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.
  • If you want additional guidance on the process of getting a mortgage, this article from The Simple Dollar is a great resource.

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)

Managing vs. Eliminating Your Debt

Managing vs. Eliminating DebtI have a question for you. Should you be managing your debt or eliminating your debt?

This is a key question that you must answer and your response will determine your level of success with your finances.

If you are comfortable with keeping and managing your debt, you will spend your time making just the minimum payments, worried about how to increase your FICO score, and looking for options to move your debt around to the next card that offers you a “free interest balance transfer”.

You will be ok with always having a car payment and just using credit to get anything you think you need.

Debt will always be your companion.

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However, if your focus is on eliminating debt, you will put your energy on how to increase your income or cut your budget so you can apply more of money to your debt snowball.

You are not simply playing with credit cards, you are ready to break up with them for good.

You will learn to be patient and save for the things you want to buy.

Debt will no longer your companion, but your enemy. The enemy of your financial prosperity. Once you are done with it, you can move on to bigger and better things.

What will it be for you? Will you keep working on managing your debt or will you put your focus and passion on eliminating your debt?

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Out of Slavery: Life After Debt

Out of Slavery - Life After DebtThe other night I was flipping through channels on TV (you know, 300 channels nothing good to watch) and I landed on the SyFy Channel and an episode of “Star Trek: The Next Generation”.

It was one of my favorites (“Redemption“) so I decided to go ahead and finish it.

Of course, since I was watching live TV, I had to endure the commercials.

Interestingly enough, several of the commercials were devoted to companies offering debt consolidation, credit counseling, and mortgage assistance services.

The promises by each of these companies were pretty enticing. Some of it went along the lines of: “Payoff all your debt quickly and easily!“, or “You have the right not to pay what you owe!“, or “We can save you thousands of dollars on interest!“, “It’s free!“.

It sounded too good to be true, and given we were watching the SyFy Channel, it made me think that these companies knew the audience would be willing to believe in claims that have very little to do with reality.

When something sounds too good to be true, it usually is. The reality is that there are still some lingering effects from the Great Recession of 2008.

Banks and lending companies are enforcing tight standards for granting credit. Even the government has tried to help by putting more controls around consumer credit card companies.

And certainly everyone had to stop and take a moment to evaluate how we handle money in view of potential down cycles of our economy.

But as you think about your particular situation, let me challenge you to consider some basic principles around debt and how to overcome it.

Regardless of where you are today: lots of debt, little debt, or no debt, these principles are true and when they are applied they will cause you to win with money.

There is life after debt.

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First, what’s God’s view on debt?

“The rich rules over the poor, and the borrower is the slave of the lender.”
Proverbs 22:7 (ESV)

Think about that statement for a moment. In essence it says that when you owe money to another person or entity, you are a slave to that person.

Think about what you owe. That person or entity chooses what interest rate you pay, when you pay, and what the minimum is. They control that portion of your income.

If you fail to pay for any reason they can take the asset or garnish wages after securing a judgment against you. They are in total control.

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Second, why do we use debt?

  • We don’t plan for expenses. When we don’t have control of our money through a budget it never seems we have enough to cover all expenses.
  • Lack of discipline for saving money leaves us relying on debt to cover emergencies.
  • We seek to take advantage of “deals” such as airline miles, hotel points, cash back, etc. We typically spend more when we use plastic. So we tend to spend more by chasing the magical free air fare or hotel stay.
  • We are influenced by the culture. We accept that paying interest is a way of life and that is the only way to get what we think we need.

There is no easy fix for getting out of debt.  There is no magical pill or perfect government program to get you out of debt.

You have to do it, you have to take control. You will get out of debt only when:

  1. You admit that using debt/credit will not bring you prosperity.
  2. You get sick to your stomach when you realize how much money you are paying in interest.
  3. You get tired of carrying the debt burden.

I know it can be stressful to carry the debt load because I have been there. I know it might seem impossible to pay it off but you can do it.

