Many of the people I’ve grown up with have been buying their first homes at this point. One of my closest friends (and his wife and daughter) is selling his first home and moving onto bigger and better. So yes, I’ve been thinking about it a bit. In that respect, this article caught my attention this morning.
For first-time home buyers, it is incredibly easy to borrow more than the value of a home and make the purchase. The article describes three potentially dangerous methods that have been popular.
* Piggyback Loans. You used to need 20% of the home’s value at the time of purchase. That’s not common anymore. 42% of all first-time home buyers do not put any money down. Without the 20% you have to pay private mortgage insurance or borrow their down payment from a home equity loan. This will only pay off if you can afford to pay more than the minimum each month, and there are many pitfalls of a variable-rate home equity loan.
* Interest-Only Loans. The buyer pays only interest for the first five, 10 or 15 years. If the buyer doesn’t budget for higher payments down the road, he or she could run into trouble. This might be good for someone whose income is definitely going to go up, but that can’t always be a sure thing.
* Minimum Payment Option. Each month, the home owner has several choices. They can either pay the principal and interest as they would on a regular mortgage, they can pay only the interest due, or they can make a smaller “minimum payment” and any outstanding interest gets added to the principle. Borrowers who use the last option often will see the balance of their loan go up over time.
There are some situations where one of the above options might be a good choice, but it’s best to understand the drawbacks.
I’ve been following CNN Money’s Millionaires in the Making series for some time now. Deshundra Jefferson has posted a new profile online. The featured couple, Ryan and Danielle Quilling, are saving their way towards millionaire status.
Danielle is 25 and Ryan 27. They have no credit card debt; the only debt they have is their mortgage and student loans. Ryan dabbled in stocks for his 401(k) but realized it was a mistake.
These stories start to sound very similar after a while. They use The Millionaire Next Door by Thomas J. Stanley and William D. Danko as inspiration, and even were quoted in the article saying a cheesy guru-like quip, “It’s not what you make, but what you do with what you make.”
Being in a DINK (dual income, no kids) household speeds the saving process along. If I could put 30% of my salary into a 401(k) and still afford to live and eat, I would be a happy person, at least in the respect of personal finance.
Does your company offer diversified options for employees’ 401(k)s? Even after the bubble burst several years ago and many people were burned, many companies haven’t created possibilities for diversification in retirement plans. In many cases where the companies do offer a wide variety of funds, employees have not chosen to configure their accounts to allow for diversification.
If your company doesn’t offer options for programmed diversification, you can use these steps suggested by MSN Money:
* Use the best of what you’ve got.
* Ask for better choices.
* Fund an IRA.
I received an email last week from Bryan Link who requested I take a look at a start-up he runs called SimpliFi. The site contains an automated financial goals planner. A Flash-based application bases its evaluation on an interview designed to determine the user’s financial status and goals, adjustable assumptions, and its internal forumlas.
Most people who are interested in forecasting their personal financial future have likely inserted the same information into Microsoft Money, Intuit Quicken, or have even spoken to a financial planner in person.
There are some advtantages to SimpliFi. Since the information is web-based, you can access your projections and plans from any location connected to the internet. The site is geared towards middle-income people like “them” rather than the wealthy. Signing up for the service costs $24.95 per quarter or $74.95 for a full year.
I was listening to Marketplace on NPR during the commute home from work today. They reported that according to CBS, gas prices at the pump may surge $0.24 a gallon in the next few days. The article says that this is one analyst’s prediction, but that one analyst is getting a lot of press.
When something like that hits the news, it makes it that much easier to gas stations to raise their prices anyway. Upward-looking predictions tend to become a self-fullfilling prophecy.
Expect to pay significantly more at the pump and in the grocery store.
I’ve included an income/expense report within this post. By looking at the numbers, here’s some quick thoughts on improvements I can make for the rest of the year.
* Spend less money on dining. Lunch at the cafeteria is almost $7.00! That’s unacceptable.
* Find some ways to make more money. Yeah…
* I’ve modified Quicken’s “Auto” category to include depreciation for my car. That category also contains mass transit expenses and should probably be renamed “Transportation” instead.
* The “Interest Exp” category contains the interest paid for my car loan (at 2%) and student loan (at about 3% last time I checked).
View the remainder of this entry to see the chart.
[click to continue…]
Suze Orman tells it like it is. On her televised phone-in show, she has no problem berating callers, breaking them down, and making them feel stupid for their financial foibles. She also writes books.
If you have nothing else to do tonight, and New York City isn’t out of the question, you might want to stop by the Apple Store in SoHo to hear her plug her new book.
Join lifetime Mac user and New York Times bestselling author Suze Orman at the Apple Store to discuss her newly released book, “The Money Book for the Young, Fabulous & Broke
.” You can purchase a copy of her book at the event and even have Suze sign it afterwards. Also, enter for the chance to win a 12-inch PowerBook and two iPod shuffle music players.
The 12-inch PowerBook sounds nice.
Every other Friday, I try to will the stock market down.
Most of my investing is done on pay day. My 401(k) funds are invested at the same time I get paid, and naturally I want to invest at the best price possible. So on that day, I try to channel some of my brain power to influence the market downward.
This technique works, but only part of the time. My informal observations have shown that my clever ploy succeeds about half the time. The other 50% of my attempts — perhaps I am too distracted with work to fully concentrate on econopsychokinesis* — I am not successful and the market slips ahead.
Why do I attempt to bring the stock market down with the power of my mind? Even though a week from today I will turn the big two-nine, I still consider myself young. I have a long lifetime of investing ahead of me, so I want to buy with the market low and sell much later with it higher… hopefully much higher.
So far today, I am not being successful. The S&P 500 Index is up almost 1% for the day. Help me out; summon your latent mental powers to bring the market down today. (Or, if you happen to control a whole lot of the market — Warren, this means you — just sell everything you have.)
* I think I invented that word. Google shows no results. Can I patent and license it?
Email this article
Print this article
