October 2011


Here is October’s review of blog posts.  We hope you find something you enjoy!

 

Get Rich SlowlyTurn Paranoia into Plan B (Because Thing Might Get Worse) – Worried about the state of the world? About what’s going to happen in the future? You can turn that worry into a plan for if things do go badly.

 

Get Rich SlowlyCalibrating and Circumventing the Cost of College – Why you should avoid graduating from college with an insurmountable student loan debt.

 

Good Financial Cents Women and Divorce: Issues That Need to be Addressed – Provides some good food for thought for women contemplating a divorce.

 

The Simple Dollar The Power of Your Boss – Feel trapped in your job or that you’re giving your boss too much power over you? See what you can do to help to feel more comfortable with your work situation.

 

Please let us know if you have a favorite financial blog that you think we should be reading.

 

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While talking about budgeting in the past, we’ve made mention of the fact that we’re believers in overestimating the cost of something, especially when it comes to big purchases (like vacations and home projects). At LenPenzo.com, there was a post that illustrated why we believe in overestimating: “Why the Dirty Details Matter When Planning Your Vacation.”

 

Many people have a dream vacation as one of their financial goals. Vacations can be amazing, fun, relaxing, and they give you the opportunity to see and experience things you can’t at home. However, vacations can also be expensive, and they are the perfect example of why overestimating the cost while planning can be very useful and financially beneficial.

 

There are always unexpected costs involve with travel. Len Penzo describes these unexpected costs perfectly. His ideal vacation to Maui that he estimated to cost $2,700 ended up costing him over $4,300!  And where did those extra dollars go to? Unexpected costs like additional travel fees on the hotel room and airfare, tips, etc. Luckily for Len, he had enough in his “mad money” account to cover the difference in expense. But how would he have paid for it if he hadn’t?

 

If it’d have been you, how would you have covered the unexpected $1,600 cost? Unfortunately, too many people turn to their credit cards when something like this comes up. Then you will be coming home from your relaxing vacation to that pesky credit card bill that will likely cause you more stress.

 

How do you avoid this situation? Overestimate! When planning and saving for your vacation, overestimate on every expense you expect. Think it will cost $500 for food and drinks? Budget for $700. Think airfare will be $700? Budget for $1,000. Doing it this way will definitely take you longer to save, but you won’t regret it! It will feel so much better to come home from that relaxing vacation knowing that you stayed under budget and won’t have to pay off your credit card bills.

 

And what if you overestimate too much? Apply the extra toward your next vacation or goal. So, if you think your vacation is going to cost $3,000, it actually costs you $4,000, but you saved $5,000, you will not only avoid the credit card bill, but you also have $1,000 to spare that you weren’t counting on. Overestimating the cost is definitely a more financially beneficial way to go.

 

  • Disclaimer: The information on this blog is not meant for specific financial advice. The ideas/opinions stated are not suited for everyone, and readers should use their own judgment in applying them in their financial lives.

This morning over at Get Rich Slowly, there was a great post about what can go wrong when you are getting a home repair done, “Our Roof Repair: A Typical Tale of Working with Contractors.” It was written by J.D. Roth, and it’s about his recent experience with working with a bad contractor while doing a home repair on his 100+ year old home.

Anyone who has owned a home for any length of time has had to deal with home repairs. Obviously, the older the home, the more likely there is for things to go wrong. Also, anyone who has any experience hiring a contractor to do repairs on your home knows that it can be a very difficult process.

Roth’s experience was this: his roof was leaking badly, so he had three contractors come out to gives bids on the repairs. One contractor had a lot of experience and seemed to know exactly what to do to solve the problem, but his bid was the highest. Another contractor had much less experience, but he seemed to know what he was talking about, and his bid was the lowest. The last contractor didn’t even do a thorough check of the problem, and his bid was somewhere in the middle.

Roth hired the contractor with the lowest bid; however, he immediately regretted it. The work was done poorly, delays kept cropping up, and all told, while the leak was fixed, it wasn’t fixed as well as it should have been.

We’re sure every homeowner reading this could share similar stories about home repairs gone wrong. There often tends to be a reason someone is the cheapest bid. Not to say that you should never hire the contractor with the cheapest bid, but make sure you do your research about them. How long has the company been around? Can you see previous customers’ testimonials? That’s not to say that the most expensive bid would have been any better. If Roth had gone with that bid, he may have ended up in the same position with less money in the bank.

