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Wednesday November 13th 2019

Five Tips for Buying Your First Home

Buying a home can be an intimidating process if you have never done it before. These five tips are a great place to start if you are considering becoming a homeowner.

Clean up Your Credit Rating

Most homeowners need to acquire a mortgage. The recent problems in the housing market have led to a large number of foreclosures, so lending institutions have become much stricter in their lending policies. Your best bet is to have an excellent credit rating before you approach a bank for a mortgage loan. Before you begin house hunting, look into your credit report to see what your rating looks like. Take care of any outstanding problems prior to speaking with a lending institution about a mortgage.

Buy in Good School District

Whether you have children or not, a good school district is a great selling point for any home. The biggest benefit of living in a high quality school district is that it will help your home sell faster when you are ready to move. Most buyers place a high priority on school districts.

Work With a Professional

Some of the details of home buying can be confusing for someone who has never gone through the process. A professional realtor will be able to help you create a more successful strategy for shopping for the home as well as guide you through the steps involved in the purchasing process. Home shoppers have great access to home listings online, but a realtor can provide advice based on years of working in the housing market.

Lowering the Interest Rate

Many mortgages will allow you to choose to pay a higher down payment in return for a reduced interest rate. If you plan to own your home for more than a couple of years, the interest rate reduction will save you more money the longer you are paying on the loan.

Become Pre-approved

Pre-approval for a mortgage can help you become a more informed shopper while you are house hunting. You will know exactly how much you can afford to pay for a home, so you can avoid spending time looking at houses that may be outside your price range. Pre-approval helps speed up any offer you might want to make on a house that you like, as well. During the pre-approval process, the bank will examine your financial data to determine a realistic mortgage offer for you before you find a house.

10 Personal Finance Basics

What are the big things you are going to need to buy in the next few years? A car? A house? Financial goals are not as hard to establish as you may think, and they are the only realistic way to work toward the things you really need in life.

1. Identify Reasonable Goals

Financial stability means different things to different people. Figure out what you want to do with your money that would make you feel the most comfortable in the long run. Make a list of the goals you want to accomplish in the next ten years, and then make a list of the average expenses of each goal.

2. Prioritize

Once you have your list of goals put together, look at each item and rank it in order of importance. For example, sending your son to college would probably rank higher than taking a cruise to Alaska. Rearrange the list so that the things you want the most are at the top.

3. Make the Tough Choices

Not all of your big financial goals are going to fit nicely together. You may have to sacrifice one in order to keep another. Remember that every dollar you spend on one item is a dollar you won’t have available to spend on something that might be more important to you in the long run.

4. Plan Ahead

Give yourself plenty of time to achieve your financial goals. Take advantage of savings accounts and investments that will help your money grow over time so that you will have more when you need it later.

5. Practical Considerations

Remember to include goals that will help keep you and your family financially secure. Think about creating an emergency fund for unexpected expenses. Begin to build tuition funds for young children. Create retirement savings that will take care of you in your older days.

6. Include everyone who is Directly Affected

If you are married, make sure that you discuss your financial goals with your spouse. Talk with your children about the financial goals that include them.

7. Begin Right Away

Getting your finances in order is like going on a diet. It’s really easy to say you’ll start next week or next month and then never get around to it. Once you choose to create a solid financial plan, put it in order and start using it as soon as possible.

8. Maintain Discipline

Daily spending is the hardest to control. Every time you think about making a big purchase, remember what your goals are. If the goals are really important to you, they will be enough to keep you from blowing your cash on something you don’t really need.

9. Give Yourself some Breathing Room

Budget in some walking around money so that you never feel too limited. It’s important to have a little flexibility to purchase less expensive items when you want them.

10. Make Changes as Time Passes

As you and your family get older, your financial situation and goals will change. Revisit your plan every three to five years and make changes so that it fits reality.

Three Core Principles for Smart Money Management

A good money management plan will keep you solvent even in the most difficult financial times. Taking care of your money is something you have to do on a daily basis. Just like dieting, it requires a little bit of discipline and planning to get it right. But a good financial plan can become a normal part of your life, the same way a healthy diet and exercise can become regular parts of your days. Begin with these three core principles and you’ll find that good money management is easier than it sounds.

Live Within Your Means

It sounds simple, but this can be the toughest part of money management. It all boils down to only spending as much money as you make. Credit cards and monthly payment plans are the fastest way to get in over your head with interest rates and revolving balances. Credit cards are good ways to increase your credit rating, and they are good for emergencies, but they have to be used carefully. Never charge an item that you wouldn’t be able to pay off completely within a month, and then really do pay them off when the bill comes in.

Some interest rates are unavoidable. Mortgages and car payments are large enough that can rarely be paid off all at once. You can be careful to shop around for the lowest interest rates and the shortest loans that you can afford. Buying your own home is not always a sound investment depending on where you live. Look into all of your options before you jump into a 30 year mortgage.

