15 Year VS 30 Year Mortgage
I hope you are sitting down because this is one of the most shocking things that I have ever learned. Believe it or not their is significant difference between a 15 year conventional and a 30 year conventional mortgage. Let’s look at an example. According to HousingTracker.net, the median home price in Arizona is $175,000. For our purposes, we will use this as the actual loan amount. According to bankrate.com the national average for a 30 year is 5.09%. At the end of 30 years you will end up paying $341,671.35 (Click here to see for yourself).
If you were to do a 15 year mortgage instead, you would get it for a lower interest rate, which currently the average is 4.51%. After 15 years you would pay a total of $241,133.91.
Conclusion:
A 30 year conventional mortgage will cost you significantly more than a 15 year and in this example it is a difference of $100,537.44! I don’t know about you, but there is a lot I could do with 100 g’s.
You may ask, why would anyone get a 30 year then? The reason is that the monthly payment is higher for a 15 year, however, if you buy a house you can afford then this won’t even be an issue. In fact, you will come out smelling like roses in the long run.
How to Earn Extra Cash Legitimately
I am sure you see a ton of ads that say something like this, “Earn $1000 a week from home” or ” Be your own boss and make $3-5K per month.” Well, have no fear, this is not anything like that. What I am going to do is list 3 ways that you can earn some extra cash so that you can save up $1000 for an Emergency Savings Fund and to start Paying down Debt with a Vengeance!
Sell Stuff on Online
When Kim and I decided to get out of debt, this was the primary way we earned some extra cash. Go though your closets, DVD rack, music collection, etc. and see if there are items that you just don’t need anymore. Lets say you had 20 books that sold or an average of $5, that would come out to $100. If you had some nice designer clothes and decided to sell 10 pieces that averaged $15 each. Now you are up to $250. Soon enough you will have enough money to fund your Emergency Savings Fund and you will be on your way to true financial peace.
Here is a list of sites that I have used and that I recommend for doing this:
Craigslist -Sell virtually anything; I have sold everything from a Motorcycle to an Nintendo Wii
Ebay -This is great for selling items in an online auction format. I have had success selling items like clothes, electronics, etc.
Half.com & Amazon.com – Both of these sites are great for selling media, i.e. books, CD’s, movies, and video games
Deliver Pizzas
I did this when I was in college and it is a great way to earn some money quickly and on a flexible, part-time basis.
Here is a link to some places that are hiring locally: Looking for Pizza Delivery Drivers
Utilize Your Skills
Throughout your life you have acquired multiple skills that you might not even realize that you can capitalize on. Here is a list of skills that you can almost instantly use to make you some extra cash:
Computer repair – Remove viruses, fix computer issues, replace hardware, etc.
Landscaping – Mow lawns, cut bushes, pull weeds, etc.
Basic house repairs – Fix a leak, replace a door knob, fix a fence, etc.
The best way that I have found to market these skills is by word of mouth. Just tell your friends and family about your plan to get out of debt and the services you are now offering. You may be surprised the amount of people who will be interested in taking you up on your offer.
Get out of Debt with a Vengeance!
Here is the thing…When I was growing up, I was taught that debt was my friend. That it was a tool to get what I wanted before I was actually able to pay for it. That way I could have the lifestyle I wanted now, instead of having to wait for it. But now that I look back, that type of thinking only did one thing for me: Get me in a pile of DEBT. Here is the way I look at things these days. If I can’t pay cash for something right now, I can’t afford it. If I want it bad enough, I will save up the cash to pay for it in full, without borrowing any money. This is the way to true financially peace. When was the last time you heard someone get their house foreclosed on who doesn’t have a mortgage? If you pay cash for something, the stress of losing that item is virtually eliminated!
Is it too late for you?
