Nov 26 2012

How We Saved 30-50% on Brand New Appliances

By |November 26th, 2012|Blog, Personal Finance Tips|8 Comments|

My fiancee and I close on our new house in a little over a week and we had one big problem to solve this weekend: the house doesn’t have a refrigerator. The current owners are taking the fridge to their new house so we needed to get some appliances and we needed to get them cheap.

We also wanted to make sure to get something nice because we know this won’t be our “forever” house. We expect to live her for about 5 years or so and then hope to sell for a nice profit.

Everyone knows an updated kitchen (including updated appliances) is the key to raising the value of your home and selling it quickly. We didn’t want to spend money on a temporary fridge when we knew we’d just spend more money for the stainless steel version later.

But we also don’t have a lot of money and couldn’t spend $2,000-$3,000 on a brand new stainless steel fridge.

When you don’t have a lot of money but you want nice things, there’s only one place to go: an outlet store.

50% Off a New Refrigerator

Tag and I ended up buying a brand new $2,100 refrigerator for $1,050 all because there was one dent in the refrigerator door.

stainless steel appliances

photo credit: justthatgoodguyjim

I will admit that the dent is big. It’s pretty noticeable even from a few feet away. Luckily once the refrigerator is in our home and covered in magnets for delicious pizza delivery then the dent becomes invisible.

The fridge is literally brand new. Someone paid $2,100 for it, it was delivered to their house, and they sent it back because of the dent. Then I bought it for 50% off. What a deal!

We found this deal at Sears Outlet because it was the easiest place for us to find lots of outlet appliances, but there are probably lots of other different stores that sell appliances that either have cosmetic damage or were floor models and can’t be sold as “new”.

You might even be able to go to your local hardware store and ask the manager for a discount on a floor model. It doesn’t matter where you get it, just don’t pay full price when you can get it cheaper for some small cosmetic damage!

38% Off a New Range

We needed a fridge because we didn’t have one. We wanted a new range because the one in the house is from 1990 and looks like it’s from 1970. While we were at the Sears Outlet we found a Black Friday deal on an $800 range for $500.

This range is brand new in the box; no dents or anything. It is probably either overstock or last year’s model. Regardless, it’s a brand new stainless steel electric range that is selling for $800 at Home Depot and Lowes, and I got it for $500 because I was at an outlet store.

Our Kitchen Renovation is Already Half Done

The first three jobs of moving into our house are the scrape off the popcorn ceilings, paint, and replace all the 22-year-old carpet with brand new bamboo floors. The kitchen renovation probably won’t happen for at least six months or more.

And yet we’re already halfway done just by getting new appliances. The microwave and dishwasher are already upgraded, so we haven’t even moved in yet and the kitchen appliance upgrades are complete. Now we just have to stain the cabinets and get a new countertop and backsplash and we’ll have a lovely updated kitchen!

And it’s all because we found some great deals at an outlet store.

Readers: Have you ever purchased appliances from an outlet store?

Nov 24 2012

Getting the Best Mortgage Rates in Australia

By |November 24th, 2012|General Personal Finance|Comments Off|

Your mortgage rate is probably your biggest monthly expense. Whether you are already a homeowner or are thinking about buying property in Australia for the first time, it’s worth taking the time to research your mortgage options. Consumers can borrow from large banks, small banks, or private lenders, all of which will offer different fees, features, and rates. Just as you would shop around to find Sydney real estate, it’s a good idea to shop around to find the best mortgage lender. Overall, Australia’s mortgage rates are relatively low, making it a good time to jump into the market and invest or try to refinance.

Look for Online Deals

Some of the best Australian low-interest mortgage rates can be found online. Online lenders spend less on advertising and the cost of running a brick and mortar operation. They are then able to pass these savings down to their customers. State Custodians is a small mortgage company that operates online, with their Standard Variable Offset Loan winning an award from Your Loan Magazine. This loan offers an interest rate of 6.09%, making it ideal for first-time home buyers. Other online loans with notably low interest rates include the MyRate Advantage Loan at 6.15%, and the Ratebusters Ultimate Loan at 6.04%.

