While on your path to your dreams make sure to be grateful for those that have helped you along the way. It can be the ones that helped you stay on the path, helped you get back on, or someone that showed you a shortcut. The more thanks you give, the more that you will gain.
You’ve started building your Financial House, starting with a solid foundation after I painted your financial picture, and you’ve got the right material with your knowledge (the bricks not straw), now it’s time to build some rooms. The rooms of your Financial House are your goals in life. It’s arguable what room you would think of first to build depending on your lifestyle, but your bedroom should be all about you and is the place where you (typically) start your day.
If you have a family, you know how often your home transitions. The living room turns into the kids play area, the office turns into a kid’s bedroom. Your bedroom does dual duty as bedroom/office. Closets become half baths. Your home will constantly be evolving, but even if you turn your bedroom into a bedroom/office, it will still be your fort and you won’t be getting rid of the bed. For this reason, I see the bedroom as your goal of a home. A home can be a house, an apartment, a condo, a townhouse, something that you live in and is your responsibility to pay. Homeownership is lots of responsibility and isn’t for everyone, but for arguments’ sake, let’s say that your goal is getting a house. Here is the financial process to get your there.
We always have to start with the basics. Even if you “know” you have a good foundation, you must get in the practice of reviewing your foundation to make sure there are no termites. Are your debts paid down? If you have debt, how much total debt do you have and is it better to pay that off first before looking at houses? How is your emergency fund? If you’re considering purchasing a house, you want to also look at increasing the emergency fund due to the many unexpected expenses (AKA required expenses) houses can obtain. Water heaters going out, roof leaks, A/C out, etc. Having the emergency fund already funded to the level that is needed to purchase a house will help greatly while looking for a house. I’d also like to point out that the Emergency Fund, is for EMERGENCIES, not for a down payment on the house. There are compromises out there, but compromising your emergency fund means you compromised your foundation for your entire financial plan, and when dealing with purchasing a house should be a big “No-No.”
Now that you’ve taken the time to check your foundation, made some adjustments (saving more in your emergency fund possibly) you’re ready to get an action plan in place for getting your house. I know when people really want to get a house they think of all the things they want it to have. 3 bed, 2 bath, nice kitchen, must have gas stove, etc. Before you get into your laundry list of “must have demands” let’s look at it at it’s most basic points. You need to take inventory for your bedroom. Who will be living there (husband, kids, etc) and how much can you afford. How much you can afford has gotten many people in trouble in the past, so let’s not get you into that kind of trouble. How much does your household (you and your spouse) make combined? Let’s say it’s $80,000. As much as you’re trying to keep up with the Kardashians, realize that they’re on the verge of bankruptcy behind closed doors, so you want to live within about 60%-70% of your income (the rest is savings for the fun stuff). That leaves you $48000-$56000 to live by for bills, mortgage, food, gas, etc. Once you’ve done a detailed analysis on your current expenses, make adjustments if you were to purchase a house. If your goal is to have a mortgage payment that is about the same as you pay in rent, realize there are many new expenses such as HOA fees, increased electricity bill, gardening expenses (you have to cut the lawn now), etc. Now you need to factor that into your monthly budget. You pay $850/mo in rent and utilities now, but once you add in extra house expenses it may total $1150/mo. That’s an extra $3600 you spend a year that you don’t now. So instead of aiming for a mortgage payment of $850/mo, aim for a housing expense of $850/mo. This will wrap your housing expenses together. Your mortgage may be $650/mo and all your added expenses bring it up to $850/mo.