Let me tell you that I know it is possible to be debt free because my wife and I have done it. We paid off almost $50K in unsecured debt in 29 months.

We did it with God’s provision and by applying His principles. It was not easy but it was totally worth it.

Today, we are no longer slaves to debt. We are free of debt and we are walking with hope and in control of our finances.

How would life look to you if you were debt free? What could you do?

Contact me and let me show you how you can have life after debt.

It can happen!

“Debt is dumb. Most normal people are just plain broke because they are in debt up to their eyeballs with no hope of help. If you’re in debt, then you’re a slave because you do not have the freedom to use your money to help change your family tree.”
Dave Ramsey, Author and Personal Finance Expert

6 Steps To Debt Freedom

6 Steps to Debt FreedomDid you know that our national debt is now over $18T)?

Since September 30, 2012, the National Debt has continued to increase an average of $2.43B per day.

Or how about this fact: as recently as 2012, The U.S. government had to borrow 46 cents of every dollar that it currently spends, four times the rate in 1980.

I could go on but you get the picture. This is the kind of stuff that should scare you or make you really upset.

We have dug ourselves a pretty deep hole and the situation looks hopeless.

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However, while the solution to the national debt crisis is out of your hands, taking care of your personal debt is not.

But you need to reach a great level of disgust and frustration with yourself. You have to decide that you are done with debt.

That you are done being a slave to the lenders. That you are taking control of your financial destiny.

If you are ready to change, if you are truly done borrowing money, there is a way out.

6 Steps to Debt Freedom

  1. Establish a beginner’s emergency fund of $1,000. You need to have a small cushion so when the car needs a repair you don’t have to use a credit card to pay for it.
  2. Stop borrowing money. Do not add more debt while you are trying to get out of debt.
  3. Stop your retirement contributions temporarily. Yes, even if your employer provides a match. You need all the cash flow you can get. Plus you need to focus on getting out of debt instead of having your attention divided on multiple tasks.
  4. List all your individual debts (except your mortgage) smallest to largest. Make sure you are current on each one of those debts and keep making the minimum payments. Then start paying extra (as much as you can) on the smallest debt.
  5. When you are done paying off that smallest debt, take the amount of that payment and apply it to the next debt on the list.
  6. Repeat steps 4-5 until you are done with all of your consumer debt (credit cards, medical bills, car loans, student loans) is paid off. This process is known as the “Debt Snowball“.

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Do’s and Don’ts

  • Do consider working extra hours or taking a second job so you can have extra income.
  • Do consider selling some assets (have a garage sale for example) to jump-start your debt snowball process.
  • Do close your accounts when you pay them off. You don’t need them anymore.
  • Don’t fall for the trap of debt consolidation. All you are doing is moving the debt around. Interest rates are not your problem.
  • Don’t borrow money from your retirement plan. If you lose your job or you leave your job, the payment is due within 60 days. If you don’t pay it then, it is considered an early withdrawal (if you are younger than 59 1/2 years old) subject to taxes and penalties. By taking the money out you are also losing out on any investment gains on that money.

So there you have it. You have the steps plus some additional guidance on how to get out of debt.

This is the process my wife and I used to get out of consumer debt almost 10 years ago.

It took us 29 months but we paid $50K in debt. We have never looked back.

It can be done but it is up to you. There is no product without the process. There is no victory without sacrifice.

Decide today and act today!

The rich rules over the poor,  And the borrower becomes the lender’s slave.
Proverbs 22:7 (NASB)

Year End Financial Checklist

Year End Financial ChecklistCan you believe we are near the end of the year already?

Time flies and I am sure that if you are like me,  you are looking forward to the holiday celebrations and some well deserved rest.

However, before the year runs out, I wanted to give you a year end financial checklist.

The great Zig Ziglar said: “It’s true. Spectacular preparation precedes spectacular performance.

These actions will help you prepare to  start the new year on the right foot with your finances:

1. Check your Credit Report

Have you checked your credit report lately? This is something you should do at least once a year.

