Save Today For Big Payoffs In The Future

A Guest Post by Robert Sommers:

Robert Sommers is a freelance mortgage and real estate writer based out Baltimore. He has worked for over 25 years as a licensed real estate agent in all areas of commercial and residential real estate.

A down payment is a huge financial commitment and very often one of the biggest obstacles in buying a home. Not to mention the fact that due to the recent mortgage meltdown, many lenders are now requiring higher down payments on a mortgage loan, making saving up even more of a challenge. If you want to avoid paying private mortgage insurance, you’ll need to make a down payment of at least 20%. For those unfamiliar, PMI stands for Private Mortgage Insurance which is an extra cost required lenders that is built into your monthly payments for a home mortgage loan greater than 80% of the home’s value.

One of the best ways to save for a down payment is through setting up a savings plan. The first step in doing this is assessing your current financial position. This means taking a look at all of your assets and creating a budget based upon how much you need to save monthly for your down payment. Carefully add up all financial instruments you currently possess- CDs, stocks, bonds, T-Bills, etc. In addition to any mutual funds and even savings/retirement funds- 401K’s, IRA’s, Roth IRA’s, etc., as the proceeds from borrowing against a retirement fund can be used towards making your down payment.

Once you calculate all of your assets, you can get an idea of how much money you’ll need to save by subtracting the total from the amount needed for your down payment. The outcome will aid you in formulating a budget that will help you determine exactly how much you need to save each month towards your down payment.

Once you know how much you need to save every month, you might want to consider holding the funds in a high-yield savings or MMDA- money market account. These offer a great deal of security and liquidity and the interest rates the offer are also very attractive. This will allow you to earn interest on the money you save, thus helping you to reach your down payment goal faster while still giving you easy access to your money.

While the task of saving up for a large down payment may seem daunting, it is definitely doable if you create a budgeting plan and stick with it. While some financial sacrifices may be needed in order to reach your down payment goal, it will all pay off when you purchase your dream home.

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Note from Carrie: I think it’s great how Robert emphasizes saving, saving, and more saving for your first house.  I’ve stressed before how important it is to wait to buy a house until you’re ready – which includes waiting until you have that 20% saved.  So many of my friends have bought houses before they are truly ready and are now paying the consequences in terms of being strapped for cash and maxed out credit cards for expenses like maintenance and decor.  The message is clear – save, save, save!  Happy saving!

Making Retirement Decisions Over Pizza & Beer

 

Tonight, Lloyd and I enjoyed a low-key date of pizza and beer (with a coupon, of course – who do you think I am?).  Pizza and beer is one of my favorite dates – I’m a low-maintenance kinda gal and there’s something so refreshing about an ice cold brew and a steaming slice of pie on a Saturday night.  It really gets you to thinking about…retirement?

Over slices of pepperoni, Lloyd and I got on the subject of our retirement accounts and saving for the future.  Truth be told, we’ve been talking about this subject quite a lot lately.  I’ve been toying with the idea of…not maxing out my retirement account next year. *shocked gasps from readers*

Yes, that’s right, I might stray from the biggest personal finance rule of them all:  Thou shall max out thy retirement accounts each and every year.

The fact of the matter is that we have a lot to save for right now.  We want to pay off a good chunk of our future house before we have kids, we want to build our home gym, we want to buy a dog when we have a house, we want to get married.  On top of that, while my car is close to brand-new, Lloyd’s car is almost 10 years old and we’d be naive to think it won’t need maintenance or even need to be traded in in the near future.

What’s more important:  not getting into debt again or maxing out my retirement account?

The obvious answer is avoiding going back in debt.  I made a one-time stop in Debtsville and I don’t intend to ever go back.  I don’t mind working for even 5 more years if it means that I never have to be in debt ever again.

I’m happy I maxed out my 401k this year.  If I was going to do it any year, this was the year to do it.  I now have a huge amount of shares under my belt that I bought for a really cheap price.  Who knows when the market will provide that opportunity again?

So, next year, I won’t be maxing out my retirement accounts.  Instead of saving almost 24% for retirement, I’ll be backing my contributions down to the Dave Ramsey recommended percentage of 15%.  Next year, I will contribute $5,000 to a Roth IRA and $5-6,000 to my 401k (plus about $3,000 in matching from my employer).

