There are many reasons why you want to save money apart from just trying to come up with the down payment for the purchase of home. These are some of the typical financial objectives that a person likes to meet in his lifetime. Setting these objectives for yourself should provide for motivation and inspiration to save money. You will also understand how to include and fit these goals into your home purchasing plans.
Make an emergency reserve.
You can’t really predict what is going to happen in the future and how a job loss, death in the family, accident or unexpectedly large expenses will affect you and your family. For this reason it is always a good idea to have a cash reserve with a reservoir of money that you can use when the need arises.
In order to create an emergency reserve, you should have access to at least 3 months worth of expenses although the 6 months is a good idea. You can put this money in a money market fund as these funds are liquid as well as the high returns on interest. Major mutual fund companies like Vanguard, Fidelity and T. Rowe Price offer money funds with competitive piece, check writing privileges and access to other profitable investments. You can also put this money in a savings account although the savings account will not argue as much interest as a mutual fund. Is.
If you have kids at home, you know that you will need to provide for the college’s equation someday. Believe it or not, setting up of account in your child’s name early on and starting to put money in it may not be a really good idea. When your child apply selective college, you may discover to your dismay that your child does not qualify for much financial aid, such as grounds and loans that are not based on need, as you would’ve expected. Unless your well-being and you are sure that you can afford to pay for food cost of a college education for children think long and carefully before you put money in your child’s name. You could actually do your child a financial favor by taking full advantage of the opportunities to fund your retirement accounts rather than putting money in his name. After all, if you are a homeowner, you can borrow against the equity in your home to pay for your child’s college education as well.
Saving money for startup business expense
It is a well-known fact that the majority of small business startups are funded by people themselves. Rather than borrowing from investors and banks and lending institutions, most of the entrepreneurs who start a business use their own personal savings as well as borrow money from friends and family to start a business. If any such plan is on the cards for you in the future, you can invest in a home today and use the built-up equity tomorrow to borrow against to fund the business. However, if you are fairly sure of your business plans, it is a good idea to create a separate investment boom to fund your business.
Maybe like this is just an example of what the financial goals of a person. No matter what your personal and financial goals are, you should make every effort to save a decent amount of money to achieve them. Keep these goals in mind when you consider how much you can afford to spend on a home. Purchasing a home is no reason why your other financial goals need to be forgotten. While it is all right to put them on a back burner for a short period of time to live in safe enough for the down payment of home, you should always figure them in your long-term expense estimation and make sure that your budget allows enough slack to not only be able to afford the home but also fulfill your long-term financial goals.
Wills, Living Trusts and Estate Planning
Although many of us to not like to think about it we are all mortal. Because of the way the tax and legal system works it is a good idea to have the proper legal documents in place that date and specify as to what is to be done with your assets when you die.
A will is the most basic of such documents and for most people particularly those who do not have great assets the only critical one. A will contains your wishes regarding who your assets will go to and who will serve as the executive of the will. In the absence of the will, state law dictates these important issues. Apart from a will you could also consider signing a living will and a medical power of attorney. These documents help your doctor and family to make important decisions regarding your health care should you not be able to make them yourself.
Even the will and supporting medical and legal documents may not be enough to get your assets to desired heirs as well as minimize tax rate consequences. When you hold significant assets such as the home and business, outside tax sheltered retirement accounts, in most states, those assets must be probated, which is the court administered process for implementing your will.
Lawyers probate fees can run quite high up to 5% the value of the probated assets. Establishing and placing your home and other assets in a living trust can eliminate much of the hassle and cost of probate.
If your net worth, assets minus liabilities, exceeds $3.5 million the government will levy significant estate taxes. Estate planning can help minimize portion of your estate subject to such taxation. One way is to give money to your desired heirs in order to reduce your taxable estate. You are allowed to give up to $11,000 yearly to as many recipients as you want tax-free.
Wills, living trusts and estate planning is a form of insurance that ensures that your wishes regarding yourself and your assets are carried out during and after your lifetime. However, you must remember that it takes time and money to generate these documents. The benefits of creating these documents may be some time off so to not get carried away by doing too many of these things before you have significant assets.
Most of the people who need to purchase a home have to start saving in order to make the down payment required. In most circumstances, a down payment of at least 20% of the purchase value is required in order to avoid paying for private mortgage insurance, which results in higher monthly payments on the home loan and even an increase in closing costs as the lender requires you to make the payment for the insurance and taxes in advance for the next 6 or 12 months.
