Personal Finance Resources

If you have ever needed to go grocery shopping on a budget (and who hasn’t?), then this post is for you. I wanted to give you several tips to help you meet your shopping budget, as food expenses can get out of control. Even if you are meeting your current grocery budget, there is always room for improvement. Trust me, with escalating gas prices and high inflation rates imminent, food is going to become more and more expensive. But let’s get into some of these money saving tips:

1. Never go grocery shopping on an empty stomach.
   This may be the important tip to controlling the budget. If you are hungry, you will almost always compromise and spend more in the grocery store than you originally intended. Especially if there are free sample stations, etc as you will get a taste of something (and food always tastes better when you are hungry) and will be a lot more likely to buy it than if you had just finished a meal.

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As gas prices continue to climb, I find myself considering more and more to move a motorcycle, gas mileage being the most important factor in considering the change. But at what price does gas have to get to before you will make a change in your vehicle? Just check out this list of Honda motorcycles and their gas mileages (chart taken from http://www.totalmotorcycle.com/MotorcycleFuelEconomyGuide/Honda.htm):

Now, I of course chose Honda motorcycles for my example because I just love Honda. They are pretty much the only thing I drive, with the exception of Toyota (I would drive a Toyota as a second choice). But think about, let’s say you had a car like mine, where you had a 12 gallon tank and averaged around 25 miles per gallon. So you would average around 300 miles on a tank of gas, and at the forthcoming price of $4 per gallon, you are looking at $48 each and every time you fill up at the gas station.

Now, let’s compare that to the average of the chart above, based on just the AVG MPG / L/100 km column. That average over all the models with data displayed is ~46.5 miles per gallon. So that is almost twice the gas mileage. So to drive the same 300 miles, now it will only cost you $24 at the pump, instead of the $48. So the question is - how many times a month do you have to fill up your gas tank? I usually have to fill up once a week, which means I spend (at $3 per gallon for gas) about $130 per month in gas. Would I like to be able to spend just $65-$75 per month in gas? You bet.

Here’s my problem though (and maybe you can relate). My wife does not like the safety risk associated with driving a motorcycle. So to this point, I have obliged and not bought a motorcycle. But if gas continues to get more and more and more and more….you get the picture…and more expensive, that may be just what happens.

The other thing about motorcycles that is so great - they depreciate even faster than cars and trucks. So realistically, you can get a bike that is 3-4 years old, in good condition, for $1,000-$2,000. So for me, it may just be a matter of time before I take the plunge and go ahead and buy a motorcycle. The gas mileage is phenomenal, and the cost to acquire is low as well. A perfect mathematical equation for financial success.

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Whether you want to face it or not, when you buy a car, count on car depreciation, or a continual loss in value over the life of the car. With older used cars, the rate of depreciation is a lot less to you, because they have already lost most of their value. But with new cars, the sting is extremely heavy, in fact, when you first purchase a new car, you could stand to lose upwards of 20-25% just driving it off the lot. Why? Marketability.

Consider this - if you decided to sell the car immediately after you bought it, what kind of a price do you think you will get? Probably much lower than the dealer sold it to you. Ask yourself if you would pay retail for a car that was just recently bought by someone else, instead of going to the dealer directly. And if you wanted to sell it back to the dealer, well…they aren’t going to give you a price anywhere near what you paid for it. They want to make sure they make their money.

A good rule of thumb on car depreciation is to figure anywhere from 10-20% loss each year on the vehicle. Now, if you buy a car that is ten years old, most of the value has already depreciated, and it is nothing to worry about. If you spend $2,500 for a car, who cares if it is only worth $1,500 in the next 2-3 years. When I write posts like Should I Buy a New Car or a Used Car?, and the Ramifications of Making Payments on a Car, this is what I am referring to.

So here is the bottom line from my opinion. If you are considering buying a new car (many people do to get something that will have low maintenance costs for the first few years and be very reliable), plan on driving it for years. I’m talking 10 years or longer. The absolute worst thing you can do is to buy a new car, and sell it or trade it in during the first 2-3 years. You will almost definitely find yourself “upside down”, or in financial terms, with negative equity in the vehicle. My suggestion is to buy a used car that is 5-10 years old, and driving it into the ground. My last vehicle I purchased was a 1993 Acura Integra; it currently has around 160,000 miles and it still drives good. I plan to have it for another 5 years or more, hopefully. When buying an old car, just make sure you have your mechanic look it over thoroughly, because chances are high that it will need significant repairs when you buy it, and as long as you are prepared for the repairs, you can use the information to negotiate down the price of the vehicle. Two quick pieces of advice, don’t be afraid of repairs and make sure to buy foreign cars like Hondas and Toyotas. They just last a lot longer and have fewer maintenance problems.

