Archive for July 2014

Assessing Your Financial Situation: The Road to Debt Free

financial situation

ID-10053900Hey, friends, are you looking to improve your financial situation?? If you’ve been following along, you’ll know that this is our third post on the hows and whys of Debt Reduction and Elimination.? Part 1 can be found here, and part two, which discusses attitude rules for debt elimination, can be found by clicking on the preceding link.

Today we’ll discuss another vital part of debt reduction and elimination: assessing your financial situation.

How to Determine Your Financial Situation

If you’re truly serious about improving your financial situation, it’s crucial that you start with an assessment of where you’re currently at financially.? Start by making two lists on a piece of paper or Excel spreadsheet.? One list will be titled “assets”.? This list will contain what you own.? It could look somewhat like this:

Assets

401k with Vanguard????????????????? $50, 194

Scotttrade Account??????????????????? $? 2, 604

Checking Account????????????????????? $????? 237

Savings Account???????????????????????? $????? 780

2007 Honda Civic????????????????????? $ 5, 800

Total Assets?? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? $59,615

After that, you’ll make a list of your “Liabilities”. ?? Liabilities are what you owe.? This list could look somewhat like this:

Liabilities

Mastercard ? ? ? ? ? ? ? ? ? ? ? ? ? ?? $7,394

Visa ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? $5, 237

Sears ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ?? $ ?? 694

Car Loan ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? $3, 790

Student Loans ? ? ? ? ? ? ? ? ? ? ? ? ? ?? $9, 260

Total Liabilities???????????????????? $26, 375

Now it’s time to determine your “net worth”, which is, in essence, your assets minus your liabilities.? In the above case, the person has a net worth of? $33,240.? However, if you take out the 401k balance, which should likely be considered as untouchable if possible, the net worth drops down to -$16,954.??? Now, don’t panic if you find yourself coming up with a negative number here, even if it’s a huge negative number.? The reason for your assessment of your financial situation is so that you can determine what needs to be changed, and you can’t change anything if you don’t first know where you’re at.

Now that you have a clear picture of your assets and your liabilities, it’s time to make another list.? A list that tells you what you owe, to whom you owe, and what the monthly payment is, the interest rate is and the balance is.? Like this:

Lender?????????????????????????????? For What??????????????????????????????? Balance Owed??????????????? Current Payment??????????? Current Interest Rate

ABC Bank????????????????????????? Honda Civic????????????????????????? $3,790?????????????????????????????? $250????????????????????????????????? 5.65%

Capital One????????????????????? Mastercard??????????????????????????? $7,394??????????????????????????????? $150????????????????????????????????? 15.99%

Chase??????????????????????????????? Visa???????????????????????????????????????? $5,237????????????????????????????????? $110???????????????????????????????? 12.99%

Sears????????????????????????????????? credit card????????????????????????????? $? 694???????????????????????????????? $35?????????????????????????????????? 21.99%

Sallie Mae??????????????????????? student loan????????????????????????? $9,260???????????????????????????????? $60????????????????????????????????? 5.00%

 

Total balances/monthly payments: ????????????????? $26,375?????????????????????????? $605

 

Now you know what you owe and to whom, and you know what you have for assets, or cash available.? This mythical person doesn’t own a house, but if you did, you’d add housing costs/value in here too.

The next step in determining your financial situation is to determine your debt-to-income ratio.? Your debt-to-income ratio is simply your total monthly payment divided by your? income (Some use gross, some use net.? Mortgage companies will use your gross income, but it’s a safer and more logical option to use your net income).? So, if the debtor above made take home pay of $2, 000 a month, his/her debt-to-income ratio would be 32.5%.

There are many takes on what a “safe” debt-to-income ratio is, but the fact of the matter remains that the lower your debt-to-income ratio is, the better off financially you can be, provided you manage your money properly.? Most mortgage companies will allow for a max of 43% debt-to-income (DTI) ratio when assessing qualification for a mortgage loan.

What Do You Spend?

