Good Debt vs. Bad Debt – The Great Debt Debate

What’s the quickest way to start a heated debate among a room full of personal finance experts? I’m not certain, but starting a debate on the concept of good debt vs. bed debt must rank pretty highly on the list.

What factors matter the most when it comes to good debt vs. bad debt? In this debate, the circumstances of the debtor are everything!Opinions on the matter run the full gamut. Some people believe that debt is a tool to be utilized to finance a lifestyle – because #YOLO. Others would not borrow money for any reason whatsoever because debt is dumb and Dave Ramsey says so.

The trouble with such extremism, aside from being wildly unappealing, is the fact that a one-size-fits-all approach rarely works in life. The good debt vs. bad debt debate is no different.

What kind of debts are we discussing? What are the terms? What is the purpose behind the act of borrowing? Will the items or experiences being financed maintain value? What is the opportunity cost?

All of this is enough to make heads spin.

Traditional Stance on Good Debt vs. Bad Debt

Ask five of your closest friends whether they have any debt, and you’ll likely hear variations of the following:

“No, we’re not in debt. We just have a car payment, student loans, and our mortgage.”

“We have a few credit card balances – does that count?”

Answers like these can help us to begin to frame the issues surrounding good debt and bad debt.

Traditionally speaking, the average Baby Boomer defines good debt as money owed on an appreciating asset or an experience (i.e. education) which is likely to yield financial returns or benefits. Bad debt is defined as debt incurred on depreciating assets, i.e. does not yield positive cash flow.

Over time, however, these definitions have ridden the wave of cultural change. Today, in fact, some experts preach that all debt is bad.

Today’s Views

Grandma and Grandpa may hold a traditional view on good and bad debt, but to their instant gratification seeking offspring, all bets are off. “If debt allows me to get what I want when I want it, it must be good!” they reason. This is a classic example of the leap-before-you-look mentality, and the eventual landing usually isn’t a pretty one.

Generational assumptions aside, we find ourselves at a tipping point in the Great Debt Debate. With any luck, the following may shed further light upon the issue.

Less About the Debt, More About the Debtor

Debt is a undoubtedly a complicated concept. Perhaps the only piece of the puzzle which is more complicated is the debtor himself.

When we borrow money, we make a statement about ourselves. We claim confidence in our ability to pay back our debts. This confidence can be fully justified or woefully misplaced.

Suppose for a moment that an uber-wealthy  entrepreneur purchases a beach home on Lake Michigan and takes out a mortgage. Is this a good debt or bad debt? In this case, if she has the regular income and liquidity to pay off the mortgage in a relatively short period of time, we may safely consider this a healthy debt. After all, the home is likely to appreciate over time, and the mortgage provides additional flexibility to divert funds to other investments.

Let’s change a few pertinent facts in the above scenario for a moment. Suppose our entrepreneur is already upside down on her Chicago high-rise condo and is quickly burning through liquid cash like a raging wild fire due to a poor quarter for her business. We’re looking at a bad debt in this case, in all likelihood.

When evaluating debt, the circumstances of the debtor are everything.

Critical Circumstances

So where does this leave us? What circumstances impact whether a debt is good or bad?

1. Equity

Years ago I purchased a 2008 Honda Accord from my grandparents. The vehicle was worth $17,000 at the time. I put down nearly half of the cost and financed the rest. We quickly paid the vehicle loan off, but even if we hadn’t done so, we were protected by built in equity. If at any time things went south, we could have sold the vehicle, paid off the remainder of our loan, and used the remaining cash to buy a beater car and buffer our emergency savings.

Equity is a fine mitigator of risk associated with debt.

2. Consistent discretionary income

When it comes down to the bottom line, the scariest thing about debt is the prospect that we might not be able to pay it off. As we’ve seen, equity is a great hedge against this possibility, but consistent discretionary income is even more valuable.

For the family who routinely spends all of its earnings, it doesn’t take much for what was once a manageable debt to become a significant problem. But for those who maintain sizable wiggle room on a monthly basis – say 5-10% of monthly take home pay – a healthy buffer can eliminate the stress of difficult periods which stretch the budget.

3. Liquidity (Cash is King)

Dave Ramsey begins every radio show with the reminder that “Debt is Dumb” and “Cash is King.” I feel the latter is correct, but the former requires modification. “Some Debt is Dumb” is more appropriate.

Again, assuming reasonable interest rates, debt becomes a problem when the debtor cannot meet his obligations. A healthy level of liquid cash acts as an additional line of defense. With cash in the bank, the debtor has options if debt obligations become cumbersome. He may sell the asset, rely on discretionary income to avoid touching liquid savings, or draw on his savings.

Recommendations

If you find yourself in debt or are considering entering into a debt relationship, consider the aforementioned factors to evaluate the situation. Generally speaking, based upon the established criteria above, the following are examples of good debt and bad debt.

Good Debt

1. Mortgage on primary residence

2. Home equity loan for home improvement purposes* (Depending upon interest rates, expected rate of return on the project, and existing equity)

Bad Debt

1. Student loans

2. Auto loans

3. Revolving credit card balances

4. Cash advance and pay day loans


Readers, what is your position in the “good debt vs. bad debt” debate? How do you evaluate whether a debt is good or bad? 

Change is Hard

January is a month for hope and optimism. You wouldn’t know it based upon the doom and gloom floating around in the newspapers and social media this year, but most folks are as optimistic as ever during the first month of a new year. They know change is hard, but emotions fly high.

The distance between change and complacency is small - a single step in the right direction. Change is hard because complacency is easier. But you can win!Many people hit the gym and begin a new diet with dogged determination that they will finally lose that extra weight. Others pledge to finally start saving for their dream purchase or investing for their retirement. Some people pledge to reestablish their priorities with regard to work, family, friends, and leisure.

The month of January represents new beginnings. A clean slate. A chance to start afresh and anew.

It is an opportunity to implement changes big and small. Yet January also brings about a sobering reminder each and every year:

Change is hard.

Figuratively speaking, the distance between change and complacency is very short. The difference is a single step in the direction of our goals. But taking that single step is often challenging.

