
Photo Credit: http://www.aiche.org/resources/member-services/member-only-insurance-plans
Photo Credit: http://www.aiche.org/resources/member-services/member-only-insurance-plans

Insurance is one of those “love ‘em and hate ‘em” expenses in life. It is absolutely necessary to protect your financial future. Remember, the purpose of insurance is not to make you rich in the event of loss. It is to transfer the risk of major loss from you to the insurance company, in exchange for policy premiums.

 

So which types of insurance do you need? Which are a waste of money?

 

MUST HAVE’S

  • Medical Insurance – this is now mandated by our government. And for good reason. Health expenses are the number one cause of foreclosures and bankruptcies in our country. You don’t want to be thinking about financial consequences while you battle cancer. You must protect your health.
  • Home Insurance – your home is often your greatest asset; it must be covered against major loss. Liability insurance is a key ingredient with home insurance, be sure to cover your assets against accidents. Click here to learn more.
  • Auto Insurance – a certain level is required by law. You’ll also want to be sure you have liability coverage (consider “umbrella” coverage with your agent)
  • Life Insurance – how would your family fare financially if you died tonight? If you don’t know the answer to that question, life insurance is your answer. Click here to learn more.
  • Disability Insurance – your ability to earn an income is often your greatest asset. Disability insurance protects your income in the event your employer doesn’t have worker’s comp or a policy in place to cover you. Self-employed people need to pay special attention to this. This is often the most forgotten insurance.

 

NICE-TO-HAVE’S

  • Pet Insurance – recent progress with medicine makes it more likely a pet’s health can be restored with advanced procedures. Pet insurance can help you avoid having to make the very difficult decision of whether to pay for that $5,000 surgery. Click here for more info on different kinds of pet insurance, and what you should consider.
  • Identity Theft Insurance – most people waste money on credit monitoring, but have no plan for how they will recover their identity in the event it is stolen. It has been estimated that 600 hours is the average amount of time spent on recovering from an ID theft occurrence. Most people don’t have that time to waste. Click here for more info on credit monitoring vs. ID theft Insurance.
  • Long-Term Care – this is a tough one. It’s not for everyone and should be assessed on a case-by-case basis. It is expensive, but necessary to receive good care and protect assets. Talk to a trusted agent.

 

DON’T HAVE

  • Mortgage Life Insurance – the only reason to have this is if your health prevents you from acquiring regular life insurance. Otherwise, you will badly overpay for this scheme.
  • Private Mortgage Insurance – there are many home loan options these days to help you avoid private mortgage insurance. Click here to learn more.
  • Insurance on Small Electronics – as mentioned in the opening paragraph of this article, insurance should be acquired to protect major loss. The loss of small electronics like headphones, iPods, etc. would not financially cripple you. This is where a reserve fund is handy. Keep a maintenance savings account to handle these small incidents. Don’t go broke insuring them!

 

This article was not intended to give you an all-inclusive tutorial on insurance, but rather to make you aware of the types you should consider and research further. We hope this helps!

 

What are your thoughts on insurance? What types of coverage do you have? Any that we didn’t include above?

New Credit Scoring Model For Homeowners

Buying, Financing, Investing, Residential Real Estate, Uncategorized, , , , ,
Photo Credit: www.mentalhealthy.co.uk
Photo Credit: www.mentalhealthy.co.uk

FICO, the primary credit scoring system used in lending, is releasing a new scoring model at some point this fall. This new 9.0 model has been advertised to contain major changes that are expected to be a big help for consumers. However, there are some things many aren’t considering with the new release.

 

The newest FICO model has revised previous versions to no longer penalize consumers for medical collection issues. This would seem to be big news for millions of consumers who are victim to the imperfect credit reporting systems of the medical industry. Consumers caught in this medical collection web will often find their credit scores are significantly impacted in a negative way.

 

Because of this, some aren’t able to qualify for home loans; and the others who are able to qualify usually take a significant hit to their mortgage rates.

 

So one would think this new model would be of tremendous benefit to consumers, since more would have improved qualifications for home purchases based on their new higher scores.

 

However, what the media hasn’t shared with us is that most mortgage lenders don’t even utilize the most current FICO scoring model in their underwriting process. The fact is Fannie Mae, Freddie Mac and most other lending institutions still use scoring models developed by FICO over 10 years ago. Many creditors haven’t even adopted the most recent FICO model that came out over six years ago. So it’s likely creditors won’t be jumping to this new model any time soon.

 

There are several reasons why lenders don’t leap to adopt new systems. A change in their scoring model results in a significant system overhaul, costing lenders tons of dough. The system changes also have to correlate with all the other government disclosure requirements. So the sheer cost and logistical nightmare likely won’t be worth the benefit of helping a few extra consumers. Because banks have to be profitable, we can assume their agenda would take precedence before the consumers’ needs.

