Archive for July, 2011
Good Morning Manager of Wealth Family. I’ve never seen a topic that garnered so many text messages and inbox messages. I’m glad this conversation about the allocation of money is taking off. For so long people have complained about how they were not being paid enough. They complained about how expensive housing was. They complained about having too much month left at the end of money. But now people are looking for answers because we all know what the problems are.
Here is some good news. Getting to the point that your monthly savings deposits are equal to or greater than your Mortgage payments/rental payments means an incredible future for you and your family. Check out the simple illustration below:
$300,000.00 loan balance @ 6% equals a $1798.65(taxes and insurance not included)
over 30 years that amounts to $647,514.57 in mortgage payments
* This is the same rent you would pay for an average 3 bedroom townhouse in many suburbs.
If you allocated the same monthly payment to your investment accounts and got an average return of 6% over the same time period you would have achieved the following:
Savings deposit $1789.65 per month @ 6% for 30 years
account value in thirty years – $1,877,245.97
Even better news is that the choice is not one or the other. The house or the great future. You can have both easily but the money makes the house possible in the opposite way that the house can make the great financial future impossible. If you current monthly debt service is making it hard to save it’s time for a change.
The rewards for paying your investment account first are incredible. Not only will you have a much better retirement but you will also be more secure everyday for the next thirty years. If done properly your income from your savings can come to you tax-free in your retirement years and you could leave a multimillion dollar nest egg for your heirs. If you want to see what your mortgage payment could be doing for you go to this link and enter your numbers and think about how you want your future to look.
Simple savings calculator:
The truth is many people bought their first house for $100,000.00 and their second and third for between $300,000.00 and $500,000.00 without considering their savings. They just qualified and committed to the payment. When will we commit to the savings account? Some people retire poor due to forces beyond their control but many others have been their own worst enemies. The good news is that the power to spend is in your hands.
What will you purchase with your hard-earned dollars? A big house or a grand future?
Wealth Wellness and Wisdom
Manager of Wealth
There is no simplistic answer to getting out of the trap that many have created by choosing to consume before choosing to save. The reasons why someone makes the choices that they do early on in their professional career are many and varied. Some people own certain homes and automobiles because the bank said yes ,not because they had the money to outright purchase them. In that sense for most people the idea of signing up to 30 year contracts on houses and up to 6 year contracts on cars seems like a great idea at the time. It is about ten years into these decisions that we start to feel a little trapped by them. They are limiting our freedoms, limiting our travels, and limiting our ability to change careers. At least that is what we begin to believe.
It’s very common to say that debt is economic slavery but no one makes you get the credit cards , cars or home loans. On the reverse side of that statement, no one can make you keep going forward in those bad decisions.
Your freedom is in changing course quickly and with as little damage as possible.
Don’t do anything crazy, crazy got you here, so let’s do something practical. Let’s sit down and figure out what we want to accomplish with our money and second if our current actions are moving us toward that goal.
Our money does two things very well. It can enrich our lives and the lives of our families or it can enrich the people we owe obligations. The money you save enriches you. The money you pay in bills enriches others.
At this point in life, what do you want? I’d like to expand my career in financial education and make a huge difference in how my people build wealth, realize dreams, and transfer knowledge to future generations. I’d also like to have as few monthly bills as possible and no personal debt. In addition, I’d like to travel at least 8 weeks a year for pleasure outside of business. Most importantly, I am building a system that will provide my family the income and information to generate wealth for generations to come.
Your goals are the fuel to get you through any of your past missteps so start with them. If you start by looking at your errors you may become distracted and unmotivated. Defend these goals with all your might. Taking your eye off your long-term goals can get you caught up in short-term money traps. Owning a series of cars can keep you from owning your dream car and owning a series of ever more expensive homes can keep you from ever purchasing your dream home. Add up all the car payments you have paid for all the cars you have ever owned. For most people by the time they are 45 yrs. old you have paid for a Bentley with all the car payments. Break the cycle and pay cash for the next car even if that means going to the auction and buying an affordable car.
