We’re in the process of evaluating whether or not we should sell my mother’s home since she’ll no longer be living there. I’ve only ever owned one home and it’s the one I live in now; the same goes for my wife.


It’s a daunting venture trying to figure out what to sell one’s house for. Most people don’t have access to the proper databases, and we can only trust Zillow so far. For instance, Zillow has a nice price my mother’s house is for but it doesn’t list some of the amenities the house has that would add to its value.

The first thing my wife and I did was ask a realtor to come visit the house and give us some advice. She visited, then went back to her office and, after a few days, sent us something called a Comparative Market Analysis (CMA). It seemed extensive enough but I had some problems with it.

She compared my mother’s house to others that were newer and had pools. She didn’t include the sun room my mother’s house has, or anything outside the house as my mother’s property is the largest in her neighborhood. Her recommendation for the sale price seemed really low to me, and I have to admit that I was a bit depressed by that.

Her advice was to make some updates to the interior of the house, which she said was “dated”. She said if we were willing to spend between $25K – $30K that we might raise the value of the house $50K from her recommendation.

I’m not one to just accept something I don’t agree with; I’m also not someone who sits around trying to figure out what to do. I got on the phone and called a few people I know, asking for some advice. One person I reached turned out to have worked in real estate years earlier, and she recommended I contact an appraisal service to do a full review.

That’s what I did, although the process wasn’t all that much fun. When you have no idea who to reach out to, the best thing you can do is start making the phone calls. I went in alphabetical order and it took me the 7th phone call before I got someone on the phone. Unsolicited, he gave me a lot of good advice that made me feel comfortable. I hired him and met him at my mother’s house a week later.


As he was doing his walk through, he talked on the “dated” comment the realtor gave me. In his opinion, dated only means things haven’t been updated, but most of the time people don’t get back the amount of money they spent updating things. Also, I could update the house now only to have someone put in a lower bid because they want to do their own thing.

He was also shocked that the realtor hadn’t included the sun room information on her CMA, which he said would add between $3K & 5K to the value of the house. That made me smile. He also said that, in his opinion, her CMA was comparing Mom’s house to houses that were much newer, and that one couldn’t do a fair comparison because a newer house would obviously be more updated.

It took him a week to process everything, and when I got his report he’d done some different types of things than the realtor. For one, he compared the house to others that were built around the same time, which means there were more houses in the immediate area than what she’d selected. He also gave proper value to the sun room because, in the area we live in, it’s a space that can be used all year round, whereas pools, which also give value, can normally be used only 4 months or so at best.

The recommendation that came back from him was over $40K higher than what she recommended, and he also said it’s presently a seller’s market so he’d list it $10K higher and be willing to come down to that price. The final piece was his mentioning that we only had 2 things we should address (the roof, heater, water heater and driveway are all fairly new) and that the cost should be less than $1,000 to fix; wow!

I know part of the danger is that I like what he had to say more than the realtor, which begs the question as to which one can I trust more. I decided to use three specific criteria in deciding I trusted his numbers more.

The first is that he lives in the area, whereas the realtor we asked to come with us lives about 40 minutes away, and had never represented anyone in that area before.

The second is that he’s been in the business of appraisal for 30 years, while my realtor has been doing what she does for 5. I know that time in an industry doesn’t always equate to being better but in this case, adding it to the first criteria, it felt better.

The final criteria was enthusiasm. As he looked around the house I could tell that he really like what he was seeing and thought the house would sell quickly, even at a higher price. The realtor, someone I’ve known for a long time, gave the impression that she didn’t believe in the value of the house, even at a lower price.

There’s no real science behind this sort of thing, so this piece of advice is only based on my reality. Even though a realtor is free, it’s better to first hire an appraiser to look at your property and get ideas of the worth of your house from them before you take any other steps.
 

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None of us wants to think about our future; we want to live for the here and now. However, the here and now is what we need to think about because we’ll find the future upon us quicker than we were expecting it to be. Suddenly we might find ourselves not having enough money to live on, let alone in comfort, or at least in the manner we were living when we were earning our money.


by Pedro Figueiredo

There was a report on our local news stating that most people who retire and had set up a 401K savings plan don’t have close to enough money to live the life they’re used to living. The average comes in around $149,000, which sounds like a lot of money until you think about just how long you might have to live off it.

