10 Applications for the “Sinking Fund”

What’s a sinking fund? This is a savings fund which you target for large purchases/expenses.

The sinking fund is separate from your emergency fund. Below are 10 applications for using a sinking fund.

Can you think of other applications?

10 Applications for the Sinking Fund

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Posted in Savings by Jose Figueroa. No Comments

Refinancing Your Mortgage? 5 Things To Consider.

Refinancing Your Mortgage? 5 Things To Consider.Have you been thinking about refinancing your mortgage?

It is still a great time to do this as mortgage rates continue to be at reasonable levels.

It is also a good opportunity for home owners who are upside down on their mortgages.

According to Yahoo Finance, “the revised Home Affordable Refinance Program, or HARP 2.0, allows refinances for homeowners who owe more than their homes are worth, regardless of how deeply underwater they are.

More information on the HARP 2.0 Program can be found here: www.harpprogram.org.

Last year we took advantage of these low interest rates to refinance our mortgage and I am very glad we did it.

Of course, I only recommend taking on a mortgage for no longer than 15 years and only with a fixed interest rate.

So yes, it is a great time for refinancing your mortgage and here are 5 things to consider as you make this move:

1. Should you Refinance?

Of course with the low interest rates, you can save a lot of money on interest and also pay off your mortgage earlier.

However, refinancing only makes financial sense if you intend to stay in the home long enough to recover the closing costs.

For example, let’s say you have a $200K mortgage at 4%. If you get a new mortgage at 3%, you would save $2,000 per year in interest.

If your closing costs are $4,000, you would need to stay in the home 2 years to recover your closing costs.

2. Check your Credit Report.

The first step any mortgage lender will take is to run a credit check.

Any negative or incorrect entries in your report could cause delays in your refinance process.

Take time to check it and take action to resolve any issues.

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3. Prepare for A Home Appraisal and Credit.

The mortgage lender will require a full credit report including your FICO scores. You will pay for the cost of this report.

The lender will also require an appraisal of your home. Costs for an appraisal can run between $300-500.

You will be expected to cover this cost as well before the refinance is processed.

Be prepared to share any home improvements you have made since you purchased the house with the appraiser.

4. Prepare your Documentation.

The lender will also require certain information such as W2 statements for the last 2 years, bank statements for all of your accounts for the last 2 months, and payment stubs from your last 2 pay periods.

Be ready to provide these documents quickly to avoid any delays.

5. Communicate

Mortgage lenders are dealing with a large volume of refinance requests due to the low rates.

Stay in contact with your lender to make sure they have all the documentation they need and that the refinance is progressing normally.

Just like with anything else that involves your money, you need to stay on top at all times.

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Have you thought about refinancing your mortgage? What has been your experience? What other reminders would you add to the list?

Ready to Sell Your House? 3 Keys to Success.

Ready to Sell Your House?Are you getting ready to sell your house?

There are several reasons why you might be thinking about taking that step:

Your family’s needs have outgrown your current home or you may need to relocate due to work or family reasons.

Or perhaps you are at a point in your life where you want to go down in size and simplify your home maintenance.

In a previous blog post I discussed the 3 questions you must answer to determine if you are ready to buy a home.

Today I want to look at the 3 keys to success when you decide it is time to sell your house: information gathering, getting the house ready, and being patient with the process.

1. Information Gathering

One of the first things you should do is to get professional help in the form of a real estate agent.

You want to work with a person that you can trust, that knows your area well, and that will give you objective information about the prospects of selling your home.

When we decided to move from Round Rock, TX to Frisco, TX almost 4 years ago, we met with an agent and this is what we discussed:

What do we have to do to get the House Ready?

At that time, we had owned the house for about 14 years. We asked the agent to do a walk through of the house and make recommendations on what we needed to do.

You want to make the house appealing to potential buyers. You have to put yourself in the mindset of a buyer.

Here are some examples of the actions he recommended:

  • Fresh coat of paint for both the interior and exterior of the home. Unfortunately, I had not done anything in that space in all that time. A mistake I hope not to repeat in the future.
  • Replace some of the light fixtures. In 14 years the preferred styles had changed quite a bit and we needed to give the home a fresh look.
  • Make some minor repairs to the back porch and also on our fence. We also replaced the carpet in the entire house for the 1st time and even spent a little money on adding a kitchen back splash.
  • Eliminate the clutter. When you live in your house for a long time, you tend to accumulate lots of stuff. As you get ready to show your house to prospective buyers, you may want to take an opportunity to sell or donate unused items.

