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How to Prepare Financially for 2017

Goals are helpful but everyone always complains about how hard New Year’s resolutions are to keep.  So what can you do to make the New Year financially successful and ensure that goals you set in January don’t end up on the back burner by February?  Here are some of my thoughts about money and personal organization that can bring a lot of success to your financial life in 2017:

New Year Challenge: During the first month of the year, sit down with your spouse and start the discussion by announcing that you are dead, at least on paper. Then begin asking him or her the following thought-provoking questions and see how many of them they can answer without any prompting from you. This little exercise will reveal just how organized you are financially (oh, and how well you can communicate about such things).

  1. How much life insurance do I have on my life?
  2. Where is the policy?
  3. Who is the agent to call and report my death?
  4. How much debt do I have?
  5. Will you have to sell the house or refinance the mortgage, and how do you find out which you will need to do?
  6. Do I have any savings or safety deposit boxes?
  7. What investments do I have?
  8. Do I have a will or trust?
  9. How long will it take to clear assets and take ownership of the trust
  10. Who is the executor of my estate?
  11. Do I have a burial plot paid for?
  12. Does anyone owe me money, and how can you find out?
  13. Where do I keep my tax returns and who prepares them?
  14. Does Social Security pay a death benefit to you upon my death?
  15. How much will Social Security pay you when I die, and why/when?
  16. What attorney should you use and what will be his/her average costs to settle the estate?
  17. Where will the funeral be held and what will it cost?

Now you may be thinking that some of these questions most couples would know the answer to, together. But you might be surprised by how many spouses stay completely out of the finances and let the other partner handle everything. When their spouse dies, they have no idea what to do or what problems they may have to handle.  Asking these questions gets you both thinking and gives you a chance to review exactly what each partner knows or doesn’t know and what needs to be done to get on top of things financially so BOTH people are taking responsibility for the financial success of the marriage.

I urge yo to take this challenge in the New Year as a catalyst for getting completely and totally organized financially. For more ideas on financial organization, contact me at peter@moneymastery.com. The Money Mastery Master Planner organizational system I use personally and with my clients will totally change your life and help make 2017 the best year ever!

Bigger Is Not Better, It’s Expensive…

Many people graduated from college and felt a need to look successful.  They purchased a nice car and a bigger home than they could afford.  Some were able to make the transition and income enough to make it work.  But so many of these folks got into financial trouble and had to back out of fixed mortgages and auto loans.  

Here are the latest statistics on foreclosures from RealtyTrac:

There are currently 913,124 properties in U.S. that are in some stage of foreclosure (default, auction or bank owned) while the number of homes listed for sale on RealtyTrac is 1,040,663. 

 

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The point I am making is that peer pressure has caused so many families to go broke, over-spend and be out of financial control.  A good solution is simple:

For more general information on a low-cost financial management program that will get you in complete control of every area of your finances in a short amount of time, go here and sign up for the “basic” program and learn how to thwart peer pressure.  Learn how to save money each month.  Learn how to have extra money for emergencies and fun activities.   Get a money management system that actually works and don’t get into trouble.  

Is Refinancing My Mortgage a Good Idea?

In today’s credit-laden world it’s become very popular to consolidate debt through a home mortgage loan. However, not properly understanding the math behind this idea can add up to trouble for many borrowers who have rolled over a  higher-interest-rate mortgage for one charging today’s lower rate.

For example, had you bought a house in 1992 and financed it with a $100,000, 8.3 percent, 30-year mortgage, you would still have $93,000 in principal left to pay in 1999. You could have decided to refinance that loan with a cheaper 30-year loan at the prevailing rate of 7 percent. You would, of course,  have to pay 2 percent in closing costs, or $1,860. However, your monthly payment would have dropped from $752 to $619 — not bad.

But what looks like a big win for the borrower can end up costing plenty. If you had left the old mortgage in place, your 360 payments at $752 per month would add up to $270,700 by the time the house was paid off. Your new mortgage would cost $222,800. But that figure does not include the nearly $54,700 you already paid over the seven years of your first mortgage. A refinance restarts the clock on your payments, so that new loan will end up costing a grand total of about $277,500 over a period of 37 years — an additional cost to the borrower of $6,800.

If you decide to refinance at a lower interest rate, try to get a loan for a shorter period, like a 20-year or 15-year loan and be sure to make the same monthly payments you made under the old loan and perhaps more. In the case of refinancing, most people only care abut the short-term savings, failing to see the real costs they will incur over the long-run. This comes from not taking time to learn the rules, as taught by Money Mastery Principle 5. For more information on the Money Mastery Principles, visit www.moneymastery.com.

