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How to pay for college

October 18, 2011

I look back on my college years with fond memories.  I’ll never forget when Tim (college roommate) and I drove onto the campus of FSU for the first time as freshmen.  Everywhere we looked there were girls. Everywhere.  And they were all dressed up…really dressed up.  Did I mention they were everywhere?  We later realized it was Rush Week, but man, what a way to begin the college career.

That being said, there were other great things about my college experience:

  • FSU National Championship my freshman year
  • finding our photo as “March” in the 1995 Seminoles Calendar
  • lifetime friendships
  • an acquired taste for Hamburger Helper
  • my introduction to They Might Be Giants
  • oh yeah, and a pretty good education

With all the news of Occupy Wall Street and a disgruntled group of post-graduates, I’ll take the rest of this week to discuss how to handle saving for and investing in a college education.  I’ll give you a hint, we won’t be blaming big business, the government, our parents, or anyone else.  At 18+ years old, it’s time to man (or woman) up, and make some choices that will benefit you for a lifetime. And parents, you can make some choices today that will instill the proper perspective and values for your children, and maybe help give them head start.

Until Thursday…Go Noles!!!  (In case you missed it, we took it to Duke on Saturday.  Yeah, we’re awesome.)

What to do with your “underwater” mortgage

October 14, 2011

As I mentioned in yesterday’s post, there are currently over 10 million “underwater” mortgages, where the value of the home is less than the mortgage owed.  If you live in central Florida, there’s a good chance you might be in this situation.

I also depressed you with statistics supporting a slow turn around in the market – probably 4-6 years away.  Certainly not ideal economic times, but this too shall pass. At createmargin, I don’t want to see you make a short-sighted decision that you’ll regret well into the future.  So find your category below, and don’t freak out – it’s going to be okay…I promise.

“Underwater” and CAN’T afford your mortgage

Let me start by saying there’s a big difference between “can’t afford” and “don’t want to pay.”  Be sure you are in the “can’t” category.  If it’s impossible for you to generate enough income and cut enough expenses to make your mortgage payment, then you need to

  1. Hound your bank about every government program, mortgage modification/forgiveness at your disposal.  Be ruthless.  You should be on a first name basis with the guy in India fielding their calls.
  2. Consult a qualified and trusted real estate agent or attorney about a short-sale.  This is where the bank agrees to you selling the home for an amount less than your mortgage balance.  Every state has different rules and every bank has different policies, so it’s important to get ALL the information you can upfront.  You could still be liable for the difference, and might still owe income taxes on the difference.  You want to be protected, so find someone who has experience.
  3. I know there are cases where foreclosure will be unavoidable, just try to let foreclosure choose you, not vice versa.  Your credit will pay dearly – do what you can to exhaust the short-sale option.

“Underwater” and CAN afford your mortgage

Take a deep breath.  Count to 10…slowly.  And say “don’t worry, be happy.”  This really isn’t a big deal.  Real estate prices WILL RECOVER.  Just like any investment, real estate will have its ups and downs, but its a great long-term investment!  Why?  There’s a limited supply of land, and population growth means demand (long term) will continue to rise.  That’s a recipe for increased values.

So yes, while it might be frustrating to see your monthly mortgage statement, or homes selling for 50% of what you purchased for, eventually values will begin to rise.  And if you continue paying your mortgage, your balance will continue to go down.  That combination means before you know it, you’ll be “above water.”.  Right now, your loss is just on paper.  Stay the course and you’ll be fine.  If you’ve signed a contract and you can pay, then pay.  Let God handle the stuff you can’t control.  Really, it’s gonna be okay.

Looking to buy a home

If you’re in the market for a home, God bless you.  This is definitely a buyer’s market, and it will continue to be a buyer’s market for the next few years.  So my advice to you is this:

  1. Be patient.  Be picky.  Don’t buy the first, second, or even fifth property you see.  Take your time.  Find the perfect house for your situation and your income.  Be willing to wait on the long process that comes with purchasing a short-sale or foreclosure.  You make a wise purchase now, you could be in a great financial position early in your life.
  2. Save at least 10% (20% is my personal recommendation) for a down payment.  The reason many people are in the above categories is because they didn’t make a substantial down payment.  Remember, prices will remain low for a long time.  You’re not going to miss out on a great deal if you don’t pull the trigger right now.  If you can’t afford to buy now, then save for the next two or three years, and buy then.

Regardless of your category, I’m praying for you.  I hope we’re all able to keep things in perspective, and remember we have it pretty good in the U.S. of A.

