To rent or not to rent..that is the question...

I know most people have been told "Don't rent, you are just throwing money down the drain!!" To a certain extent this is true but there are some benefits to renting as well. 

I know when I got my first real job, my immediate goal was to buy a house. I pulled my credit, started paying off some of the stupid things I did while in college, and saved money. I was doing all the right things. I got some good debt (cause there are some good debts. I will get to those later), paid my bills on time, and got pre-approved. I was on my way to being a homeowner!! I was so excited! I would own my own piece of America! Well several bidding wars later and my current position ending I was totally discouraged. I was like "this is it, I am going to live at home FOREVER!! Well my company promoted me  and I had to move in a short amount of time to the Washington D.C. metro area. I had to do the thing I was avoiding all along...RENT!! Oh my goodness this was not in the plans. I was thinking, people with smart financial sense don't RENT! What am I going to do at tax time? Who is going to take me and my gigantic dog as a tenant? Am I going to be forced to have this crazy nosey landlord? Happily, I found the perfect place. It was close to my job in my price range and a good size and I was RENTING!! I was like ugh this is going to be the worst 18 months of my life. In my journey, I found some benefits in renting.

1.  Renting is affordable.  I would be considered a first time homeowner using the traditional FHA loan, which requires a lower down payment but comes with some additional insurance fees that are not tax deductible. Additional insurance fees mean higher monthly payments.  Living in a big metro area is usually expensive so any additional cost would mean a lot less house. In many instances, renting will allow you to still save a considerable amount of money. Sometimes families want to live in an area where the school systems are great, crime is low, and it’s close to everything but they can not exactly afford to live there if they bought a house. You can luck up on people who have owned their house for years and have a low mortgage payment and can pass those savings on to you as well.  I was able to take advantage of the cost savings my landlord experienced.  Sometimes investors can afford opportunities the average person cannot like putting down huge down payments or even paying for property cash. These are all factors in addition to the current rental market landlords use set rent.

2.  Renting buys you time. When I moved to this new area, I had no idea where I wanted to live. The area I ended up living in, ended up choosing me. It was the only area affordable and close to my job (the two top things on my list). I needed somewhere to stay while looking through new areas, finding my favorite spots to hang out, and seeing traffic patterns. When you move to a new area, you may not know where you want to live. Renting for a year or two can give you the freedom to explore without being tied down to a place.  Renting also gives you time to get yourself together. Let's just face it; everyone is not in the position to buy. There can be credit problems, divorce, or even job loss. These things can cause your life to go into a frenzy.  Low credit scores or unstable employment are all things that can cause an underwriter to deny your loan.   

3. Renting is quick. Buying a house takes time and lots of it. You have to find an agent and then look... and look...and look some more. Then when you finally find a place it takes about 30-45 days to close unless you are the exception like an all cash buyer.  If you are relocating to a new area or your house is sold and you need a place quick, renting is usually a great option. You can find rentals yourself or enlist a real estate professional for assistance. Remember, if you are doing it yourself, set a budget and don't exceed it. Most landlords or property management agencies will use a formula where you take the monthly rent and multiply it by 40 and this number cannot exceed your annual salary (for example if you want to rent a place for $1,000 a month, you have to make at least $40,000 annually)

Am I saying renting is for everyone? NO! By all means if you are in a place where you know where you want to live, know you are going to be there for a while or have a plan of how you are going to sell it  later on, then please buy buy buy!! Find something in your budget and proudly wave your keys in the air!  Buying a house has all kinds of perks from tax breaks, to being able to customize the house to your personal style,  and just overall stability. As long as you keep paying the mortgage and taxes you can stay there as long as you want!  

If I had a dollar for every person who said they need to save more....I'D SAVE IT!!