Keep Your Money Working for You

Having a savings account is an excellent beginning toward financial stability. Every bank offers a different interest rate for their different types of savings accounts. Find the account that will give you the best return on your investment. Over time, the difference between a 1% return and a 1.5% return can become substantial.

It is also possible to earn money as you spend it. Many credit cards today offer cash back programs that will give you money each time you use the cards. As long as you remember to keep the credit card spending within your budget, you can build a nice stash of money by taking advantage of these reward programs. If you don’t find a program that offers cash back, you may be able to find one that gives you points toward travel or other purchases that will save you money in the long run.

Be Ready for Anything

Life isn’t always predictable. Keeping an emergency fund available for those unexpected expenses will save you a great deal of money and heartburn. Most economists recommend that you keep an emergency fund that is equal to your salary for three months of work. That way if you lose your job or are unable to work for some reason, you will still be able to make all of your payments on time until you get things all sorted out.

What is a Thrift Savings Plan?

A thrift savings plan is part of the retirement package offered to federal government employees. The plan is offered by the Federal Retirement Thrift Investment Board, and is basically a federal version of the 401(k) plans that private businesses offer their employees. The contributions that employees make toward a thrift savings plan can be applied before taxes, and taxes are deferred on the payouts from the plan if they are paid out after retirement age. Anyone who is eligible for the Federal Employees Retirement System or the Civil Service Retirement System can take advantage of a thrift savings plan.

Additional Savings Option

The thrift savings plan is a retirement plan option that is separate from the package already offered through the Federal Employees Retirement System or the Civil Service Retirement System. The contributions that employees put toward a thrift savings plan are not considered as a normal part of their annuity contributions toward the Federal Employees Retirement System or the Civil Service Retirement System. Federal employees are allowed to contribute up to 11% of their salary toward the thrift savings plan, and they are eligible to begin saving as soon as they begin employment.

Required for Some, Supplemental for Others

Employees who are using the Civil Service Retirement System are not required to participate in the thrift savings plan program. They can use a thrift savings plan as a supplement to their regular retirement plan. Those who use the Federal Employees Retirement System are required to utilize the thrift savings plan option as part of their standard retirement package, along with the basic annuity and social security plans. Both types of plan participants can enjoy the privilege of immediate contributions toward retirement, without any waiting periods or deferment of payments.

Contributions Drive the Savings

The way the thrift savings plan works is that the amount of money saved toward retirement is based entirely on the amount of money that the employee contributes to the plan. Employers may also contribute to the plans with matching funds or other savings program options. Earnings accumulate as employees continue to contribute during their standard working years. Federal Employees Retirement System members also enjoy agency matching contributions and immediate vesting in the contribution as soon as they begin employment. Civil Service Retirement System members are allowed to contribute up to 6% of their salary toward a thrift savings plan, but they are not eligible for any matching contributions or immediate vestment plans.

Range of Investment Opportunities

The federal government offers five different investment funds for federal employees to choose from for the thrift savings plans. The Government Securities Investment Fund, Common Stock Index Investment Fund, Fixed Income Index Investment Fund, International Stock Index Investment Fund, and Small Capitalization Stock Index Investment Fund are all solidly performing funds that provide reasonable returns on investments. Thrift savings plan members are offered high quality investment opportunities with low administrative and investment costs. Before tax savings and tax-deferred earnings also provide a better return on a federal employee’s retirement earnings.

Increased Sales May Not Keep Pace with Rising Commodity Costs

The final three months of 2010 were incredibly encouraging for Corporate America. The S&P 500 companies reported sales figures that largely outpaced expectations. Profits rose an average of 37% over the final quarter of the year, with sales figures that showed at least a 6% increase. The implications of this increase in profit and sales numbers continue to drive consumer confidence and seem to imply that the economy is still healing from the recent recession.

Sales Indicate Real Demand

One of the most positive aspects of the increased sales figures is that they seem to show profits based on actual demand rather than profits that resulted from companies cutting back. That means that the improvements are actually signs of economic health rather than conservative measures intended to cut costs out of the budgets of corporations. The progress of the last quarter represents actual increased sales, which have been slow to pick up in recent years. Economic recovery is not entirely complete, but the last quarter sales figures are a sign that it is still moving in the right direction.

Increased Foreign Competition is a Concern

Some companies are concerned that commodity costs will rise due to an increase in global competition. Corporations are finding a weaker domestic market for their goods as the demand for foreign goods is rising. This could cause the corporations to find new ways to increase demand in the face of competition from markets that can afford to lower their prices. Conversations about increased spending and weaker international demand have already caused dips in the stock market as investors become concerned that the 2010 sales increases are not sustainable numbers. If commodity prices rise as expected, the combination of high competition and more expensive manufacturing processes could be damaging to the economic turnaround.

