How I Bought A House On A Whim and Why You Shouldn’t

How I Bought a Townhouse On a Whim and Why You Shouldn't Follow Me on Pinterest I bought the current townhouse we live in on a whim. We weren’t looking to buy a house and didn’t even think we’d own a house for the next few years… but here we are. So how did it happen and why shouldn’t you buy a house on a whim? Let’s dig into the details.

The Situation At The Time

I was working a job that I wasn’t a huge fan of. My girlfriend had just gotten a job in a town an hour and a half away. It also happened that my parents lived in the area. They had recently bought a townhouse near the beach to rent out to a relative. It seemed like they got a really great deal for the location and I thought that, given the opportunity, I’d like to own a similar townhouse one day…

Then it happened. A townhouse in the same exact townhouse row went up for sale! It sounded really appealing but I definitely hadn’t even thought seriously about buying a house at the time. I had been saving a bit of money for a house down payment but I thought it’d be at least three to five more years before I bought a house.

The townhouse was within walking distance to the beach and was cheap enough that I’d be able to scrounge up enough for a 20% down payment and closing costs required for my home loan. It was also within 20 minutes of my girlfriend’s new job which was a plus. Then, if she eventually got a job in the town I worked in we could rent the townhouse out easily for more than the expenses to run it.

We’d be able to afford owning the townhouse and renting a cheap place in the town I was working in at the time. It’d be tighter than I’d like but we could make it work within a reasonable budget. We liked the idea of the townhouse, the location, the rental potential and the fact that we could live in it if I got a job in the new town. We put in an offer and got the townhouse. It wasn’t quite that simple… but that’s a story for another post.

Why You Shouldn’t Buy a House on a Whim

We are very happy that we were able to and that we did purchase the townhouse. However, there are a few things we should have had in line before buying it.

First, since we didn’t plan on buying a house so soon I had to borrow money from some of my other targeted accounts. Don’t get me wrong, I had the cash available. I just had it saved for a different goal. Don’t fall into this trap or you might run into problems if you end up needing the money for something else. Luckily I was able to replenish this within a couple months of closing on the townhouse without any problems.

Second, we rushed into the deal due to high interest in the property. We didn’t look at any other houses or consider any other options. Our townhouse only has two bedrooms and one and a half baths. It is a bit small but is big enough for us for the next five to ten years… even if we get frustrated at times with some of the size constraints. When you’re buying a house you need to make sure it is the perfect fit for you. This isn’t a decision you can easily reverse without incurring some hefty costs. It ended up working out for us but once again we got lucky.

Finally, I didn’t have a job lined up in the new town. We did have a back up plan of renting the house out if my girlfriend found a job where I was living before we bought the townhouse but we didn’t have a clear plan of what we wanted to happen when we made the offer. We ended up both living in the new place despite it been an hour and a half away from my job at the time. About six months later I found a new job much closer to our townhouse. In a down economy this was a risky move but it paid off for us. Be prepared for a long hard road ahead if you do something similar.

Before you buy a house make sure you consider all of your options. Be prepared for the enormous decision of becoming a home owner.

Have you ever bought a house on a whim? What other tips would you recommend investigating before buying a house?

photo by: roger4336

What Would You Do? Pay Off Higher Interest Rate or Variable Rate Loans First?

Pay Off Variable or Fixed Rate Student Loans First Follow Me on Pinterest

Welcome to the fifth edition of “What Would You Do?”! If you have a question and would like to know what others would do please contact me and I’ll keep it in mind for future editions of “What Would You Do?”. Recently I’ve asked Should I Buy a SmartphoneShould I Buy the NeatDesk or NeatReceipts ScannerWhat Would You Do With $1,000,000, and Should I Pay Off My Car Loan! Now on to today’s What Would You Do…

My girlfriend has a few different student loans as I discussed in our debt paydown strategy. They are at different interest rates and to complicate things further some have fixed rates and others have variable rates. There was a clear choice as to which loan she should pay off first. She is currently working on paying off an 8.25% variable interest rate loan that originally had a pretty hefty balance. After she pays that loan off things are going to get tricky.

The Loans and Other Necessary Information

After my girlfriend pays off her 8.25% loan she will still have three fixed rate loans at an interest rate of 6.8%. These loans have a current balance of right around $20,000. She will have a variable rate loan, currently at 5.75% (based on the prime rate), with a current balance of approximately $23,000. Finally she has another variable rate loan, currently at 4.75% (based on the prime rate), with a current balance of approximately $8,000 left on it.

I personally have been saving money to help her pay these loans off. Once we get married one day I’ll take that money and apply it to her loan balances. By that time her 8.25% loan should be paid off but the question remains… which loan should she attack next?