Ugh savings. This word makes most people cringe. Because usually you have to give up something to save money and that is so uncomfortable!! I feel your pain. I was once very comfortable. I was living at home with more money than I actually needed and was a saving machine! One day I got this bright idea to move out. I didn't have to I just wanted a change. I wanted to be more independent. So I got all my savings together and started to implement "Plan Leave The Nest."  Well a year later between a sudden job change and  a move to a large EXPENSIVE metro area my savings are hurting!!  I saved up for a rainy day and it poured and with it my savings poured out too. All of a sudden saving money wasn't as easy because I had to continue to furnish my house and do all the things you do when you move. On top of my moving expenses, my windshield cracked and had to be replaced, my car needed an unexpected repair oh and did I mention I moved to one of the most expensive areas in the whole country? Money was just flying out. I was like hold up! I need to get a better handle on things. On my journey I have discovered many ways to efficiently save money. Whether you are starting your emergency fund, planning for retirement, or saving for a family get-a-way here are some pointers to help you stash some cash.

1.  GET RID OF THE EXCUSES!! I have heard it all. But the most popular choice is "I don't make enough money to save" Really? So you don' t think you could save $1? Even $1 week would give you $52 a year. $52 over 5 years is $260. Some people would say that is not a lot of money but saving is saving. No amount is too small. Generally people do what they really want to do. If people didn't have the money to save, where did all of this disposable income come from in the economy? Starbucks is not a necessity ( I know some people are like "Have you seen me without coffee in the morning?") I am just saying if you have to have coffee, find a cheaper alternative and save the rest. 99.5% of the time, there is always room improvement which leads to more saving. 

2. Use offered bank products.  I know at my bank, they offer an account called Way-2-Save. This product is a savings account that deposits a dollar into the account each time you use your debit card as a credit card on a connected checking account. If you are like me and never carry cash, those savings add up! A good thing to remember is that everything you are buying is costing a $1 more so make sure you factor that in when balancing your check account to avoid over draft fees. Research products at your financial institution to assist with saving money.

3. Beware of Fees! Late fees, overdraft fees, transaction fees....fees fees fees!! Fees are a killer to getting on track to save money. Make sure you understand all the fees associated with your accounts to make sure you are saving money the best way possible. For example, most banks offer bill pay. It sounds like a great idea. You just set it and forget it. Until the bank starts charging you a fee. To avoid this fee, you can do automatic bill pay thru the actual vendor. Companies usually do this for free because companies want their money on time.

4. Set up automatic transfers or direct deposits.  This is my ultimate favorite way to save money. I have direct deposits going directly to a savings account from my paycheck. I don't have a chance to think about whether I am going to save or not because it comes out automatically. You can also set up transfers from your checking account to transfer a set amount every week, pay period, or once a month into a separate savings account or accounts. You can also set up transfers to go into different accounts for different uses. You can set up an account for car repairs, vacation money, taxes, college or anything you want to prepare for in the future. The savings goals are endless!

5. Set a goal. Don't start saving without a goal. If you are saving for an emergency fund, know how much you want to save up. Is it one month of income, $1000, or six months of income or maybe a whole year? Set a goal even if it is just $50 and when you get there CELEBRATE (but don't spend it)!! Then set another goal and go for it. 

6. Be realistic. Do not set unrealistic goals. If you do, you're going to get discouraged and fall off the wagon. It's kind of like when you start a diet. If your goal is to lose 10 lbs in a week you are either going to almost die of undernourishment or you will not get there. Which in both cases you may become discouraged. The goal is not to beat everyone else in saving but to start a habit of discipline. 

7. DON'T TOUCH IT!! Savings aren't savings unless you save them. Save the money and do not touch it unless you absolutely have to. A new pair of shoes does not constitute an emergency. Neither does a new video game, unless that is the goal you are saving for. 