Where is all the money going?
What is your salary or income? How much is going to taxes? How much is going toward housing? How much is going toward your car or cars? How much toward household expenses? How much toward education for children? How much toward charity? How much is going toward long-term savings? Right it all down because it’s all going to help free you from bondage.
Don’t just look at these numbers and come to the conclusion that you need to earn more money. Thinking you just need to make more money without getting into the proper relationship with money will just cause you to make much bigger and more costly mistakes when money begins to come in. I have seen households with over $200,000.00 a year in earning that can’t save 20,000.00 a year. This is because when there are no strong goals and plans to get there, all you have left is consumption.
Now that you see what your money is going toward you reduce the big money items. Maybe you should sell your house and get a more affordable house to create cash. If the house is worth less that you owe now is the perfect time for a short sale. I am seeing clients reduce their housing expensive by 1500.00 dollars or more a month just by selling and going to rent in a smaller home but a better neighborhood that meets their needs. What would it mean to your stress level to go from a $3500.00 mortgage payment to an $1500.00 a month rental payment. How much financial pressure is being relieved.
What about the car
Can you trade your car and car payment for one that is totally paid off or much more affordable? I have had clients trade in their cars with big car payments for used car in great condition. Don’t be afraid to turn in a car if the payment is killing you financially. I hear people saying but that will hurt my credit. Being broke will mess up your life and it’s only a matter of time before you drown in your payment. What would it feel like to go from a $700.00 car payment to a 150.00 car payment or no car payment?
Reduce Your Income Taxes by Starting a business
This is a whole other topic but the easiest way to reduce taxes is to start a small business on the side to create expenses that can be deducted from your gross income. Seek the advice of a great accountant and you will be amazed at how many of your travel, food, entertainment, transportation, and housing expenses can be written off. Reduce your tax basis, this is huge! The system in America was set up to favor small businesses and land owners not working people. Remember this at all times.
While you are considering the move make sure to move to a great school district
It is better to rent in a great school district than to own in a bad one. Many will disagree it is their right but great public schools pay for themselves in two ways. First private schools can cost $1000.00 to $1500.00 per month. many people have more than one child and 12 years of schooling is the difference between them retiring with millions of dollars for retirement or retiring in poverty. Your kids need to be educated well and unless a private school is going to give your child a scholarship, save yourself a fortune and move to a great district. I’ve seen people move from $500,000.00 single family home communities to large townhouses in a great school district and save $2000.00 a month on housing and another $2000.00 per month on school. How much faster could life get better if you were able to save $4000.00 per month?
1. Unless you are saving money in your account you are working for free, what you keep is what you earned the rest belongs to the banks
2.Write down your life’s goals
3. Write down where your money has been going, now and what it could earn you if it was going in your savings
4. Until you can afford to buy the house and the car your dreams only buy foreclosures, distressed property, and vehicles from dealer auctions. This will save you hundreds of thousands in payments and interest
5. Reduce taxes by opening a small business
6. Live in a great school district and educate your kids for free
7. The more money you save the more free and secure you become, personal debt equals economic slavery
8. Remember if you can’t get out of economic slavery your children won’t be able to get free either
Get help with reducing your large expenses now. Call me if you need help 410-484-2717
Wishing you Well Wellness and Wisdom
Manager of Wealth
The title of the article says it all. Simply put, If you are paying more for your home than you are into your savings every month it is just a matter of time before you fall into major trouble. After a decade of being a mortgage broker and two decades of working with people’s investment needs I have noticed a trend that supersedes all others. 90% of the middle class pay more toward mortgages than toward retirement. This is very dangerous.
