Didi, my other love

Don’t tell my girlfriend but I’m going to write about my other other love after cars. My cat Didi.

Look at that happy face.

For over a year, my girlfriend was hounding me about getting a cat. She just wanted one so badly and I could not figure out why. Almost every day:

 Can we get a cat? 
 Can we get a cat? 
 Can we get a cat?
 Can we get a cat?

Like this but if she asked to go to Mount Splashmore I would have said yes.

So made a deal with her which didn’t really help me but I got it done. It was she helps me get my first rental house and she can get a cat. I got the rental house… on my own… and she got a cat.

I’ve never had a cat before and I got to do my parent talk. Ok we can get a cat but you have to take care of all the messy parts and I get to enjoy the fun parts. She agreed and we went to the animal shelter. 

It didn’t take long to find Didi. She was the first cat we saw as we walked in. We looked at each other as Didi sat in my lap and say “we better see the other cats before we decide”. We did visit the other cats in the shelter and none of them were as nice and chill as Didi is. We spent about an hour just spending time with her in the shelter and decided she was the one.

By the way, adopting a cat is the way to go. It was $30 total for the adoption fee and Didi was already spayed, neutered and had a flea treatment and we adopted a cat that someone somewhere didn’t want. I’m happy I got talked into getting a cat. It probably helps that Didi is such a relaxed cat that actually likes to spend time us me. She is sleeping in my lap as I’m typing this.

Saabs are Cool

Here is something I’m quite happy about. My car I drive everyday. I like cars and recently I had the choice to get a new car. I was driving the same econobox car since I was 16 and it ran great and there was no reason to sell it. Thanks to an asshole car thief, I was able to buy something new. I searched for a while. There were quite a few cars I wanted to buy. I’m one of those people that search for cars to buy when I’m in no position to buy one. So the actually opportunity to buy a car is exciting to me.

Number one on my list was a 5th generation Honda Prelude. I love the way tthe car looks. It has a dual overhead cam engine, double wishbone suspension and a lot of them came with manual. I could care less about the whole “oh it’s front wheel drive you’ll understeer and die” and “it’s pigfat heavy”. It’s a car I have been eyeing up since my mom drove me to elementary school. The tail lights are unique, the front had this angry look and some were lucky to come with VTEC.

Unfortunately, my mid 90’s Honda was just stolen and it changed my mind on if I wanted to buy another easy to steal mid 90’s Honda. I scrapped the idea to own one of my dream cars out of fear. But not forever. I do plan one getting one once I get more driveway space.

I’m surfing craigslist everyday looking for something. Anything that is a car and manual. Not a lot of in terms of search criteria. I remember watching an episode of Top Gear UK and they did a special on Saab. It was after Saab had been closed down for good. They went over the history of the company and the cars they made. Top Gear and other car shows are great at doing something to me. They make me want to get the cars they are showing. So I looked on craigslist for Saabs and I found a used 1990 Saab 900S that was about 2 hours from my house. Quite a ways but I needed a car and I was ready to buy.

Here it is my actual car. It’s pretty rough but it’s in great condition for it’s age. The dings and paint scratches don’t faze me too much but I know later on down the line they will but that’s not until later. What is great about this car is that it’s not tampered with. What I mean is that all the components on the car that need work are just regular maintenance items. The rubber hoses for example. They are all hard and brittle and falling apart. The car is generally as it was when it was newer. To me, this makes figuring out what the car needs a lot easier since I can start from scratch. 

What’s great about my Saab is that it’s a car that I got on my own. I didn’t have anyone’s help getting it. It was my money, my choice and I get a sense of freedom from that. Something I’ve always wanted to do to my first car but never did was “modify” it. I say that it quotes because my version of modifying a car are very different from other peoples. You’ll see what I mean..

Amber fog lights because why not.