According to the Federal Trade Commission (FTC):

A credit report includes information on where you live, how you pay your bills, and whether you’ve been sued, arrested, or filed for bankruptcy.

Nationwide consumer reporting companies sell the information in your report to creditors, insurers, employers, and other businesses that use it to evaluate your applications for credit, insurance, employment, or renting a home.

The Fair Credit Reporting Act (FCRA) requires each of the nationwide consumer reporting companies — Equifax, Experian, and TransUnion — to provide you with a free copy of your credit report, at your request, once every 12 months.

So take the time to request a copy of your credit report.

  • You can order your free annual credit report online at annualcreditreport.com, by calling 1-877-322-8228, or by completing the Annual Credit Report Request Form and mailing it to:
    • Annual Credit Report Request Service
    • P.O. Box 105281
    • Atlanta, GA 30348-5281
  • Get a report from each one of the agencies.
    • They are supposed to cover the same information but there can be differences.
    • In some cases entries in one report will not show up on the other reports.
  • In case you cannot get a copy of your report from the online website, proceed with the phone call or complete the form to request via  mail.
    • Just make sure you get your hands on that report.
    • If I had done this, I would have taken the steps to correct the problem before starting the mortgage refinance.
  • Review your report for any inaccurate entries.
    • Keep in mind that only entries that are inaccurate can be removed from the report.
    • Don’t fall for scams that promise to “clean-up your credit”.
  • If you find any inaccurate entries, contact the appropriate credit reporting agency.
    • Send a letter via certified mail, return receipt requested detailing the inaccuracies.
    • Consumer reporting agencies must correct or delete inaccurate, incomplete, or unverifiable information.
    • Inaccurate, incomplete or unverifiable information must be removed or corrected, usually within 30 days.
    • Additional information can be found at the FTC website.

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2. Assess Your Insurance Needs

As you work on your financial plan, I also want you to consider the need to manage the risks to your finances by evaluating the role of insurance in your financial plan.

What is the role of insurance? In simple terms, insurance is the tool that is designed to protect you and your family against what might happen.

Ensure you have the right type of insurance and the right coverage to protect your financial plan.

3. Check Your Retirement Plan

Understand how your plan is progressing and make adjustments as needed.

Even with all the focus on personal finances today, planning for retirement is one area where we continue to come up short.

The good news is that you can do better than average. Seven years ago, I was part of those statistics but now I have a plan that is yielding good results.

Here is how I am preparing for retirement.

4. Prepare a Will

Do you have a will? If not, you are among 50% of Americans with children who have neglected this important step.

So what are some of your reasons for not dealing with this issue? You might think it is costly (it is not), or complex (it is not), or that simply you don’t have anything to leave to anyone so you don’t need a will (oh but you do).

Or you might just not want to think about your own mortality.

However, the reality is that we will all face death and the sooner you face that fact, the better off you will be.

So here are the 3 Reasons you should prepare a will:

  1. Because it puts you in control:
    • If you die without a will, the state takes over deciding what happens with your property.
    • The state already has too much say in what happens in our private lives.
    • There is no wisdom in leaving the disposition of your assets to the government.
  2. Because it is simple and cost effective:
    • You don’t need a high priced estate lawyer to do this. For most of us it is really a simple process.
    • Personally I used an online service that provided my wife and I with the required state specific forms for our wills.
    • It just took a few hours and less than $50 and we are able to put our last wishes on paper.
  3. Because it shows love for your family:
    • Imagine if something were to happen to you. In the midst of the grief and sorrow of losing you, your family also has to deal with the legal ramifications of what to do with your assets.
    • Don’t leave a problem behind. Love your family to the end by taking care of your will preparation today.

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5. Get on a Budget

I have always told you, the budget is the key to your financial success.

If you can’t control your money, you can’t build savings, you can’t pay-off debt, you can’t plan for the future.

Make 2015 your best financial year by starting to get control of your money today!!!

What other steps could you take this month to help you make progress with your money in 2015?