Our ultimate goal is to reach max-out again and stay there, but for now, we’re content with contributing just 15%.

I’m happy with my decision.  My taxable income will go up and I’ll pay a couple thousand dollars more in federal taxes, but I think it’s worth it in the end.

We had some great personal finance discussion flowing over our dinner tonight.  It makes me think: is it possible that the best financial decisions are made over pizza and beer?

(photo source)

One Of My Miniature Dreams: A Home Gym

Have you ever wondered about that side bar towards the bottom of my page that’s titled “Home Gym”?  You know, this one:

Well, let me explain.  For me, working out is like brushing your teeth.  It’s just something I do everyday without a second thought.  If I miss a couple days of working out, I get cranky and can’t think straight.  I have an inkling that this is how I felt most of the time before I started working out daily.  But, that’s another post for another day…

My point is, though, that you wouldn’t buy a house without a sink to brush your teeth or a bathtub to take a shower in would you?  Nor would I buy a house where I could not build my very own home gym.

It must have been fate when I met a guy who was even more of a workout addict than myself!  😉  Lloyd is an inspiration and never misses a workout.  He works out 6 days a week and is an avid weight lifter.  Needless to say, he wants a home gym just as much as I do.

I know a home gym will take time to build.  It could take years even before we have it perfect (Lloyd wants to build a “locker room” in our home gym which I think is a little absurd considering there will probably be a bathroom around the corner.  Boys…).  However, it is one of my requirements that I have a few necessities before I have a kid (Momma’s gotta work off the baby weight somewhere!):

• treadmill
• spinning bike
• set of dumbbells (preferably convertible like these)

Those three things are my bottom-line, must have requirements to build the foundation of our gym.  Of course we’ll need other necessities eventually like:

• plastic floor tiles (the kind they have in gyms)
• mirrors
• TV
• stereo
• resistance bands
• barbells
• flat bench

Sometimes Lloyd and I will get to dreaming really big and claim we want these things in our gym:

• cable crossover (the big machines with the cables)
• locker room (again….not gonna happen)

I totally get that most people probably think we’re crazy for wanting to spend so much money on a home gym.   However, I often daydream about rolling out of bed in the morning and heading right down to my personal gym instead of driving half-asleep, 10 minutes across town to my public gym – and that alone makes me so happy.  An added perk is the fact that I will no longer have to work out next to “talks-too-much-guy”, “stares-too-much-guy”, “smelly-guy/girl”, or “Spandex-guy” (quite possibly the fashion faux pas of the century).

There you have it – that little sidebar is no longer a mystery.  It’s one of my miniature dreams that I can’t wait to make into a reality someday!

Now that you know about my mine – what are some smaller dreams that you want to accomplish in your life that you are saving for?

How To (Mentally) Max Out Your 401K

I’ve had a couple readers share with me that even though they probably could max out their 401K, they don’t.  I totally get it – it’s tough to do.  If everyone’s strong suit was willpower, we’d have a bunch of rich, skinny people walking this Earth!

Here are a couple of ideas to help you max out that 401K and get yourself on the fast track to an early and/or prosperous retirement:

• Daydream:  I kid you not.  This works for me.  Lloyd and I often talk about our summer beach house and our winter ski trips that we plan to take when we’re retired.  Not only retired, but retirees with smokin’ hot bods…
• Stay In Shape:  Yep, you read that right.  I think that so many (young) people think of retirement as the end of the good part of your life.  You’re not a young adult anymore, your body is shot, and you have to wear diapers, right?  NO!  50, 55, 60, 65 is FAR from old – and even further from the end of life.  Keep that body rockin’ and you’ll be able to live retirement like a feisty young whipper snapper.
• SSS (Start Small Silly):  A masterpiece isn’t completed in a day, nor is a 401K.  Now, don’t take advantage of the “start small” tip by contributing an extra $10 a year.  Instead, try to contribute an extra $50-$100 every month.  Before you know it, you’ll be maxing out.  And if starting small doesn’t work for you…
• Go All In:  Max out all at once.  Change your contribution amount and never look back.  This is how I did it and it worked for me.  If you need a support system, round up the nearest personal finance blogger and have them do the clicking for you.
• Keep more of your own money:  Story time…last year I contributed 5% of my income to my 401K.  I paid about $9,700 in federal income taxes.  This year, I will make $3,000 more than I did last year and I’m contributing about 23% to my 401K.  Guess how much I’m going to pay in taxes this year?  About $7,000 in federal taxes in 2009.  Not only did I get a pay raise from my employer, but I’m also getting a pay raise from the government in the form of lower taxes…to the tune of almost three-thousand smackers!
• Expand Your Mind: Truly, the big picture is that the  more you invest from a young age (e.g. twenty-somethings should max out), the more time that money is invested, the more money you walk away with in the end.  I used my handy-dandy balance projection calculator on my 401K website and came up with this:

• A Load Off: Maxing-out your 401K in 2009 and beyond…$16,500.  Knowing you’ll be financially secure in your golden years…priceless.

As you can tell, I’m a big advocate of the 401K Max-Out.  Even though it’s tough putting aside all of that money today, I know how much more rewarding it will be in the future.  After all, it’s the most difficult obstacles in life that have the biggest payout (pun intended).

Question:  Are you maxing out your 401K?  Why or why not?

Let’s Take A Closer Look At The Male HDTV Obsession

Ladies, we’ve all seen it.  You stop by Best Buy with your guy to pick up the latest version of Quicken and before you know it, you look over and find him in a trance.  His eyes are glazed over and he’s gazing at something across the store.  There’s a faint hint of a smile on his face and just the tiniest bit of drool making its way down his bottom lip.

“Lloyd!  Hello?  Anybody in there?” I say loudly.  Nothing.

He doesn’t hear me.  As if pulled by some magnetic force he seems to glide effortlessly to another section of the store.

That’s when I see it.

He’s fixated upon the bevy of LCDs and plasmas plastered up on the back wall.  They seem to be shouting colorful, crisp, sweet-nothings to Lloyd.  Do they speak in some sort of secret dialogue to males that females can’t understand?

Truth be told, he may be close to perfect, but Lloyd does really have an innate infatuation with HDTV flat screens – or any flat screen for that matter (we have two very large old-school tube TVs in our apartment).  Every time he lays his eyes on those flat screens, he becomes more delirious than every girl in the world was the day that the Sex & The City movie premiered.

I, on the other hand, watched TV on this 13-inch gem for a good 20 years and was more than confused when my parents bought me a new (tube) TV for Christmas a couple years ago:

You served me well, RCA.

In my female mind, it displays any show you could ever dream of watching just as well as those fancy 40 inch LCD screens up on the wall at Best Buy.

If it were up to me, we’d watch TV on our perfectly functional tube TVs until they day they stopped powering on.  To me, they work just fine.  To a guy though, this tube TV we have in our apartment is pure blasphemy.

Further proof of the male HDTV obsession?  Just check out the comment that Lloyd left on my post back in June titled “Do you have HGTV Envy?“.

The good news is that Lloyd has an abnormal amount of self-control (he must if we don’t already have a 50-incher on our living room wall) and we’ve made a little bit of a compromise as far as his dream television goes.  We’ve decided that what’s much more important now is to save for a house in the future and once we’ve bought said house, we each get to splurge on a big item for all of our hard work and dedication to saving.

What will our splurges be you ask?  If you haven’t guessed his, it will be a HDTV flat screen (the exact size has yet to be determined).  For me, it will be the biggest, firmest, most extravagant KING BED I can find.

What would your splurges be?

Let Your Budget Take A Personal Day

 Monday was one of those days where I woke up and my first thought was:

“Not gonna happen.”

Even though I finished up the night before with a killer cocktail of a fish-oil pill, a multivitamin, a good layer of night cream, some yoga poses, and a nice glass of water (the “grown-up martini“), I woke up feeling ready to knock on death’s door.

I wasn’t sick, but my body and my brain needed a break.

Ya know what I mean?  I knew I had to call in just take the day to recharge, so that’s just what I did.  Recharged.