 

SO WHAT DOES THIS MEAN?
Don’t sit on the fence, waiting for this prospective change to revolutionize your credit situation. It likely isn’t going to happen! You might as well do whatever else you can to accomplish your dream of purchasing a new home.

 

We have spent over 10 years analyzing the credit scoring system. We may have other ways to bump up your credit scores to help you through the home buying process. There is a lot of misinformation about credit scoring, including the myths surrounding credit monitoring (click here to learn why this is a waste of your money).

 

Every situation is unique…we’re happy to help!

 

NOTE: This new model is likely to take effect more immediately with consumer & revolving reports. These entities are faster to act with their adoption systems.

Year-End Tax Planning Strategies

Financing, Investing, Tips, Uncategorized, , ,
Source: http://www.venturacountycpa.com/tax-planning/

As we quickly approach the last quarter of 2014, we want to give you some tax planning strategies to help decrease your tax liability.**

 

A little planning can go a long way! Here’s an easy-to-read guide:

 

Max Retirement Plan Contributions

  • 401k’s – save up to $17,500 (+ $5,500 additional if over 50 years old)
  • Traditional IRA’s – save up to $5,000 (+ $1,000 additional if over 50 years old)

 

Max Health Savings Account Contributions

  • Single – save up to $3,300 (+ $1,000 additional if over 55 years old)
  • Family – save up to $6,550 (+ $1,000 additional if over 55 years old)
  • Remember contributions reduce your taxable income and account earnings are tax free!

 

“Bunch” Itemized Deductions

  • Prepay your February 2015 property tax installment in December 2014
  • Prepay your January 2015 mortgage payment by December 2014

 

Sell “Loser” Stocks

  • Get rid of those stocks that are worth less now than when you purchased them
  • Losses will offset other capital gains
  • You can deduct up to a $3,000 net loss per year

 

Donate To Charity

  • You’ve likely poured ice on your head for ALS, so why not continue to help out the charity of your choice!
  • If you are a “tither” on income as earned, prepay your 2015 tithes by December 2014

 

Consider Refinancing

  • Points paid on a previous refinance are fully deductible in the tax year of a new refinance
  • Rates are still at all-time lows!

 

Get Deductions For Your Hobby

  • Hobby-related expenses aren’t directly deductible, unless your hobby can be classified as a business
  • Business losses reduce other taxable income
  •  Click here for more info on how to turn your hobby into a business

 

Remember that any reductions in taxable income not only saves you taxes at your top rate bracket, but also helps you avoid phasing out of certain tax credits (i.e. – child tax credit, student loan interest deduction, education credits, etc.).

 

What tax planning strategies have you implemented in the past to lower your tax liability?

 

** Each situation should be analyzed individually. Alternative Minimum Tax rules may negate the impact of the strategies mentioned below. Most strategies mentioned help those who itemize deductions.

“Are Bi-Weekly Mortgage Payments Helpful?”

Financing, Investing, , , ,
Source: The Nest (http://budgeting.thenest.com/much-biweekly-payments-shorten-30year-mortgage-29242.html)
Source: The Nest (http://budgeting.thenest.com/much-biweekly-payments-shorten-30year-mortgage-29242.html)

Loan servicers often send solicitations to homeowners touting the benefits of bi-weekly mortgage payments. Read below to learn why these may, or may not be good for you!

 

Bi-weekly payments do help you pay off your property quicker as you are essentially making 13 payments per year instead of 12 (bi-weekly = 26 half payments = 13 full payments). However, these notices usually have a catch in that the servicers generally charge a fee to set up these bi-weekly payments for you (or they charge an ongoing processing fee). Remember, loan servicers are typically striving to put more money in THEIR pockets, not yours.

 

If you want to accelerate the payoff of your loan by making extra loan payments, great! But, you can do this on your own. If you decide to make extra payments, just make sure you indicate your intentions to have this extra money go toward principle at the time you make the payment.

 

Let’s dive deeper to see if bi-weekly payments are good for you.

 

PROS:

  • You can pay off your home quicker
  • You save thousands in interest
  • It is easy to implement

 

CONS:

  • Loan servicers usually charge a fee (but you can do it on your own)
  • You may have better places to put the extra money (see below)

 

OTHER OPTIONS TO CONSIDER:

  • Payoff debt (especially consumer debt like credit cards, student loans and car loans)
  • Beef up your emergency savings
  • Contribute to retirement accounts (maybe your 401k at work with the company match)
  • Save for other goals (house down payment, kids’ college education, etc.)

 

Contact us if you have questions regarding bi-weekly mortgage payments, or any other topic related to home financing.