Saturday, September 29, 2012

Our Recent Downsize: Great Practice for Retirement

When I hear the word “downsize,” I’m often hit with thoughts of life down the road. Once the kids head off to college or we’re getting ready to retire, that’s when it’s time to downsize, right?

Well, we don’t necessarily have to wait to retire to start paring down our possessions, the various aspects of our lives, and in essence, our responsibilities, whether they be to our stuff, our homes, our finances or some combination thereof.

Therefore, our family took the time to downsize our lifestyle recently, and in the process, experienced what I would say was a great practice run for downsizing in or near retirement. Here’s what we did and how we succeeded in our efforts.

Positives of Retirement Downsizing Now
There can be a variety of advantages to downsizing in retirement. Having watched my mother go through this process, it opened my eyes to just how possessions can take their toll on us when having to deal with them.

My mother is sort of a pack rat. Don’t get me wrong, she’s not a hoarder or anything like that, but she is one of those people who can see a use for just about anything and everything, and therefore, she likes to hold onto stuff. However, as she nears retirement, she’s begun to downsize, making her household easier to maintain, lowering stress levels, and opening up possibilities as to what she’d like to do in retirement, where she’d like to go, and how much it will cost to get there.

Positives of Doing a Test Run Now
There are multiple benefits in our doing a downsizing test run well before we retire. First off, we know that we can do it and how to do it when the time comes. We know what sorts of items will be on the chopping block, like clothing, dishware, bulky furniture items, and heavier things like books. We also know how much time and effort it can take to downsize. Going through stuff can be draining, both physically and emotionally. It can be hard to make decisions on items that we’ve owned for years. Thankfully, my wife and I have each other, and we work as a team so that we help one another make decisions on items that otherwise we might pointlessly hold onto.

Maybe one of the most important aspects of doing a trial run downsize is that we are now well-versed in how to make money off the process.

How we Turned our Efforts into Cash
We wanted our downsizing efforts not only to make our lifestyle more efficient, but make us a little cash in the process. Therefore, we tended to look for resale options for much of the stuff that we were getting rid of.

Of course for things like books, DVDs, CDs, and video games, we found area resale shops that would pay us for such items. We did the same with some of our son’s baby toys and clothing, taking them to resale stores for lightly used child items where we made about $150 off of such items.

For the items that we didn’t have resale options for in the local market, we tended to put many of them in garage sales. This way, we made a little bit of money off our old stuff (about $600 during two garage sales), and the leftovers we made into charitable donations, taking the deduction on our income taxes in the process.

How and Where we Downsized
So exactly how and where did we downsize? Well, we hit just about every conceivable area of our home…and then, even the home itself. We started with things like clothing that had been building up over the years, going through closets and drawers, especially for our son and my wife who hadn’t gotten rid of things in a while. Then we moved on to the kitchen and all those drawers where things get hidden.

That’s the thing about downsizing for us. We realized that it wasn’t the big ticket items like couches and beds that we needed to be rid of. Rather, we had to tackle spaces like closets, drawers, cabinets, the attic, the garage, and similar spaces where things get stashed and left. Those are the spots that took us the most time and effort to sort through.

When we were finished, we had just enough stuff to fit into a 10 x 10 x 10 storage locker and the back of our SUV. Therefore, we were ready to move when our home sold, and when we relocated, we could buy a much smaller home, saving ourselves significantly not only on the home price, but on the moving process as well.

Thursday, September 27, 2012

Walking away from a Mortgage: Why is it Okay?

I was talking with my wife last night about the financial state of our great nation when I was struck by a thought.

Why is it that should a person who gets up at a restaurant and walk away from their $50 meal without paying -- even if that meal is significantly overpriced and no contract agreement was entered into regarding payment -- would likely be arrested for theft?  Meanwhile, people can walk away from a one hundred, two hundred, three hundred thousand dollar or more mortgage with little more repercussion to their financial life than damaged credit and of course loss of the home and associated equity in that home.  There's no scene made by loan officers or bank officials chasing them down in their home's driveway as they try to leave as a restaurant server might.  There's no detention or arrest made...or at least not that I've heard about.

If I tried walking out of the local convenience store with several $1 candy bars crammed in my pocket, I'd likely be arrested if caught.  Walk out on a $150,000 mortgage though, and more than likely, I'd be walking away a free man.

Now I'm not debating the rights or wrongs of walking away from a mortgage or whether the banks deserve to have these loans dumped upon them; however, I kind of find the comparison akin to getting jail time for smacking a person in the face but walking away with probation for shooting someone.

Just a few of my early morning thoughts on the matter.  Our accepted national and societal norms have been confounding me -- and frankly, concerning me -- more and more lately.  Don't even get me started on texting and driving!   