So if we all know our body needs a little recharging every now and then, shouldn’t the same principle go for all aspects of our life – sexy budget included?

Not convincing enough?  How’s this – Lloyd and I see each other a lot.  Maybe too much.  Sometimes I think we might take each other for granted…

But, last weekend, he was out of town all weekend for a bachelor party (third this summer!) and by the time he got back, it was like first love all over again.  Our eyes met on Sunday afternoon and we were like star-crossed lovers, it was like our love could conquer anything…that is until his weekend bag exploded all over our apartment.

The same holds true for exercise – how energized do you feel after taking a day or two (or three or four) off from the gym?  If you hit it too hard too many days in a row, eventually you’ll get sluggish and you just won’t be throwing down squat thrusts quite like you used to.

So, you see, every budget needs a teensy break every now and then.  Don’t get too excited.  I don’t mean you should trade in your beater for an Audi or your brown bag for a 5-star restaurant.

Keep it relative.  If you’re in massive amounts of debt, maybe a McDonald’s 59 cent ice cream cone will suffice.  If you’re debt free and on the fast track to financial freedom, maybe a new golf club or sweater will keep you in line.

Believe me, a little wiggle room will make your budget more successful.  Some of my recent splurges?  New sparkly tennis shoes and a nice dinner out with Lloyd.  These little breaks from my saving were just what I needed to keep me right on track.

What do you do to let you budget, relationship, life, etc. take a personal day?

Taking A Walk Down Dream Lane…

Lately, Lloyd and I have been spending our evenings taking walks and drives through our dream neighborhoods in Kansas City.

We’re still a good 2 years off from buying a house (we still have to get engaged, married, and all that jazz before we can buy a house) but one of our favorite pastimes is daydreaming about our perfect house.

We have the vicinity pretty much narrowed down, but here are some other things that we want in our perfect house:

• Basement: We want a basement for a couple reasons.  First, houses with basements have better resale values in the Midwest than those without basements (hi there, welcome to Tornado Alley).  Second, we want to make a home gym in our house.  We are both very passionate about fitness and would probably go crazy if we couldn’t work out.  We’ve both always really wanted our own home gym and plan to go for it when we buy our own place.
• Pool: In the neighborhood, not the backyard.  I love the pool, I love the sun, I love the summer.  I wanna pool!
• Updated Kitchen: No more crappy apartment kitchens! Like this…

[Source]

• Spanish Tile: Oh Spanish Tile, how you taunt me.  I love, love, loooove the look of Spanish Tile.  So mysterious, drug dealer-ish, and southwestern-looking.  Not that I want people to think I’m a drug dealer or anything…I just love the whole look that is exudes.  However, that shiz is expensive.   It might have to wait until our second or third house.  But just for grins, here is a fantasy picture of a house that I love:
  

• 2 (maybe 3) Car Garage: I despise walking out into the snow during the winter.  Actually, I despise the winter all together.
• Close to the Interstate: I have road rage.  It’s worse on the city streets.
• Trees!: Which means, a little older neighborhood.  Also, must have two trees sort of close together so I can put up a hammock.  I’ve dreamt of a hammock all my life and I want one when I finally have a house!
• Concrete Patio: So I don’t burn the place down!  Which brings me to my next requirement…
• Big Backyard: We’re both big time dog lovers and can’t wait until we can get a little pooch to run around our backyard.
• Fattie Whirlpool Bathtub: I haven’t taken a luxurious bubble bath in years.  Apartment tubs kinda gross me out.  I’m hoping my new home’s tub is super clean and luxurious so I can take some darn baths!  (Editor’s Note:  I DO take showers.)
• Attic Fan: Is this just a Midwest thing?  If you don’t know what an attic fan is, you are missing out!   Check out the details here.  I love attic fans and they seriously cool the heck out of your house without having the air conditioning on.  Unfortunately, I think they are becoming extinct.  Sad face.

Too much to ask?  I hope not.  You may have noticed that I don’t really have a preference on size.  I’d prefer a smaller house even – cheaper utilities and less space to clean. 😉

Now…on to that whole saving $40,000 thing…