I’m running off to the last of my weddings for 2006. (Unless someone viciously decides to elope and make me join them on the adventure. If so, I am making them pay for it it, literally.)
I will be back to regular posting approximately on Wednesday unless someone in Seattle’s got a computer I can use while not running around all over town for sushi and drinks.
“If you’re living comfortably, what’s the point of having more [money]?” Newmark said.
Ok. I have to tell you upfront. I love Craig. I’ve always loved Craig. I’ve exchanged emails with him to pretty much tell him this because Craigslist found me a job in 10 days, a place to live in DC, furniture for my apartment with no bed bugs, etc. It’s a really wonderful site. I was pointed to it by my cousin who was on the original mailing list.
Read the full article. Notice what he says about having lots of money. For him, it would just incur more and more expense. I like that kind of thinking! Why cause yourself the headache of more expenses just to enrich your own pockets? After a while, I think there is a limit to what I want to have in terms of money. Then you start flipping over into having so much you waste it on things you don’t really need, like diamond encrusted flat panel monitors just because you can.
I’m still thinking about Seattle Simplicity’s post about Julia Child and breaking geographic ties.
A long time ago, I was backpacking (Where else? in Europe!) where I met a young couple in their mid-20’s. They were from CA, Silicon Valley area, like I was. They were lots of fun. We stayed in touch in that shallow way that all youth hostelers will say as they pack up and move on to their next destination. You trade an email address in your journals, maybe send a digital photo or two and then it fades. But surprisingly, we really did keep in touch for a bit.
This couple had sold everything they owned just before leaving for Europe and were taking time off to travel the world. The main reason why we kept in touch was that I got on their regular update list and I was amazed at what they decided to do. They eventually met a guy who needed a crew for a sailboat trip around the world. So for about another 12 months after I met them, this couple worked as crew on this boat and traveled the seven seas. How cool is that?
Another friend of mine, a much older woman (a grandmother if you will), told me about being a hippie and taking her three kids on a boat around the world and homeschooling them from the ship. It’s just another story to capture the imagination about a different way of living that strives for less stuff and more life.
I’m not sure if I could live off a boat for months on end, but I do have the fantasy of leaving my cubicle behind for some adventures.
Debt Hater commented, “My guy and I are starting to homebuying education journey now. I am afraid of ARMs, but pushy salespeople make it sound like they’re brilliant. How do you know if an ARM is right for you?”
This is a really long response and doesn’t get to the point till the end. I’m still working on structure to my writing so bear with me. I promise there is good stuff in here.
First thing, read up about mortgage products. I highly recommend the Peter Miller book, The Common Sense Mortgage
I didn’t know that hybrid 7/1 and 10/1 ARMs existed until I read this book. I wasn’t savvy enough to ask my mortgage lender about them. Initially, I asked the banker about a “3-year Interest-Only” loan. I got a pre-approval and started looking at condos. Somewhere in there, I re-read the Miller book in great detail and made a note of what kind of mortgages sounded good to me. My banker was a little shocked when I asked about these longer term ARMs. She advised that they would be Principal and Interest since they don’t carry them as Interest-Only.
There are 3 main things I looked for in a mortgage:
1. Am I buying more than I can afford/want to own?
2. Is the mortgage payment affordable in the monthly budget?
3. Fix the interest rate for as long as you can.
My number one piece of advice: Don’t buy more home than you can afford.
I cannot stress that enough. I know folks who were eating ramen noodles daily their first year of homeownership. It’s not good to be house poor after settlement. Retain some of your downpayment money for random little house repairs. Little stuff will crop up that you didn’t quite expect to have to fix and those will take a bite.
Think about your space needs. Do you really need 1400 sq. ft. apartment if you’re a single person? I am making do with 500 sq. ft. just fine. I could have gone for a 1 or 2 bedroom place, but I would probably be living with a loathsome roommate collecting rent so I can afford the mortgage, not a fun situation to be in.