Remember, this list of recommendations will be specific to your home and your situation. You will have to decide what makes sense to you.

Sale Price for Comparable Homes

This is what it is normally referred to as “comps”. You need to have an idea of what homes are selling for in your area at this time.

This will greatly inform you when it is time to put a sale price for your home. You want this price to be realistic with what the market dictates.

The market will tell you the truth about the worth of your home in spite of what you think the home is really worth.

Average Days on the Market

This is what is normally referred to as the “DOM” metric. It will tell you on average how long it is taking for homes to sell in your area.

This will give you an idea of how long the sale process might be in your case. Remember that no matter what the national or even state news might say, real estate is a local proposition.

The sale of your home has more to do with local factors than with any national numbers in the real estate market.

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2. Getting the House Ready

This was of course the fun part. Once we decided to sell our home and were armed with information, it was time to create a plan for the required renovations.

Now you know me. I am a Project Manager by trade and a natural nerd. So I created a simple spreadsheet for a budget and a timeline for the projects we had to complete before putting our home on the market.

First we had to decide on our budget for the required renovations. You know we don’t borrow money, so we had to assign a total amount for the renovation consistent with our savings.

We also had to decide on which projects we wanted to do ourselves and for which projects we wanted to use professionals.

For example the painting and carpet replacement we outsourced. Cleaning and minor repairs/replacements we did ourselves.

In terms of the timeline, we discussed with some of our providers what order made sense. We put down the new carpet down first and then we had the house painted (it makes sense, trust me).

Once we selected the timeline and budget for our projects, we were able to target a date for putting the house on the market.

And then it was time for doing the work. It was a lot of work and lot of items to manage but we were extremely pleased with the results.

We even got to enjoy some of those changes for a while. The lesson is that home renovations should be an ongoing task consistent with your budget and needs.

It is definitely easier and more cost effective to renovate as you live in the house vs. doing it all at once. Again, lesson learned!

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3. Being Patient with the Process

This is both very important but also very difficult.

Hopefully you are not in a situation where you have to sell your house due to a financial hardship or other critical situation.

When you are in a “must sell” situation you make different decisions because the main driver is how quick you need to sell the house.

But in a situation where you can afford to wait, patience is your best friend. When we decided to sell our home, the main driver was being closer to family.

In our case, we did not need to sell our home so we could afford to wait for the best possible offer and then make the move.

Remember also, that once you put the home on the market, you will need to keep it ready for visits from prospective buyers at all times.

Your real estate agent might give you a call at any time saying he has someone that wants to look at the house within the hour. Sometimes, you will even have less time than that.

Get yourself in a position where you can do that with minimal disruptions, but expect the disruptions. You will need to be patient, because this will happen multiple times.

Finally, do not get frustrated with how long the process is taking or how many views the house has seen. If you picked a good real estate agent, trust his process to market your home. He is your ally.

In our case we had less than 5 home visits but we sold our house in 30 days (to a cash buyer!).

In the end, thanks to information gathering, a careful plan to get the house ready, and patience with the process we achieved our goals.

What other keys to success have you found in the process of selling a house?

Ready To Buy a House? 3 Questions To Ask Yourself.

Ready To Buy a House? 3 Questions To Ask Yourself.The “American Dream” that we are all encouraged to chase includes the purchase of your own home.

With mortgage interests rates still reasonably low, it seems like a great opportunity and you might be thinking that this is the right time for you to buy a house.

Of course, I believe that everyone should strive to reach the goal of home ownership.

As you consider this major decision here are a 3 questions to ask yourself to determine if the time to buy a house for you is now.

1. Are you on firm financial ground?

  • Are you completely debt free (credit cards, medical bills, student loans, car loans, etc.)?
  • Do you have an emergency fund of 3-6 months of expenses (preferably 6 months)?
  • Are you saving for retirement (15% of your annual household income) and for college expenses?

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2. Can you really afford to purchase a home?