What It Really Means to Have a Mortgage…

Did you know that the word “mortgage” is Latin and means “death grip?” So if you have a mortgage for your home, you are literally in the grip of death while you work to pay that thing off.  Scary, huh? Most people don’t think of house debt in such a way, since “everybody does it” and no one thinks twice about doing it for 30 years!

Mortgage debt, whether we want to face it or not is not considered “good debt.” Is there such a thing as “good debt?” Of course. This is debt that you get into for a very short time in order to make additional wealth. Rich people will engage in this kind of debt all the time. But we’re not talking debt they get into for 30 years. This is very short-term debt that allows them to turn a quick profit by doing so.

Mortgage debt is bad debt because while you sit in your house making payments, you cannot get to the money invested in your house. This is called “dead equity.” It is not liquid and it has a lot of strings attached to it — the equity in your home cannot be accessed unless you sell your house and move out! This is not debt you can quickly resolve to then make more money. You are strapped when you get a 30-year mortgage — strapped to the bank who has you in its grip of death, sucking the life out of you with interest payments.

And don’t be fooled by the out-dated advice that your mortgage is a good tax deduction. That advice is like telling someone to pay $1 in order to save 25 cents. If you do the numbers you will see that the amount of money you can save in taxes by having a mortgage cannot keep up with the amount of money you will pay in interest over the years.

That way you can take the interest you would have been paying for 30 years on the house and use it to build a secure retirement. There is a way to get out of mortgage debt in under 10 years. It’s called the Power Down approach. Learn more about it here:  www.moneymastery.com.

Debt: Your Retirement Nemesis

There are two kinds of debt:  good debt and dad debt.  Good debt is debt that makes you money.  Bad debt is debt that costs you money.  The following is a case study profile that proves instructive on this point:

RealDebtReport

Of the six debts that Mark and Joyce have, how many are “good” debts and how many are bad?  The answer is that, by definition, all six of these debts are bad debts, including their home.  The only time a mortgage can be considered good debt is, for example, and 80 percent loan on a rental duplex that is giving you a good return on your 20 percent investment.  A loan on a home in which you are living and cannot retrieve any of the equity until you sell it and move out is considered bad mortgage debt.  The popular press and popular opinion touts that a house is always a good investment.  That assumes that you can enjoy a reasonable appreciation over time, for which there is no guarantee, and in the meantime the house has costs attached to it including upkeep, taxes, repairs, etc.  Not until you sell the house and invest the equity can the house make you money!

The point of this analysis is that you should want to get out of all bad debt as quickly as possible!  It is mathematically possible to get out of all debt, including your mortgage in 8 to 10 years. Why is it so important that you get out of debt quickly? Because you can then take the principal and interest dollars you were spending on your mortgage and invest them in a retirement program instead.  To do so is worth hundreds of thousands of dollars!

To make the point more vivid, imagine for a moment that you are Mark & Joyce, our our clients noted above.  Notice that by amortizing their debt, they will pay almost $195,000 in interest over the life of their loans to someone else!  Think of how many hours of work you have to perform to generate $195,000, just to give to someone else!  It is a painful thought!!

Therefore, don’t get caught up in typical thinking about debt.  Accept that it is a burden that should be minimized.  You can do it with the proper principles, tools and techniques.  Get out of debt in one third the time and then pay yourself big time.

One final dose of reality:  Mark and Joyce’s monthly debt payment of $2,177 per month becomes $913,738 for retirement once they eliminate their bad debt in one third the time using Money Mastery Power Down principles.

For more information on this and other personal financial matters, call Alan 801-292-1099, alan@moneymastery.com.

“Good Debt” vs. “Bad Debt”

Is there such a thing as “good” debt?  Absolutely.  What most people don’t understand, even those with a lot of financial knowledge, is that a mortgaged home in which you live is considered bad debt.

Many people do not like this answer.  They usually respond with, “Yes, but my home is an appreciating asset, how can it be considered bad debt?”

Well, let’s first define the difference.

Good debt:  Debt that makes you money.

Bad debt:  Debt that costs you money.

“Yes, well, my home is making me money, because it’s appreciating in value,” is usually the response I get when I define the two to my clients.