You now have an idea of how much money you want to spend per month on your house, now it’s time to shop around on a deal for the mortgage. You’ve got to furnish your bedroom with the bed and curtains and dressers, and you want the best deal possible. If you’ve stuck with your financial plan for a few years, you should have built up some good credit. If you’ve stuck with your financial plan for MANY years, you may have saved up enough money to buy your house in cash (CRAZY!). For those that have stuck with their financial plan for a few years and built up a good down payment on a house but need to finance the rest, it’s time to go shopping for the best deal. This is going to take time and effort. The best is to get a low fixed rate mortgage, if possible for 15 years or less. As helpful as the internet is, all the answers don’t always hide there. Great for research, but person to person in these type matters is much more important. Once you’ve done your research, take a day out of your schedule to visit with as many of the banks you found that had good fixed rates and talk to them in person. Ask as many questions as you need to make sure you understand every point of how they deal with mortgages. If you don’t understand, do not do anything. Figure out the payment schedule, how much the mortgage would be and think about it. Don’t sign anything, go home and think about it over night. As exciting as finding a new house is, it crumbles the moment you realize you got screwed.
Congratulations you were approved for a fantastic loan of $500,000! DO NOT LOOK FOR A $500,000 home! Stay with your budget that you just figured out. Do not get glossy-eyed at the thought of a “dream” home. The Kardashians did that and are secretly going bankrupt. You are more mature and balanced than that and are more than happy to stay within/under your means. You have a great fixed rate and you know your range to keep within your budget, now it’s time to look at houses within that budget. Yes, now look. If you look before you’re going to set yourself up for failure looking at “dream” houses and many houses you think are in your price range, but really are not. A Realtor is exceptionally helpful to help you find the right place because let’s face it, you’ve got a job, your spouse has a job, and you’re crazy busy. Think of the Realtor as the interior decorator/carpenter you hired to create your bedroom. You give them the budget and they stay within it with your vision in mind. Spending your little free time trying to find a house is going to drain you, no matter how excited your are. Realtors have the inside scoop and have their ear to the ground, plus when you’ve done it for many years it’s second nature to you. You’re fantastic at your job, they’re fantastic at theirs because they’ve honed their skills. Make sure your budget is very clear and if you’re going to compromise, compromise your “must-have” list for the house, not your finances. The right house is out there, it will take time, so don’t give up. Once you have found your house and a great offer has been accepted, make sure to understand all the terms and conditions as well as all the fine print. You wouldn’t hire a carpenter to fix up your bedroom, give them a budget, only to find out there was an added finishing fee for finishing the job. The tricks are in the fine print, so make sure to understand them before signing anything.
Congratulations on your first room of your financial house! As tiring as it may have been to plan and have it built, it was well worth the time and effort!
To help keep the energy up like it was at the beginning of the year, here’s a little push. Strive and push for your dreams and stop at nothing to reach them. You can do it! I know you can, just keep on the gas and keep trucking on. You GOT this!
Have a great weekend!
On my previous post, the metaphor of building a great financial plan is like building a house, starting with a solid foundation. This post is to expand on the topic and help you understand that the kind of knowledge you have about finances is the material you will use to build your successful house.
Is your house made of Straw or Bricks?
Remember the story of the 3 little pigs? Each made their houses with different material, straw, wood, or brick. I hope we all learned the valuable lesson of building with the strong, reliable brick to make sure our wellbeing is safe. When you’re building your financial house, your knowledge & the knowledge at your disposal is the material you’re going to build your house with.
Blair is a successful doctor. She’s highly paid for what she does, not only from the hospital she works at, but also from the many speaking engagements given to multiple universities around the country. She’s single, with no kids and spends most of her free time (the little she has) out with friends. She has dreams of retiring one day up in the mountains to be near the outdoors and hiking. She saves some money here and there in a bank’s money market account, but she typically buys whatever she wants, whenever she wants because in her eyes she has disposable income from her jobs. When retirement creeps up on her she takes a look at her “retirement” fund at 60 (5 years before she wants to retire). She realizes that the savings plan she created for retirement 30 years ago has barely done anything for her, and most of money has gone to frivolous whims such as cars, houses, multiple vacations throughout the years. Now with retirement 5 years away, her dream house of retirement has crumbled. Her limited knowledge created her house of dreams from straw.