A good next step to add into this process is to write down what you spend each month.? This list will not only include the numbers relating to outstanding debt, but also the amounts you spend on other items such as transportation, phone, internet and energy costs, housing costs, grocery and entertainment costs, and so on.? If you have never written a budget before, you might want to start by going back through last month’s expenditures and writing them down from information gained on your checking account statement or credit card, so that you have a rough idea of monthly spending.

So, at the end of this exercise, you should know roughly what you’re spending each month, the amount of your assets, the amount of your liabilities, and your debt to income ratio.? In next month’s post on Debt Reduction and Elimination, we’ll discuss formulating a debt payoff plan.? Won’t you join us?

 

Have you assessed your financial situation by determining your assets, liabilities and DTI?? Were you surprised at the results? What dti would you be “comfortable” with in buying a new house?

 

 

Photo courtesy of:?Free Digital Photos

How to Save on Your Last Minute Summer Vacation

Summer Vacation

Summer VacationBelieve it or not, sometimes waiting until the last minute can be the best way to score deals on your summer vacation. If you keep your mind open as to where you want to go, you?ll likely be surprised at where you can go relatively cheaply.

We love to travel in our family and usually like to plan those trips out. However, there is something to be said of being spontaneous and going on a last minute summer vacation. With that in mind, I?ll show you how to find cheap vacation packages if you are scrambling to come up with a destination. If none of those interest you, I can still provide you a plan B option that will allow you to visit virtually anywhere in the U.S. for pennies on the dollar.

Find a Cheap Luxury Vacation

If you aren?t one that likes to lie on the ground and gaze at the stars above you, then I?m guessing that you?d rather stay in a nice hotel. Well, if you wait until the last minute, you just might be able to find a great deal on an entire hotel or cruise package. Though this may not always be the case, it can be a great way to save money when it works out in your favor.

You see, hotels and cruises are typically not packed at full capacity from day to day (even though they?d like to be). By waiting till the last minute, you could show up to the hotel with bags in hand and offer to rent one of their rooms that are currently earning nothing. To them, renting a $200 room out for $100 – $125 is still a win because it was just sitting there empty before you came! They would much rather earn $100 than $0.

I have seen a friend of mine use this tactic several times. Often, they give him an amazing deal, but if they don?t then he leaves and goes somewhere else. It is important to remember though that there is a risk associated with this, so make sure you keep that in mind before planning on using this as a way to save on your summer vacation.

Cruises operate much in the same way. They absolutely hate leaving the dock with a ship that?s only half full. They would rather give you a 75% off stay on their ship than to leave the room empty the whole trip. There are various websites that you can track to find those kind of deals; I typically just use sites like Kayak or Travelocity myself. The thing to remember with this though is that you may also be dealing with a short timeframe to get to your destination.

The Cheap Alternative for a Summer Vacation

If you actually don?t mind the outdoors and like to go camping, then I would encourage you to travel around the U.S. with some hiking boots, a blanket, and a tent. You would be amazed how relatively cheaply you could travel by seeing all the sites, but then setting up a tent for the night.

In a rustic campground, you could get away with a $5 stay (believe me, I know people who have done it). By purchasing your food from the local grocery store, instead of expensive restaurants, you can save money on dining while also eating healthy too.

For this method to work really well, it works best to have a fuel efficient car. My wife and I drive a Nissan Altima which allows us to get roughly 500-550 miles per tank which cuts down on our gas costs quite a bit. If we had a less fuel efficient car that would impact your cost quite a bit and possibly not make the trip worthwhile. That said, if you can do it for cheap it can be a great way to take a small summer vacation and not bust your budget in the process.

 

 

What tips do you have to save on a last minute summer vacation? Do you prefer to plan your trips out, or be completely spontaneous?

 

 

Photo Courtesy: sparkleplenty_fotos

Do You Make More Than a Stripper?

make more than a stripper

make more than a stripperCatchy title, huh?! 😉 No, we’re not talking about stripping today here on?Wise Dollar?as we’re a family-friendly site,?but while everyone is busy recovering from the holiday weekend, I thought I’d lighten it up a little today and share this interesting little infographic I found over at Visual.ly. I’ve always been intrigued by how people end up on the career paths that they do.