The short answer, no. You might be saying, “That’s great, but you are a little late Deacon, I already have a ton of debt.” Well, guess what? I was in the same boat as you and now I am paddling right to the shores of Debt Free Island. Here is the best way I have found to tackle your debt with a vengeance and to start living a life not controlled by it:
The Debt Snowball
Concept – List your debts off smallest to largest
Here is a brief example:
Visa – $500 Min. payment is $25/mo. Interest Rate – 6.8%
Medical Bill – $1000 Installments of $200/mo. Interest Rate – 0%
MasterCard – $2500 Min. Payments of $100/mo. Interest Rate – 9.99%
Student Loan – $15,000 Payment of $150/month Interest Rate – 4.2%
The goal is to pay off your debt smallest to largest. While doing this you will pay minimum payments on the rest. Let’s say you have an extra $250 a month to pay off debt. If you follow this system, you would pay off the Visa in 2 months. Now take that $250 you were using for the Visa and put it towards the Medical Bill. this now gives you $450 per month to put toward debt ($200 + $250). This means in another month in a half and you have paid off 2 bills! Once you paid that off, now roll that $450 + $100 you were paying toward the MasterCard. At this point you should have a balance around $2200 which you will be able to pay off in a little over 4 months. Now do the same thing to the student loan…
Conclusion: In 7.5 months you are able to pay off $4000 in debt and are on your way to be debt-free but the house in 21 months!
You might be wondering how to get some extra cash to pay down this debt, well stay tuned for my next post where I will throw out some ways that CAN help you do this.
Note: If you are person with a mathematical mind, you might be saying, “Wait a minute, this doesn’t make sense. Are you saying that you should always pay off the debts smallest to largest? What about the cards with the higher interest rates?” I am glad you asked. This approach is all about changing a persons behavior. If someone is able to pay off something quickly, psychologically they feel a sense of victory. This will build up momentum to get the snowball rolling and can be all it takes to get the ball moving in the right direction!
Emergency Savings Fund
Have you ever had your car break down? Have you ever had a water heater burst? What about an Air Conditioner that just stopped working in the middle of summer? If you said ‘Yes’ to any of these, you are not alone. I think you would be hard pressed to find somebody that has not had some sort of emergency situation happen to them in the past 5 years. This being said, there are many ways one can approach these situations from a financial perspective:
Put it on a Credit Card
According to a recent article at Bankrate.com, the average annual interest rate of a NEW credit card is 12.4%. Also, according to IndexCreditCards.com, the average household carries $7861 in revolving credit card Debt. This tells me that many people are using a credit card to cover their emergencies and that they are not paying it off every month. This, in turn, means that people are paying high interest rates just to cover life’s curve balls that are thrown at them.
Take out a loan
According to MSN Money, The average personal loan rate is 12.52%. This would put us in the same boat as if we used a credit card, in fact we would even pay a little more in interest going this route.
Pay Cash for it
I don’t know about you, but I have never paid interest on using cash. In fact, if you have a good reserve of cash in the bank you can make money on it while it just sits there. This seems to be the best course of action, put money in your pocket instead of another persons pocket.
This being said, you are probably wondering, “That is great in theory, but how do I get enough cash in the bank to cover an emergency if it happens?” Well, here are 3 things that I did that will be able to help you get to the minimum $1000 in the bank:
1. Sell stuff on Ebay and Craigslist
We were able to sell a ton of stuff online to get money for our emergency fund. You would be amazed at what kind of money you can get from selling Books, Movies, and Clothes that you dont need or use anymore.
2. Cut Your Expenses
We canceled our cable, stopped eating out as much, and changed some of our entertainment habits (See more about this here)
3. Combine Expenses
When we first got married, we had separate accounts for almost everything. We then combined our cell phones, car insurance, and life insurance providers which drastically reduced our expenses
A fully funded Emergency Savings Fund should have 3-6 months expenses, but you’ve got to start somewhere. Get $1000 in the bank and then come back and visit my next blog on the Debt Snowball made famous by Dave Ramsey.
New Car vs Used Car
I think this is a question that everyone asks themselves at some point in time, “Should I buy a new car or a used car?” In this post I will break down the pros and the cons of both and let you decide.
That New Car Smell
There is something about a new car that appeals to us. The fact that it has never been owned, that it is the latest and greatest, that it has a manufacturers warranty, and let’s not forget that “New Car Smell.” While this is all true, I don’t think it is enough to make someone buy one. The truth be told, a new car loses 10-15% in value each year and up to 70% of it’s value by the 5th year. To test this, I went to Craigslist.com and typed in a 2005 Chevy Tahoe and found that there was one for sale for $13,500. Then I went to Autotrader.com and typed in a 2010 Chevy Tahoe and the cheapest one I could find was $41,000. This is a $27,500 depreciation in 5 years which comes out to about 67%!