Second piece of advice: Know your limits on what you’re willing to do for maintenance.
I live in a condo so I don’t have to take care of a lawn. Mowing and weeding is not how I want to spend my weekends. Gardening I don’t mind. I love flowers and vegetables, but I hate chores so having a lawn isn’t for me. I know I’ll probably pay someone to maintain my lawn. That is, if I’m not too cheap to relent and do it myself.
Next, my mortgage payment was not very affordable when I first purchased my home. That wasn’t entirely the fault of my lender, but more like my confusion about what I was paying and having a job that didn’t pay very well. Either way, I also didn’t understand that the state of VA reassessed property taxes EVERY SINGLE YEAR. I grew up where it was done every 3, so I was pretty darned surprised that my payments were going up by $50/month after the first year. Check out what your jurisdiction does for assessments and factor that into your escrow amount.
In my first year of homeownership, there were times that my second paycheck wasn’t just gravy for me, but essential for escrow. In the end, I resolved the issue by getting a better paying job, but try to keep your payment to the lower end of the 28%-36% of monthly income ratio range when calculating mortgage affordability. Just to be safe, add on an extra $100 to the monthly payment amount to allow for future fluctuations in payments, especially if you are going with an ARM. In fact, realize that with an ARM, your payments can change by hundreds of dollars. Try to see what your payments will be like with different rates and see if you can absorb those changes into your monthly budget. Read your loan papers extremely closely. Mine had limitation clauses on how much the rate could change in a year which would be a blessing if rates had risen extremely fast. (i.e. if rates go up 4% in a year, your loan might have a limitation clause saying it will only go up by 2% until the next adjustment.)
Finally, back to the original question, ‘How do you know if an ARM is right for you?’ It’s the same question as, ‘Why did I choose a 10/1 ARM over 30-year fixed or the originally quoted 3/1 I/O ARM?’
I looked at the current interest rates and the trends for the future. I figured that I was looking at some of the lowest rates I would ever see in my lifetime. I know the rates back in 2003-2004 were definitely some of the lowest that my parents had ever seen, so chances are what goes down must come up. These rates were quite possibly the lowest I would ever see as well.
More than any other criterion, I went for as long a term fixed period as I could stand. I didn’t go with the 30-year fixed mortgage because the rates at the time were higher than for the 7/1 and 10/1 ARMs. I didn’t go with the original 3/1 I/O ARM because frankly I was really scared at how fast interest rates could rise in a year. (The FOMC meets every 6 weeks. That’s potentially a lot of quarter percent rate hikes in a year.) Plus I wanted to build equity in my place and I felt that I was not disciplined enough to make additional payments on top of the interest only mortgage. The bank I chose only offers 7/1 & 10/1 ARMs as principal and interest mortgages. They don’t offer them as interest-only at all.
A lot of of financial advisors will determine if you should get an ARM by asking how long do you think you’ll stay in the house. In my case, I tried not to think about that at all. I know that I could stay in this apartment for 3 years, move out and rent it. I know I could stay in it for 10. I know I could sell it in 5 as well. There really wasn’t a clear answer to this question since I’m young, single and still geographically mobile. (The latter I think directly applies to Debt Hater’s situation since she’s not originally from Tennessee.) (Final point, I don’t know anyone who lives in a studio for 30 years, so the 30-fixed option was out at the beginning.)
Keep in mind, I love fixed payments. I hate the annual reassessment. I’ll do anything to avoid it, including paying extra into escrow so my payments stay the same. I know a lot of PFBloggers probably thing that socking away extra money into escrow is a bad idea due to foregone interest, but it isn’t if you are relying on a fixed amount monthly for your budget.
In the end, it’s a risk tolerance thing, while you gamble on interest rates. And it’s an affordability thing and what you are willing to pay each month.