Change is hard, complacency is easier

The human search for homeostasis has led us to really enjoy our comforts. I know that is why I love dining out, even if at McDonald’s. It is why I love sports, TV, and movies. It is why men love their recliners. These things provide comfort.

In order to change, you and I have to exit that comfort zone. On purpose. Repeatedly. We have to force ourselves to live on the edge of discomfort. Sometimes we may have to face our fears.

To lose a few pounds, I need to stay away from the comforts of restaurants and overindulgence in dairy, fried foods, and beer, and increase my intake of lean protein, vegetables, and fruits.

If saving money is my goal, I need to take a long, hard look at my spending habits and trim away waste. Psychologically, this type of self-correction is very necessary yet incredibly difficult to achieve with honesty and integrity.

Improving the performance of my investments is a difficult change to enact. It reveals that simple human desire and motivation are not always enough if we seek complex change. Sometimes we can do everything right and still fall short of our goals. This leads us to fear failure and avoid change.

Even our goals change from time to time. For example, a few months ago on my 30th birthday, I set five primary investment goals for the next year:

INVESTMENT GOALS
1 – Max out both of our IRAs for 2016. $11,000 total investment.
2 – Invest a minimum of $2,000 with Fundrise.
3 – Grow my overall account value with Betterment.
4 – Increase our overall net worth by 50%.
5 – Set a target date for early retirement and formulate a plan to get there.

Related Post: The Fundrise eREIT: Accessible Real Estate Investing for the Average Investor

As I write, we are most likely to fail at goals 1 and 3. Instead, due to changing circumstances, we opted to invest funds earmarked to achieve these goals in finishing our basement. These circumstances even led us to make a surprising decision – we borrowed money to complete this project. Gasp, I know. But the extremely low interest rate combined with maintaining liquidity were just too significant to pass up.

Even the decision to change our investment goals and instead invest in our home was not an easy one. My wife and I went back and forth on it many times, even though we knew that completing the project would instantly increase the value of our home by an additional 40-50% beyond the initial investment.

We hemmed on and hawed over a decision that would increase our net worth? Yup.

Change is hard because the act of change admits that are wrong in the present. Sometimes this hefty dose of humility can be too much to accept.

Change is hard because it is an act of giving up something to gain something else. And we don’t know if we all we hope to gain will be better than that which we are giving up.

Change is hard because we are often left swimming upstream, fighting against the currents of life. Two or three steps forward followed by one step backward only feels like progress for so long to our instant-gratification-seeking hearts.

Change is hard because it requires renewed commitment on a daily basis. As my father-in-law often says, there is no glory in yesterday’s victory.

Change is hard because we do not always instantly see the fruits of our labor. This is why your local gym is full in January and half empty again by the end of February.

So how can you and I change?

Change Comes From Within

I’m reminded of a vivid training scene in Rocky III, in which an over-the-hill Apollo Creed is training Rocky Balboa for his rematch with Clubber Lang. Creed pummels Rocky with a steady stream of right hooks, and Rocky’s lifeless approach to improving his technique leads Creed to question, “What’s the matter with you?!”

Rocky responds, “Tomorrow. We’ll do it tomorrow.”

A fired up Creed denounces this attitude, stating repeatedly, “There is no tomorrow!”

Rocky continues to go through the motions in training until he hits the ultimate low point. Creed deserts him and states, “It’s over.” Rocky is really on the ropes this time.

When he needs it the most, Rocky’s wife, Adrian, provides a dose of wisdom.

“Apollo thinks you can do it. So do I. But you gotta wanna do it for the right reasons. . . Not for the people, not for the title, not for the money, or me – but for you.”

“And if I lose?”

“Then you lose. But at least you lose with no excuses. No fear. And I know you could live with that.”

I think I could live with that, too. Can you?


How are you striving to change in 2017? How will you sacrifice to make it happen?

Leave Behind These 8 Bad Financial Habits in 2017

Today’s post, “Leave Behind These 8 Bad Financial Habits in 2017,” is a guest post by Carol Soriano, a consultant for PawnHero.ph, the very first online pawnshop in the Philippines. A writer at heart and a social media enthusiast, she is passionate about personal finance, investment and all money matters.

 

 

 

Take it away, Carol . . .


It’s 2017! Were you able to save up money for the New Year? Have you been able to reach your financial goals? If you failed to do so, it’s time to turn over a new leaf and correct those bad money habits from the past year.

Your financial goals should include setting target digits for your savings account and having funds to cover you during emergencies and whatnot. Should you ever find it hard to reach your money goals even after trying, there must be a rooted bad financial habit that’s keeping you from achieving financial success.

To help you reach your goals in 2017, below are eight bad financial habits that you should be really ditching this new year!

1) Living from paycheck after paycheck

A common financial crime amongst the working class is having a one-day millionaire lifestyle. This means getting by living from paycheck after paycheck. They may have the job, but they don’t have the stable income. If this is a habit to which you’ve become accustomed, stop!

This is troublesome to your financial and personal well-being since living up to the “first day after paycheck versus last day before paycheck” meme is just exhausting. This scary habit leaves you without any safety net as you only rely your financial security with your job, and the thought of it is alarming! If you only have one stream of income like your job, then you especially might want to reconsider your saving habits.

2) Being brand conscious

They say, you are what you wear, but not entirely! Sometimes, a good Prada covers up the real financial situation. There are those who maintain their financial reputation through brands. But as Psychology 101 dictates, material things do not maintain steady happiness. Having a brand conscious mindset won’t get you to your financial goals.

So, while you cannot afford to both buy a branded item and save money at the same time, make it a priority to save first! Save for the first three months and eventually, you will make it a habit to be frugal instead. Those brands can wait; your finances don’t.

3) The love for foreign products

Going to grocery stores and shopping on the imported aisle section just because you think it defines who you are—expensive—doesn’t help… at all! Frankly, you can go after budget-friendly goods and save more. The only difference is the brand and the tax that comes along with it. So, go local, spend less to save more moolah.