You need to make sure that you cut down your spending enough to save money for the down payment as well as to create enough slack in your budget to be able to afford the extra cost of homeownership. How and where you decide to cut your spending is up to you and will depend upon your personal spending habits as well.
1st of all, get rid of high-interest revolving consumer debt. Not only does consumer debt encourage you to live beyond your means but if you are in the habit of revolving this debt, it cost you big bucks as interest. The interest rate on consumer debt such as credit cards is extremely high as compared to interest on mortgage. Also the interest on consumer debt is not tax deductible as compared to a next home loan.
If you have money in your savings account, you should use it to get out of the revolving cycle of consumer debt. The interest that you are running on the money in your savings account is probably much less than what you are having to pay for for the consumer that account. If you lack the savings to get out of consumer debt, you can refinance your high cost credit card debt by doing a credit card balance transfers onto a credit card with your interest rate. Then start working at eliminating this debt completely.
Consider using debit cards instead of credit cards. Same major credit companies like Visa and MasterCard provide debit cards as well as credit cards. In fact, many banks now gave ATM withdrawal cards which doubles up as debit cards as well. Use these cards as they work just like credit cards except that the money is deducted from your account almost instantly. This is effective in stopping you from spending beyond what you can afford and making impulse buys on credit.
Take a careful look at your budget. Even when you think that you live well within your means, you would realize that there are certain expenditures which are nonessential even if you consider them as necessary.
Purchase products and services that offer high-value. High value and quality does not always have to cost more.
Finally, try to do your shopping in bulk from major change of stores that offer bulk discount for commodities purchased in volume. Common stores that offer postal discounts are super stores like Costco, Walmart etc,
Before you can start to save money, you need to know how much you need to save. Many people not only do not have an idea of how much they’re saving every month, they do not even know how much they are supposed to save. It is best to evaluate your situation as well as your financial goals carefully to see what all you need to save for. Every personal financial situation is different from any other. Hence your saving requirement may be very different from that of your neighbor, colleague or sibling. You need to consider your own personal financial goals and requirements and thus come to the conclusion of how and what you need to save.
Setting yourself financial goals to save money
Many people find it helpful to set themselves fixed certain goals in order to save money. For example if you know that you are going to retire at a certain age, you know how much you need to say by that point in time. You don’t need to know exactly when, where and how you want to retire but know that you need a certain amount of money for her to type plants. Even if you do not intend to retire and expect to continue working through your 60s, 70s and 80s, counting on being able to work through your lifetime is risky. You don’t know what the job market or a person health may be likely to run it right. So while he might not be counting on accumulating vast savings like other people want to retire, you should still consider setting up the savings for it. If your plans for continuing to work later on in life workout than that’s great but even if they don’t then you will still have the savings to bank on.
One of the most important things that you should do before you purchase a home is to examine how much you are earning and where exactly you are spending your money.
This will give you a fair idea of what portion of your current income you can save. Having control over your current budget will help you see how much the purchase of the home will fit within the budget. You should typically reviewed your spending data for at least the past 6 months the stop the pattern for spending usually release from one month to another but looking at the average over the past 6 months to 12 months will give you a fairly good idea of where and how you spent.
The following is a chart that you can print out and use it to analyze your current spending and what it’s going to be after you have purchased your home.
Calculate Difference In Spending And Expense Presently and After Purchasing a Home
This will help you compare your current expenses and how they’re going to change with the purchase of the home allowing you to get a fairly good idea of how much savings you need to budget for.
You can use financial software packages like Quicken and Microsoft Money to track and analyze spending but can simply do it with a notepad and pen as well. What you do need is a record of your spending such as your checkbook register, credit card bills, pay stub, your recent tax return etc. Remember that you are only trying to get an average idea of your income and expenditure so that you know how much savings you need to budget for and how much you can afford to spend once you have purchased a home. You don’t need absolutely exact figures and working with averages is just fine.
As you are collecting your data, you should see the changes that are going to occur with the purchase of the home in a spending as well as your ability to save. In later sections you will get a better idea of ownership expenses such as property taxes, insurance, maintenance and such. Is.
Analyzing the spending information
Collecting the information about your fiscal situation was just the 1st step. In order to get some conclusions out of it you need to analyze the numbers. Most of the people are surprised when they look at their expenditure when it’s written down in is systematic manner. They are surprised to see that they could be spending hundreds of dollars every month just on eating out or going out to watch movies. These are the possible outcomes of this pending analysis.
