Your Home: Is it Really an Asset?

When looking for a home 5 years ago one thing that my real estate agent was adamant about was that a home would be a huge asset and an excellent investment. While, this is true in some ways, it has greatly affected my finances which makes me wonder if it was REALLY the huge asset she had believed it would be.

house-sunset

A Mortgage is a Liability

People like to think that they own their homes. Until the mortgage is paid off, the reality is that the bank owns a good portion of your house. This mortgage is a liability, it’s a loan, one that you are paying a great deal of interest on.

When calculating your net worth you will want to subtract what you owe on the mortgage from the home’s market value. If the value of your home has lost money since you bought it, you may find yourself underwater – your home is not a true asset.

A Home is Not a Liquid Asset

The term liquid refers to how easily something can be converted into cash. For example stocks are easy to convert into cash, you just have to sell them. Your home is very different. Yes, you have lots of equity in it, which you can take out if you need to, but if you are borrowing against your home’s equity this isn’t really investing.

More often than not it’s actually difficult to sell your home for profit. The process of selling a home can be costly and can take months. A home in reality is not a liquid asset and can be disappointing later on if you view it as an investment.

Your Home is an Emotional Asset

When the housing bubble popped I found that my home was worth less than I actually paid for it. Since then it has improved a bit, but by the time you calculate in interest, taxes, maintenance, utilities etc. I’m not breaking even on anything.

Instead of thinking that the house is going to provide me with a great return on investment, I like to think it’s more of an emotional asset than a financial one. Being my own landlord and being settled in one place with a nice backyard and a sense of security provides value in a different light than many other types of investments.

How Much Should I Save For Retirement?

You don’t need millions of dollars to retire early, but what you do need is a plan and a good portion of money saved to continue living the same lifestyle that you are used to, and also to bridge the gap between when you choose to retire and the age at which you can claim retirement benefits from the government.

RetirementLaneYou can estimate the amount that you need to save for your retirement by calculating your actual disposable income. To do that, start with your nominal income – your complete before tax income – salary and otherwise. From here deduct what you pay in taxes and mortgage if you are making payments. Subtract your  retirement contributions, your savings for your kids’ education, and any job related expenses. This will leave you with your real disposable income – this is the amount of money you should have as a target income for your retirement.

At 65, government benefits will replace some of this disposable income, but if you want to retire before 65 then you will have to rely on your savings for income between when you retire and 65 years of age.

 

Minimize Debt to Get Ahead in Life: Pay Off Those Student Loans

Standard repayment plans for student loans are 10 years. In this time college graduates will find themselves paying thousands of dollars in interest. In this time many things are put on hold such as marriage, home ownership and children.

protesters-take-part-in-an-occupy-student-debt-march-in-new-york-in-2011But why wait that long? Why wait 10 years to get out of debt? By paying of your student loans ASAP you will find yourself a lot closer to not only living debt free, but also to being able to move forward with your life saving for your future and comfortably having a family.

So where to start? Here are some ways to pay off student loans quickly:

Reduce Interest Rates

Many lenders have some kind of discounted interest rate available for those that set up direct deposit (this includes the department of education – lender for all federal student loans). This discount usually ranges from 0.15% to 0.30%. The incentive for the lender is that when people set up direct deposit it is more likely that they will receive payments on-time. If you do take the full 10 year term to pay off your debt, this small interest rate reduction could save you hundreds of dollars on a loan of $20K or more.

In addition you should check with your lender to see if there are any other ways to reduce your interest rate, some lenders will also offer incentives to people with high credit scores or a history of on-time payments. It’s also always good to call back every year to see if there are any ways to get reduced rates. You won’t know unless you ask.

The final way that you can look at reducing your rates is to look at debt consolidation. Other lenders may be able to offer you better rates for moving your debt over to their banks.

Make Larger or More Frequent Payments

This is the easiest and most obvious way to pay off debt faster. So, how much more should you pay? First you should determine what percentage of your income you can afford to comfortably put towards your student loans. Most people pay around 10%, although, depending on your living and work situations this percentage will vary.

The simplest way to make more frequent payments is to pay your loans bi-weekly instead of monthly. By making half a monthly payment every 2 weeks you actually will fit in an extra full month’s payment for every year you are paying back the loan.

While it’s important to pay back your loans quickly, it’s also important to live comfortably. Make sure that you are not stretching yourself too thin and that you can realisticly make these payments ON TIME EVERY MONTH. Missing a payment can mean a lower credit score, this could cause you to have higher rates applied to your loans and a more difficult time getting credit in the future.

One way that you can make bigger monthly payments is by finding a part-time job. This might not sound like the way you want to spend your time, but this could save you so much more than it costs you at the time. Putting your extra income towards your student loans will help you to make bigger payments and saving you thousands of dollars in interest charges.

Budget Budget Budget

However you decide to repay your loans it’s so so important to have a budget that accounts for every expense that you will encounter along the way. This is a life-skill that you will use to plan for your future as well when you start looking at having a home, family and finally your retirement.

Some Simple Ways to Learn About Investments

It’s important to get professional advice when it comes to your investments, but you also need to know enough to be able to realize when you are receiving quality advice and when you are not. Learning about investing your money, enough to understand the basics, is important for every retiree.

Savings Account

Photo by jonathansin

Subscribe to Financial Magazines

When choosing a financial magazine pick one that gives sound and solid advice. Read every single issue, front to back, for the duration of your subscription.At first there may be some things that you do not understand completely and maybe some words that are new to you, and that’s okay! Take the time to research the things that you don’t understand with a simple Google search!

Learn about investments by taking a course either in person or online

There are a lot of community colleges that offer these. They provide courses with professors that will teach you many things about investments from how to budget your money, to investing for your retirement to buying the right insurance.

Online investment courses are also available. These usually involve clicking through a complete lesson once or twice a week. Learning this way is very friendly to your schedule since you don’t have to invest a lot of time and will help you to feel more confident next time you make a financial decision.

Read a book or two

There are so many books about the topics that surround investments that can help you to reach your specific goals and to understand your investment options. To pick out a book you should look at what needs you have then check out some titles and reviews. You may want to get a book that is more readable when starting out. Something that uses less technical words will be more beneficial to a beginner.