4) Investing for instant gratification

Those social media money talks about investing on networking and other easy money schemes can be a headache. Keep in mind that money doesn’t grow on one sitting while waiting for recruits to cash in. It doesn’t work that way. But there are those who still fall prey to this investment pitfall.

If you are serious about growing your money, get inspirations from overseas workers-turned-entrepreneurs who became rich through smart investing. Remember, investing requires patience.

5) Dependence on family or friends for financial stability

Being dependent on family or friends for financial stability is a bad habit to follow. If you have been making them your last resort for financial security, there’s something wrong with how you manage your finances. There’s nothing more embarrassing than being capable of earning yet incapable of paying off debts.

Strive to a point to save enough, avoid wants, prioritize needs and save your face from asking a favor to owe money from your family or friends.

6) Lack of financial literacy

Being financial literate means understanding how money works to make more. If your expenses are greater than your savings, you have a big problem. But don’t feel bad, you can still be financially savvy. By asking the right people, learning about investments and developing a saving habit, you can become financially literate. Moms are known to be good with money. Try getting budgeting tips from moms to learn from the best.

7) Late working age

Traditional working age is 21 (FinanceSuperhero note: This varies from community to community), but it doesn’t mean you have an excuse to make money mistakes at this age. In fact, you are a young adult. That means you need to be financially responsible as well.

Your money habits start young, and like the saying goes, old habits die hard. Always start young with how money is being managed.

8) Aspirational lifestyle

While most try to climb from lower to middle class, the majority live for the aspirational lifestyle. Peer pressure and social media may have played an important role to establish this ideal. The practice of sacrificing a budget for the sake of an aspirational lifestyle is damaging. If this is one habit you’ve been living through, then it is high time to quit.

Final Word

Financial security should be a serious responsibility when adulting. You don’t want to be frowned upon for your bad money habits, and most of all you do not want to regret not having been a smart saver at a young age. So, with the New Year, you have a fresh start and a clean slate to make your financial goals count! Stop promising and start doing. It will pay off!


Has your 2017 gotten off to the start you imagined?

Are You Destined to Follow in Your Parents’ Footsteps?

In life, we receive so much from our parents; overall looks, hair color, height, and a host of other genetically-driven predispositions are largely hereditary. Sometimes, we follow in our parents’ footsteps, and sometimes we do not. With some notable exceptions, we get what we get, and life keeps rolling on – for better or for worse.

Recently, I read an article in The AtlanticRich People Raise Rich Kids – which caused me to ponder the financial impact our parents have upon our life trajectory. The issues explored and conclusions drawn in the article are thought-provoking, to say the least.

If “Rich People Raise Rich Kids,” does that imply that the corollary, i.e. “Poor People Raise Poor Kids,” is often true?

We receive much from our parents: overall looks, hair color, etc. But are we destined to follow in our parents' footsteps in other ways? Of course, life experience shows us the impact our parents can play in financial futures. Plenty of people are born into money, but countless folks create their own wealth. Many of us will learn to manage money, for better or worse, in the same manner demonstrated by our parents. Others will seek their own path, if they bother to pay attention at all.

And all of this says nothing of the fact that our trajectories may change over time, though change can be hard to set into motion. The poor can become rich, and the rich can lose it all, sometimes in shocking fashion. This is America, after all. *Cues chants* USA! USA! USA!

The power and importance of environment is one point which I tend to agree with wholeheartedly from the aforementioned article. My life story bears out this truth every step of the way.

My Story

I grew up in a typical middle class home in West Michigan. My mom worked as a departmental secretary for a reputable regional bank, and my dad worked in manufacturing for one of the largest aerospace engineering companies in the country. Mom earned her Associates degree, while dad entered the work force after completing high school.

We lived in a 3 bedroom, 1 bathroom ranch home which was conveniently located within a few miles of everything: school, work, shopping, and my grandparents. Our family was solidly middle-class, though I had no idea or even any understanding of what that meant at the time.

My parents made the very best of the overall environment in which I was raised. When I was four, they sold our house and moved to the other side of town so I could attend the best schools in the area. I didn’t know at the time, but my mom often remarks today that this move was a financial sacrifice in may respects.

For reasons which I still do not fully understand, I was born with a sharp edge to achieve, and this desire only strengthened itself as I grew up. I didn’t want to just do something – I wanted to win, to be the best, to get a share of the spotlight. Of course, it didn’t work out every single time, but that internal motivation was sometimes a difference-maker.

Equally important, my internal motivation was complimented by external factors. My grandfather always pushed me toward the improbable and believed so much in me that I began to believe in myself.

My self-belief and confidence was shaken many times, but I survived and grew stronger because my parents were not of the helicopter variety. They allowed me to be independent, solve my own problems, and experience difficulty. I learned to bend without breaking.

My parents supported all of my far flung endeavors – competing in chess tournaments all across the country, basketball leagues and camps, and music lessons – and encouraged me to do my best. I was strong-willed and in hindsight demanded a lot. I was lucky to have good parents who provided opportunities.

The rest of the story is simple. I went to college, got a job, and moved out of state, like countless other people before and since. I am not special, and my life is not remarkable. My parents, extended family, and the environment they cultivated for me, on the other hand, are special and remarkable.

Foster a Great Environment For Your Kids

So how can today’s parents foster a positive environment for children and put them in a position to become successful? The following solutions offer a good starting point:

Get to know your children. A one-size-fits-all approach will never work. In the interest of transparency, I am not yet a parent, but my experience as a teacher illustrates the importance of knowing children as individuals. Spending time with them is the best way to get to know them.

Model a balanced, prioritized lifestyle. Kids are impressionable and form a surprisingly-high number of conclusions at young ages. As adults, they will remember how you spent your time and model their own priorities after yours in many ways, whether consciously or not.

Teach them how to save money. For most children today, spending will come easily and saving will not; our instant-gratification culture is to blame. If you show your kids how to save, they will experience a valuable lesson.

Allow your children to fail and encourage them to persevere when they do. They will learn important lessons as a result. They will become resilient, strong, and unafraid to fail, all of which are characteristics which will help them to succeed.

