Issue time 8:16 am, by CTreit
Category:personal finance
Save Money at Any Income Level
August 24th, 2010One of the all-time favorite topics of personal finance bloggers relates to the world of the rich. So many of them are writing about this topic. How do you become rich? How do the rich save money? What kind of things can you do, when you are rich? What is it like to be rich? How much happier are the rich than the poor?
Being rich is indeed a very interesting topic, but let’s face it. For most everybody it is a dream that will not become real. It has to be that way, because being rich has to set you apart from the large majority of people – isn’t that a clear part of the definition of the word? These facts leave us with one important choice. We can choose either to (1) chase becoming rich or (2) work with what we have and enjoy a good life with our limited financial means. I am a big advocate of choice (2) since this choice benefits about 98% of people, if not more. As far as I am concerned, to be totally unconcerned with choice (2) you’ve got to be very, very rich so that money is no longer a limit to what your imagination can cook up.
To me, security is necessary for happiness, but being rich does not make you more financially secure. I am sure you would agree that somebody who lives in a house worth more than one million is rich, at least rich enough that a bank thought that he or she could pay back a seven-digit loan. But let’s look at mortgage default. The New York Times reported a few weeks ago that the “Biggest Defaulters on Mortgages Are the Rich.” More than one in seven homeowners with mortgages in excess of one million is delinquent. In contrast, only one in twelve homeowners with a mortgage of less than one million is delinquent. How did money buy them happiness?
There may be many reasons why the rich are walking away from their mortgages, but one thing is for sure. A lot of people who are considered rich are not so rich that money is no issue. I certainly do not want to be one of those rich people who decide to default on their mortgage. Being this type of rich is not my dream. I rather dream of having my finances in good order, enjoying a good life with my limited financial means, and feeling good about myself. It is challenging enough for me to reach these goals; I don’t need to chase some elusive goal of “being rich” – whatever that means!
How are you doing with your life goals?
.
Get free ideas how to better handle money!
Issue time 8:22 am, by CTreit
Category:Budget and Expenses, setting up a budget
Do renters really save money in the end?
August 20th, 2010The news is out. Homeowners spend more money on their living quarters than renters do. They spend $1000 in monthly housing costs in 2009 compared with $808 for renters according to a new study by the US Census Bureau. So, renters save money – almost $200 per month or $2400 per year. You would think that these savings mean renting is more frugal than buying. But we have to look a little deeper to see what is really going on.
While homeowners spend more on housing, they end up spending less on housing as a percentage of income (20%) than renters do (31%). In other words, on average homeowners can afford owning their homes much easier than renters can afford their rented places. Think about this in real money terms. If $808 represents 31% of your income, you get to spend about $1800 of your monthly income on things other than housing. Using these average numbers, we’d calculate that a homeowner has another $4000 to spend (or to save), which is twice as much as the renter. In which position would you rather be?
This survey tells us that homeowners tend to be in a better financial position than renters. It does not even include any appreciation in home prices, which could potentially add to the wealth of homeowners. It does sound like a ludicrous idea right now since the bottom fell out of the housing market recently, but I’ve got the funny feeling that house prices might be a bit higher in 25 years than they are today.
Other bloggers have discussed this issue recently.
Jeff Rose ponders “Rent Vs. Owning” where he lists a few situations in which it makes sense to rent rather than to buy.
Hank makes his readers aware of the hidden cost of homeownership in his two posts, “Look At The Numbers When Comparing Renting Vs. Buying A Home,” and in “Sneaky Costs That Can Bite The First Time Home Buyer.”
Kyle wonders whether you really can afford to buy a home in “Can You Afford To Buy A New Home?”
Trina recounts her experience with the real estate market in a guest post at “Punch Debt In The Face.”
We are happy to report that our post “How to Eliminate Debt with an Upside Down Mortgage” was included in the Carnival of Personal Finance hosted by “Live Real, Now”.
.
Get free ideas how to better handle money!
Issue time 1:11 pm, by CTreit
Category:Budget and Expenses, setting up a budget
Save Money with 2 Rules to Negotiate for a Good Bargain
August 18th, 2010If you’re in a situation where you are able to negotiate the price of a purchase, you should take advantage of the negotiating opportunity and save money. Usually, you can negotiate on higher priced items like cars and some services like home improvements – some people don’t bother, but I hope you’re aware that it’s possible!
Things get a little complicated when the thing you want to buy has no clearly specified market price, like services you need for the house. For example, you would not want a contractor use bad materials and do shoddy work at your house because you made him agree to a price too low to make the job worth his time. But when you buy a car, or appliances – things for which the quality does not change once you decide exactly what model you want – you want to negotiate, no, you want to negotiate HARD to get the right price.
To negotiate, there are two important rules to follow.
ONE: Do your research in advance. Find out what exact model with what kind of add-ons you want to buy and how the store derives at the retail price it expects you to pay for the car. You want to know the answers to questions like these: What are the dealer mark-ups? What are volume incentives for the dealer? What prices can you find in advertisements or on the Internet? Are there any specials or coupons out there? (One place to start? ConsumerReports.org has car reports available for purchase. They can tell you an awful lot about the model you’re seeking.) Once you have a good idea how a product is priced, set a price you are willing to pay. I usually take a price that I believe allows the dealer and the sales person to make some money, too. I don’t want to be ruthless; I just want to get a good and “fair” price.
TWO: Adopt the right mindset that allows you to walk away. When you start talking to the dealer, make sure that you hint that you can live without this particular car – but you have to mean it! There are so many models and brands out there, I am sure that more than one car fulfills you needs. Even if that’s not true, know that there are a bazillion dealers – so you can get the same car from some other guy/gal! If you are willing to walk away from a deal, you automatically get the stronger bargaining position. Remember that your counterpart, the car dealer, has more incentive to sell you the car since his purpose in life is to sell cars. You, on the other hand, don’t need to buy one particular car if the price is not right – there are plenty of cars in the US of A, and plenty of car dealers. Do this right and the dealer will be more willing to lower the price than you will be willing to raise yours.
Here’s a real-life anecdote that provides further illustration. When we bought our last car, we had to go to three different dealers until we got the price we wanted. Yes, you read it right. My wife and I researched how much this hunk of metal cost to build and how much the dealer markup should be, and before I walked in his door I had a number in my head of what a fair price should be. Using this method, I built up a little history of walking away from quite a few cars that I wanted to get because I could not find a dealer who would agree with my fair price. Guess what? I don’t think my life has taken a turn for the worse just because I have not bought certain cars. I have always gotten over it and I have always found a very good substitute. And I never ever went over my fair price. The lucky guy who knew I meant business (hey, I was honest after all, and I was honest right from the start) was the one who made the sale.
One last thing, when you do get a good price, don’t give it all back by buying into all kinds of silly after-sale deals! Undercarriage protection, extended warranty, special tire treatment, etc. – all these things don’t do you any good. They only let the dealer take away from you some of the money you just negotiated away from him!
Good luck!
.
Get free ideas how to better handle money!
