We’re changing our focus in 2018

By BOB CUNNINGHAM

Since beginning this blog in March of this year, I’ve had a blast bringing to whatever audience I can attract, sound yet not always orthodox personal finance principles.  For every tried-and-true method for accumulating and saving money – “pay yourself first,” for example – there are perhaps twice as many myths that are promoted as the gospel.

I truly believe unearthing these things for you, and demonstrating why what I’m relaying to you makes more sense than commonly accepted strategies, are the most rewarding endeavors I have ever undertaken.

But it’s time for a switch in approach, a changing of what we emphasize on BuildWealthEarly.com.  This site will no longer be focusing on financial fundamentals, although we will certainly be confirming them along the way.  And I won’t be writing about unconventional strategies, except as they pertain to one specific approach to money.

Beginning with the January 10, 2018 post – I will be taking a brief hiatus until then – this blog’s primary purpose will be to illustrate how utilizing life insurance as your primary center of all things money is absolutely in your best interest.  The type of insurance in question, dividend-paying whole life, can literally guarantee you a prosperous future of saving for retirement, college education, expenses, big-ticket purchases, and more.

Up until now, the focus has been general with plenty of mentions of DPWL but not a great deal of detail. Beginning next month, that changes.  When you have this information available to you, and I’ve properly demonstrated the numerous advantages of this strategy, you will be asking why you ever allowed yourself to be duped into believing that the federal government actually had your best interests at heart.

Oh, don’t get the wrong idea. I love America.  Our government of democracy is the greatest in the world, without question.  But collecting taxes is a big part of how the USA does the things that it does outside of the normal scope of government.  Acting as if it is seeing to your prosperity has a lot less to do with promoting your well-being, and a lot more about helping the government appear as if it is doing so.

Thank you for your willingness to hang with this website.  I hope you have benefited from the variety of material I’ve provided.  If you have, fantastic.  It’s going to get even better and certainly more specific.

And if for some reason you haven’t gotten as much from this space as you would have liked, but you’re still reading, thanks for your patience.  I’m confident you will like the weeks and months to come.  Either way, be sure you’re commenting regularly – be genuine enough to tell me what I’m doing right as well as wrong.  That said, if you believe I deserve criticism or if you take exception with something I’ve written, let me know about it.

Until 2018 then, Merry Christmas and Happy New Year.  And thanks once again for reading.

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DISCLAIMER:  This post represents the author’s opinions only.  In no way should any part of the content of this post be interpreted as official financial advice, nor does it represent an intention to solicit readers into a specific company or investment.  Results are never guaranteed.  Utilize the information as you see fit, make all money decisions at your own risk.

The most difficult financial challenge for young adults: Buying their first home

By BOB CUNNINGHAM

We can save and invest, eliminate all our debt – especially those nasty and unproductive credit card payments – and engage in activities to increase our income.

But when and how do we go about buying a house?

That’s pretty much what many young adults and families are asking these days. As personal finance education continues to be more and more commonplace, the one major component that is often missing is information about how – and when – to secure that elusive first abode.

Signing a rental agreement is easy.  Loan and escrow documents? Not so much.

I’d love to be able to write in this space that the process for buying a home doesn’t have to be challenging or complicated.  But in fact, it usually is because there are so many variables, from qualifying for a mortgage to saving for a down payment, to covering closing costs, and more.

It can be intimidating.

Still, millions buy their first homes every year, so it is certainly doable.  Here, then, is a summary of steps that can allow you to get from your apartment or parents’ basement to a residence you can legitimately call your own:

1) Commit to the process. You can’t buy a home “half-way,” or realistically just give it a try.  You have to want it, and even more importantly, understand what has to be done and sacrificed to get it.

While there are numerous first-time buyer programs that really do open barriers which otherwise might be nearly impossible to overcome (try being in your 20’s and having to save up 10% or even 20% for a down payment on a $150,000 home), it’s never going to be free to get into a home purchase.  The most common avenue, via the Federal Housing Administration (FHA) first-time buyer program, generally requires a 3% down payment and escrow closing costs.  On the aforementioned $150K house, you’re still looking at about $8,000 out of pocket before you pack a single box.

Hey, Mom and Dad… got a question for ya.  Oh, and have I said ‘I love you’ yet today?  I sure do!

Realistically, even if your parents are willing to help, you’re going to have come up with some scratch.  Let’s say you need $5K on your own.  At $300-400 a month saved, a lot for most people in this category, it will be well more than a year from when you first decide to go for it that you will be able to come up with enough.  Are you TRULY willing to be disciplined and save on that level in order to make this happen?  If not, keep on writin’ those rent checks.

2) Learn and understand what’s involved in owning versus renting, benefits and pitfalls. Sure, when you own you’re buying something that is yours, that typically appreciates in value, and that you can eventually sell.  You can also write off the mortgage interest on your income taxes (unless proposed tax code changes eliminate that – a step that is unlikely except perhaps for the largest jumbo mortgages). Rent money is, by most accounts, squandered money.