Related: How to Overcome the Fear of Failure

These practices are not perfect, but they will help you to create a growth-inspired environment for your children. They just may follow in or even exceed your footsteps as a result.


In what ways have you followed in your parents’ footsteps? What did they specifically do to help you in that regard? For parents – how are you helping your children to follow in your footsteps?

Stop Wasting Money With These 5 Tips

Get your finances off on the right foot this year and stop wasting money! These 5 tips will help you spend wisely and boost your happiness!2017 and is here, and with a New Year comes new resolutions. I’ve spread my focus thin over the past six months beginning when I established 30 goals on my 30th birthday, so I won’t be making a list of personal resolutions for 2017. However, the holiday season has gotten me thinking about how I can stop wasting money. It’s tough to acknowledge, but I have been far more wasteful with my spending habits over the past three months.

After much thought, I present the following 5 ways to stop wasting money and achieve your financial goals sooner. I hope they will help you and me to be wiser with our spending in 2017!

5 Tips to Stop Wasting Money in 2017

1. Brew Your Own Coffee

Coffee is inexpensive to purchase yourself, yet its price skyrockets when you pay Dunkin Donuts, Starbucks, or the local coffeehouse to brew it for you. At minimum, a cuppa Joe on the go will cost over $1, while the same cup brewed at home will cost pennies.

2. Minimize Shipping Costs When Shopping Online

Yesterday, I ordered a complete set of seven Star Wars movie posters for our nearly-finished theater room. I shopped for the best deal I could find online, and when it came time to checkout, I was faced with many shipping options. In the end, I chose free shipping because I thought ahead in advance and ordered my items before I actually needed them.

While online shopping is simple and time efficient, it is often more costly because many people elect to pay a fortune in shipping costs in order to receive their items within 1-3 days. By shopping in advance, or taking advantage of Amazon Prime which comes with free two-day shipping on thousands of items, you can stop wasting money on shipping costs.

3. Skip Expensive, High-Calorie Appetizers

I enjoy greasy appetizer platters just as much as the next guy, but at $8 and nearly 3000 calories, I nearly always regret my indulgence. Sure, $8 won’t make me significantly richer; no, I won’t likely nickle-and-dime my way into developing a million dollar investment portfolio. But I can stop wasting money on appetizers by acknowledging that I have better options. And besides, appetizers generally leave me unable to finish my meal without a strong effort.

4. Cancel Your Newspaper Subscription

Currently, my wife and I pay for a Sunday subscription to The Chicago Tribune. Shameful confession time: the edition from last Sunday is still sitting at the end of our driveway as I write this on a Wednesday. I may as well just burn my subscription fee every month, as I’m clearly not reading the paper.

Like any good American, I find my news from the most trustworthy source: my Facebook NewsFeed.

In all seriousness, I need to stop wasting money on a newspaper that I do not read, especially when free news is available online. My sources of choice have long been The Detroit News and The Detroit Free Press, both of which are available via mobile app.

5. Stop Buying Lottery Tickets and Betting

My thoughts on the lottery system are very divided. On one hand, proceeds from the lottery in my home state of Illinois support education and indirectly pay my teacher salary. On the other, I know that dozens of my dear friends are wasting their money on a daily or weekly basis. I myself have only indulged in NCAA basketball tournament pools, which is admittedly different than the lottery (I also won the entire tournament and collected $900, but I digress. . .), but I plan to stop that this year, as well.

While a potential big payday is theoretically always just one ticket purchase or bet away, the odds of winning are microscopically small. In my opinion, the lottery system offers false hope to the hopeless; it is essentially a tax on the poor. Stop wasting money on lottery tickets and use the money saved to invest in index funds.

Saving Money Can Be Easy

Finally, if you’re looking for a helpful, easy way to ensure that you save the money you are no longer wasting in 2017, look no further! I use Digit to save money automatically each month towards upcoming purchases. In the fall, we used our savings to travel to Las Vegas for a much needed vacation! I can’t recommend the app enough, particularly for those who are prone to overspending.

Open your own Digit savings account for free today!

What are the primary ways you need to stop wasting money in 2017? How have you wasted money in the past?

Want To Be Rich? Maintain Great Relationships

By most accounts, I have enjoyed a good life. I completed high school, college, and graduate school with honors. During a period of intense budget reductions and overall uncertainty within the educational landscape, I secured my first job teaching music after beating out over 400 other applicants. Life hasn’t been perfect or without trial and failure, but simply put, it has been good. I’ve been pink slipped. I’ve pursued paths which only led to misery and disappointment. Great relationships with family, friends, and my wife have been my foundation.

I cannot honestly take credit for the good things in my life. Like most men will readily admit, I would be completely lost without my wife. When I met her at age 17, my life took on an entirely different trajectory. She challenged me to grow in kindness, patience, and generosity, and together we became adults and cast a unified vision for our life together. Because of her, I am hopeful that we will leave an admirable legacy.

Sometimes I marvel at how life has changed over the last 13 years. Yet my wife and I are still the same kids who fell for each other during countless summer walks on the Lake Michigan shoreline. Things have changed, but we haven’t.

It has become clear to me that the most important foundation for financial success, or life success in general, is great relationships. Personal experience hashes this out time and time again, and empirical evidence supports it, too. Robert Waldinger, Director of the Harvard Study of Adult Development, expounds upon this fascinating truth in the fantastic TED Talk video below.

Waldinger’s study, which commenced in 1938, has tracked the lives of 724 men, carefully observing their work lives, families, and overall happiness.  The results are hard to ignore:

So what have we learned? What are the lessons that come from the tens of thousands of pages of information that we’ve generated on these lives? Well, the lessons aren’t about wealth or fame or working harder and harder. The clearest message that we get from this 75-year study is this: Good relationships keep us happier and healthier. Period.

We’ve learned three big lessons about relationships. The first is that social connections are really good for us, and that loneliness kills. It turns out that people who are more socially connected to family, to friends, to community, are happier, they’re physically healthier, and they live longer than people who are less well connected. . . 

And we know that you can be lonely in a crowd and you can be lonely in a marriage, so the second big lesson that we learned is that it’s not just the number of friends you have, and it’s not whether or not you’re in a committed relationship, but it’s the quality of your close relationships that matters.