I’ve written about that before over at Frugal Rules as I think it’s interesting to hear readers’ back stories to see what they’ve done in the past. Going with the same theme, it is always interesting to see how or why some professions pay the salaries they do. For example, my youngest brother just finished his first full year as a high school teacher in May. He was relatively happy with the salary he got, especially in relation to where he lives. But, when you look at what he makes on a per hour basis it’s a bit on the ridiculous side.

The politics of salaries aside I found this infographic interesting as it compares what people earn in various?professions. Admittedly, some of the comparisons are a bit over the top like a teacher vs. a stripper or Creative Director vs. a Submarine Cook but I think it’s interesting to see the comparison. I don’t know what numbers exactly they’re using to claim such salaries, though I did read that strippers in North Dakota have made as much as $2,000 per night,?as of a couple of years ago. That said, I think it goes without saying that it doesn’t really matter what your salary is, it’s how you manage it that counts. Making more money is better, of course, but I’d much rather be a teacher who is seriously saving money and investing it for a rainy day?as opposed to a hot dog vendor who lives the YOLO lifestyle without a second thought about his future.

Surprisingly these people make more money than you!

by borisbenko. Explore more visuals like this one on the web’s largest information design community – Visually.

 

What salary surprised you most out of the ones shown? What was your first job? Do you make more than a stripper? 😉

Four Things to Look for When Buying a House

Buying a House

Buying a HouseBuying a house is one of the most important financial decisions you will make in your entire life. Most likely, your home is the most expensive purchase that you will ever make, so it is important that you pay attention to all the details and choose the home that is the best fit for you and your family.

While buying a house can be a stressful time, it can also be an exciting time in your life and you should try to enjoy the process along the way. To help you get a grasp on the home buying process, following are four things not to overlook when buying a house. This is by no means meant to be an exhaustive list, but simply one to get you to start thinking of things you might want to be aware of when buying a house. You will also notice that there is no mention of getting a mortgage as that is a completely different topic altogether.

#1 ? Square Footage

When you start out looking for a home, you should establish a range that will work for you in terms of square footage. You don?t want to buy a home that is too small that you will quickly grow out of and need to move again. Likewise, buying a house that is too big for your needs simply means you will pay more in terms of utilities and taxes for space that you aren?t using.

Think about the size of your family (both now and in the future) and decide what kind of square footage you need. You should also look at the layout of the house to see if it?s going to fit your needs and wants, now and later down the road. I know this may be a bit difficult to do but can be extremely important to do if you?re planning on starting a family. I wish we would?ve done more of this before we bought our home as it could?ve saved us some headaches now.

#2 ? Wear and Tear

If you are looking at homes that are not new construction, pay attention to the amount of wear and tear in the house. Are there a lot of details that need to be fixed up when you move in? Do all of the faucets, toilets, etc. work like they should?

None of these items alone need to be deal breakers, but take into account any minor repair work that you will have to have done. You will also want to consider negotiating this into the asking price of the house. Even if you?re able to DIY most of the projects, it will cost you time in addition to your expenses.

#3 ? Good ?Bones?

Don?t be turned off by an ugly paint color, or even some bad wallpaper as those are things that can be changed relatively easily. Instead, pay attention to the ?bones? of the house. That means the structure itself, the roof, the interior walls, etc. If those major elements are in good condition (and pass inspection), you can worry about making minor changes later on after you move in. This is also assuming the fact that you?ve done your due diligence when it comes to hiring an independent home inspector that is not tied to the real estate agent.

#4 ? Location Matters When it Comes to Buying a House

You can change a lot of things about a home after you purchase it, but you can?t move it. Make sure any house that you are considering is in the right location for you and your family to be happy for years to come. Is it close enough to work? Close enough to school for kids? What is the neighborhood like?

Location is one of the most important elements in your in your home search, so take time to search out available properties in your desired area and give them first consideration. You want to be able to enjoy living in your home for many years to come, and the location of the house is going to be a big part of your satisfaction.

 

What are some things you look for when buying a house? What is a deal breaker for you when purchasing a house?

 

 

Photo courtesy of: Pallspera