The Truth Shall Set You Free
Now, you might be thinking, ‘That is great to know but what about all of the repairs that you will have to do on a used car?’ Well, I am glad you asked. Let’s say you paid cash for the 2005 Tahoe. If you were to own the vehicle for another 5 years, it would have to cost you more than $5,500 per year in repairs to be in a worse position then buying it new (27,500/5= 5,500). I don’t know about you but I have NEVER paid $5,500 for repairs, not even over a five year time frame. So if you intend on purchasing a used car soon, here are 3 things you can do to ensure the lowest repair costs on your used vehicle:
1. Buy from someone who keeps good records and is honest about what the car has been through
The best thing to do is to buy from someone who has take good care of there care. Generally speaking, because they took good care of the car, it should have less future repair issues than someone’s car that has been trashed.
2. Make a cash offer that is respectable and will allow you to make any necessary initial repairs
Take the car to a mechanic and have them do a diagnostic to see if there is anything that needs to be repaired on the car. If there is, subtract that amount from the asking price and the seller should be willing to accept if they hadn’t already factored that into the price.
3. Buy parts yourself online or at a local parts store.
Repair shops generally put mark up on these parts and you can avoid this by just purchasing them yourself
You might be saying, “How do I pay for these repairs when something inevitably happens?” I recommend you have an emergency fund of at least $1000 to start. That way if something happens, you will have enough to fix most repairs. A fully funded emergency fund should be 3-6months of your expenses and I will talk about that in my next post.
3 Ways to Trim Your Budget without Trimming Your Lifestyle
If you’re anything like me, you are weary of people telling you how to save money. I think that is because we are all accustom to the phrase, “If it sounds to good to be true, it probably is.” That is why I am offering very simple, practical ways to save money that overtime will save you a ton. Usually the areas where people overspend is in their discretionary expenses, meaning items that are not essential to your survival. Here are a few discretionary items that if you change the way you purchase them, you can trim your budget without trimming your lifestyle:
1. Coffee
There are 2 routes which I prefer to go when buying coffee:
A – Make it at home – 25 Cents/cup
B – Take my own seal-able coffee mug to the Gas station and fill it up – 96 Cents/cup
(Compare this to 1.75 for a small cup of coffee at Starbucks)
2. Entertainment
Rental Movies – Instead of renting from Blockbuster for a New Release get it from Redbox. Redbox charges $1 per day as opposed to Blockbusters $4+ for 2-3 days. I don’t know about you but I rent a movie the same day I am going to watch it, so therefore Redbox always is the lower cost option for me.
Theater Movies – If you go to an AMC theatre before Noon to watch a movie, it will cost you $5.00. That is nearly 50% off the regular cost of $9.70.
3. Gas
Go to GasBuddy.com to find the nearest gas station to you with the lowest price per gallon.
( I understand this is not really discretionary per se, but it is a good way to save some money)
Now let’s do a quick analysis. Say in 2010 you made changes to your spending habits:
Coffee
You purchase 20 cups of coffee from Starbucks per month – $35/month = $420/year
You refilled your mug at the gas station instead – $19.20/month = $230.40/year (this is a $189.60/year savings vs Starbucks option)
You made coffee at home – $5/month = $60/year (this is a $360/year savings vs Starbucks option)
Entertainment
Theater Movies
You watch 2 movies a month in theaters as a couple – $38.80/month = $465.60/year
You go to AMC before Noon – $20/month = $240/year (This is a $225.60/year savings from initial option)
Rental Movies
You rent 3 movies a month from Blockbuster – $14.16/year = $169.92/year
You rent the same movies from Redbox – $3.00/month = $36/year (This is a $133.92/year savings)
Gas
Say you fuel up 3 times a month at a gas station close to you for 10 cents more a gallon – $4.5 more per month = $54/year
Now lets look at what that money would do for you if you invested it in an index fund that follows the S & P 500 over 30 years at a conservative 8% annual return. $133.92 +225.60 +360.00 +$54 = $773.52/year
After 3o years you would have $102,420.64! That is the beauty of compound interest and changing your daily routine.
Subscribe
Recent Comments