Yeah… fog lights. I wanted them for looks mostly and I don’t really have the budget for an ebay turbo or engine swap so this is as crazy as I’ll get probably. It may not seem like much but for me, this is the beginning of making my car mine. I was never able to do that on my hand me down Honda Civic that I drove since I was 16 because I wanted to keep it stock and fresh looking. (which is probably why it was stolen. Not many 1996 Honda Civics look as good as mine.)

I do have plans to get a welder and try my hand at making an exhaust for my Saab. They don’t make many aftermarket parts for Saabs so if I want anything for my car I’ll have to do it myself or (my favorite option) use parts from other cars. Those fog lights are for a Chevy truck. I’m heavily influenced by Mad Max and Roadkill for using parts from other cars on other cars. I haven’t done it yet but it is in my plans.

Why You Need an Emergency Fund

Here is a real example of something that happened to me and my emergency fund saved me.

I had just came back home from visiting family in California and I was getting ready to go back to work. I get dressed, eat breakfast and hop in the car and drive to work. I get to work, lock up my car and head inside. I go about my day and when it’s time to clock out, I clock out and head up to my car to go work on a side project I was working on. I get to where I parked my car and someone else was parked in my spot.

My first thought was, maybe I parked somewhere else. Then a more dreadful thought came to mind.

Someone stole my car.

My first car that I’ve had since I was 16 and cherished so much was gone. I panicked and rushed back to my work. Luckily where I work has surveillance cameras in the parking lot. They confirmed my car had been stolen but could not id the thieves.

This is a prime example of something that is completely out of your control can happen.

Most people told me to tell my insurance. So after I calmed down a bit, I filed a claim that my car was stolen. A week later I get a letter in the mail saying my claim was closed because I didn’t have comprehensive on my policy. (one of my bill cost cutting methods)

I got nothing from insurance for my car getting stolen.

Life didn’t freeze, it kept going. That means I had to go to work still. How am I going to be able to do that? It’s a long bike ride and even longer walk and I refused to make that trip in the rain. So I had to dip into my emergency fund and buy a new car.

I was able to use my knowledge of cars and mechanics to buy a car for a fair price that still ran great. If I didn’t have an emergency fund I’m not sure what I would have done but this could have all ended much worse.

Some emergencies can be life threatening and others can be huge inconveniences like mine. The ability to handle them is a sign of an excellent financial situation.

In the end, the police did find my car and they did arrest the guy who stole it and I will be filing for restitution for the financial loss that occurred to me. That was the good news. The bad news, the car is back in my possession but it is not in driveable condition. It needs a new battery and the ignition lock and door locks need to be replaced. I’m happy I got my car back but the fear of it getting stolen again are too much for me to get it back on the road in a hurry.

Examples of Financial Intelligence

In my previous post, I mentioned financial intelligence and buying things that matter over things that don’t.

One thing that annoys me with internet advice is people never extrapolate on their ideas. It’s really easy to say “Oh do this and X with happen to you! Sign up for my blog newsletter!! I need the traffic!!”

I’m going to do my best to explain everything I advise.

First off, what is financial intelligence?

It’s the knowledge of money. How to use it and how it works.

Most people in the world do not show and understanding of money. It’s evident in the fact that a majority of people live paycheck to paycheck. For clarification, living paycheck to paycheck, or PtoP, is using the money you make at your job as soon as it comes in and then just before the next check comes in, you barely have enough money to do anything until the next check comes in.


A very basic example:

First paycheck of the month +$1000 Yeahhhhh!!! Let’s go to dinner and see a movie! -$100

Day 2

I’m hungry, I’ll go to the store and get groceries. *Buys on an empty stomach, ends up paying way too much on groceries that won’t last long* -$200

Day 3

My friends just showed up to work with these really great shoes! They look so cool! I want them! -$200

Day 4

Some bills came in. I have to pay for them. Cell phone -$100 Car Payment -$400

Day 5

I can’t do anything! I spent all my money and my bank account is about to be overdrawn and my car just broke down!