Wednesday, September 26, 2012

Income Tracking has Multiple Benefits

I’ve espoused the benefits of tracking expenses and all the ways doing so has helped me in cutting costs and getting a better handle of my personal finances. However, I’ve tended to neglect some of the benefits of income tracking. While I tend to believe that tracking expenses is by far and away the more important of the two, this doesn’t mean that tracking income doesn’t have its own benefits.

As a self-employed individual especially, I’ve certainly realized just how important tracking my income can be in helping me maintain a better overall feel for my financial situation.

Consistent and Accurate Totals
Of course one of the main benefits of tracking income is that I have consistent and accurate totals for my various income streams, which come tax time, is quite beneficial. But even before tax time rolls around, having a running total of my year-to-date income totals helps me with tax planning and setting aside properly estimated payment amounts for items like income and self-employment taxes.

Additions to Income
But I don’t just leave my tracking at “regular” sources of income that come with jobs that I conduct on a regular basis and that are employer-paid. I also factor in items outside this realm of regular income. Things like stocks, bonds, IRAs, and commodities fluctuate in value, and while maybe not currently taxable (since profits on items like my savings bonds and retirement account are deferred until converted to cash), are a part of my annual income nonetheless; and tracking them makes it easier to manage the next benefit of gauging my income -- making comparisons.

Making Comparisons
I find that making month-over-month and year-over-year comparisons of my various income streams is valuable to my personal finances for several reasons. First off, it allows me to watch and determine how various income streams are performing over time. Secondly, it helps me set goals for changing poor performing income streams, and looking for ways to push income higher.

For example, after reviewing last year’s income performance, I set a goal for this year to increase income by 20 percent over last year’s total.

Additions or Deletions
Through my comparisons and tracking over time, I’m better able to evaluate my various sources of income to determine whether there should be additions, deletions or adjustments. At the end of last year, I determined that there were several sources of income that were underperforming, and thereby not worth the amount of time I was investing in them. I therefore removed these income streams from my tracking portfolio. However, this left some gaps in my income that I could look to fill with new sources, which would also be gauged and evaluated over time

I noticed that several other income streams such as my blog and residual income from certain writing sites were lacking in progress or had even decreased over time. I therefore decided to put a little more effort toward working on these income streams in an attempt to bolster them. As I watch my efforts over time, I can come to a better conclusion as to whether my work has paid off or if these are areas that I should eliminate from my income and income tracking in order to focus my attentions elsewhere.

Monday, September 24, 2012

Cutting Our Moving Costs with Gift Cards

Our family tends to relocate quite often. With our moves though, often come quite a few extra costs. With our most recent move back to the Chicago area from the west coast, we’ve once again encountered moving expenses in the form of storage fees, travel costs, and now we must hit the stores to restock our kitchen cabinets.

To combat the costs that come with such purchases, we have a few tricks up our sleeves in the way of gift cards. Rather than just blowing these cards on fun when we got them, which can certainly be a temptation, we instead kept them as a sort of cash reserve, knowing that they could eventually come in handy -- and boy have they!

Our Needs
So now that we have to reestablish ourselves in a new place, there is plenty of stuff we need. From food and toiletries, to cleaning supplies, paper products, and similar items, we have numerous items from which we rid ourselves before our last move or that we gave away to family.

Most of our needs come in the way of food items. We must again load up on the staples. Everything from milk, bread and eggs, to salt, pepper, spices, ketchup, and condiments, we’ll have to start from square one, which means that our initial grocery bills will be hefty ones.

Our Cards
We had several gift cards at our disposal for these shopping purposes. The first of these cards were Wal-mart specific gift cards, thoughtfully given to us by my uncle as Christmas gifts. Another card, graciously came by way my wife’s aunt and uncle (also as a Christmas gift), and yet another card was left over from a small bonus my wife had received from her work the previous year. The cards from my wife’s work and her aunt and uncle were prepaid credit cards.

How We Planned Our Card Usage
Since we could use the prepaid credit cards (one worth $50 and the other worth $40) in a variety of locations, we saved those for more unique purchases. Since the Wal-mart gift cards (worth $325) were store-specific, we centered purchases such as our cleaning supplies and certain food items that we knew were available at Wal-mart for low prices, around these cards. And since there is a Wal-mart superstore located near us, we could actually load up on many of our grocery and toiletry needs as well, though we saved certain items on our shopping list for the local dollar and grocery stores.

Where We Spent and What We Saved
Our first shopping excursion was to Wal-mart for cleaning supplies and toiletry items. This first run was done the day after closing on our condominium so that we could clean the place before officially moving in.

We spent $103.88 on items such as cleaning supplies, toilet paper, paper towels, a new landline phone ($20), dish soap, laundry soap, and similar items.