Here’s the problem:  Until the “dead equity” is harvested through the sale of your home, or the money is borrowed out and put to work, the equity just sits there (this is why it’s called “dead equity”). Your house is not making you any money.  You cannot take the equity out to invest in other money-making ventures.   Yes, your home is appreciating in value, but it’s not available for you RIGHT NOW to spend.  In the meantime, you must pay taxes on the home, do maintenance, pay interest, do improvements, etc. etc.

If the house can be converted to include a basement apartment, for example, or some other legal revenue-generating resource, then arguably a mortgaged home in which you live could be considered something other than bad debt.  But not until.

 

Your Home is Your Largest Lifetime Expense

The point here is that for most people, their home is their largest shutterstock_250088392lifetime EXPENSE (sometimes incorrectly referred to as an investment).  Assuming that one day a homeowner wants to live in a house that is paid for, the equity becomes a comfort but is still not an asset that can be used to make more money and to increase cash surplus until it is sold. 

For a home mortgage to be considered good debt, it would have to be a house in which you do not live.  Many financially literate people will get a mortgage for such homes, fix them up in a fairly short amount of time, and resell them at a higher price.  Thus, they pay off the mortgage quickly and make a return on their investment in a short amount of time and this increase can then be used to purchase more properties or invested elsewhere to fund retirement or provide more cash flow for future projects.

Many executives who have been less than thrilled with how their deferred tax retirement plans, such as 401(k)s and IRAs, have performed in the market over the last several years are beginning to see the merits of building up retirement through real estate investing.  With the housing market such as it is these days, in many parts of the country, several good properties can be had at a much lower price than they once sold for, making it possible to purchase properties, get them ready to sell, or fix them up to rent out for a guaranteed monthly income.

The financially savvy are those who live in homes that are entirely paid for and only have short-term mortgages for homes they rent out to others.  They are sure to pay off the mortgage quickly using the monthly rent money they collect from their tenants.

 

Mortgage = “Death Grip”

shutterstock_43047007Remember, “mortgage” means “death grip” in Latin.  That’s why we advise our clients to quickly pay off their 30-year mortgages (bad debt) in 9 years or less using Power Down principles (learn more here).

If you do not have a mortgage on the home in which you live, congratulations!  Now, have you considered what you might do with all the interest expense you are saving by having paid off your house? If you haven’t considered using some of that saved money to get into some “good” debt for a while to help you make even more money, now is the time to explore that possibility.  Call me directly at (801) 292-1099 ext. 1 to discuss.

Invest in Real Estate

Does Paying Off Your Mortgage Make Sense?

I am always surprised when someone is seriously vacillating over whether to get out of mortgage debt or not.  I always hear the argument that a mortgage is a good tax write-off and can save the average couple in the 28 percent tax bracket, with a $200,000 loan at 5 percent, for example, $2,781 in taxes the first year of a loan.  That’s nice, but how much will they pay in interest expense that first year? Around $14,000, so essentially that’s like paying $1 to get 20 cents in return.  Plus your tax savings decline the further you get into a loan. Staying in debt for the life of a 30-year mortgage doesn’t make sense at all! Let me reiterate: Mortgage debt for a home in which you live and cannot get the equity out of unless you move is bad debt…get Don'tWaitout of it now!  With all the interest expense you could save and put to better use elsewhere it makes no sense to stay in debt just to try and save a few tax dollars.  In today’s economy however, there are some things you may want to consider when paying down mortgage debt:

1. If you have consumer debt, such as a credit card, you should probably concentrate on paying that off first.  Although this isn’t a hard and fast rule either, since without putting all your debt into a forecasting software and seeing how quickly you can pay it off depending on how it is ranked can change which debts you concentrate on first.  Usually short-term debt like credit cards come first, while long-term debt like a mortgage is lower on the list.  The only way to know is to run the numbers.  Go here to learn how you can gain access to a debt forecasting software to run your own Get Out of Debt reports and see what you should be working on.

2. While paying down debt, you should also be working to build up emergency savings AT THE SAME TIME.  If you are pouring so much into paying off your mortgage that you don’t have liquid savings in case of trouble, you should probably back off until you do.