The variable rates will change based on the current interest rate environment. For this exercise let’s assume that the rates are the same as they are today. We hope to have these paid off before the end of 2015 and the Fed (the agency that controls interest rates in the United States) seems to indicate they won’t be raising interest rates before then anyway so hopefully that is a safe assumption.

What Would You Do?

As we see it there are two options for us. We are aware of Dave Ramsey’s debt snowball method (pay the smallest balance off first) and the debt avalanche method (pay off the highest interest rate first). We aren’t a fan of the snowball method because we’d like to pay the least amount of interest possible. This would suggest we use the avalanche method and attack the 6.8% fixed rate loans next, then go on to the 5.75% and 4.75% variable loans.

On the other side, we are aware that the economy might get better faster (we can hope right?) or maybe inflation will start to grow out of control. In that case the Fed might start raising interest rates rather quickly which would lead to an increased interest rate on her variable rate student loans. If we can’t pay the variable rate loans off quickly after rates start going up we could end up paying a lot more in interest. These loans don’t have small balances that can be paid off in a month or two.

The other option (as we see it) is to pay off the variable rate loans (5.75% and 4.75%) before the fixed rates (6.8%) loans. While we might pay a bit more in interest this way there would be less uncertainty in total interest paid. Once the variable rate loans are paid off the most interest we could ever pay is 6.8% regardless of the Fed does to interest rates in the future.

Now that you know the options we have considered what would you do? Is there an option we have missed? Would you pay off the fixed rate loans first or knock out the variable rate loans? Let me know in the comments below and be as specific as possible. We’d love to get as many opinions as we can so we make sure we didn’t miss anything.

photo by: Images_of_Money

4 Times When Cheapest Isn’t Always the Best Deal

Buying the cheaper option isn't always better Follow Me on Pinterest I normally buy lower cost items if I have a choice. It has served me well in many cases and saved me a ton of money. Unfortunately, there have been other times in which the cheapest option hasn’t been the best deal. Below are a few reasons why buying the cheapest option isn’t always the best deal.

When It Causes You To Buy Something You End Up Hating

Have you ever debated between a slightly more expensive option when there was a cheaper option that seemed to serve the same purpose? Did you base your decision solely on price and get the cheaper one? Then, when you got it home you hated it.

I’ve been victim to this before. If you can afford the slightly more expensive item and you’re going to use it more or like it more just go ahead and get it. The key is being able to afford it! You can’t do this with everything either or else your budget will explode but don’t always buy because something is cheaper.

When It Means You Won’t Enjoy Your Purchase As Much

Another time where I often buy the cheaper item is at the grocery store. When there are two similar items sitting next to each other I compare the price per unit and normally go with the cheaper one. That has lead me to buy some food that isn’t quite what I was expecting.

I’ve learned which cheaper foods are good replacements and which ones aren’t. I don’t mind spending a bit more money for the better item, which is a matter of opinion. Recently I got some off brand candy corn. I love candy corn but it was nasty! So will I buy it again? Nope! Only Brach’s candy corn for me!

When It Causes More Spending Down the Road

Ever get that feeling that the cheaper alternative isn’t going to hold up as well as the more expensive counterpart? Sometimes it will and sometimes it won’t! It might take some experience to figure out when to go for the more expensive option here but pay close attention because this can cost you a ton of money!

My recent personal example in this category is jeans. I started my new job about six months ago and can now wear jeans instead of khakis and other dress pants. I went out and bought 3 pairs of Arizona jeans because they were the cheapest jeans in the store. I never really thought about the fact that some clothes are just cheap because they are poorly made. These jeans were those poorly made clothes.

On the first pair of jeans a belt loop just popped off within a week. I returned those and exchanged them no problem. Then about 2 weeks later another pair got a hole in a random spot at a seam. I took those back and exchanged them as well. Then about 3 months later all of the jeans had holes where the back pocket attached to the jeans… needless to say I won’t be buying Arizona jeans anymore.

When Dealing with Durable (Long Lasting) Goods

This is the category that can cost you the most. Your dishwasher suddenly breaks. You could afford a nicer model, you do have an emergency fund after all, but don’t really want to dip too deep into it for a new dishwasher. Instead you buy the cheapest version that will match your kitchen and then it breaks a couple years down the road or you end up absolutely hating it. Guess what happens next? It gets replaced with another new dishwasher… ouch!

When you’re dealing with durable goods go for quality first but still keep price in mind. Don’t go buy the absolute best version of an items because it could cost 10x more than a reasonable model. Instead make sure you do a good cost benefit analysis and buy the best of what you can afford within your price range. There are some times when this isn’t the best decision, but if you intend to use the durable good for its entire life I feel buying quality is key.

Do you ALWAYS go for the cheaper option? When has buying something more expensive benefited you and what are your rules of thumb about when to go for the more expensive item?