Businesses Could be Forced to Pass Along Higher Costs

As companies face higher costs in 2011, economic researchers are concerned that those increased costs will need to be passed on to consumers in the form of rising prices. If prices can remain stable over the next year, consumer confidence would continue to rise. If prices begin to rise later in the year, however, they could have a negative impact on the country’s ability to climb out of the recent financial struggles. Rising prices on consumer goods due to the rising cost of manufacturing resources without a substantial decrease in the unemployment rate could set the economy back by at least a year.

Basic Materials More Expensive

Although the sales increases are a positive sign, many companies remain guarded in their optimism. Many of the biggest United States manufacturers are worried about increases in their manufacturing costs over the next year. Companies are already setting aside billions of dollars that they expect to need to use for increased commodity costs in the near future. Some companies expect to increase spending in their research and development areas as well. Many analysts worry that these cost increases will not be covered by the modest gains in sales and profit figures from the end of 2010.

The Secrets to Raising Smart Shoppers

Just like any other social behavior, good shopping habits are learned at a young age. As a parent who wants your children to learn to be smart shoppers, you can teach important lessons as a seamless part of each shopping trip. Grocery shopping trips can be educational excursions that provide real life training if you approach them the right way. The main key is to keep your kids involved in the process. It is much easier to just make your list and pick up the items as fast as possible, but spending just a few extra minutes can give your children tools that they will use for the rest of their lives.

Engage Kids in the Planning

Make the kids part of the process. Invite them to help you create the week’s shopping list. You can discuss which items are necessary for the week and which items you don’t really need. Even young children will have an opinion about what kind of food they want to eat over the next week. Let your kids help you find and clip coupons for the items on the list. Building a good list and sticking to it is one of the most important parts of living within a good budget.

Be Firm about Extra Items

All children try to add something extra to the shopping cart while you go through the store. Grocery store shelves are designed to catch a kid’s attention and tempt them to grab something that’s not on the list. Never give in to these unplanned purchases. Remind your kids that the list has everything you need and stay firm about sticking to the list. Ask your kids how they plan to pay for the item if they become overly insistent on the purchase.

Talk About Your Choices

Don’t just toss the items on the list into the cart and keep moving. You’ve already talked about the things you want to buy, but once you are at the store, there are still choices to be made. Explain why you decided to buy one type of cereal rather than another. Show you kids how to compare fruits and vegetables. Talk about the different package sizes as well as the different prices so that your kids understand how to find the best overall value. You don’t have to give a speech as you choose each item. Just a few words as you place it in the cart will begin to give them the idea of how to think as you shop.

Model Polite Interactions

When you need to interact with store employees, do it in the way you would like to see your children interact with them. Be polite and respectful at all times. If you seem dismissive of store clerks or cashiers and treat them as if they were only there to serve you, your children will treat them the same way as they get older. Friendliness will gain you better service and make the trip less painful for everyone involved.

Deductible Losses on a Rental Home

Many people are facing losses on real estate sales, made to get out from under a weighty mortgage. This begs the questions, if you pay tax on real estate gains, do you get a break from real estate losses? The answer is logical, but only after you understand how gains on real estate are taxed.

Capital Gains Tax

The IRS does not always charge you taxes on capital gains. If you profit by $250,000 as a single seller, or $500,000 as a couple, you do not have to pay capital gains tax. You only pay for profits above those amounts.

Therefore, the logic follows that you would not get a break if you lost money on the sale of your home. However, exceptions do exist for those who sell an investment property. What qualifies as such a property? Any real estate that brings income qualifies, such as a rental house or vacation home that you rent out part of the vacation season.

How Much Can You Deduct?

The IRS lets you deduct losses up to specific amounts. Depreciation is also deductible, which can really muddy the waters when figuring your taxes. For this reason, it’s best to talk to a tax professional to figure out exactly how much you can deduct. Claiming losses on investment property requires a completed IRS form 4797.

When selling a second home, you generally pay taxes as long-term capital gains for properties owned over one year or short-term capital gains one homes owned less than one year. If you would pay capital gains on a profit from the sale in these situations, then you would be able to deduct a loss.

Don’t Think of it as a Second Home

When you think of the rental property as a “second home,” you muddy the waters. The IRS allows certain deductions on a second home, but they do not allow deductions on losses for these properties. The difference is the purpose of the property. Is it truly a “second home” or is it an investment? Are you earning income from it?

Dealing with Depreciation

Most people who rent out a property take depreciation every year. When you sell the property, that depreciation counts against the value of the property, reducing your tax-deductible loss. The good news is that the loss is deduct-able as an ordinary loss, deduct-able in full against the income. Limits apply and you must also address the issue of passive losses. This complicated topic definitely requires the help of a tax professional.