Let's Talk About It

I was in a meeting today at work and most of the people on my team were sharing a general frustration but no one wanted to talk about it. Well, I am the type of person who likes everyone to know how I feel so I said how I felt about the situation, let it all out and of course others chimed in. Hopefully it will be resolved but only time will tell.  I started to think about how hard it is for people to communicate things that are really important to them with a fear of their feelings being rejected or seen in a negative light. Let's face it, money is one of the most talked about but not really talked about topics in our society. People borrow money from each other, they don't talk about it. People go into to business together and then break up friendships or even break up families, they don't talk about it. Even people who are married have the most arguments about money yet they do not talk about the real issues. Money drives just about everything under the sun. It causes people to go to school or not go to school, move around the world, buy certain clothes or even fancy cars and houses but it is one of the hardest things to communicate about. I have been talking about budgets as an it pertains to financial health in my former posts but it is hard to get to a have a healthy financial future without proper communication. Here are some tips to have a healthy financial future through properly communicating your financial needs. 

1.  Be totally HONEST! If you have trouble paying bills, let someone know. People can help you, you are not alone.  Auto-pay is a great way to stay on track. Even if you forget, an automatic system will not. If you borrow money from people, let them know when you can give it back and if you can not let them know as well. You will be surprised how many people have gracious hearts and may give it to you anyway. If you or your spouse have problems with managing money. TALK IT OUT!! Usually each person has a trait the other one does not so putting your minds together can be very beneficial. If you are in debt and you are being hassled by collectors, be honest. Contrary to popular belief, when you have an account in collections, they can not refuse any payment amount. If you give them $10 a month, it is enough. Or maybe they have a program to help in your current situation if you are honest!. 

2. Know where you stand financially. This can piggyback off of the first tip. Do you know how much house you can afford? Do you know what will truly be a comfortable payment for you when you step on to a car lot to purchase a new vehicle? Do you know what your credit score is? All of these are good answers to know. This will help you not waste your time or others. It will assist you in communicating your wants and needs when talking to someone about your plans involving your finances. 

3. Do your homework.  Researching things on your own helps you become more confident with communicating with any type of sales person or even with people you have personal relationships with. If someone comes to you and asks for money and you know they are notorious for not paying you back talk to them. Maybe you can just buy them what they need instead of giving them money.  Know what features you want in a car and how much it is going to cost you. Know how interest rates can fluctuate your payments. I know most people say it is up to a professional to know all of these answers. To a certain extent, you are correct but many people have had their financial lives ruined because of being misinformed or having a lack of information.

4. RELAX!! This is the hardest step but the most important. I know money is important and it is hard to come by and easy to lose but you have got to learn how to relax!! If you are in business with someone and they don't pay when they said they would, relax. I know you are probably thinking " Nicole I need my money!!" I totally understand because I need my money too but a lot of the time people are doing the best they can and mistakes happen. Don't be so quick to ruin a relationship over money. It may sound cliche, you can earn more money but people and relationships are priceless. 

I know what I want and I want it NOW!!

Did you really think I was going to leave out your wants?!?! I love to shop like the next girl. I love clothes and shoes oh but my weakness is HOME GOODS!! I love pictures, clocks, knick knacks, and clean furniture lines...LAWD I almost went and ordered something off of Wayfair.com just thinking about it!! Lol. Oh but back to the point of the blog. We all have that desire to get something new, shiny, or things that just flat out make us happy. The basis of having a great financial life is discipline. But discipline doesn't always come easy so I recommend using fail safe ways to set this system up. This is just one way to give your self boundaries. The system I going to talk about in this blog is a little more liberal. There are other plans with stricter boundaries.  

If you read my former blog and adhered to the steps, you would know how much your needs cost.  Remember, we included savings, insurance, retirement, etc in the "needs" column so this should be taken care of. I personally have a long needs list. I include everything from paper towels to my charitable giving.  I do this to make sure I do not forget anything!! (I will go into more detail about the needs list later)  I could basically live off of the money I have in my needs account and not need to spend another dime.  My wants list includes things like clothes, shoes, or eating out. These things are extra. When payday comes, I set it  up so it automatically direct deposits an amount into a savings account, an amount in a house/ needs account, and another deposit for my allowance account. Most companies have direct deposit with the option to add multiple accounts so use this to your advantage (and its completely free!!). Transferring funds through your bank can tack on additional maintenance or transaction fees so be careful. After you come up with the amount to adequately cover your needs, think of  a reasonable amount for your allowance.  DO NOT base this off of what you want but what you can realistically afford. The point of this is to give you a little break, sort of like a cheat day when you're on a diet.   Set up your direct deposit to deposit the allowance amount in a  separate account from the house/ joint account. Your allowance is yours to do whatever you want! Ladies if you want those expensive shoes, get them!! You have been responsible. Guys if you see that new video game you have been dying to have but you know explaining the features to your wife is something she will never understand, go for it!! But once its gone, its gone so spend wisely. For couples, this creates and atmosphere where the element of arguing over money is reduced and for singles it gives you better control over the out of control spending habits because "you're single and no one can tell you anything." 