One last thing, I found a car depreciation calculator if you are interested in seeing an estimation of what your car might be worth in the future. It isn’t as good as waiting until the time you are ready to sell and checking the blue book value, but it might be useful when you are considering purchasing that next car. Here’s the link:

http://www.money-zine.com/Calculators/Auto-Loan-Calculators/Car-Depreciation-Calculator/

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You may remember the articles I wrote in the past on Residential Lease Option and Residential Lease Purchase. These were how to articles to give you ideas on how to further your marketing effort of a particular property by opening up more options for you to get into buyers, and not just renters. And often, with these contracts, you will end up getting the house back anyway, as most people with bad credit who are unable to buy (and therefore in the market to do a lease option or lease purchase) will likely still have bad credit at the end of the lease period. But I wanted to go a little further with this post and tell you about a hybrid deal that I just recently completed.

I manage a property for an ex-business partner, who has now moved out of state. We were looking to rent the property, but with the property being a middle income type property, the rent we needed to get was just a little out of range of the typical family that would be interested in such a property. So I marketed the property as a “for rent” or “for sale” property and told perspective clients that I would be interest in a lease option contract. We were not as interested in a lease purchase agreement because we wanted to make sure we got a good chunk of change up front, as it serves to put the buyer into the property, and we expect less damage to the house if someone has some money in it up front (something to lose).

Well, it took two months to find a buyer, but we finally negotiated a deal with a nice couple with one child. The deal was interesting as it had some of the mechanics of both a lease option and a lease purchase agreement. In the end, the details of the deal were as follows:

• Option fee of $2,750 up front from the buyer
• $875 per month in rent
• $50 per month credited to buyer at time of exercising the option to buy
• 3 year lease agreement
• Final purchase price of $96,700

So, as you can see, in a typical lease option, you would get the initial option fee, monthly rent, lease term agreement, and a final purchase price. Whereas in a lease purchase, you would get a higher monthly rental fee, with part of it being credited to the buyer’s purchase price, a lease term agreement, and a final purchase price. So the hybrid we did here is creative, and it met both the need of the seller and the buyer.

So this is just one example of how you can use creative finance to more effectively market your real estate holdings. This hybrid lease option / purchase is just one of many ways to open up the available buyers / renters in your area.

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Have you ever asked yourself, what is rehabbing? Or been to a meeting, and wondered what real estate rehabbing was? Some people talking about remodeling, and other ways of fixing up a house, but they are using the terms incorrectly. Simply put, real estate rehabbing is the act of restoring a house to its previous condition. Remodeling, on the other hand, is the act of upgrading or improving the property in some way as has not been done to it in the past. Some examples of remodeling are:

• Adding a new room to the house.
• Adding a garage or storage shed.
• Tearing out a standard bath tub and replacing it with a large, jacuzzi or garden tub.
• Adding an island to a standard kitchen.
• Replacing carpet with hardwood floors.
• Replacing A/C window units with central heat and air.
• Significant landscaping upgrades.

On the flip side, when you are talking about rehabbing a property, generally you are talking about things that are really necessary to fix, things that are obvious eye sores or code violations, such as:

• Replacing worn out carpet with new carpet.
• Re-painting the interior/exterior.
• Replacing a dysfunctional dishwasher with a new dishwasher of similar size and capabilities.
• Fixing or replacing a leaky roof.
• Fixing worn out plumbing and electrical.
• Replacing non-working light fixtures and faucets, etc.
• Mowing the grass and removing weeds.

So you see, in the first group, when we are talking about remodeling, we are talking about significant upgrades and improvements to a house. Improvements like adding rooms, central heat and air conditioning can actually increase the value of the house. But when you are strictly talking about rehabbing, all you are doing in that scenario is fixing only the things that really need to be fixed, you aren’t adding any value to the house, you are simply preparing the house to sell at market value. Often, when you remodel, you end up spending more than you stand to make by when you sell the house (unless of course you wait for years and let the property appreciate). So I normally go for properties to rehab, because you can get them cheap, spend a minimal amount of money in repairs, and then get market value for the sale of the property.