This is may not seem like it, but people really do live like this. This is a pretty extreme example but this kind of thing really happens.


Back to financial intelligence, that same scenario could be very different with some different mindsets. For example, the day the paycheck comes in, a portion of that should be set aside for savings and investments. You don’t want to work until you’re 80 and if an emergency happens, you want to be ready financially.

First paycheck of the month +$1000 Yeahhhhh!!! Let’s go to dinner and see a movie! -$100

Depending on your specific situation, dinner and a movie might not be so detrimental to your budget. In fact, having fun is good for your well being. Just don’t go nuts with movie theater popcorn. (that stuff is one of the most marked up foods in existence. If you need a snack, just smuggle food into the theater.)

I’m hungry, I’ll go to the store and get groceries. *Buys on an empty stomach, ends up paying way too much on groceries that won’t last long* -$200

Getting groceries is a fact of our civilized lives. We all need to get food to survive. There is a plethora of information on frugal grocery shopping so I won’t go into detail here but some good tips, bulk sections are your best friend, learn to use spices and avoid processed foods. Many times they are overpriced and definitely not good for you.

My friends just showed up to work with these really great shoes! They look so cool! I want them! -$200

Keeping up with the Jones’s is financial suicide. In my example, it’s going to work and seeing someone with something they bought and then yourself wanting it after seeing someone else have it. Or worse, buying something more expensive to show them up.

Having nice things is nice, but what good is a $200 pair of shoes going to do for you if you get sick and miss a week of work and don’t have sick pay? Most people will be shocked that I say this but Goodwill is a fantastic place to get shoes. You need something to cover your feet, go there. Or if you’re like me and want some nice new shoes that don’t require a payday loan, Payless Shoes is a store that my family have been going to for years.

But that’s just shoes. There are many other things in life where you have a choice to get the cheap option or the expensive options. It comes down to what it is, and your financial state. Can you afford 5 of the expensive option? Get that. If not, get the cheap one.

Some bills came in. I have to pay for them. Cell phone -$100 Car Payment -$400

Bills are an unfortunate part of life. But it allows us to have luxuries that the rest of the world doesn’t have. I hate paying my cell phone bill but having a computer in my pocket with service on it has come in handy more then I can count. Same with car payments. I personally don’t have a new car with payments but for some people who don’t have the capabilities to work on their own car, a new car may be their best fit. I know someone who has 2 car payments for 2 new cars. She is a mom and she has a job that is very far away and her boyfriend has a job that is also far away. Both of them are not mechanically savvy. I think they don’t even have a screwdriver in their house…

The point is, some bills can be justified. Others cannot. I love Netflix, but I can’t see myself paying for it every month. It’s a time waster and it’s a small cost that adds up with other small costs to make a big cost. I know some people that have multiple streaming services they pay for. Each of them on their own aren’t much, but when combined, it’s a big cost. And for what? Entertainment and time wasters. Is it a bad cost? It depends on your situation.

I can’t do anything! I spent all my money and my bank account is about to be overdrawn and my car just broke down!

This is the prime example of why living paycheck to paycheck is such a bad idea. All the money from the paycheck has been spent and an unexpected large cost has just emerged. This is a risky way to live. Smart money decisions can avoid this. Automatically putting money into a savings account before you can get to your paycheck is great way to save money. In the book Richest Man in Babylon, this is one of the money lessons. If the money is saved, you learn to live without it. If you live on $1000 a month, you save $100 before you get to your check, you learn to live on $900 a month since that’s your “final” paycheck. This is one of the basic lessons on financial intelligence.

But I make 6 figures a year! Where is my money?

Knowing where your money is going is another quality of financial intelligence. If you make a lot of money but still struggle, you don’t know where your money is going. This goes back to the section on bills. For  most people, on their budgets, income can’t go up unless they get a raise or promotion. But expenses can be reduced or eliminated.