And the third big lesson that we learned about relationships and our health is that good relationships don’t just protect our bodies, they protect our brains.

Relationships Are A Contributor to Financial Health

FinanceSuperhero has always been  a blog focused upon Restoring Order to the World of Finance, but in a larger sense, it is also about the pursuit of happiness. At the end of the day, I would readily choose a life of happiness and poverty over one of riches and despair. Vast sums of money maintain no appeal without a quality, happy life and my wife to enjoy it with me.

Quality relationships lead to quality in all areas of life, including finances. So how do the three findings of the Harvard study relate to financial health? I believe the following points tie everything together:

1. Well connected people maintain proper priorities

It has been said that we are often the sum of our five or ten most influential friends and family members. Surround yourself with good company, and you will be in good shape, reason dictates. Extract this principle to a higher level, and your spouse becomes vitally important.

2. Quality influence matters, too

I have a wide network of friends, primarily because my wife taught me to embrace my inner socialite. Yet a big reason for our solid, if unspectacular, financial position is due to the quality influence of our closest friends and family. We have intentionally surrounded ourselves with other people who challenge us while pursuing a similar path.

Without a doubt, my limited life experience shows that these principles are true.


How have your relationships supported your financial well-being?

 

Your Unnecessary SUV Is a Financial Boat Anchor

Each day, millions of Americans arise before the crack of dawn. They begin thinking about the day’s tasks and cultivate lengthy to-do lists while sipping their first cup of coffee. Moments later, they begin their solo treks to work behind the wheels of 5,000 pound leather-clad SUVs with heated bucket seats; this begins the all-too-common trade of time and money for unnecessary, inefficient luxury.

It is sadly ironic that many of us search for efficiency in countless places – automatic bill pay, dishwashers, DVRs, and online shopping, to name a few – yet reject many of the fundamental notions of efficiency under the disguise of luxury. Unnecessary SUV ownership is a prime example.

Millions of Americans love large sports utility vehicles. But could an unnecessary SUV be stealing your current financial stability and future retirement?The rationalizations for owning massive vehicles are plentiful and predictable. We convince ourselves that we “need” the luxury of a large vehicle in our lives for safety reasons. Some cite their recreational pursuits or profession as the reason for their SUV ownership. Others “bought the SUV for the kids.” Those who are honest with themselves may admit that they sought the feeling of prestige inherent in driving an expensive vehicle.

Surely I’ve ruffled a few feathers thus far, which is both intentional and revealing: Americans are very defensive about their pet luxuries. I’ll admit that I am defensive about some of my own inefficient luxury expenses (dining out, for example). These kinds of wasteful luxuries are akin to subtle body odor: almost everyone notices it is a problem, but we don’t speak up because the offender is blind to their own scent. It is simply easier to remain quiet.

Luxury is ironic. Over time, what was once something that we cherished and appreciated becomes unnoticed, commonplace, and ordinary. We begin taking it for granted, it becomes normal, and the thrill and resulting happiness of the luxury wears off.

To recap, many Americans drive around inefficiently in large sport utility vehicles, which are designed to efficiently transport large numbers of people, because they believe that this luxury will make them happier. The happiness is temporary, which leads to disappointment. And disappointment leads to more spending in search of lasting happiness.

Why do we continue to this maddening cycle? Why won’t we learn?

There are likely all sorts psychological, mumbo jumbo-ish explanations for the unnecessary SUV phenomenon. Perhaps scientific explanations are more fitting; after all, the notion of contentment doesn’t mix well with survival of the fittest. I personally feel there is a simple explanation:

We have become better at rationalization than reasoning.

Reason states that my driving habits and adherence to standard safety protocol is much more likely to keep my family safe during any type of commute, yet rationalization argues that a larger vehicle provides additional safety. Reason argues that SUVs are only necessary for off-road adventures. It also points out that a small utility trailer can support transportation of recreational vehicles at a fraction of the cost of an SUV. Yet rationalization argues that it’s just easier to own an SUV. Reason notes that generations of children survived without SUVs. Rationalization allows us to satisfy our own selfish urges under the guise of sacrificing for our children.

Your Unnecessary SUV Has Taken the Place of Other Necessities

The bigger problem, of course, is not the SUV, or even its outrageous cost. The problem is that when rationalization replaced reasoning, lifestyle concerns replaced responsible financial management. The pursuit of luxury replaced the proclivity to practice restraint.

I truly believe that if most Americans were polled and asked to choose between a new luxury SUV in the driveway every 48 months or a stable retirement with a multi-million dollar nest egg to live on, most people would choose the latter. Yet our actions irrationally put us on the former path. Ironically, our actions in this regard do not actually align with what we value the most.

Parting Thoughts

To put it most simply: We really want B more than we want A, but A is easier to attain and we can have it right now, so we choose it.

This phenomenon is present everywhere. I experienced it myself this afternoon when I indulged in one of my wife’s fresh-baked Christmas cookies. In that moment, immediate gratification outweighed my desire to loose a few pounds. Much in the same manner, unnecessary SUV ownership is like a boat anchor which ensures the owner will remain drowning in debt or at best treading water. In all but the most rare circumstances, most drivers would be wise to embrace efficiency when choosing a vehicle in order to live the best possible life both today and in the future.


What vehicle do you drive? If you drive an SUV, do the costs associated with its operation represent more than 10% of your annual spending?

13 Simple DIY Home Inspection Tips

In today’s internet-driven world, home buyers have become more savvy than previous generations. Zillow, Trulia, Realtor.com, and a dozen or so other websites have made the process of window shopping for homes much easier. Pictures, virtual tours, and a wealth of data are available with the click of a mouse. And the average buyer can net plenty of experience living vicariously through other buyers’ experiences as showcased on the DIY Network and HGTV. Shows like Holmes Inspection have even inspired buyers to conduct their own DIY home inspection.