The imploding housing market…and what to do about it.

October 13, 2011

We’re used to fast.  There will be nothing fast about the housing market turning around.  Here’s why.

  • Currently 10 million home owners owe more than their house is worth.
  • There are approximately 6 million distressed loans (loans that are 3 payments or more behind.)
  • Foreclosures are now averaging 599 days.
  • Estimated annual demand for housing is 1.2 million units.
  • 1Q 2011 home values saw the steepest decline since 4Q 2008.

So, simple math.  In the next 3-4 years (remember the 599 day foreclosures!) we have potentially 6 million distressed homes that will be coming to market.  Even if some of these loans recover, there will be A LOT of inventory hitting the market in the coming years.  If annual demand is 1.2 million units, we’re looking at another 4 years, give or take, where supply will be outpacing demand.

If you’ve taken ECON 101, you know that when supply is greater than demand, prices have to drop.  Don’t expect housing prices to increase anytime soon, I would anticipate a further drop in values.

To make matters worse, the federal government is doing everything they can to artificially inflate demand, but it’s not working. You can now find 30 year fixed rates less than 4%.  This is primarily due to a tremendous increase in government backed mortgages.  From 1990 – 2003, government backed mortgages accounted for 50% of originations.  In the last 3 years (2008 – 2010), it’s close to 90%.  Because very few of us are in a position to purchase homes, they’re trying to force us to buy.  They can’t sustain this, and one day, rates will have to return to fair market levels.

So, if you’re banking on a recovery in the next 24 months, sorry to burst your bubble (no pun intended).  However, there is hope. Tomorrow I’ll tell you what you can do about this not-so-great news…


My half-ironman experience

October 11, 2011

Sorry about the month layoff from social media.  We’ve been adjusting to our new schedule and though we’ll never be fully adjusted (who really is!), we seem to have our arms around the craziness – glad to be back.  So here we go…

A few weeks ago I was able to check off a goal I had set for myself last year – complete a half-ironman in under 6 hours.  It has been a rewarding, challenging, and relentless process.  Here are a few things I learned and experienced along the way (and of course, they can all be tied to your financial future!)

1.  Easy rarely satisfies

I have a tendency to take the path of least resistance.  If you do that your whole life, you will learn very little, experience very little, and grow very little.  Sometimes choose the path with the wall…then climb over it.

2.  Goals worth chasing require discipline

Overnight success is the biggest myth out there.  It doesn’t happen. What might seem like quick success is long-term success, you just missed the beginning of the story.  Financial freedom will come only as a result of discipline – making the small wise choices day after day.  The training plan I followed was 5 months.  One workout didn’t help me achieve the goal…but the slow, incremental changes that resulted after 150 days did.

3.  It always takes a team

I got to cross the finish line…my wife and kids cheered me on.  I can’t even begin to count the sacrifices Amanda made so I could get my training in.  Behind every success there’s a team.  When it comes to creating margin, get your spouse on board, have friends and family that can keep you accountable and offer encouragement.  You can’t do it on your own.

 4.  You will want to quit…but don’t

It’s inevitable.  If you have a worthy goal, things will get difficult.  The last month of training was so challenging.  With the change to our schedule, kids back in school, busy time at work – I was over it.  Then during the race, things got difficult for me between mile 10 and 11 of the run.  I was almost there, but my body was screaming at me to stop.  I lost some time those last 3 miles, but I kept moving forward (albeit, very slowly!)  When it comes to creating margin, you will face your share of setbacks, but you have to keep moving forward.  The finish line will be that much more satisfying.

So…what challenging goal have you set for yourself in the next few months.  No goals…No growth!

How to avoid financial disasters

September 13, 2011

Not sure if he’s responsible for the phrase, but I’ll never forget attending a meeting with Jim Seneff, CEO of CNL Financial Group, when asked to sum up the CNL investment philosophy, said “protect the downside, and the upside will take care of itself.” Brilliant.  That has stayed with me, and has been a phrase we’ve tried to build our personal financial decisions on.  Here’s how…

1.  Avoid all non-mortgage debt

The moment you take on debt, you presume upon the future.  You assume your income will be there.  You assume you won’t have large, unexpected expenses.  You assume you’ll always be in position to pay.  This is not protecting the downside.  This is opening yourself up to potential financial disaster.  (Hint:  You’ll never have to file for bankruptcy if you never have debt!)  Even what might seem to be manageable debt, can quickly become unmanageable should you lose a job or face a medical emergency.