  • Could you make the home purchase with a 15 year mortgage at a fixed interest rate?
    • Avoid mortgage loans with adjustable interest rates and balloon payments.
    • Remember, there is a large difference in interest paid between a 15 year loan and a 30 year loan over the life cycle of the mortgage.
  • Have you saved up for a down payment of between 15% and 20%? With a 20% down payment you will avoid paying for Private Mortgage Insurance (PMI) which protects the lender in case of default on the mortgage.
  • Will your monthly mortgage payment (taxes and insurance included) be equal or less than 25% (or 1/4) of your monthly take home pay? A mortgage payment that takes too much of your monthly take home pay will put a lot of strain on your budget.

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3. What are your purchasing goals?

  • Have you made your list of “must have” elements vs. those which are “nice to have”? For example:
    • Do you need 4 bedrooms or could you be all right with 3?
    • What about bathrooms: is it 2 or 2.5?
    • What is more important to you: size or location?
    • What about the quality of the school district?
    • Make a list and evaluate the potential houses against that list.
  • Do you have to buy the first one you see?
    • Take your time when looking and guard against “house fever”.
    • For my first home purchase in 1996, I looked at around 25 houses.
    • For our second home purchase, my wife and I looked at 20 different homes.
    • There is no need to rush the decision on this investment which will be one of our largest purchases of your life.
  • Who is helping you?
    • It is a very big decision so you should seek professional help.
    • Secure the services of a good realtor that knows the area and has sold many houses and helped many buyers.
    • Interview 2 or 3 before you make the selection.

“Prepare your work outside; get everything ready for yourself in the field, and after that build your house.”
Proverbs 24:27 (ESV)

As a Man Thinketh… What Do the Voices in Your Head Say About Managing Money?

Voices in Your Head about Managing MoneyDo you ever talk to yourself? Do you hear voices in your head? I know I do.

No, I am not crazy. But I do believe that we all have “voices in our head” that influence our path of action in any area of our lives.

Sometimes there is a voice speaks from our childhood, what we heard from parents or teachers about what we could do or should do.

Perhaps the voice of a spouse or a significant other who can either help to build up or tear down our self-worth.

Or it could be the voice of a supervisor which influences what we think about ourselves and our value in the market place.

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What about Managing Money?

When it comes to managing money, we also have many voices in our head.

The voices of the news shows which speak to the current state of the economy and whether or not the American Dream is still alive.

Or the voice of the politician who thinks government is the answer to all of our economic problems.

Or the voice of a friend or relative which believes winning with money is just a dream and that you are better off by playing the lottery and hoping to win it.

After all, someone has to win. Right?

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Carefully Filter What You Hear

In terms of how you and I can be successful in managing money, it only matters what we believe is true about our particular situation.

It is not about what the media thinks, what politicians think, or even what your relatives and friends think. Neither one of them pays your bills.

Neither one of them is in charge of your economy. You are in charge.

Even the advice you receive by reading this blog matters very little if you don’t take action on it.

It only matters what you believe to be true, because your success is ultimately determined by what you believe.

So, ask yourself these questions and consider your answers:

  • Do you think it is impossible to live on a budget? Or do you think if someone showed you how, you could do it?
  • Do you believe that you will always have a car payment? Or do you think it is possible to save and pay cash for your next car?
  • Do you believe credit cards are a way of life, or do you believe that it is possible to live without relying on plastic?
  • Do you believe you should focus on building your credit score, or do you believe that you should focus on building wealth?

How are you doing so far?

  • Do you believe in spending all the money that comes in, or do you believe that you should save for a rainy day?
  • Do you believe that you could really plan and save for retirement, or are you resigned to live on Social Security and Medicare?
  • Do you believe that the only way to go through college is with student loans, or do you think that scholarships, work, and savings are a better option to cover the expenses?
  • Do you believe is up to the government to help you and fix all of your problems, or do you believe that it is up to you to lead your household by doing what it takes to get control of your financial situation?
  • Do you believe is up to someone else to help those in need, or do you believe that as you improve your financial situation you can then truly give and help others?

In the end, it is all about what you believe. Your beliefs will determine your actions.

So, what are the voices in your head saying about managing money?

“Finally, brethren, whatever is true, whatever is honorable, whatever is right, whatever is pure, whatever is lovely, whatever is of good repute, if there is any excellence and if anything worthy of praise, dwell on these things.”
Philippians 4:8 (NASB)