On the other hand… and there’s always an other hand… renting doesn’t require you to buy homeowners insurance or pay property taxes, the two of which often cost an additional 15-20% on top of the principal and interest on your mortgage.  And while it’s true that you can do almost anything to a home you’re buying in terms of improvements, if something breaks it’s up to you pay for the repairs.  When you rent, you can generally just call the landlord and the problem will (should) get resolved without any cost to you.

3) Avoid setting your sights too high on your first home.  Oh, but how it would be cool to have an extra bedroom for my man-cave, a pool and hot tub in back, and wrought iron fencing all around with gated entry.  Our palace!

Truth is, you’re probably looking initially at a cookie-cutter, tract 3-bedroom with few luxuries.  You have to crawl before you walk, and walk before you run, etc. I’m fascinated by the advice I read in nationally-recognized publications and websites that suggests finding a suitable home first, then locating the financing to make it happen.  That’s exactly backwards.

As a first-time buyer, you need to determine the maximum monthly payment that you can afford on your current budget, including principal and interest, taxes and insurance (PITI in real estate lingo), AND THEN SUBTRACT AT LEAST 10% FROM THAT FIGURE.  Give yourself some wiggle room.  If you feel like your budget allows for a $1,600 payment (on a traditional 30-year mortgage), limit yourself to a max of $1,440.  There are numerous unforeseen issues that can quickly drain your housing budget.

And make sure you’re realistic as you establish that initial budget.  If your current rent is $1,000 a month, for instance, and you’re unable to save more than $100 or so monthly, where the heck are you going to get that extra $340 every month when you buy?

(By the way, be sure you don’t attempt to qualify for a 15-year mortgage on this first home purchase, even if you can afford the big payment.  Yes, the interest rate for such a loan would be slightly lower, but you’d be backing yourself into the corner of a much larger minimum payment.  Get the 30-year loan, and if you wish and can swing it, pad your payments (check with the lender for the proper way to assure your extra money goes toward the principal balance and that there no pre-payment penalties) or make a half-payment every other week as a strategy to accelerate payoff.  This latter method results in the equivalent of 13 monthly payments in a year, not 12, and cut a 30-year term to less than 23 years.)

After… and only AFTER you determine what you can truly afford to pay monthly, do you set out to find a home.  Determine with your real estate agent (always use one to help you buy – the seller generally will cover his or her commission at the close of the sale) how much you can finance to wind up at the payment you seek.  Work backwards, remembering to factor in your initial up-front costs.  Ultimately, if done correctly, you’ll conclude that the most you can offer is, for example, $165,000.  STICK TO THIS MAX. DO NOT EXCEED.

4) Interview real estate agents and select one to represent you. Don’t just go with the first person you talk to.  Some buying agents really hustle and seek out the best home for your particular situation, while others will focus only on their own listings or those from another agent in the same office, trying to maximize their commission.

In fact, instruct your agent that you do not want to consider any homes which are listings from that agent or that office. If they agree without hesitation, you may very well have a keeper.  Otherwise, move on.  You can always relax that requirement a week or two later if you’re convinced the agent is truly working to represent your best interests.

If you can, try to avoid a buyer representatative agreement.  If you sign one, the agent will be eligible to receive a full share of the commission even if you end up finding the desired home on your own.  Understand, though, that if you find the home but utilize the agent to help you navigate the buying process, have the agent put in your offer, etc., that the agent is entitled to be paid if you, indeed, buy the home and close escrow.

When working with the agent, be specific (and realistic) about what you’re looking for, and stick to your guns.  Be open-minded, but direct.  If you inform your agent that the home must have three bedrooms, and he or she tries to steer you to a 2-bedroom because “it’s a steal,” inform the agent that you have set your parameters and you expect them to be met.

5) If you feel confident about the situation, go for it.  Otherwise, don’t.  Buying a home is, obviously, a major commitment.  If you have reservations about the home you’ve picked, or your agent, or any other variable in the process, take a step back and re-evaluate.  There’s no pressure here.  You’re in charge.

Once you’ve satisfied every facet, and you find yourself excited about the prospect of buying and moving into the home you’ve chosen, have your agent make the offer – ideally, 5-10% below the asking price or your pre-determined maximum price, whichever is lower – and, to repeat, stick to your game-plan.  NEVER let emotions affect your strategy, or be visible to sellers.

Follow these fundamental steps, and the result will be a truly satisfying process.  And if you have to soak in a blow-up kiddie pool in your new backyard until you can reasonably afford to move up in house enough to have a legit party pad with spa tub, accept that… and set your new goals for the upgraded digs, when the timing makes sense.

Once again, I thank you for reading.