So to recap, just remember that rehabbing is just fixing the things that are broken or old in the house, and remodeling is making significant upgrades to the house. If you found this article interesting, sign up for my RSS feed to get free, automatic updates as they become available in your favorite RSS reader. Don’t know what a RSS feed is? Learn more about property rehabbing…

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That headline may be a bold statement, but I am going to give you, in my opinion, the best used car to buy. If you have followed this personal finance blog very long, you probably already know what I am going to say. But I assure you, this is real, I have actually owned one of these cars, and I believe in them above all others on the road, and I am going to explain why I feel that way. All I buy are used cars, so you are in the right company.

But before I tell you what car is best to buy used, I want to give you my criteria for selecting a used a car. So here it is, in descending order of importance:

• Price
  The most important of all. I look for cars that are $3,000 or less in asking price, and I normally look to private owners, not used car dealers. Some used car dealers are legit (although many aren’t), but even if they are honest, they still have to make a profit, and you are going to pay a higher price than buying direct from someone through the pay, internet, etc.
• Gas Mileage
  With gas expected to go to $4 per gallon, the gas mileage that a car can get is becoming a front and center issue. My current vehicle is an Acura Integra 1993 model, and I am disappointed, as it only gets about 26 miles per gallon, whereas my previous vehicle got 30+ miles per gallon. Think about a 13 mile trip one way to the store, bank, etc. If you have to pay $4 per gallon, then round trip you just used 1 gallon of gas, and paid $4, just to run a routine errand!! Trust me, gas mileage is going to become increasing important in the future.

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Reverse mortgages are a great way for retirees to supplement their income using the equity in their home. The simplest way to define a reverse mortgage is to think of it as the opposite of a traditional home loan. When a homeowner executes a reverse mortgage, the bank will pay them for the equity in their, and recapture it later when the home is sold. The homeowner can choose to take the money in one of three ways:  either by a lump sum, a line of credit, or monthly payments. Most often, the homeowner chooses to receive monthly payments from the bank. This increases their monthly income, and can close the gap on any deficiencies in their budget.

Other Benefits of the Reverse Mortgage

In addition to being able to supplement your income while in retirement with the equity in your primary residence, there are also some further key benefits to you:

• You will never owe more than your home is worth.
  In the event that property values decline and your balance is greater than the appraised value of the home, mortgage insurance will cover the gap. This is a great feature to provide stability for the borrower and their heirs.
• In additional value will be paid to your beneficiaries.
  That’s right, after you pass on, and your heirs sell the home, just like a regular mortgage, if the sales price exceeds the loan amount, then they will get the additional money.
• The income from the reverse mortgage does not count as taxable income.
  So as you supplement your income with this type of loan, you don’t have to worry about paying any additional taxes on the gain.
• Income from a reverse mortgage will not count against any Social Security or Medicare benefits.
  Sometimes if you get a job during retirement, and you income exceeds a certain amount, you can lose some or all of your all of your Social Security and Medicare benefits. Not true in the case of the reverse mortgage. The proceeds do not count against any quotas that these programs may have.

Some Downsides to a Reverse Mortgage

The reverse mortgage is a loan, and does acquire interest. So be sure to get a Truth in Lending statement from the mortgage company or bank you are working with to be sure of exactly what will be owed at the end of the reverse mortgage, what your interest rates are, etc. The rates on these loans should be good, considering you have good credit, etc.

Another issue with the reverse mortgage is that you must own the home free and clear of any other liens. If you have an existing mortgage, that mortgage will have to be paid off upon closing the reverse mortgage.

Last, I just don’t like having debt. I currently have a regular mortgage on my house and would like to not have the payment. With a reverse mortgage, you don’t have to pay the money back until death, however I just would like to be completely free and clear of debt, period.

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I noticed some of you that found my free amortization calculator were interested in being able to input additional payments to see how it would shorten the life of your mortgage. So I took the time to come up with the additional calculations to automate the process for you. This amortization calculator is still based on a standard 30 year mortgage with monthly payments, however I added a column called “Additional Payment”. In my example, I defaulted the additional payment column to $50, and as you can see, on a $90,000 loan amount, the additional $50 takes the 30 mortgage down to about 23 1/2 years. Not bad for a little bit more paid each month. Now, in order for this to work for you, you must instruct the bank in writing with each additional payment that you intend for the entire amount to go towards principle only. Without this instruction, they may apply a part of it to interest, just like your regular payment. Here’s a quick look at the first ten payments in this amortization tool:

All you have to do with this amortization calculator is input your original loan amount and interest rate, and then input your additional payment amount in the appropriate column. This calculator is flexible, e.g. you can enter a different additional payment amount each month if you wish, and the calculations will automatically adjust. Have fun with this, and sign up for my RSS feed for updates to all the latest and greatest at this personal finance blog.

You may download the Amortization Calculator with Additional Payments Applied .xls free of charge.