Compare Offers

Securing a mortgage online can be ideal for investors or those looking to refinance, but many home buyers prefer to speak to someone in person. The key to dealing with bigger banks is to shop around and arrange meetings with several representatives. You can certainly find a good deal at a large bank. National Australia Bank has been recognized for its competitive rates, offering a three-year fixed loan at 6.79% and a standard variable loan at 6.5%. Smaller credit unions can also offer competitive rates, so it’s worth looking at them in addition to the major name lenders

When you’re comparing deals at different banks, think not only about the interest rates but also the terms and conditions of each mortgage loan. Find out whether you can split your loans into part variable and part fixed rates, and if you can consolidate multiple debts for a lower overall interest rate. Investors may be in search of interest only loans, while residential owners may need fast cash to close on a deal.

Negotiate Fees

Bank fees can range from hundreds to even thousands of dollars. If you find one lender that offers you a great deal on interest rates but makes up for it with high fees, you might be able to talk them down. Consumers with excellent credit will have better bargaining power, as will those negotiating a mortgage with their existing bank. If you’re on the fence between two lenders, try asking about the possibility of waiving fees. Some banks will also lower fees and interest rates when you agree to set up automatic payments.

If you already have a home loan with one bank, ask about the possibility of special offers for switching to another bank. Citibank and National Australia Bank both offered $1,000 in cash for switching accounts last year. It’s important to remember that banks want your home loan business, as competition for customers is fierce and home lending involves far less risk than business lending. Discounts are available for those who take the time to research options and
ask about special offers.

Nov 19 2012

How I Plan to Retire

By |November 19th, 2012|Blog, Life|7 Comments|

Last week I wrote about how I took a loan from my 401k to help me pay for my 20% down payment on a house.

Some people thought it was a great idea. I even got an email from a good friend telling me that the information was incredibly useful for him and he thanked me profusely.

Other readers thought my 401k loan was such a terrible idea that they have decided to stop following my blog.

Who knew taking a low interest loan from yourself was so controversial?

My 401k is Retirement Play Money

I understand why some people were offended by me taking a loan from my 401k. For many people, their 401k is their retirement lifeblood. Their hopes and dreams of reaching retirement are resting on the balance in their 401k.

My 401k is different. I consider my 401k as spending money for retirement. Nothing more.

Here are a few problems with the idea that someone can save up enough money to retire

  • No one knows how many years they are going to live (so you can’t know how many years of expenses need to be saved)
  • No one knows how bad inflation will be over the course of the next 30-60 years
  • No one knows what the stock and bond markets will do over the next 30-60 years (which is where most 401k investments are held)
  • No one knows when they will want to retire, which might be much earlier than a 401k allows you to access your money without penalty
  • No one knows what the government will do that could change 401k laws in the future and restrict access to money
  • No one even knows if the US dollar is going to survive the coming debt crisis

Given all these unknowns, I find it rather foolish to try to retire by saving up a huge pile of money.

I have a better solution.

Retire At Any Time By Generating Income

Imagine I want to have $50,000 a year (in 2012 dollars) in spending money when I retire. I can try to save up some amount (probably millions of dollars) to be able to pull out $50k a year, but I really can’t answer any of the unknowns I just mentioned.

Another option is to start generating passive income streams.

couple on the beach

photo credit: mallorysimon

I could buy a house (maybe with the help of a 401k loan) and live in it for a few years. When I buy a new house, I can keep the old one and rent it out. I might make $800 a month from renting my old house. That’s $9,600 of income every year.

Maybe I work on building some internet business where I am the owner and I pay other people to run it. Pretend this generates $1,500 a month with minimal effort on my part. That’s another $18,000 a year.

Let’s say I’m old fashioned and want to get involved in a business that exists in the physical world instead of just on the internet. Maybe  I find some partners and start a restaurant. We hire high school kids as employees and pay a few responsible adults to be the managers. Let’s say this real world business makes $1,900 a month. That’s yet another $22,800 a year.