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DISCLAIMER:  This post represents the author’s opinions only.  In no way should any part of the content of this post be interpreted as official financial advice, nor does it represent an intention to solicit readers into a specific company or investment.  Results are never guaranteed.  Utilize the information as you see fit, make all money decisions at your own risk.

In money management, there’s a difference between automation and auto-pilot

By BOB CUNNINGHAM

My son is the worst about it of anyone I know.  You’d think that, being his old man writes about smart money management on a regular basis, he would be averse to such bad habits.  Nope.  Instead, he swipes or inserts his debit card to pay for things… and whatever balance his bank shows in his account at any given time – if and when he bothers to check – must be correct.

This folks, is referred to as money management on auto-pilot.  It’s not recommended.

In a neo-technical society, automation can be a great thing.  Banking apps are all the rage – just snap a photo of the check you want to deposit, complete a couple of clicks, and just like that you have made a deposit.  No need to venture out and walk up to an ATM, deal with a drive-thru, or (perish the very thought of it!) stand in line inside a branch.

But often, people confuse utilizing modern-day tools to assist noble efforts with a hands-off approach that, quite honestly, is just begging for problems.

You need to be on top of your money, gang.

So here is a quick breakdown of how you can utilize automation to your benefit, and what you should be willing to take the extra time required to do just to make sure you really are engaging in intelligent money management.

Use on-line banking…

Why wouldn’t you?  Like the trash-talking big guy proclaimed in the film, White Men Can’t Jump, to explain his sudden departure from the basketball court in the middle of a 2-on-2 tournament game he and his partner were dominating, “This is too easy!”

On-line banking allows you to quickly check your balance, see transactions, and the Bill-Paying feature lets you set up recurring payments on bills which are the same amount every month, such as your mortgage and car payments. You can also sign up directly with the vendor to get regular alerts for how much your bill is and when it’s due (ideal for utilities, for instance), go to your bill-pay page, and authorize payment in less than 30 seconds.

… But monitor it regularly

I go to my bank’s on-line site at least 3-4 times per week.  No, it isn’t because I’m obsessed with seeing a large balance.  Trust me, that isn’t applicable… not because my wife and I are poor – we’re doing fine – but because my regular bank account is used for paying bills and everyday expenses.  The bulk of our assets are located elsewhere, where they can earn a respectable rate of return.

I go there because I want to safeguard against two things – errors and oversights.  Errors are when someone charges you erroneously, or there is an error on the bank’s end (very rare, I have found).  Oversights are when it’s my fault – a charge I didn’t remember to account for, or perhaps a subscription auto-renew that I forgot about or didn’t want.

Simply put, I want to make sure the amount of money shown in our account is what should be shown.  Typically, the quicker mistakes are discovered, the easier they are to remedy.

Have your paychecks direct-deposited…

Many banks offer small incentives for agreeing to have your paychecks directly deposited regularly.  The perks can be fee-free basic accounts, discounts on loan rates, small cash-back considerations, even tangible gifts.  Nothing cozier than watching TV draped in a blanket with “Bank of Cucamonga” emblazoned.

Yeah, I’m kidding about the blanket.  Still, it is more convenient not to have to worry about physically possessing your check, getting to the bank to deposit it or cash it, etc.

…But know what’s being withheld from your net pay and why.

Don’t trust your employer with getting it right.  Be sure you concur with what is being withheld, how many hours you were credited with working, even the pay rate itself.  My other son recently took a new job, only to find out that he was being paid 75 cents an hour less than he thought he was promised.  And of course, he didn’t notice this until about a month in, making a correction (and retroactive reimbursement) more difficult to request and obtain.

Pay Yourself First:  Have money from your check sent directly to an investment account…

One of the oldest adages in personal finance, discussed numerous times on this site. “Pay yourself first” means that you set aside funds for savings before you pay any bills or cover any other expenses.  It assures you save, regardless of circumstances, which is especially critical when you are first starting out and have the maximum time to take advantage of the amazing principle of compound interest.

…And monitor your  balance to assure full credit and growth

Again, don’t trust that the powers that be will get everything right.  I once had a life insurance policy, for which I sent in a contribution toward what is referred to as a “payed-up additions rider,” which allows for growing your cash value more quickly provided you stay within certain parameters.  The insurance company mistakenly credited the payment toward a small policy loan balance I had, that I had just taken and wasn’t yet willing to pay on.

The error wasn’t a big deal, and was easily corrected by the company, but had I not caught it, it would have ultimately cost me money in the form of lost compounding on the funds which never would have reached my desired destination.

By all means, utilize the great modern technology available to us whenever you can, and it makes sense to you.  But whether you go old-school or new-tool, be “accountable” every step of the way.  Pun intended.

Thanks, as always, for reading.

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DISCLAIMER:  This post represents the author’s opinions only.  In no way should any part of the content of this post be interpreted as official financial advice, nor does it represent an intention to solicit readers into a specific company or investment.  Results are never guaranteed.  Utilize the information as you see fit, make all money decisions at your own risk.