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Whenever you get a new job, or if you are in a job and always end up with a large tax refund check, you may want to consider re calculating withholding allowances for your w-9 again. But Jeffry, why would I want to lower my tax refund check? I like getting that big check back in April. My question to you is, do you like giving the government an interest free loan? Because that is exactly what you are doing by not increasing your allowances during the year to compensate for your overpayment to the government in income taxes. I understand that you don’t want to end up owing the government anything at the end of the year, and on that point, I agree with you. So what I wanted to do today was give you a quick formula to even out those withholding payments to the government, thereby increasing your take home pay and minimizing your tax refund check. Don’t worry, it isn’t going to be complicated, these are just some brush strokes.

Gross pay - charitable deductions - exemptions - mortgage interest expense = taxable income (for our purposes)

There are many more deductions out there, but I wanted to take the basics here just so you can quickly make a better decision when setting your number of allowances. Before I run an example, you need to know a basic calculation for each part of the above equation.

Charitable Deductions

Donations to your Church or other charitable organization is currently 100% tax deductible. So whatever you anticipate giving to these organizations this year, just fill that into the blank.

Exemptions

On a family tax return for 2008, you can take $3,500 per exemption, so a husband, wife, and 3 children could take 5 exemptions, or $17,500.

Mortgage Interest Expense

Although this will vary from year to year, just simply use your last statement of interest expense as a quick number to use for the purposes of calculating withholding allowances.

A Quick Withholding Allowance Example

Ok, now that we know the parts of the equation, let’s run a quick example. Let’s say that you are married and have 3 kids, like above, you make $50,000 per year, you gave 10% of your income to your Church, and paid $2000 in interest to your mortgage company last year. So then the quick equation is:

$50,000 - $5,000 (charity) - $17,500 (exemptions) - $2,000 (mortgage interest)  =  $25,500

Ok, so now that you have a yearly approximation, then divide that by 12 (for monthly payments), or 26 for biweekly payments, then look at this tax table (for 2008) to figure out about how much you owe in taxes on every paycheck. In our example, we would be liable for $980.77 every biweek, which means our equivalent tax would be $76.10 per paycheck. Now that you have that, just check with your payroll department to see how many allowances would be about right for $76.10 tax liability per paycheck. Also, just check with them to make sure you are about right in your calculations, just to be sure you don’t undershoot or overshoot too much, then have them make the change.

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With the price of gas expected to top $4 on average across the US the summer, some small gas saving tips are beginning to become more important. Recently, I was talking with my wife and thinking about what we could do to drive less, and other ways to save on gas. Upon conclusion, I wanted to tell you about a few of those gas money saving tips:

• Mail your deposits to the bank, instead of driving to it.
  In the old days, it cost about as much or less in gas to  drive to the local bank. But at $3 per gallon, and an approximate 8 miles (16 miles round trip) to our bank, we are looking at significantly more money to drive there than to mail it. Our Acura Integra gets about 26 miles to the gallon so: 16 miles / 26 miles to the gallon X $3 per gallon = $1.85 as compared to a 41 cent stamp and a few pennies for an envelope. Unbelievable, but its the honest truth. On a side note, don’t send cash through the mail, make sure it is in your name only, and write “for deposit only” just below your signature on the back. That will minimize the chances of someone making off with your money.
• Leverage the internet to pay your bills.
  Absolutely wherever possible, use the internet to pay your bills. Many, many typical household service/product companies like mortgage companies, cable companies, internet service providers, electrical providers, etc. have websites that you can use to pay your bill online. My wife and I use this in almost all of our bills. Be careful of the ones that charge a fee for the online bill pay service. In this case, it is often best just to mail in your payment (this is what we do).
• Buy gas early in the morning.
  Gasoline, as is the case for most liquids, tends to be more dense when cold. So if you can get the gas while it is cool outside, you stand a chance of getting slightly more gas for the same amount of money. It isn’t going to be much more, but again, at $3+ per gallon, every little bit helps.
• Plan, plan, plan.
  Plan your trips during the day. It doesn’t take much to come up with a list of things you need to do, and take care of them all in one shot. This will avoid having to turn around, waste time, and spend more money on gas.
• Keep the idling of your car to a minimum.
  So on those cold days when you want to warm up the car, don’t. Warming up your car for 30 minutes a day, everyday can cost you a considerable amount of gas. Just bundle up, jump in, and go to work. Often it will only take a couple of minutes for your car to warm up and you can get the heater going. It usually only takes me about 2-3 miles to warm up the engine, then the heater works good.

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