Category Archives: Saving Money

Rent vs Buying a Home The Pros and Cons

Often times you hear of home ownership referred to as the American dream but this isn’t always necessarily the case. There are numerous factors to consider when deciding whether to buy your first home or to continue renting. When living expenses consume a considerable portion of most people’s income, it is a good idea to put a lot of thought into the decision and where your money is ultimately going. Here are a few factors to consider before possibly making the leap into home ownership.

1. Low Credit Score

Generally speaking it is said that a score below a 620, will not be helpful to you in buying your first home. If you are below this number, it is probably best to spend the next year or so making a conscious effort to rebuild your score. Delaying the purchase of your first home to do so can end up saving you tens of thousands of dollars in the long term on interest alone.

2. Job Stability or Relocation

Being laid off is usually not something you can anticipate unless your employer is extremely transparent. If you don’t have an emergency fund accumulated in order to make at least the approximate payment of your anticipated mortgage, you probably are not ready to make the leap into home ownership. Most lenders require that you have at least three months of reserves for a reason.

Additionally, even if you have or plan to voluntarily leave your current employer you may have a difficult time securing a mortgage. Lenders like to see a history of employment, if not with the same company, than at least in the same industry. Other factors to consider is how mobile you are. If you are at high risk for being relocated or do not intend to stay in the house for a considerable amount of time, you could very well lose money in the case of a sale. A general rule of thumb is that your property needs to appreciate at least 10% in order to avoid losing money in a sale.

3. Maintenance fund

A home is a continuous project that requires time and money to upkeep. It is always a good idea to have a home inspected before closing on it, but even then, not all of the problems and potential problems are evident. In addition to an emergency fund, it is recommended to have a reserve fund of at least 5% of the purchase price of the home in order to cover maintenance and upkeep. Furthermore, not everyone wants or knows how to maintain a property. Many people prefer to rent in order to have the benefits of a house without the risk of ownership.

4. Cost

In some cities and states it costs significantly more to buy vs. rent in both the short and long term. It is a good idea to not only consider all of the above factors but to also do extensive research on the area you are looking to buy and do a cost comparison between the two for at least five years out.

Tax considerations are also important because of the deductions and depreciation savings that can come with owning your own home. Consulting a CPA may be a good idea if home ownership is on the horizon.

There are obviously many factors that go in to deciding where you live. Although owning a home is something to be proud of there is no fault in waiting to own until you are in a good place to do so. Preparation and planning are two things that cannot be stressed enough when any major financial decision is made and deciding on where you live is no exception.

Is an Emergency Fund for Everyone?

Saving up an emergency fund is often times easier said than done. If your budget is tight, or you are saving for future goals such as retirement, a down payment on a home, or paying off debt, an emergency fund can easily be pushed to the back burner  However, there have been some debates on whether you really need an emergency fund at all. After the recession of 2007, it is hard to make the case that having at least several months of cash on hand is a bad idea. But it just so may be the case that it is not always the best option.

A common theme in the world of finance is that every person’s situation is unique. With that being said, it might not be in everyone’s best interest to have several months of cash stashed away in case of an emergency  Here are some places your cash may be better off than in an emergency fund.

Towards High Interest Consumer Debt

Credit card balances are a present day emergency. There is no sense in saving for a future emergency when you are paying high interest on your debt today. The rates that you will get from an emergency fund in a savings account or CD will not offset the interest you will be paying in interest on your credit cards.

If You Have No Retirement Savings

Retirement is an easy aspect of your personal finances to forget about, especially when you are young. In the decision between saving for an emergency now, and saving for your future, always chose the latter. The money put aside today in a Roth IRA or 401(k) will far exceed the growth that you will ever see in an emergency fund. Plus, certain retirement vehicles will allow you to borrow principal if you ever get into a situation where you need cash fast.