If you lived another 20 years that’s only around $7,500 a year, if that. Sure, you’d have your social security money, but with the way our government keeps playing around with it how secure do you feel in trusting them?

How much money do you need for your future? For each person that’s a different answer. What you need to do it think about how you want to live your future. For instance, you might need less money if you’ve paid off all your debt, which includes your home, before you retire. If you decide to sell your home and live in an apartment, depending on how much you could sell your home for, that could help drastically.

It’s complicated trying to figure out how much money you might need because everyone has different needs and wants. What most of us don’t think about is how much we might need when it comes to paying some of our medical expenses. An article on The Motley Fool estimated that an average couple over age 65 might need upwards of $260,000 just for that purpose, and another $130,000 if either has to go into a long term care facility. That sounds pretty scary doesn’t it, especially when compared to that $149,000 mentioned above.

It’s too bad most of us don’t start a savings and investing plan 20, because we’d all be set by age 65. If any of you have kids around that age, share the linked article with them to help protect their future. For the rest of you, if you’ve got the nerve, check out this retirement savings calculator from Kiplinger to see where you might possibly stand.

If you want to live a simple life, you could probably get it done. If you were hoping to travel or help the grandkids with college, make changes to your house, keep buying nice clothes and the like, you’re going to need a bit more money… and you can’t trust your luck in winning the lottery.

Feeling Tipsy?
Lynn Friedman via Compfight

If you’re young enough, at least in your early 40’s, one of the best things to do is contact a financial planner to help you make long term decisions. I’ll caution you and let you know that many of them are going to try to talk you into getting insurance first, especially if you’re married, and that’s not be a bad thing. It will be another expense you’ll have to plan for, but at least your immediate family is taken care of if you pass away.

They will help you figure out how much money you need, as well as figure out your risk tolerance to investing. This is important because if you want a lot of money, your financial planner might have to risk your money on deals that will work one day and burn you on another day.

There are other things that are crucial to helping your financial status in your later years. You have to come to grips with the reality that it’s probably best to pay down current debt versus saving for the future. Sorry it’s a competition between the two but let’s look at it in a couple of different ways.

First, debt based on interest rates. Accruing credit card debt usually runs between 9% up to 29%, although the average rate is around 18%. If you only owe $500, that’s not a big deal. However, if you owe $3,000 or more, and you’re not paying more than what you owe on a monthly basis, you’re never going to pay that off, especially if you don’t stop spending.

Second, debt based on amount of your monthly payment. If you can get out of paying a monthly mortgage before you retire that’s anywhere from $500 to over $1,000 a month you can use for other things. Big hospital bills, loan amounts or even a large credit card amounts with great interest rates probably have large payments that will impact your monthly stash.

It’s going to be hard to rely on just your social security when you retire, but it’s the best place to start looking at any monthly income you’ll have coming to you. If you can eliminate most of your outstanding debt, you might be able to get by on $4,000 a month.

Anything less and you might be in trouble. Think about it this way. Even if you’re making enough to take care of your general expenses, things are going to happen where you’re going to need some extra cash. Car repairs, dental and physician expenses, broken glass, new shoes… these are things that are going to come along and you’re either going to have to address them or let things go… and the second part will lead to a horrible life experience.

Nothing says you have to retire at 65, and these days more people are working into their early 70’s. It might be a scary proposition but I tend to believe it’s always better to know where you might stand than to not know. The earlier you can start thinking about it, the easier it will be for you to start saving what you might need, or planning to do other things for your future.

If you’re married, be sure to have the financial conversation with your spouse because you’re in this together. Find ways now to relieve as much financial stress as possible. It’s never too late to get financial counseling advice, so do it sooner than later.

Always remember that you can’t run away from any problems, but especially financial issues. Challenge it head on and at least you’ll be prepared to do what you have to do to survive… and hopefully you’ll do so living pretty well.
 

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How well do you track your spending habits?

I ask that question because a great number of people have absolutely no idea how or where they spend their money. This ends up with folks looking at their bank statements wondering where their money went, and sometimes leads them to either overdraw on their bank accounts or go over the limit on their credit cards.

buying food at a restaurant

Why is this important? Because while the Justice Department shows that the number of bankruptcies has decreased 5 years in a row since 2010 (the study goes through the end of 2015), Nerd Wallet shows that overall personal debt has increased over at least 12 years. Their points are:

* The rise in the cost of living has outpaced income growth over the past 13 years. Median household income has grown 28% since 2003, but expenses have outpaced it significantly. Medical costs increased by 57% and food and beverage prices by 36% in that same span.