Between my rental property, my online business, and my restaurant I’m making $4,200 a month. That comes to $50,400 a year. Every year. And I don’t have to do any of the work myself.

I’m ready to retire.

I might have $4,200 a month in passive income by the time I’m 65 years old and I can retire with the 401k folks. But what if I get that much at 35 years old? Looks like my way worked a little better than the saver’s route.

What if medical advancements mean that people my age are going to live until they are 120 years old? Those 401k-saver retirees are gonna be living off government assistance and charity when they run out of savings. As long as my businesses are still going, then I’ll have all the money I need no matter how long I live.

If inflation gets bad, my business just raises prices to keep up with inflation and as long as I can keep them profitable then my retirement is safe. A 401k doesn’t get an automatic inflation adjustment.

If the stock market crashes then it doesn’t directly affect my businesses (although the indirect implications could be that one or more go out of business). People relying on their 401k to retire might lose decades of savings.

If I want to retire early there’s no law saying I can’t get to my business income before I’m 60 years old. The 401k savers are stuck until the law allows them to get their money.

Saving Is NOT The Only Way to Retire

Some people are going to work until they are in the late 60’s, save as much as they can their whole young lives, and then retire with a big lump sum of money. Then they just have to hope they die before the money runs out.

When I’m retired I don’t want to live my life hoping my heart gives out before my bank account. I want to have multiple, diversified streams of income that will allow to retire as early as I can and to stay retired as long as I live.

Why Do I Even Have a 401k?

Despite everything I just said, I will keep saving money in my 401k.

First of all, my employer matches 100% of my contributions, so I can’t pass up a 100% instant return. Even if I decide to pull the money out early and pay the penalties I’ll still come out ahead because of the match.

Second of all, when I need to access the money I can just take out another 401k loan. This will probably happen again when I’m looking to start some kind of business and need start-up capital.

If I have anything in my 401k when I retire (which I probably will) then I’ll use it for play money. I can take killer vacations or buy sweet presents for my grandkids. I will not use it to plan for my retirement.

There’s only one path to retirement for me, and that’s generating income.

Readers: How are you planning to get to retirement?

Nov 19 2012

How to Remodel Your Bathroom on a Budget

By |November 19th, 2012|General Personal Finance|1 Comment|

Sometimes remodeling your bathroom takes the backseat to other renovation projects because of the misconception that it has to be expensive. Although the national average for a bathroom remodeling project is around $10,000 according to Consumer Reports, there are a plethora of ways to remodel your bathroom affordably. If you want to undertake a total redesign however, there are home remodel loans available to help you finance the remodel over an extended period of time. To get the most from your money, you may want to consider:

  • Separate wants and needs: Designating which projects in your bathroom are necessary and which aren’t can help you save time and money. Keep in mind, not everything on your list has to be done at once. If there are things on your list of wants that don’t fit in your current budget, create a plan to space them out over time.
  • Plan a budget: This seems like a no-brainer, but it’s easy to get carried away in home improvement stores. First, decide how you’ll be financing your remodel. Do you have money saved up, or will you be drawing on home equity financing? Finally, plan out how much you are willing to spend right now and stick to it.
  • DIY: Completing major home improvements yourself can save you money and give you a sense of satisfaction when you’re done. However, if you’re not a handyman on the side, it might be better to hire a contractor so you don’t end up spending more money fixing mistakes.

Use a home remodel loan to finance your remodel

After you have determined how much you can spend, talk to your lender to decide which home equity financing method is best for you. A home equity line of credit allows you to borrow what you need when you need it. A home equity loan on the other hand, can be helpful when you need a large up-front sum to cover a more in-depth remodel. Once you can finance the remodel, the next step is deciding what type of renovation project is best for you.