Maybe you are that person who says "Nicole I don't want to keep up with all of those accounts!!'or "Nicole I do not have the option for direct deposit!' Maybe you are self employed and get paid by check or cash from your clients.  I hear you! If you want to  separate the money for your wants  and place the cash in an envelope, you can do that as well and once it is gone, it is gone. I personally don't like to carry cash cause I feel like it has a chance of getting lost. 

Getting things you want is something I don't like to look over when placing someone on a financial plan. It is the number one way to get discouraged and go astray. So have fun with your allowance!!  

Budgeting Basics

"Look at our society. Everyone wants to be thin, but nobody wants to diet. Everyone wants to live long, but few will exercise. Everybody wants money, yet seldom will anyone budget or control their spending." -John C. Maxwell
 

Budgets are not a one size fit all plan. Each individual has different needs. Whether you are a young person just graduating from college with a modest salary or a parent who wants to financially prepare for a great summer vacation, there is a budget for you. Though each individual’s needs may be different, there are three preliminary steps you can follow to get on track.

1.  Track your expenses!! This is the first step to getting a handle on your finances. Track everything from your major bills to your eyebrow waxes to your daily Starbucks fix on a monthly basis. Don’t spare any expense. Knowing how much you spend is the best place to start. I have to warn you, this is going to be painful!! I bet you didn't know you spent $200 on fast food or $50 a week on snacks at that expensive cafe at work (I know it is so convenient!!). Write all of these expenses out in a notebook or if you want to get fancy, an excel spreadsheet. If you are unsure of your expenses, refer to online banking. Most large banks have spending tracker tools so you can track your spending. It is a great tool to use to accurately account for all your expenses.

2. Categorize your wants and needs. After you have created this long list of expenses, segregate your wants and needs. In the perfect world, we would have enough money to supply every thing we want and need but unfortunately that is not always the case (and that is okay!!)  This is the step where you have to be completely honest with yourself.  Needs usually consist of rent/mortgage, groceries, utilities, cell phone bills, gas, childcare and so on. Needs often overlooked over are savings, retirement, insurance and investing. Placing these items on your needs list will set you up for a comfortable future. You may not know how much you need to set aside for insurance, retirement, and investing. Some of these items are provided by your employer but you should still be very aware of the cost as it may need to be adjusted according to your age or stage in life. If this is a step you are having trouble with, I would suggest speaking to a financial advisor (or reading one of my blogs in the future :)).

3.   Balancing your needs against your income. This is the step where you can see financially where you are. Are you making enough money to supply your needs? You may be living beyond your means and not even know it.  Are you using too much money on your wants and not spending enough on your needs? In most instances, bills fall behind not because an individual does not have earn enough money but because the funds are misappropriated. Having a 700 credit score is more important than buying a $700 pair of shoes (I know $700 is extreme but you get my point). Hence the former step of separating your wants for your needs. 

These are three preliminary steps to create a personal budget. There are many more steps to refine a personal budget to fit any situation at any phase in life which I will write about later.  It may seem overwhelming but you are on your way to financial freedom!! Being financially stable just takes a little preparation but once you get organized it just takes a commitment to a financial routine and it will basically become second nature. Start these steps and let me know how it goes. “The secret to getting ahead is getting started…” So get started today!!