And don’t underestimate how comfortable the contractor makes you feel! If you don’t feel like you can trust that person to do the job right, don’t hire them. Maybe not the best way to judge a contractor’s work, but if you’re uncomfortable with the person working for you, the experience will be that much worse!

The bottom line is, if you don’t have the knowledge and skill to make a home repair yourself, make sure you do your research. Also, the more contractors you have give you bids, the better off you’ll be. But, just like in Roth’s case, you may still end up having to deal with bad workmanship and the problems that might create for you down the road. Unfortunately, there is no real way to get around that possibility! That’s one of the pitfalls of owning a home!

Our next post will be in two weeks, as we’ll be travelling next week for a family wedding.

 

 

  • Disclaimer: The information on this blog is not meant for specific financial advice. The ideas/opinions stated are not suited for everyone, and readers should use their own judgment in applying them in their financial lives.

As promised, here is our last detailed post about The Automatic Millionaire by David Bach. As we discussed before, the first few steps to becoming an “Automatic Millionaire” is to discover your “Latte Factor,” “Pay Yourself First,” and to “Make it Automatic”. But what happens if you have debt to pay down? Bach discusses that issue in The Automatic Millionaire.

 

“Automatic Debt-Free Homeownership”

 

For most people, their mortgage is just anther expense. It’s not necessarily considered to be a debt that needs to be aggressively paid down, like credit cards. You have a specified term on the loan, and you pay it off over that time frame. But what if you want to pay your home off early? What if you don’t want to wait 30 years before owning your home free and clear?

 

Bach gives some tips to achieving “Automatic Debt-Free Homeownership.” First of all, let us say that Bach believes you must be a homeowner to be rich. He doesn’t believe in renting, which as we’ve discussed before, is not something we agree with. Not everyone should be a homeowner, nor is it necessary to becoming a millionaire.

 

However, if you are a homeowner and have the desire to pay down your mortgage early, what steps can you take to do so? First of all, make sure that you have the right mortgage for you. Do your research. There are a lot of mortgage options out there, and you need to be sure that you are getting the right one.

 

Once you are secured in a mortgage and are making the payments, how can you pay it off early? Bach recommends making bi-weekly payments instead of monthly payments. For a 30 year mortgage, you can arrange with your mortgage lender to make a payment on the mortgage every 2 weeks instead of every month. If you do this, you will end up making one month’s extra payment a year ($2,000/month = $24,000/year, $1,000/two weeks = $26,000/year). What kind of impact will that have on the life of your loan? According to Bach, it can reduce your loan length by 5 to 10 years, depending on your interest rate!

 

Bach says that it’s possible to automate this process through your lender. If you don’t want to automate it (and pay the possible fees associated with automating it), there are ways to use this same approach through different, no-fee options.

 

The first is to pay 10% extra each month on top of your regular payment. The second is to pay one extra payment for the year (make sure you send it separately from your regular monthly payment so as not to confuse the bank!). Both of these approaches can save you years on your mortgage, though neither are “Automatic.”

 

“The Automatic Debt-Free Lifestyle”


So, what happens when you have a lot of additional debt, namely high balance credit cards? Where does that leave you in becoming an “Automatic Millionaire.”

 

Obviously the first step is to stop creating new debt. Once you’ve done that, you can concentrate on paying down that debt. Our favorite debt repayment plan is still the Debt Roll-Up. It’s simple and easy, and can make becoming debt-free a real possibility. Bach’s system is similar. Rank your cards in order of how fast you can pay them off (usually the smallest balance first). Then, using half of what your “Pay Yourself First” amount is, apply the higher payment toward the first card, paying the minimums on the rest. Once your first card is paid off, apply that total balance to the second. Once all of your cards are paid off, reapply your “Pay Yourself First” amount to saving for your future.

 

As with everything in The Automatic Millionaire, a key step here is to make this plan automatic. Bach recommends setting up a monthly payment plan to automatically pay the desired amount monthly so you don’t have to think about it.

 

The Automatic Millionaire

 

Hopefully this series has given you some ideas on how to become an “Automatic Millionaire.” Making your finances automatic can really have an impact on your financial success. Try it out! It just may give you the tools you need to be successful. And definitely check out The Automatic Millionaire.

 

  • Disclaimer: The information on this blog is not meant for specific financial advice. The ideas/opinions stated are not suited for everyone, and readers should use their own judgment in applying them in their financial lives.