  • Skim the surface: If you’re pleased with the way that your bathroom is set up, but think it needs a little something extra, small tweaks to your current decor could do the trick. Consider updated fixtures, paint, artwork and decorative tile to spruce things up a bit.
  • Bring out the blueprints: If the structural elements including insulation, foundation, plumbing and support beams are sound, consider upgrading your current cabinetry, countertops and accessories.
  • Start from scratch: If you’re interested in a whole new look and set up, consider tearing out the entire bathroom and completely start over. Add a bathtub or change the size of your shower, retile the floor or expand it into a master bath. While this is the most expensive route, it may increase your home appraisal value, making this renovation pay for itself in the end.

How to get started on your bathroom remodeling project

Check out home improvement books and magazines at the library or read home renovation blogs online to find your inspiration. Depending on your need, you may be able to keep cost to a minimum and do the project yourself, or you may need to call in professionals. Either way, there are home equity financing options available for you.

Nov 18 2012

Three Home Exterior Upgrades to Make Your House More Storm Resistant

By |November 18th, 2012|General Personal Finance|2 Comments|

Although you can’t make your home completely stormproof, there are a number of improvements you can make to help protect it – and your family – from extreme weather. Retrofitting your home to make it storm resistant can be more economical than making repairs. Plus, a storm protection renovation could save you some of the hassle and heartache that come with weather damage. If you live in an area threatened by severe weather, consider making these home  exterior upgrades.

Preparing for your home exterior upgrade

Before you begin, find out about any local building code requirements that may apply to your improvements. Also, look into discounts that could help offset the cost of your home exterior upgrades. In some states, insurance companies are required to offer discounts to policyholders who make their homes more storm resistant.

Next, consider your financing options. If you don’t have cash on hand and don’t want to dip into your savings account, you may want to think about using a home equity loan or line of credit to fund your storm protection renovation. Both of these can be affordable options for covering the cost of materials and professional help.

Roof, Windows and Doors: Three home exterior upgrades to provide storm protection

1. Roof

  • Adhesive: If a storm rips the roof off your home, the walls are likely to collapse, which can quickly result in the complete loss of your home. A simple way to help secure your roof is to apply hurricane adhesive to the underside of your roof. This will also help keep water out during a severe storm.
  • Bracing: Houses with gabled roofs (two slopes that peak and create an “A” shape at each end) are more susceptible to wind damage than other houses. This is because gabled roofs are often not adequately braced during construction, which can cause the end wall of the home to collapse under strong wind pressure. As part of your home exterior upgrade, hire a professional to reinforce the trusses (structural supports) and gable ends with 2-by-4 boards. No matter what kind of roof you have, professionally installed, galvanized metal strips can also help fasten it to the walls.

2. Windows

  • Storm shutters: You have two main shutter options for your home exterior upgrade. You can install permanent storm shutters – such as roll-down, accordion, Bahama or awning shutters – that you can close when there is threatening weather. Or, you can keep temporary shutters – such as plywood, steel or aluminum shutters – on hand, and install them as needed. Permanent shutters are more expensive, but you can use a home equity line of credit or loan to help cover the costs.
  • Impact-resistant glass: Impact-resistant glass, as its name describes, is designed to withstand impact from airborne objects, as well strong winds and internal pressure. Significant impact or pressure may cause the glass to crack, but it should not shatter. Use a home improvement loan to install impact-resistant windows and glass doors to provide reliable storm protection.

3. Doors

  • Outside entry doors: Secure any other outside-entry doors with three hinges and a bolt with at least a 1-inch throw length. You can install extra bolts for more security.
  • Garage door: Storm-force winds can rip garage doors, particularly wide ones designed for multiple-car garages, out of their tracks. You can reinforce your garage door with a bracing kit, which will help strengthen it at its weakest points.

Budgeting for your storm protection renovation

If any of these improvements make sense for your home, area and budget, you can use home equity financing to fund your renovation. First, obtain quotes from several contractors and create a budget. Once you know how much money you need to borrow to cover the cost of your project, you can apply online for an equity line of credit or loan.