Finally, just a quick comment on advice given in the popular media right now, like something I recently read on CNN Money News about alternative ways to use your money as opposed to using it to pay off your house.  Such media often suggest that putting money into stocks and bonds is more likely to give a higher return over the long-run than it would paying off a home loan, given today’s low rates.  It’s a nice thought, but consider the volatility of the market, which makes putting money here a big risk.  Yes, real estate values fluctuate and have been low in recent years but land investment tends always to be safer than stock market investment.  Secondly, unless whatever you can earn on the stock market over time is more than you would pay in interest expense on your home, it doesn’t make sense to play the market as long as you’re in debt, and yes, that’s any kind of debt, including a mortgage.  If you need a good example, just look at the nation’s self-made millionaires.  They all own the home they reside in free and clear.  You’d be hard-pressed to find any wealthy American with a mortgage hanging over their head.

If you study the nation’s wealthy population, the question about whether paying off your mortgage or not pretty much answers itself.

Debt

How to “Power Down” Your Debt

As you embark on the road to debt recovery, one of the first tasks you’ll need to complete is taking an inventory of all your debt and organizing it based on total balance owed, interest rates, and length of the loan. This will help you to prioritize which debts need to be paid first to save you the most money in the long run.

In general, here’s what you’ll need to do before you begin a debt acceleration program so you’ll be ready to attack the program with confidence and without creditors, the IRS or anyone else on your back:

  • Keep essential loans and services current. If you’ve fallen behind on payments for car loans, utility bills or mortgage payments, these types of debts should be your first priority. If you miss too many of these types of payments, your creditor could decide to repossess your car, foreclose on your mortgage or turn off your utilities. Fortunately, there is a lower interest rate on these types of debts than most types of consumer debt, meaning the overall debt you owe won’t rack up as quickly as, say, credit card debt. Therefore, you should make the minimum payments to be able to keep your home, car and utilities while working on other obligations.
  • Meet all of your legal requirements. You cannot escape your tax or child support obligations.Savings Plan These debts will almost certainly not be discharged if you file for bankruptcy. You can, however, work with a collection agency to devise a payment plan that will work with your financial situation. Otherwise, if you fall behind on child support or taxes, you could experience consequences such as wage garnishment, significantly higher interest rates or time in jail.
  • Pay off deferred loans last. Once you’ve paid off most of your other debts, you can turn your attention to deferred loans. Student loans, for example, often allow you to put off payments if you’ve fallen on hard financial times. Such loans will still accrue interest, but their interest is relatively low, so it’s a good idea to save these debts until last.

Powering Down Your Debt

Once you’ve figured out how to meet all your legal obligations and pay for your necessities, it’s time to start knocking down your debt in a serious way — this is called Powering Down your debt. It is mathematically possible for anyone using Debt Power Down techniques to get out of ALL debt (mortgage included) in 10 years or less. It doesn’t matter how deep in debt you are, how much money you make or do not make, or how many loans you have. Anyone can get out of debt using these powerful acceleration techniques.

How does it work? Powering Down is accomplished by prioritizing all your debts (preferably using a debt calculation software, go here and then click on the “Start Now” button) based on the following three criteria:

  1. Highest to lowest interest rate.
  2. Shortest to longest maturity.
  3. Lowest to highest balance.

Usually, most people concentrate on paying off high interest rate loans such as credit cards first, and this probably makes good sense. But using a debt calculator, most people find the quickest way to get out of debt is usually by paying off debts with the shortest to longest maturity, especially if they have a mortgage). However, the only way to know this for your personal situation is to gather all your debts and put them into a software to seeshutterstock_186174599 (640x440) which of the three ways will provide you the quickest payoff.

Once you have created a prioritized list of your debts, you concentrate on paying off the first debt on that list (of course while still making the minimum payments on all your other debts) until that debt is paid in full. Then you will take the amount of money you were paying on that first debt and add it to the payment on the second debt on your list. This allows you to pay more on the second debt, thus decreasing the amount of time it will take to payoff the second debt. When this debt is paid in full, you will take that increased amount you were paying on the second debt and combine it with the third debt’s minimum payment, thus reducing the time it will take to pay off this debt, and so forth through your list of debts until you have paid all loans in full. In addition, you can add an “Accelerator” payment to these debts by creating a Spending Plan and then tracking that plan, which will find you extra money you did not know you were wasting that you can add to your Power Down payments, thus further adding to the amount you have to pay down on each debt.

This debt payoff technique is powerful!  Don’t miss out on your opportunity to apply it. For more information on creating a Spending Plan and Debt Plan, with Power Down and Accelerator Payments integrated into them, contact the team at Money Mastery today. You could be out of ALL debt much quicker than you think and without needing any additional money other than what you are currently making.