Gary is a technology guru. He works at IBM in research & development making a good living. At home, he has a wife and 2 kids in elementary school. He enjoys travelling the country to other offices to show off what he has developed. He wants to fund his children’s education and wants to retire comfortably with his wife in 30 years. He talks to his bank about how to fund his children’s education first since that’s the first goal that will pop up. The bank sets up a college fund from their line of services and does not discuss Gary’s retirement goal, because he never mentioned it. When his both his girls graduate from college finally (they decided to get their masters) he goes back to take a look at his retirement that is coming up in 10 years. Even with his pension plan from work and the emergency fund he has been saving his entire life, the bank tell him he’s going to have to work until he is 70 to retire at the level he wants to with his wife. He had some resources available and used how he saw fit, he created his house of dreams from wood. Steadier than straw, but can’t stand up to too much pressure.
Carrie is an executive assistant. She works at a prestigious law firm and is typically called on to train the new assistants as well as the junior associates because she’s that good and has been there for so long. Her family has taught her to budget her entire life and she lives well below her “means” compared to other families her size. She has a husband that is a teacher and 2 kids that are in middle school. She has a savings account and separate accounts set aside for her kids college and their own retirement fund. When she first started dating her husband (20 years ago it seems now) they had some rough times, but always seemed to manage to get themselves out. Before they walked down the aisle, a friend of theirs thought it would be a good idea to just go to a financial advisor to help them get a plan in place so they would stop cycling through tough times. She appreciated the thought, and went to be polite (she is from the south), to see if it would help at all. After a year working with the financial advisor, her and her husband (now) could see small habits changing for the better and wealth being created. When the time came to buy a house, they made sure to consult their financial advisor, not only on what they can “afford” but what was in their best interest based off the other goals they talked about. A few years ago, their beloved car “Rick” died and even though they wanted to fix it because it was like family, their financial advisor showed the impact of repairing compared to buying a different car. Luckily, the way they were saving, they were set up to pay for a quality used car and not effect their financial goal of college for the boys and retirement for themselves. Carrie & her husband had created their house of dreams from bricks, and are ready for their financial goals to come to fruition.
Food for Thought
Blair is very bright and focused, going through that much school to become a doctor, you have to be. Just because she’s good at medicine, doesn’t mean she’s good with money. She focuses most of her time on her job and social life. All work and no play can beat you down. She would most definitely benefit to have someone to call and ask how to efficiently save her money and fund her dreams. She is a very bright individual, she’s just ignorant on what’s available at her disposal to help fund her dreams.
Gary knew he needed help and he went where he knew they dealt with money and was comfortable with them. The one thing he didn’t realize is that banks can be more or less self service. You tell them what you want and they deliver what is available on their menu. They may try to “up size” you by getting you to put in more money than you can afford, but they’re limited to whatever services they offer at the bank. Gary would benefit from having someone look at the grand picture, not just a very small piece of the giant puzzle as well as look at all available options out there, not limiting him to 1 bank.
Carrie was wary at first because it was something she was not use to. Being slightly nudged helped her get into the right mindset though and really helped her and her husband achieve all the goals they wanted. Of course their financial plan changed throughout the years to adjust for their life such as their 2 boys, but a good financial plan is flexible. The best part is they have a great relationship with the planner and can call for advice on anything money related.
In Conclusion
Whether you’re a doctor or an executive assistant, your money should be working hard for you so you can build your own house of dreams. Having the knowledge or access to the knowledge is key to making your house of dreams strong. It’s your decision to take the time to obtain the knowledge yourself, or find someone that has the knowledge to give you, but whatever you do – get the knowledge! Don’t build your house of dreams from straw, build it from bricks.
*Disclaimer*
For all this planning that you’ve been working on throughout January don’t lose sight of your goal. Your goal is ultimately to make you happy. Your goal may be to achieve “stuff” but remember that it’s meant to bring you long lasting happiness. That new TV might make you happy now, but make sure to have a few vacations with friends and family to gain more memories that will last for years.
So what are your short and long term goals? Which ones are created to make long lasting memories to cherish when you get old?
Have a great weekend!
Keeping in with the planning thing for January. We’re taking this month to set up a plan to help focus and work around all year. Don’t over stress if the first draft of the plan doesn’t seem to work out. A plan can change, but having one to change is the key.
How does your plan look? Do you have gaps or holes that need some help?
Have a great weekend!