I know I digressed several times in this post, but I genuinely care about educating folks about the many types of mortgages out there. Whatever is widely quoted by fast-talking, slick brokers isn’t the only mortgage out there. Do your research. Your analysis might find more appealing mortgages than what your broker shows you.
Good luck!
Working in the IT and finance fields for work, I find security issues very interesting for their unintended impacts on business. Sarbanes-Oxley compliance is more of a bureaucratic headache than fraud prevention mechanism. For what I do, it simply wastes my time, thereby costs my company money.
I rarely venture to the hard investing blogsites, but this article caught my eye at PFBlogs. If MasterCard and Visa are fining their small merchants for poor security of information storage, I could easily see a small merchant drop taking credit cards.
My mom used to keep her credit card swiper right on the countertop. In a small dry cleaning storefront, you don’t have lots of extra space for a secure area for computer storage. Basically it’s a box for the dressing area for alterations, a bathroom, a counter and then all your equipment. There’s usually no secure area for counting cash. I remember at our first store, hiding behind the counter area because of the layout of the store allowed for this.
So what’s going to constitute storing data improperly? Having a computer system/server under the counter? Waiting till there is an actual violation of the system before punitively imposing a fine on the merchant? Who knows?
All I know is that for a slim margin business like dry cleaning, paying extra for secured storage will probably reduce margins further and place pressure on the business to drop taking cards entirely and move back to cash. Spinning that line of argument out, if customers want the convenience of electronic transactions, then it’s going to keep driving mom and pop out of business. Not a good thing.
What are MasterCard and Visa going to do to support their merchant network in these security initiatives?
Tiredbuthappy at Tired but Happy asks if you have an FU fund. Single Ma asks the same question. Both of them come out with the same answer, YES. It’s good to have one. (Miguel’s comment on Single Ma’s post is particularly good. It’s a MasterCard commercial-style list and you can guess what comes out priceless.)
My story is a little different. Remember when Single Ma asked what you would do if you lost your job? Well, I initially posted this about what I would do. But there is more to the story.
I walked out of a job last year. I did have a job offer in the works with a very slow moving government contractor, but I did not have it in hand, and in the end, it fell through for various reasons. I am sure y’all are thinking that I shouldn’t have quit without something lined up, but once you’ve had it doing tech support, you’ve had it. You’re done. You’re toast. 5 years of technical support is a long time. I had burned out once before after doing lots of 24-hour support work and I finally was in a position to find a new line of work as a programmer. After 2 years at this particular firm, it was time to go. I wasn’t going to sit around waiting for another client having a bad hair day to scream at me.*
So I quit. I went home and figured out my finances. I picked up shifts at my second job. Got a gig through a friend waiting tables/running food. Calculated my stock option buyback check and my monthly expenditures. I decided at that time to pay off my car note immediately with my HELOC and reduce my monthly bills by $300.00. It ended up increasing the interest rate on what I had remaining on the car, but because I lacked substantial cash reserves, I needed a short-term solution to extend what little resources available. Plus if I really had to do it, I could sell the car because I owned the title, free and clear. The other thing I did was write myself a check for cash off that HELOC. After writing those two HELOC checks, I had enough cash to last me about 2-4 months as long as I worked those two part-time jobs.
I’m writing this post now because I have just noticed that it’s taken me 10 months to get my HELOC balance to the point where it was the day I quit last year. Those two balance transfers are paid off, but I wish I had had a real emergency fund back then instead of using my good credit to see me through.
Please learn from my hard lesson that an emergency fund is the way to go. (And though I don’t recommend pillaging the fund for a splurge like a motorcycle, I still have money left in my fund for 2+ months’ worth of expenses. I think at this point, I can’t bear to drain it down completely.)