You Have No Debt and Low Expenses

In the case that you have managed to live debt free and below your means, you also may be in the category of someone who doesn’t necessarily need an emergency fund. Redirect your cash from emergency funds towards investments that offer long term returns. Reinvest your dividends until they grow to a substantial amount, at which time you can either retire or use the dividends in the case of an emergency to either live off of or subsidize your income.

You Have Investments That Are Accessed Easily and Without Penalty

It just so may be the case that you have an emergency fund and don’t already realize it. If you have been investing heavily for the past few years, you may have already accumulated a sum that would more than cover you in the case of an emergency. As long as you can withdraw without penalty, you may very well be sitting on an emergency fund that is making money for you.

You Have Flexible Finances

There are several situations where someone may be able to live without their income already and they just don’t know it. You may be living beyond your means, have a spouse that can support your lifestyle, or you have other employment options available. If any of these are the case, an emergency fund may be u unnecessary and your money will be much better invested elsewhere.

Regardless of where you are in life, having peace of mind is invaluable. Despite your current standing you should be constantly working towards having the ability to live on your own terms without having to be dependent on anybody else. In all cases, financial preparedness is key. Being alert to your financial situation allows you the ability take advantage of opportunities that come your way as well as protect yourself when you are met with misfortune. cy fund is one of them. One size does not always fit all, and an emergency fund definitely falls into this category. Sometimes the best preparation is knowing what you don’t need to prepare for.

Five Tips on How To Improve Your Credit Score

So you are looking to buy your first home or maybe even finance a new car and you are worried about your credit. Although raising your credit score is never a quick and easy task, there are various immediate actions that you can implement today in order to start the process towards raising your credit score.

Your credit score is important because it provides a clear picture to lenders about your ability to repay what you owe. The benefits that come with a high credit score are usually monetary but they can also give you power to negotiate as well as a sense of security. Although there are a variety of credit scores available to lenders, the most important of them all is your FICO score that is provided by one of the three national credit bureaus, Experian, Equifax, or Transunion. If you haven’t already reviewed you score from one of these three providers and you are looking to take out a line of credit in the next 6 months, it is in your best interest to do so.

Correct blatant mistakes.

This is one of the main reasons you should obtain a copy of your credit report every year. Correcting an error on your credit report can take up to three months or longer. Catching and correcting errors though can have a huge impact on your score that will definitely reflect on your interest rates when it comes time to borrow. It is good practice to keep detailed records of your credit lines and payments in the case that you have to dispute something on your credit report. The more supporting evidence you have, the easier it will be to plead your case.

Pay your bills on time

If you don’t already practice the responsible habit of paying your bills on time, now you have an extremely good reason to. One late payment can tarnish years of timely payments on your credit score. If you have a long and timely history with your credit card company it never hurts to request from them that the information be removed, especially if it was truly an error or oversight. This is always a good practice, and it’s especially critical that you make prompt payments close to the time you need a loan.

Reduce your credit card balances

One of the most important factors of your FICO score relates to how much you owe on your credit cards relative to your limit. A good rule of thumb is to keep the balance below 25%.

Eliminating Balances on Multiple Cards

It is always tempting to sign up for cards at stores that you frequently shop at in order to take advantage of savings or rewards. Credit card churning can save you alot of money but it is best to limit it to two cards. This practice is only beneficial of course if you continue to make timely payments and make sure to stay under the 25% of your ceiling.

Pay off debt rather than moving it around. 

This rule relates to the third point in that translating debt to another card is only increasing you closer to the ceiling of that line of credit, therefore lowering your score. It is a better practice to focus on one line of credit and pay it off. After you’ve eliminated the balance do not cancel the card as your credit score reflects this negatively. Having a clear history of debt being repaid is something that lenders like to see.

If you haven’t already received your free copy of your credit score, that is the first step. After doing so, you will know just how much work you have laid out in front of you. It is never too late to start building your credit score and with a little work and persistence you will notice results that will pay off for you when it comes times to take out credit.