Nov 13 2012

Why I Took a 401k Loan to Buy My House

By |November 13th, 2012|Blog, Personal Finance Tips|18 Comments|

I will be closing on my first house on December 4th, and I will be bringing a 20% down payment to my closing date.

As someone who just paid off my student loans a few months ago, I definitely didn’t just have $40k lying around.

What I did have was a fairly substantial amount of money in my 401k. The only problem is an early withdrawal from a 401k means I’d be hit with taxes and penalties. If only there was a way to access the money without paying taxes or penalties…

There is!

A 401k Loan Gives You Access to Your Money

Many companies allow employees to take a loan against the money in their 401k. Note that I said MANY; companies are not required to offer 401k loans and you have to check with your HR office.

401k loan

photo credit: Tax Credits

If your company does allow a 401k loan, they may let you borrow up to 50% of your vested balance.

The bad news is you will probably have to pay a fee for the loan to be processed (mine was $50) and you will have to pay back the loan with interest (my rate is 4.25%).

The good news is the loan processing fee can be pretty small (I paid $50 on a $15,000 loan, or 0.33%) and the interest you pay goes directly into your 401k account. You are paying interest to yourself!

You can take a 401k loan for any reason but it will have to be paid back within five years. The only exception is if you are using the loan to buy a house, in which case it can be longer (mine is 20 years). I just had to fax them my signed home purchase agreement and they cut a check the very next day.

The Downsides of Taking a 401k Loan

Aside from the minimal fees and interest you pay when you take out a 401k loan, there are two serious issues to consider before deciding to take a 401k loan.

The first negative is the opportunity cost of the loan. If you take out a $15,000 401k loan then you have $15k less in your investments. If your investments go up 10% over the year then your net loss will be 10% minus the interest you are paying on the loan.

There is another side to that coin. If you take out a loan and the stock market drops 10% the you will actually come out 10% better than you would have been if you left it in there.

The other danger of a 401k loan is if you leave your company. If you quit your job then the loan will be due in full in the next 60 days. Whatever you don’t pay back in that time will be counted as an unqualified distribution, which means you’ll pay taxes and a 10% penalty for all the money you borrowed.

If you are thinking about leaving your company in the near future then a 401k loan is a horrible idea.

The Best Thing About My 401k Loan

Personal finance bloggers and even certified financial planners will always talk about diversifying your portfolio. They typically mean having a mixture of different stocks and bonds. US vs. International. Large, Mid, and Small Cap. Dividend vs. Growth. Etc.

However, you aren’t truly diversified if your net worth is 100% in stocks and bonds. Other ways to diversify your net worth include precious metals (like junk silver) and of course real estate.

Before buying this house I was about 93% invested in a combination of the stock market, the bond market, and cash. My other 7% was my junk silver.

Now I’m about 66% in real estate (my house), 29% stocks, bonds, and cash, and 7% precious metals. That’s a much better diversification in my opinion.

As time goes on I will pay back my 401k loan and build up my investments again so my house isn’t such a massive portion of my net worth, but I feel so much more financially secure knowing that I have a house.

Call me crazy, but it scares the crap out of me having almost 100% of my money in the stock market. I like the idea of putting my money into things I can physically touch and/or live inside.

Putting 20% Down Saves Money

Another reason I took the 401k loan was because I wanted to have a 20% down payment. Buying a home is much more expensive if you don’t have 20% down.

  • Without 20% down, you’ll need either PMI (which can be well over $100 a month) or a second loan (which will be a much higher rate than the first mortgage).
  • The more money you put down the better your interest rate will be, meaning you have a lower monthly payment.

A 401k Loan Might Be Right for You

To summarize, a 401k loan lets you get to the money in your 401k without paying early withdrawal taxes or penalties. There are some fees involved and you risk removing your money from the market when it might go up.

On the other hand, it allows you to diversify your assets into a real estate purchase that is not only a valuable piece of property, but also somewhere you can live.

Readers: Have you ever taken a 401k loan? If so what did you use it for?