* Yes, it really did happen to me. And apparently the client had a poor reputation with the other analysts. My management, to their credit, did the right thing and called the client on his horrible behavior. To all support analysts out there, never take a phone call alone with a non-technical management rep from your client’s firm. Let the business people talk to the business people and the techies talk to the techies.When someone has an axe to grind with your management team, give them the number of the right person to call and just hang up the phone. Luckily I have a happy ending to my story and I would certainly work with a great majority of my co-workers from my old firm. For they are good people who told me that it’s ok to hang up on a client when his/her behavior/demeanor is unacceptable. (Yup. They don’t call it ‘demeaning’ for nothing!)
MSN MoneyCentral has an update on their Women In Red. Hat tip to Jane Dough for this article. I agree, accountability makes all the difference, which is why I guess my net worth tracking ended up on Wikipedia. (Still in shock over that one. Whoever posted that, many thanks!)
Hazzard, whom I don’t read enough because his blog is blocked at work, points out an amazing essay by Susan Nielsen on the devil that’s been following her for 25 years. That devil has been following me around since prep school too, but in a strange way. Quakerism teaches simplicity in life, and yet it cost an exorbitant sum to attend most Quaker schools. I was lucky to be on scholarship, but while other kids spent their summers at to sailing camp, I worked the counter for my mom or read books with reading camp at the local public library. I’m not sure how I broke out away from the lifestyle devil except to say my strongest role model was my favorite teacher who is a Quaker. I realize now that beyond being a great counselor for academics, she lived a simple life with fantastic joie de vivre. Simple doesn’t mean humorless. Maybe that’s what we all need, a strong role model for the simple life.
Seattle Simplicity takes inspiration from another one of my role models, Julia Child! (I can’t write that without the exclamation point. JC was so exuberant that I am inspired to live a life as courageously as her. Did you know bubbly Ms. Child worked for the OSS in Ceylon?) Now would you give up the cushy life of 9-5 to freelance and wander the world? Trust me. It can be done. The Frugal Traveler does it all the time! As I ponder this life trapped in a cubicle, I fantasize about the life just outside the windows where the sun shines, the trees are green and the trails begged to be hiked.
Jane Dough writes about ‘ARM Harm’, linking to the NY Times about ARM refinancing trends. neener neener! I am happy that I got a 10/1 ARM. I figure a decade is a good long time to ride out any short-term trends and build up some equity before deciding my next residential move.
Sign up at Commission Junction for Verizon FIOS referrals.
And if someone uses your referrals, I’d better get a finder’s fee! *winky*
I personally don’t have a TV which is why I’m not planning on putting this up myself.
You didn’t like my ghetto Lenten Piggy Bank? You don’t like red gingham Chinese containers? But I repurposed it from it’s original job as a gift box! I think that’s pretty darn frugal!
If you want a hip, stylish one, try these piggy banks out. (WaPo. Probably requires login. Get it from BugMeNot, but WaPo doesn’t spam. I’ve had an ID there for years.)
I really miss having a real ceramic piggy bank. The kind you smash open with a hammer. Lately, I want one with a rubber stopper in the tummy so I don’t have to break it open, but the paper box container did work pretty well. I do open it up every once in a while to raid it for pocket money, but I find that I like having it to stash big wads of cash. I really hate carrying lots of cash, so I’ll put it into the box and pull out one twenty dollar bill at a time.
Canadian Captialist has it available now. I haven’t been participating lately since I think I’ve wandered off the generally applicable path for submissions. But eventually I’ll join again.
Articles that caught my eye:
Donna Jean on comparing two job offers. She’s got an amazing analysis that really breaks it down for you. It’s an excellent point-by-point comparison and I suggest if you are only going to read one article, read this one.
CJ at The Coin Jar gives you three tips to help you achieve your goals.
Money Under 30 has great advice on negotiating with car salesmen. Read that with Single Ma’s negotiation post. (No, I am *not* getting a new car, though I covet one madly. For some reason, the BMW Alpina I saw last week has captured my imagination.)
I didn’t know this, but Flexo has got a new website up for the Carnival. It’s looking sharp and I recommend you make it your one stop shop to all the Carnivals.