After a good scrub down, and getting all our stuff moved in, we headed back to Wal-mart a week later to load up on food. Still, we didn’t let having our gift cards sway us in our regular buying patterns, sticking largely to the “Great Value” store brand options, which we found to be quite good and much cheaper than their name brand counterparts. In this way we loaded up on all those necessities that I mentioned we’d need. From sugar, salt, flour, and cooking oil, to coffee, coffee filters, pasta, syrup, condiments, juice, and all the rest, we laid out $179.03 more in Wal-mart gift cards, bringing our total used in gift cards so far up to $282.91. The remaining $43 on these cards went to later grocery store purchases for around-the-house type items such as food items that we realized we’d left off our lists on our initial trips.

However, we were careful in our shopping; realizing that certain purchases might be on sale at area grocery stores or the dollar store. Therefore, after a $14 cash purchase at the nearest dollar store for things like plastic bins for our son’s toys, a bathroom trashcan, superglue, and the likes, we hit the grocery store for most of our meat purchases and other things that we could buy cheaper there than at Wal-mart, for a total of $101.72, $90 of which was covered by the $40 and $50 prepaid credit cards.

Therefore, by saving our gift cards for a rainy day rather than just going out and blowing on frivolity, we managed to get moved into our new home, our cupboards stocked, and many of our cleaning supply purchases covered for multiple months for an out-of-pocket total of just over $25 of our own cash.

Monday, September 17, 2012

Unexpected Costs -- and Savings -- in our Recent Home Purchase

We were better prepared going into our second home purchase than when we were home-buying virgins. This doesn’t mean that we didn’t encounter a few surprises along the way, but this time we were keeping our eyes open for any possible savings we might be able to recognize as well.

We learned a valuable lesson relating to the relativity of prices when we purchased our first home. We made sure not to get so caught up in the tens of thousands of dollars we were negotiating in price that we neglected other smaller, yet still important amounts.

Here are a few of the ways we cut costs during our home purchase, as well as a few areas in which we found surprise expenses.

Home Inspection
The first quote we got for a home inspection came in at over $300, which we thought was a little pricey for the inspection of a two-bedroom, one bath condominium. Therefore, we contacted another home inspection company. They quoted us $260, but told us of a coupon on their website for an additional $25 off, so our total price paid was $235, more than $70 less than our first quoted price.

Real Estate Lawyer
Real estate lawyers are often just a part of the home buying and home sale process here in the Chicagoland area. However, since our purchase was an all-cash deal, there was very little in the way of stipulations regarding the contract, and we only made one repair request which was hashed out between the real estate agents, I thought the lawyer was getting off pretty easy.

Therefore, I asked for a discount. I thought $450 was a little high considering the amount of work he had to do, and since we had made his life relatively easy with our offer, I thought he could afford to give us a price discount, which he did, taking his rate down to $350 and saving us $100 in the process.

Moving
Since my brother-in-law’s friend is a mover, we were counting on his good graces to help us move. However, some things came up at the last minute that prevented him from assisting us. Had I known he wouldn’t be helping us, I might have reconsidered buying several floors up in a building without an elevator, but that’s neither here nor there.

I had planned on paying him and his helpers around $500 for their services, but instead decided to tackle the job myself. With my wife pregnant, this meant the majority of the work fell upon my shoulders. However, after multiple trips with our SUV (the gas for which cost us about $50), and a few bruises, cuts, strained muscles, some popped pain relievers, and the assistance of a brother-in-law, I completed the task and saved us about $450 in the process.

Mailing and Wire Transfer Fees
There were a few expenses that we weren’t expecting though when it came to our condo purchase. Some of these expenses came in the form of mailing and wire transfer fees. You see, I was unaware that for a cash deal that involved an amount of $50,000 or more, we couldn’t bring a cashier’s check, but instead had to wire the funds directly from our financial institution(s). Finding this out at the last minute resulted in some scrambling to get the necessary documentation to the banks, and a FedEx overnight fee in the amount of $43, plus, two wire transfer fees in the amounts of $15 and $25.

Title Company Services
I jokingly told our real estate agent that I could have rented a palatial suite at a downtown Chicago hotel for what we paid the title company to use their little conference room for our half-hour closing, but I do understand there’s more to their services than just providing the location to close a real estate deal.

I’m not sure if such services were worth the $960 we ended up paying, but at least our cash deal resulted in reduced costs elsewhere at closing.

Tuesday, September 11, 2012

Overlooked Home Inspection Items that Cost Us

For as money-minded as I typically am, I have to admit to somewhat getting wrapped up in the whole home buying process. When you’re talking about a purchase that runs into the hundreds of thousands of dollars, it’s easy to start overlooking the small stuff. But even the small stuff can add up.