Yet the average realtor, myself included, can share countless stories of buyers who look at all of the wrong things when touring a home the first (or second . . . or even third!) time. I have had clients tell me that they were not interested in a home due to objections over carpet, basic landscaping, and even paint color. Other clients have happily fallen in love with homes once they mark off the “non-negotiables” on their list: granite counter tops, stainless steel appliances, and an open concept. I understand exactly what it must be like to host House Hunters or Property Virgins.

No home buyer should skip a professional home inspection. But you can save time and money by following these 13 DIY home inspection tips ahead of time.As a realtor, I am bound by a code of ethics which was designed long ago to protect consumers. I do my best to educate them regarding what to look for when touring a home, and I am quick to point out both obvious and subtle defects, as well as signs of possible latent defects. Most realtors who wish to protect their clients will do the same, especially if they want to keep a job long-term. However, not all realtors are so honest, as selling you a home as quickly as possible may determine whether or not they are able to pay their mortgage premium next month.

For the buyer who is represented by this kind of realtor, the process often goes something like this:

-Tour home, fall in love with aesthetic properties, develop emotional attachment to the home.
-Discuss pricing and comparable sales, make an offer, conclude negotiations and sign the contract.
-Schedule a home inspection with a professional home inspector.
-Begin picking out furniture, paint colors, carpet, etc., for the new home.
-Attend (sometimes) the home inspection with inspector, discover a lengthy list of problems which must be addressed.
-Enter state of sadness/depression/panic, question why the realtor did not notice or disclose all of the problems diagnosed by the home inspector.
-Either A) negotiate with the seller regarding necessary repairs or price concessions or B) cancel the transaction.

Sometimes the process goes much more smoothly. Sometimes it goes much, much worse, especially if the home buyers foolishly opt to skip a professional home inspection.

Avoid Home Buying Heartbreak and Hassle: Perform a DIY Home Inspection

In any real estate transaction, the most critical parties are typically the home inspector and the attorneys. As a buyer, they are your last lines of legal defense; they serve to protect you from danger and hours of stress and hassle.

To be clear, I would never, ever recommend that a client skip out on an independent, third-party, professional home inspection, even when buying a brand-new home through a builder. With that said, I believe a prospective buyer can save himself a great deal of time and money by looking out for the following problems and defects in advance of the home inspection by performing a DIY home inspection during a home tour.

The following DIY home inspection tips are not an exhaustive list. They may not apply to every home and location, and should be considered on a case by case basis. Again, do not skip a professional, independent home inspection in an effort to save money!

1. Take in the big picture

When Mrs. Superhero and I were searching for our first home, I was still a real estate amateur. We fell in love with a home which we had toured on a weeknight in February, so it was naturally dark during our tour. When we arrived for the inspection a week later, we met the inspector at the edge of the driveway. After introducing himself, the inspector said, “So, you know you’ll need a brand new roof ASAP, right?” Ouch.

Examining the full exterior of the home during daylight hours is an easy DIY home inspection tip. Look for damage to the roof (missing shingles, bowed eaves, rotting soffits, missing gutters), siding (missing or damaged shingles, encroaching landscaping), and the entire yard. Do not neglect to examine the same components in the garage, whether it is attached or detached. Also, examine the driveway for large cracks, potholes, etc. Note concerns on a checklist and document them with pictures on your phone or camera so you can address them during a possible future home inspection.

2. Test the garage door

It can be a bit uncomfortable to operate a garage door which does not belong to you, but this is an easy check that everyone should perform unless explicitly instructed not to do so by your realtor or the homeowner. Yes, your inspector will check it, too, but it is wise to check for problems yourself.

3. Open and close all interior and exterior doors

During your tour, you are naturally going to enter and exit all rooms in the home. While you’re doing so, opening and closing all doors is a simple step that some home inspectors may overlook from time to time. If you catch a malfunctioning door which requires re-hanging, you may save yourself money at the closing table.

4. Inspect the furnace, air conditioner, and water heater

When examining these items, look for evidence of maintenance dates on the exterior of the appliances. Inspect for any signs of leaking or irregular noises. If the furnace or air conditioner are not running during your tour, it is usually acceptable to temporarily adjust the thermostat to evaluate their level of functioning. Note: Do not attempt to turn on an air conditioner unit during the winter.

5. Examine all ceilings and walls for water damage

Admittedly, looking for water damage may be one of the toughest DIY home inspection tasks on this list. However, savvy homeowners are becoming increasingly skilled at hiding signs of water damage rather than rectifying the underlying problems. Any signs of discoloration, sagging, or unexplained lines near joints where dry wall may have been taped should be noted and addressed with the home inspector.

6. Check out the basement

More and more homeowners are searching for basements, in my experience. Yet many of them don’t check out the basement when touring a home if they learn that it is unfinished. You should examine the foundation for any major structural concerns, such as cracks, as well as examine the basement ceiling for obvious issues. If a basement is finished, you should ask your realtor to inquire as to whether the work was performed with permits. This may seem like no big deal to many people, but depending upon your city or village ordinances, a buyer could be on the hook for any un-permitted mechanical, electrical, structural, or plumbing work completed without a permit.

7. Examine the grade around all exterior walls

In the past five years, flooding has occurred in all 50 states, according to FloodSmart.gov. This cannot always be prevented, yet many home floods are caused by improper grading around a home’s exterior. Examine exterior walls to ensure that the soil is graded in an appropriate manner (slopes downward away from the home). Also ensure that downspouts are adequately extended away from the home’s foundation.

8. Test all light switches

This is an easy DIY home inspection item to cross off your list, and you’ll be glad to know if any light switches are wired improperly.

9. Inspect windows for signs of moisture

If you see fogging or condensation on windows, this is a sign that the windows may require replacement or repair. These items can be very costly, so you will want to be sure that your home inspector addresses them in his report.

10. Test all sinks and toilets

Invariably, home buyers feel uncomfortable evaluating the function of sinks and toilets. When you’re preparing to make arguably the largest purchase of your lifetime, pushing past some discomfort is a must! Begin by running all sinks individually for 3-4 minutes; this will reveal any draining problems. Also, check under vanities to ensure that drains are properly vented. Lastly, flush toilets in all washrooms while the sink is still running and listen for any odd sounds in the plumbing.