There are always going to be speed bumps on your path to your dreams and then you’ll have the occasional flat tire or engine problems. In your plan, make sure to have wiggle room and a “Plan B” in case of engine trouble. This can be an emergency fund or even as simple as a stash of quick cash hidden in your car for the times where your actual tire has a flat.
What is your “Plan B” in case of an emergency?
Have a great weekend!
A new year means new (or continued) goals to achieve. First step is deciding WHAT is that dream? Once you know it, write it down. Next, how are you going to get there? Make sure to have a plan or you will be wandering around looking for your dreams in the wrong places. Make a plan, stay focused, and keep track of your progress. If you’re faced with a fork in the road which way do you turn? To help make the decision consider if its going to help or hinder you to get to your goal.
To help get your started, let me know what your goal is this year. If you need help, let me know how I can help you achieve that goal.
Have a great weekend!
To help encourage you to live a financially freeing life, every Friday you’ll find an inspirational quote to get through the weekend. Whether it’s to inspire saving or help curb temptation Friday Financial Inspiration should help you get through the weekend with a conscience mind.
To start us all off on the right foot, let’s take this weekend and the entire year to focus on your goals and dreams. Don’t worry about your neighbor’s or best friend’s flashy cars & houses. Take this to set up your dreams and focus on achieving those this year. If you’re the competitive type, compare your progress each day. Just ask yourself: Am I closer to my goal today than I was a day, week, or month ago? There will be speed bumps along the way, just stay focused on your goal and it will happen.
Whether I’m at a networking event, meeting with clients, or forming a wonderful new business partnership, I’ve heard a theme recently. Estate planning is the buzzword. A few people I can understand, but so many in such a short period just has to be more than a coincidence.
I’m sure my attorney friends are tired of me bugging them asking them pesky little questions. Which to side track a bit, it is always an “it depends” kind of answer. Nothing is as straightforward as it should be when it comes to the law books.
Estate planning will mean different things to different people. It can mean a “simple” will that you print off the internet and fill in the blanks or it can be a complicated Trust situation. Every family is different. When it comes to estate planning, there is no simple answer and it, like the law, will have an “it depends” kind of answer.
Here is a short list of things to consider when planning how you want to leave your legacy behind.
1) Make sure you have an accurate, up to date inventory so there’s no grey zones. Check out Nino’s www.thestuffinmyhome.com to catalog your belongings. This list not only should include physical items, but money, investments, and insurance to name a few.
2) Hire an experienced estate planning lawyer. The reason I say this is because I can speak from personal experience here. My grandfather hired a lawyer to draft his will. He was a friend of the family that dealt more with oil & mining law than estates. He made a very large mistake and almost costs the family lots of money. It eventually worked out, but it could have ended very badly. If you need a list of suggestions, please let me know and I’ll send you some good names.
3) Be open and honest with your lawyer on who you do and don’t want in your will. This will more than likely include telling the lawyer your family drama and dirty secrets. This isn’t gossip, it will help the attorney figure out the best route to take your plan from a tactical point. They’re bound my attorney/client privilege and want to do what’s in YOUR best interest. Everyone has some kind of family drama and/or secrets, so it probably won’t shock the seasoned estate attorney.
4) Make sure your financial planner is in the loop with your estate attorney. They should go to the meetings and make sure everyone is on the same page. They can also help the attorney with the financial side so you don’t forget anything. Having them work together will not only save a lot of time, it can save a lot of money when you’re considering tax implications of your estate plan. If you don’t have a financial planner, or you don’t have one that will go with you to the estate attorney, give me a call and we can fix that.
5) Be involve and follow up. Make sure to ask lots of questions until you understand. Having a good financial planner with you can really help with the jargon gap between attorney & client sometimes. If there is something the attorney or the planner need you to do, make sure you do it! Once you have a plan in place, make sure you check on it every so often as laws will change and may effect your plan.
These are just some things to consider when developing your own plan of action around your legacy.
Estate planning can be very involved, so make sure you have the right team members to win.
Until next time wonderful readers!
-Financial Landscaper
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