2.  Be conservative with your mortgage/rent

The largest expense you have is your housing.  Because it will be such a large percentage of your budget, and will be fixed, it’s always wise to be conservative.  If your situation improves and you want to upgrade, no problem.  If you do face some hardships, you’ve kept the largest part of your budget manageable, and can more easily weather the storm.

3.  Build an Emergency/911 Fund

You should save 3 – 6 months of income to help fund the dreaded financial emergencies (medical, lost job, blown a/c, etc.)  You will sacrifice a little to get there, but then the downside is protected, and, you guessed it, the upside will take care of itself.

Protecting the downside doesn’t mean you have to live this safe, risk-free life.  I believe we’re all called to live on the edge of faith, to take chances when we’re uncertain of the outcome, to pursue dreams that are big and dangerous.  But this is a case of both/and.  You can protect your downside by being wise with your financial decisions, while at the same time taking a leap of faith as you pursue your dreams.  Take your risks making a difference in someone’s life, not by buying the largest house you think you can afford.

Is your hand out?

September 8, 2011

Sometimes I feel I deserve certain things.  If I work hard, I expect results.  If I pray, I expect to be blessed.  If I treat others with respect, I expect it in return.  But we all know, the world doesn’t play by our rules.

Sometimes I feel I deserve certain things financially, and it gets me in trouble.  My peers have nicer vehicles, therefore I deserve one.  My parents go on exotic vacations, therefore I deserve to.  I just got a raise, therefore I deserve a larger house.

Entitlement is your enemy.  You must fight against it.  You must remind yourself that everything you have is a gift from God.  Your physical ability to work, your aptitude, your intelligence, your family, the very fact that you live in one of the richest nations in history. All a gift.

With those gifts come responsibilities, not entitlement.

It all changes today…

September 6, 2011

Today is a pretty big change for our family. After much prayer, contemplation, long discussions, and calendar analysis, Amanda is heading back to work full time. Ideally, this would have been a decision we faced in a year or two, but circumstances dictated that this was the right time. What we’ve learned through this process is every decision has benefits and burdens, and as we strive to continue to createmargin in our family, here’s a peek inside our decision making process:

1. Our children’s education is a big deal

Prior to today, our girls (4th and 2nd grade) attended a great elementary school. Couldn’t have been happier with their teachers, friends, and the environment. The middle school, however, left a lot of questions in our mind, and we wouldn’t feel comfortable sending our children there. Amanda was offered a full time position at a K-8 school with an incredible reputation, and a place where our children will be challenged. We knew this opportunity might not present itself again, so we (or I should say, she!) took the plunge. On Friday, our girls had their last day at the only school they’ve known, and today, a new journey begins.

2. Time with our children is a big deal

This was the most heart wrenching burden to our decision, knowing that Amanda’s time would be more limited with Jackson (4) his last year before Kindergarden. We felt like this burden would be overcome by the benefit of the drive to school together and having mom in the same building for potentially the next 9 years. We’ve also evaluated some ways we can ensure quality time with all of our children, still understanding that quantity = quality at this age.

3. Maintaing balance is a big deal

We’ve realized there won’t be enough time for us to to do and focus on the important things, if we don’t release a few things from the schedule. This will be a combination of re-evaluating our discretionary time (ie triathlon training) and delegating some other responsibilities.

4. Our budget is a big deal

This was pretty far down on the list of factors when making this decision. As I mentioned, ideal timing would have been a year or two from now. But, a full-time position does bring more income. There are a few things I promised her as a result of this decision, such as a vacation of her choice next year, and finally getting a home computer (we’ve been passing my laptop around the family.) We’ll allocate some of the income to the delegating I mentioned above (house cleaning) and to after-care for Jackson. But for the most part, this will further our efforts to increase our long-term savings, as I discussed here.

5. Change is a big deal

Embracing change is unnatural for most of us. We’re no exception. This change definitely affects our girls and Amanda more than anyone else. We are really praying that God will use this opportunity to mold our girls to trust Him with change. To understand that it’s okay to not feel comfortable in every situation. That the nervous feeling you have in your stomach is one way God reminds us that he has everything under control, even when we feel out of control. I’ve been so proud of the way they’ve handled this decision, totally putting their trust in us to make the best decision for them, knowing it will be extremely difficult to switch schools. I can’t wait to hear the reports when they get back today.

This process has reminded me that every situation is unique. And while I believe there are absolute principles that can be applied to reach your financial goals, your decisions won’t look exactly like mine. Your circumstances will be different. Your goals will be different. One thing’s for certain, you will always have to change.

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