11. Evaluate Your Surroundings

I have heard countless horror stories from buyers who fell in love with a home only to face some harsh realities on moving day. One buyer discovered unappealing power lines running through their side yard. Another buyer shared that they hadn’t noticed a large water tower in their backyard because it had been digitally removed from all marketing photos online. And another buyer did not notice that a train ran right behind their backyard and shook the entire house several times a day. Be on the lookout for these unsightly hazards and more!

12. Visit Local Schools

While the value of a professional home inspector cannot be emphasized enough, buyers must inspect local schools themselves. Do not simply rely on reputation, recommendations from well-meaning friends, or scores from third party websites. Review state report cards, attend a school board meeting, and arrange for a brief tour of the school. In most areas, your property taxes largely go toward funding local public schools, so you want to be sure your investment is worthwhile.

13. Talk to Potential Neighbors

During your examination of the home’s exterior and yard, aim to strike up a conversation with your potential neighbors if they are also outdoors. Ask about their impressions of the neighborhood, schools, and neighborhood and community amenities. If you’re feeling brave, ask, “Would you buy your home again today if you were given the chance to do so?” Any major red flags revealed during this conversation may lead you to reconsider the home purchase (or seek a closing credit to build a bigger fence!).

Don’t Take the Home Buying Process Lightly!

For most people, a home is the largest purchase they will ever make. Do not enter into such an important decision without careful consideration of the condition of your potential new home! Review your notes from you DIY home inspection and compare them to the report provided by your professional home inspector. With careful consideration, you will avoid hassle and heartbreak and find the home of your dreams.


What additional home inspection tips do you suggest?

 

 

 

41 Tips to Save Money

Today’s post, “41 Tips to Save Money,” was contributed by Tina Roth. Tina is passionate about helping people to make solid financial decisions, which motivated her to start her own personal finance blog,where she writes about money management tips and frugality. She is also the community manager at the finance guest post community.

How can I save some money?

This is one of the most common questions asked by a lot of people.

Developing a habit of overspending can disrupt your whole plan of saving some money. However, in order to escape from this trap of unnecessary spending, we need to detect some effective ways to save money.

41 Effective and Easy Ways to Save Money

Undoubtedly, there are many ways to save money. The choice to pursue any of these avenues will be dependent upon your lifestyle and preferences. Just go through this amazing list to discover some effective money saving tips.

1. Turn off your Television:

This is one of the best ways to cut down a regular expense. Paying a lower electricity bill along with staying away from those provoking commercials can actually be the outcome of your decision of cutting the cable connection or switching off the TV.

2. Keep Track of Your Spending:

Think about keeping track of your spending habits, at least for a month or two. This will help you to handle your financial issues more efficiently.

Related: How to Develop a Budget

3. Switch your Bank Accounts:

If you are being charged wrongly for your bank accounts then, think about switching your account to a different bank. You can also go for a high interest online savings account.

4. Get rid of your Debt:

Get rid of the headache of paying interest by clearing all your debts. Once you have cleared all your debts then, you can save the money for your future.

5. Plan for Having Group Dinners:

If dining out is the best refreshment for you, consider going for a group dinner. It’s an amazing way to have an access to your favorite dishes at a reasonable price.

Related: Dining Out on a Dime – 10 Money Saving Tips

6. Improve Your Credit Score:

Improve your credit score for staying benefited. Once you have a clear conception of your position, you can think about saving some money by following the above mentioned technique.

7. Build a Habit of Cooking:

Try to build the habit of cooking at home more often. This is a unique way of staying healthy as well as saving money. For the micro family, both husband and wife should take the responsibility of cooking.

8. Cancel the Gym Membership:

Think about canceling your annual gym membership if you are not going there frequently. This is a simple way to save money with minimal effort.

9. Buy in Bulk:

Buying in bulk might cost you some more money at a time, but soon you will notice the difference in the method of your savings. Opt for buying non-perishable goods in bulk.

10. Drop all the Bad Habits:

We all have bad habits. Try to get rid of those which negatively impact your health and your wallet. Stop consuming alcohol or moderate your consumption to save some money. If you smoke, stop as soon as possible.

11. Borrow a Dress:

Instead of buying an expensive dress, consider borrowing it from a friend. If you are not planning to wear a particular dress several times, it would be better for you to not waste money on it.

12. Install a Water Meter:

Install a water meter for keeping a track of your regular usage of water. Paying an excessive amount on water bills can easily be controlled by following this unique method.

13. Be Smart with your Car:

Avoid driving aggressively to stay away from accidents. Harsh driving can also cost you extra fuel, which will affect your monthly budget planning.

14. Find a Roommate:

One of the most effective ways to save money is finding a roommate to share all your expenses. The dream of living in a separate place will easily fit within your budget by getting a roommate.

Related: Would you live in an adult dorm?

15. Start Selling your Unwanted Goods:

Stop collecting items without resale value. On the other hand, opt for selling those unused items to get some money before they lose their value completely.

16. Get a Grip on your Impulses:

Don’t forget to think twice before investing in any expensive item. This will definitely save you from indulging in any kind of impulsive purchase.

17. Use Leftovers:

Utilize your fridge-clearing days by using all the leftovers of the previous day. This is an amazing way to save some money on your meal of the day.

18. Plan your Vacations Wisely:

Instead of wasting a lot of money on your overseas trips, try to find out some incredible locations near your house to visit. The money you will save from these trips can actually be utilized later.

Related: How to Save Money on Vacations

19. Transportation:

Avail public transport system instead of owning a car. If you are not comfortable traveling by bus, you can also think about getting a bicycle.

20. Conduct Purchases from Online Sites:

It may seem a critical job for you, but do consider availing the service of online shopping forums. The yearlong discount they offer on different items can help you a lot to stick with your budget.

21. Make a List Before Shopping:

Make a list before you go out shopping. This will make you think twice before getting anything that is not on the list.

22. Use Discount Websites:

You can also think about visiting the discount websites for scoring some amazing discounts on traveling or events. In this way you would be able to save a lot of money.