Growing trend among American professionals
The professional with all of her bills paid on time, perfect credit, and everything going according to plan is who I’m talking to. This article isn’t about those struggling but about those who are seemingly doing better than ever before. The last boom in the economy came just in time for my generation. Chances are that if you are a professional person you have earned between $75,000.00 and $125,000.00 a year for the last decade. Last year I interviewed over 100 such professionals average age 39 with 15 plus years in the work world. For the last decade almost all had earned between $750,000.00 and $1,000,000.00 but not more than 6 had saved more than $100,000.00. I’m not talking about people who bought a lot of fancy cars and partied it all away. I’m talking about average joes who purchased their piece of the American dream.
Why is this trend a disaster waiting to happen? We live in an era of “defined contribution “plans(ie IRA and 401k) not an era of “defined benefit” plans(ie, pension plans) like the last generation. All we will have when we retire is what we have saved and the interest in can produce. If the majority of our income goes toward houses, cars, private schools and taxes we are going to have a huge number of very poor seniors about 25 years from now.
Our system allows you to spend 30% to 40% of your before tax income on housing. Our system also takes about 30% of your income in taxes. The taxes you pay locally pay for public schools but many parents are sending one or two children to private school at an average cost of $1000.00 per month. The car payments average $450.00 per month. The last consideration is being able to set aside 10% to 15% of income for savings.
Upward Mobility has a cost
For most the cost will be financial stability in their senior years. A $320,00.00 home with a $2500.00 payment will cost you $900,000.00 in mortgage payments. $2500.00 monthly payments into your savings over thirty years at 6% earns you $2,600,000.00 which will totally secure your retirement. So the house is costing much more than money.
The same is true for cars and expensive private school educations. Making these purchases before setting up a proper savings plan is costing you. It feels so good right now to live in a great community, drive a great car, and send your kids to great schools. You won’t feel the pain until you turn 50 and realize you have a few years to correct your financial mistakes. Of course most never do.
Everyone teaches you that the answer to this problem is simply to make more money. It’s not. With more money you will make the same errors in judgement on a larger scale. Ask anyone making $300,000.00 in 2008 who lost their job and now can’t find one. Ask them what kind of house they bought when they were making $300,000.00 a year and ask them how hard it is the pay for it now.
Common Sense is not so Common
You can fix these financial issues pretty easily if you have courage, a goal, and the heart to follow what you know to be right. Use my plan and you can have your cake and eat it to. Use the plan that 90% of African-American professionals are using and you can eat your cake for a little while until it runs out.
Tomorrow I will give you the steps to getting on track to have the best decade of your life.
Wishing you Wealth Wellness and Wisdom
Manager of Wealth
The symbol for crisis and opportunity are both the same in the chinese language. If you have cash to invest in what will go down as the greatest foreclosure crisis in the history of the United States you are truly in luck. Most asset classes in the U.S are troubled but the low prices and high inventory are fast becoming a bonanza for real estate investors who waited for the crash to start buying. As the inventories rise prices come down low enough for investors to buy in Cash. In times like these Cash is King.
Turning Cash into income
Many everyday investors are looking to turn cash into a life time income. Owning investment property free and clear allows the conversion to income. Look at the example below:
John age 65 has a retirement nest egg of $500,000.00 and he is looking to add some additional income to help keep up with inflation. He has no desire to make mortgage payments or deal with tenants. He is looking to buy and put his property in the hands of a property management company . His only desire is to own and sit back and collect the income and the tax breaks. His realtor has found him a bank owned property in excellent condition and a property management company to manage his investment. Because of the huge inventory of properties he is able to purchase the property for $50,000. in cash and rent it for $800.00 per month.Purchase and closing cost – $55,000.00
Yearly rent – $9600.00
Management fee – $672.00
Property taaxes – $1500.00 taxes
Net profit - $7428.00 per year (13.50%)
Remember the investor still owns the house free and clear as well. The value of the home is $100,000.00 which represents a sizable boost to the John’s net worth as well.
My realtor in Atlanta specializes in these foreclosures for cashflow investors and homebuyers. Banks are selling homes in move in condition for $40,000.00 to $80,000.00. Listed below are a few great cashflow opportunities.
Wealth Wellness Wisdom
Manager of Wealth