- You find that you spend too much.
If you find that you are spending way too much money you need to decide where you can make the reductions and cutbacks. Remember, you must save at least try percent of your pretax income in order to achieve your financial goals. But the 10% figure only holds 2 if you start early. If you are looking at saving money later on in your life then you could have 2 save more substantial sum every month or every year.
- You find that you say just the right amount.
The analysis of your time related spending data points to you that you are in fact saving what you need to so far. However, it is still important to view the change in your expenditure and saving that will be brought about by the purchase of the home. Purchase of a home is a major financial decision and it can change many things. Use the table given in the previous post to analyze your current spending and how it will change after the home purchase.
- You find that you save a lot.
This is of course very good news. If you save a substantial amount of money in fact much more than what you need to, you may be able to stretch the amount that you spend and even borrow more but buying a home. However, you should still complete an analysis of your spending now and what it’s going to be like after you purchase a home to ensure that you have calculated for any further changes in the financial situation.
In this section you will learn:
- Assessing your budget and spending.
- Determining your saving requirements to achieve your goals.
- Protecting yourself and your assets with insurance.
- Determining what’s most important in life.
Before you make the decision to purchase a home, it is extremely important to get a clear picture of your finances. When you’re shopping for homes no one is going to look out for your best financial interest. Only you can do this job in the best way possible. People who are typically going to be involved with you in the purchase of the home such as a real estate agent, bankers, mortgage lender etc. will just try to get their jobs done and will have a vested interest in you purchasing the home. They’re not the ones were going to watch out for your financial goals and stability in the future.
The consequences of plunging headlong into the purchase of a home without carefully evaluating your finances can be unpleasant. You could end up paying tens of thousands of dollars more in taxes and interest over the years ahead. But purchase of the home may put a serious financial burden and strain on you which could result in financial ruin. Even the most intelligent and hard-working people can get into an unmanageable debt situation if they do not get their finances in order before purchasing the home. This is what makes this section important so please read it carefully.
The 1st thing that you need to do is to get a fairly accurate idea of how much you earn and how much you spend. If you are like most people your income and spending is going to fluctuate with different times of the year. However, without being aware of it you have probably established a pattern of how and where you spend. One interesting fact is that the average American saves less than 5% of his take-home income. This is far less than the average amount saved by people in most similarly developed countries. When you’re thinking of purchasing your home you should consistently save much more than just 5% of your income. This is required to become a homeowner for 2 important reasons.
- In order to purchase home you need to accumulate a large sum of money for the down payment and closing cost. While your friends and relatives may be able to help you out, counting on other people’s generosity and financial aid is not recommended if you can manage to do it on your own. The attached strings and connotations usually make such loans undesirable. However, most people do not have this avenue open to them anyway.
- The 2nd reason why you should start saving more is that once you purchase your home your routine monthly expenses will probably increase. You will need to pay for insurance, taxes as well as house maintenance. It is typically believed that homeownership is more expensive than renting a home for similar property because you need to incur further expenses which were missing when you are renting a home. You have to provide for periodic repairs as well as have money for unexpected expenditures on a home such as fixing a leaking roof etc.
When you take out a mortgage loan to purchase a home you can expect the value of your investment to rise substantially over the years. Generally speaking the value of the house increases with inflation.
Many people take out mortgage loans for the purpose of purchasing investment property.
When you have finally paid off the mortgage loan and the house is in your ownership you will find that the value of the home is more than the initial cost that you purchased it for.
However, you will have paid the lender much more than what the house was actually worth after computing the interest on the mortgage loan for all those years. Still the odds are that the value of the house is more than what you have paid in total.
For example if you took a mortgage for $250,000, over a period of 25 years at the rate of 7% you will pay the mortgage lender approximately $500,000. If after 25 years the property of your house has more than doubled, you have made a profit on your investment.
In times of inflation and during the time when the economy is in boom the value of houses is known to increase by as much as double over a period of two to five years in areas that are economically progressing.
This kind of a return on investment is typical of a home purchase. People who purchased homes 50 years back have had the value of their homes increase over 10 times their initial value.
The 2 main things to consider and keep in mind are:
1) The cost of selling the house is about 10% of the value of the home. This is the minimum that the property should have appreciated for you to make a profit.
2) Buying and selling an investment property in a short term might give you higher returns. Over a long term, real estate is believed to give about the same return as stocks and bonds. If there is a boom in the housing prices in the area you purchase, it is not uncommon to double or triple your money in 5 years.