23. Become a Vegetarian:

If you are really willing to drastically impact your budget and health, then think about becoming a vegetarian. You can also implement meatless meals.

24. Avoid Using Candles:

Instead of buying costly room fresheners and candles, opt for using baking soda for reducing the odor. A small container of cinnamon can also work fine.

25. Clean your House Yourself:

Avoid the luxury of employing housecleaning staffs. Try to clean your house by yourself to saving at least $100 a month.

26. Get a Grip on your Phone Bills:

If you are the one who spends a lot of time outside the home, it would be useless for you to maintain a home telephone and its bill. Also review plans for mobile phones and reduce expenses as you are able.

27. Set a Budget for Gifting:

As the season of festivity is knocking at the door, you should come up with some amazing gifting ideas. Don’t forget to set a budget before getting anything.

28. Unplug Electronic Devices:

Unplug electronic devices before leaving your home. This is an effective way to save money as those devices can consume power if you let the plugs in.

29. Repair your Clothes:

Don’t throw away your favorite shirt because of a broken button. Instead of getting a new shirt, think about repairing it.

30. Brew Your Own Coffee:

Replace your habit of drinking that daily caramel mocha and brew your own coffee. This will save you approximately $4 per day!

31. Car Pool:

Sharing a ride with your fellow worker can be a huge savings. The money you save from a car pool can definitely help you in achieving something big in the future.

32. Create a Separate Bank Account:

Think about having a separate bank account other than your savings account. It can help you in reducing the chances of borrowing money from the savings account.

33. Visit Libraries:

If you are a student or live in an area with an adequate public library, you should definitely think about borrowing books from libraries instead of buying them. This is indeed an awesome way to save money to plan your future properly.

34. Read Magazines Online:

If buying magazines is the habit you cannot escape, read them online.

35. Buy Generic Products:

Brand names are catchy, but sometimes you can find similar quality goods by shopping generic.

36. Gardening:

In order to save some money, grow your  own vegetables to save on the cost of buying vegetables from the market.

37. Learn the Basics of House Maintenance:

It is very essential for you to know the basic art of maintaining a house. Try to acquire a bit of knowledge in this area, such as fixing lights, repairing walls, and painting.

38. Enjoy the Beauty of Nature:

Plan your weekend outings in beautiful parks instead of spending the evenings in fancy clubs or restaurants.

39. Buy a Water Filter:

Buying bottled water is one of the most common ways for the people to waste a lot of money. A water filter eliminates this need and helps you save money.

40. Use your Talent for Earning Extra Cash:

Maximize your skills! Starting a side business can help you earn more money, therefore increasing your ability to save.

Related: Launch Your Own Small Business

41. Opt for Leading a Healthy Life:

Leading a healthy life without any trace of bad habits like drinking or smoking is very much essential. A healthy lifestyle will save you money in the long run.

Parting Thoughts

Many times we end up spending large sums of money to fulfill our whims. The solution lies in curbing our impulsive buying nature. Just follow the above mentioned techniques to cut waste and save money today!

 

A True Parable of Patience

Over the past two weeks, I have taken my proverbial foot off of the accelerator a bit. This has been hard. For as long as I can remember, happiness has always been linked to progress in my mind. As you may imagine, I was naturally reluctant to ease up a bit out of fear. I thought, “Things are going really well right now? Will I remain this happy and content if I slow down?”

I realized some things in the midst of this self-imposed siesta:

  1. Progress is not necessarily halted when you take your foot off the gas; momentum has a way of keeping things moving.
  2. In times of relative stillness, we invite room for reflection. In this instance, it dawned on me that I have been very impatient with myself in a number of areas: growth of my real estate business, refinement of my writing process, and of course, overall growth of this blog. When I paused to slow down a bit, it became clear that I need to be patient with myself.

The Value of Patience

I’ve never been a patient person. Mrs. Superhero can attest to that. I have worked hard to become increasingly mindful of this tendency over the past few years, as impatience seems to be a genetic tendency within my family tree.

The notion that hard work solves problems fails to account for all of the other important variables inherent in life. Patience is a key to winning!When I was young, my uncle and Superhero Grandpa were avid boaters and fishermen. One foggy morning, they started out for an early morning to cast their lines in Lake Michigan. In their haste, they forgot to check the weather report. As they approached the big lake via the channel, it became clear that the present conditions were very poor. Turning around in the channel was impossible, so they did what had to be done — they pressed onward into the crashing waves in an attempt to turn around navigate back into calmer waters.

My uncle is an expert boater, but he knew the writing was on the wall: this wasn’t going to end well. Superhero Grandpa knew this, too, and in one swift, knee-jerk reaction that he would fortunately live to regret, he dove into the choppy water and began to swim to shore. In his impatience, he forgot to don a life vest.

Grandpa was able-bodied and very strong at this stage of his life, yet he has little match for the waves. He fought and fought, harder and harder, yet he realized that his efforts were wasteful. Moments later, my uncle also abandoned the boat and came to Grandpa’s rescue with a second life vest just as exhaustion was about to set in.

I think of this story often, but it is especially poignant when I am struggling to be patient. Like most people, I am a product of the drive-thru generation. I want it now, and I have been told that I deserve everything I could ever want. Fail once, and work harder and longer the next time and you’ll surely get what you seek, I’ve been told. If you work harder, you can speed up normal timelines and reach the finish line faster, says the world. These ideas stand in direct contrast to my Grandpa’s story, and personal experience paints a different picture, as well.

The notion that hard work solves problems fails to account for all of the other important variables inherent in a specific endeavor. For the single father working an extra job to rebuild emergency savings, hard work and hustle aren’t always the solution. Shifting money into a hot mutual fund or single stock may not be the answer for the middle-aged person grasping for an earlier retirement. And for myself, hard work as a realtor and blogger is only one piece of the pie. Shortcuts rarely work, a truth which underscores the importance of patience.

So each day I am going to remind myself to exercise patience. I am going to remind myself that is OK to let up on the gas, coast a bit, and ride the wave (How is THAT for a mixed metaphor?). I have already discovered that happiness and contentment may be found in moments of patience. I look forward to experiencing further lessons in patience in the days ahead.