* Total debt is expected to surpass the amounts owed at the beginning of the Great Recession by the end of 2016. [2] Americans will soon owe more than they did in December 2007.

* The average household with credit card debt pays a total of $1,292 in credit card interest per year. This could increase to $1,309 after the Federal Reserve voted on a rate hike of a quarter of a percentage point.

I go into each month with a general spending budget and what I call the “play” spending budget. The general budget covers monthly bills and general expenses such as gas for my car and part of my food budget. The play budget is entertainment and being able to eat out when I’m not in the mood to cook or go shopping for food to prepare at home.

I have to stick to my budgets whether I have a lot of money or finances are tight, because often what I generate has to last me a good long time. As an independent consultant, my income fluctuates. It’s harder for me to stick to a specific budget every once in a while so I need to make sure I take care of the important things first.

I don’t always write my figures down, but I can mentally keep track of everything I need to pay because the dates are the same every month. The general budget rarely changes (except for occasional yearly fees or medical bills) so it’s easy to keep track of the bills, which then helps me keep track of my overall spending.

Bills always come first for me; we need to make sure we take care of our living space before doing anything else… well, except for eating. Financial experts say we should pay ourselves 10% of our income first, but we don’t always have 10% to spend on ourselves first, do we? I’ve talked about finding different ways to put extra money aside in case you have emergencies coming up and, although it might not be 10%, saving any money is better than not saving at all.

Payday
Rachel.Adams via Compfight

Only by tracking your spending can you both ensure that you can cover your bills and still live your life and make sure you don’t credit and spend yourself into debt, which could require extreme solutions to get out from under it. I’ve worked hard to eliminate most of my big bills so that I only have to worry about monthly bills that can’t be stopped (such as utilities, internet, etc).

People hate the word “budget”, but I believe it’s essential to giving us peace of mind. However, just because there’s a connotation of what a budget should be doesn’t mean it has to be cast in stone (although I would recommend tracking some of it on a spreadsheet to make sure you’re not missing anything). Even though I’ve helped people get control of their money so that they’ll show positive growth by budgeting, I also meet a lot of people who can’t handle something like that on a consistent basis.

With that as a background, let’s look at a few ways you can help track your spending that might be simpler to keep up with:

1. Set up automatic bill payments with your bank.

This one can work pretty well for most people as long as you have consistent income and are willing to do direct deposit, since most banks won’t work with you unless you allow it. It’s also the most flexible because every once in a while you might be able to get away without making a payment for a month or two and it’s easy to go online and change your dollar amount settings temporarily.

2. Set up automatic bill payments with your creditors.

If you have life insurance you’re already used to doing something like this. It works best if your payment will be close to the same amount each month and will save on any possible fees your bank might charge you to do it for you (yeah, some banks charge fees but not all of them; it might behoove you to work with a local bank). The downsides are that it’s harder to change the monthly amount, and that if you set up an account where sometimes your monthly payment is higher (such as if you have a business American Express card, which has a yearly fee that must be paid once a year) and you forget about it you might find yourself in a bit of financial distress for a short period of time.

3. Keep a running tab of how much you’re spending whenever you buy something.

This one will require a bit of work but you can make it a bit easier by only recording purchases over a certain amount. I’d probably say $10, which you can track using the memo function on your smartphone (or something like Evernote) or go into your online store and download a tracking app. If you’re buying a lot of things over $10 that should tell you that you should be more cautious on how you’re spending because you’ll find out that a lot of small purchases adds up pretty quickly, but maybe you can still buy your coffee and burger daily.

4. Use cash

This one will scare you, but I’ve found it helpful. It’s too easy to spend money these days because we put everything on a card, whether it’s a credit or debit card. I’ve found that we’re more cautious with our spending if we have to use cash. Time Magazine did a study which concluded that not only do people spend less money when using cash but they enjoy what they purchase more. I’m thinking that’s a pretty good benefit of using cash along with your money staying with you longer.

All of this requires some personal responsibility but it’s pretty simple stuff once you put your mind to it. You’ll also have more peace of mind when you know your bills are covered and you still have money to spend so you can enjoy a few things in life without worrying about phone calls and people showing up at your door looking for payment. Am I right?
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