I kick myself now as I look back at the things we tended to overlook in our home inspection -- some big, some small -- that came back to bite us later on down the road.

Smoke and Carbon Monoxide Detectors
On the electrical portion of our home inspection, our inspector noted in the “smoke detector” portion that, “Current law requires a detector on each level and within 15’ of any area designated for sleeping.”

This wasn’t a big deal to us, and since the home sellers had to pass a local village inspection as well, we figured they’d get nailed on this and have to install the proper safety devices. Fun enough, they didn’t, but guess who did. When we sold the home three years later, the village inspector made us install two more fire/carbon monoxide detectors at a cost of about $30…oops!

Differential Movement
There were cracks visible on the front stone portion of our home at the time of the inspection, and it needed some tuckpoint repairs. Unfortunately for us, we didn’t press the issue at the time, thinking it wasn’t that big of a deal. However, when we sold our home, the buyers did press the issue since moisture had gotten inside the front wall from those tuckpoint issues, a repair job that ended up costing us $650.

Doorbell
Maybe one of the more minor overlooked (by us, not our inspector) issues on our home inspection was the inoperative doorbell. We didn’t ask to have this issue fixed by the sellers when we purchased the home. And while it wasn’t a huge issue, rather than have the existing doorbell re-wired, we went out and bought a $30 battery-operated doorbell system.

Garage Roof
I really didn’t take this aspect of the report that seriously since it was the garage’s roof rather than the home’s that needed repairing. Thankfully, we asked for a credit for what our home inspector termed on our inspection report as “Roof existing beyond design life”. We received a credit in the amount of $1,500, which covered the repair of the garage roof when we made it several years later.

Electrical Panel Splices
We didn’t miss the electrical portion of our home inspection report. In fact, we asked that several double taps and numerous splices inside the electrical panel be fixed. Where we failed in this aspect though was by not having the work reviewed or at least asking for receipts for the work after the repairs had supposedly been completed like the people who eventually bought the home from us did.

Once again, during our local municipality inspection when we sold, we were dinged for splices in the electrical panel that should already have been repaired by the previous owners. This repair, paired with several other electrical issues ran us about $1,000 to repair when we sold.

Tuesday, September 4, 2012

Ensuring we Bought the Right Home

We found it no easy task trying to select the right home to buy. And I’ll openly admit that we didn’t make the right decision when we bought our first home. However, during that first home purchase mistake, we learned some valuable lessons.

We discovered some things with our first home about what to do to help us insure that we were buying the right home the next time around. And while there may not be any exact science to home buying, here are a few of the things we learned that helped us make the right decision this most recent time around when we once again decided to buy.

Comps, Comps, Comps, and More Comps
We didn’t limit ourselves to just what our real estate agent provided us in the way of comps. Sure, he gave us some area comparables to which we could gauge our property and that gave us a general idea of the value of the condos in our building and surrounding buildings. However, we’ve learned in our past experience not to take just one person’s word -- even if they are trained in the field of real estate -- when it comes to buying or selling a home.

Therefore, we pulled up information regarding comps online from sites such as Zillow.com, Trulia.com, and similar websites to get a better idea of what condos of similar size and location were selling for. We also walked the area surrounding our condo of interest to get a better feel for prices and price locations before making our offer.

Property Tax Research
In the Chicagoland area especially, knowing as much as we can about property tax rates before we buy, is a huge consideration in our opinion. With our previous home’s taxes over $5,000 a year -- in a not so hot area -- we wanted to make sure that we weren’t burned again when it came to how much we were taxed.

We were able to discover the past year’s tax rates and exemption history on the property in which we were interested by following a link on Zillow.com to our county assessor’s office site.

Multiple Viewings
We wanted to make sure that what we saw and felt during our first viewing of the property was what we saw and felt the next time. Therefore, we viewed our future home once, then saw it a second time, made the offer, saw another property, then came back and saw our property again, did the inspection (where we saw it a fourth time), then did the final walk through.

This means that we saw our condo five times before we officially took ownership of the property, giving ourselves ample opportunity to look for flaws, problem points, and get a true feel for the property before we fully committed ourselves.

Understanding our Location
We’ve made the mistake of not fully understanding the area of the home we purchased on our first home buying endeavor. From that mistake, we learned that it’s not just the home itself that makes a home, but the neighborhood as well.

From proximity and quality of schools, to locations of available commuter services, property tax rates, and available amenities and the proximity of those amenities to our home, we ensured that we did significant research on our area before buying.

We took time to get to know the area, spent time walking around, talked to people, and ate in the restaurants where we could people watch. We looked up the school district online, and as I previously mentioned, we researched our area comps and tax rates, as well as real estate market trends, and we ensured that we would have plenty to keep us occupied and entertained all within walking distance in this new living location before ever making the decision to buy.