5 Reasons We Won’t Separate Our Finances When Married

Don't Separate Your Finances When Married Follow Me on Pinterest When I eventually get married to my current girlfriend we are going to combine our finances. It is what makes sense to us and what will work best for us. We could decide to keep our finances separate but we have our reasons why we won’t. So why are we so against us keeping separate finances?

1) We Have the Same General Financial Goals

I don’t know about you but I wouldn’t marry someone who doesn’t have the same general goals (financial and otherwise) as you. We want to live a decent lifestyle while making sure we are prepared for the future. We don’t want to incur debt unless absolutely necessary. We want to be able to retire comfortably and are willing to save a decent chunk of money now to be able to retire comfortably later.

2) We Don’t Want to Create Resentment

If we kept separate finances we’d likely get tired of the income inequality between us. On top of that maybe my girlfriend would save more money and if I spent all my money I’d expect her to treat me to dinners, etc because she has money available! That wouldn’t be fair to her but it’d seem like a good alternative in my eyes.

3) We Will Be A Team So Our Money Should Act That Way

On a more basic level when you become married you become a team for life. If you’re a team for life why wouldn’t you want your money to act like a team as well to maximize its potential? Often, separate finances means little communications about finances. Having separate finances could easily lead to duplicate effort and a non optimal use of each person’s money.

4) Separate Finances Makes It Easier To Hide Financial Problems From Each Other

If you keep your finances completely separate chances are you’ll never talk about your finances to each other. Even if you do, chances are that you’ll never see the complete picture of the situation your spouse is in. Why? You kept your finances separate for a reason. If you can’t co-mingle your finances and agree to how to spend money together you’d hide the part your other partner doesn’t want to see. After all, those fights are why you keep your finances separate right?

5) It Wouldn’t Work For Retirement

Unless we both attacked retirement, both saved a good chunk of our separate money for retirement and both had the same goal for retirement it just simply wouldn’t work. We’d likely end up retiring at significantly different times. We’d retire with different sized nest eggs that would lead to different amounts of money to spend.

It would likely end up with one person supporting the other person, at least to a point. Then chances are there would be resentment from #2 above. I mean wouldn’t you be upset if you saved aggressively for retirement and then gave most of your money to the other spouse so they can keep spending like they have their whole life? You’d never reap the full benefits of all of your hard work saving for retirement.

So what do you do (or plan to do)? Do you have separate finances? Do you combined? How does it work for you?

photo by: phil wood photo

Is Being On Reality TV Worth the Money If You Don’t Win?

Follow Me on Pinterest I am a pretty big fan of a few reality TV shows including Big Brother, Survivor, The Amazing Race and other shows depending on the particular season and if they can hold my interest past the first couple episodes. In fact the Big Brother finale is tonight! The winner gets $500,000 and the runner up will be award with $50,000. In addition to that, the one player who receives the most votes as America’s favorite player will be awarded with $25,000. It is easy to see how awesome it would be to win one of these shows.

How Much Do Big Brother House Guests Get Paid?

There were a total of 16 contestants Big Brother this year and there is a chance only 2 will get any serious money out of it (if America’s favorite player is the winner or runner up). The remaining 13 or 14 houseguests only get paid $750 a week according to RealityBlurred.com who has obtained a copy of the Big Brother contract from a previous season that the house guests have to agree to (check it out if you are a Big Brother fan).

The longest anyone can participate in Big Brother is approximately 11 weeks. If you were involved with the show for the entire season but did not win first or second place the most you could receive is $8,250 in weekly stipends (excluding special contracts for returning players). There are multiple other prizes that the house guests can win throughout the season including random cash prizes up to $10,000 per prize, vacations and experiences in the Big Brother house.

Is Being on Big Brother Worth the Money If You Don’t Win?

If you worked a 40 hour week and got paid $750 you would make $18.75 an hour. Big Brother contestants essentially “work” 24/7 as they are constantly being filmed for the show and are at the wrath of the producers. Sometimes the producers wake the house guests up multiple times throughout the night to make for some good TV. At 24 hours a day the house guests only receive $4.46 an hour for their time.

The good financial part about being on Big Brother is that you wouldn’t have any expenses! You get free lodging and food for as long as you’re on the show. Keep in mind that with good normally comes some bad. Some people quit their jobs for this opportunity while others probably take vacation and a leave of absence from their jobs. Most people aren’t guaranteed to have their jobs waiting for them when they get kicked off the show. On top of that they may lose their insurance coverage or have to pay the total cost out of pocket!

So Why Do People Go on Big Brother If the Money Sucks?

People go on Big Brother because they think they can win. Who wouldn’t want a shot at half of a million dollars?! In addition, many of the people who try out and make the show are huge fans and getting the opportunity to play the game, even if they don’t get very far at all, is a no brainer once in a lifetime opportunity for them.

Would you ever sign up for a reality TV show? Are there any other shows you want to know how much people get paid to be on? I could do some investigating for future posts!

 

photo by: AMagill