Take the time to list all expenses. I like to look at my bank statement. It lists all money movement. Incoming and outgoing.

List all the outgoing. Whether it be bills, donations, fun money whatever. List it and look it. What expenses can be reduced? What can be eliminated?

A good example for some people that have bundled TV, phone and internet plans. I’ve met a rare few that don’t have cell phones but I have yet to meet the unicorn that has a landline phone and actually uses it. These bundled plans have really enticing promotional offers of $XX a month for the first year. After the first year guess what? It usually doubles the payment.

This is what I personally do. I have only internet. Most people do but I’ll explain anyways. No one in their right mind will use a landline if they have a cell phone. TV is full of commercials and cookie cutter shows that not only have nothing to offer, but are all the same. Watch Duck Dynasty and Pawn Stars and tell what is different about them. The internet has so much free media on it that if you wanted to watch the newest episode of Pawn Stars, you can find it online. Some people even put it up on Youtube.

Cancel the TV and home phone portion of the bundle. Your bill will drop. This  is just a basic example of cutting your bills cost. Some other tactics to use is the play dumb and nice when your bill goes up on something and convince the representative of the bill to lower it for you. The keyword is nice here. Don’t go yelling your head off about your bill going up $1.

Spend less then you earn.

I already stated earlier that not everyone can own a 20+ year old car and have the skill set to keep it running. Some things you will need to buy brand new such as a car. Or if you can, don’t buy a car, get a bicycle!

If you need to take a loan on a new car for example, don’t let the payment be more then you can handle. Most lenders won’t even give you a loan if your finances are no good but some will do whatever it takes regards of your financial state. If you must go down this road, make sure you can afford the payment.

If you rent an apartment for $1000 a month and you make $1500 a month. Would it be wise to have a $400 car payment? From this point of view, yeah you would still have $100 left over and still make rent!

Take a step back and reanalyze this scenario. An apartment is not just rent. Most places will have you pay for some bills. Others have to pay all the bills. If you can pay all your bills with $100, please send me an email and tell me what you do. If not, this is not a good idea. The best bet in regards to a new car payment would be get a more sensible car. A car that is a base model with low miles pre owned. Your payment will be much less.

Getting into Real Estate Investing: A How NOT to

Here’s something interesting, a how NOT to. These are just as important as a how to.

In my journey to find extra income, I tried my hand at real estate investing. I bought a single family home with the intention of renting it out and using the cash flow to help pay off the mortgage.

Real Estate investing is a fantastic wealth tool. You can achieve all your financial goals with real estate. Problem is, it is hard to get started and if you can get started, getting it going is not easy. Let’s go over my first deal that would make most people quit real estate for good.

First off, I was looking for a “cheap” house. I was searching for months and I was losing my patience (mistake number 1) and bought the first house I saw that was under $100,000. It popped up on the MLS and I told my realtor to put in an offer before I go see it. She did, and it was accepted. Great! I still had opportunities to get out of the contract if I wanted to. I still had my inspection contingency and the finance contingency.

Here is where I went wrong: I bought the first house I could afford.

Sounds weird but it was not a smart move. I could afford the house, but the house was not a good deal. It was affordable but getting it rent ready and cash flowing would be another problem.

I visited the home and took a look around. Compared to other houses I was looking at, this looked in decent condition. Minus a couple of problem points I could see right away. (Dry rot is my new number 1 enemy. I’ll explain why later)

We schedule the home inspection and I went to that also. The inspector told me of some problems but nothing major. I read his report later and decided to reduce my offer. They accepted the lower offer.

Next mistake: I didn’t offer low enough. 

I read somewhere that if you aren’t embarrassed by your offer, it’s too high. I wasn’t embarrassed at all. I should have lowered my offer much more.

We then moved into the appraisal phase which took a while since the appraiser couldn’t find comparable properties. My realtor was not happy the lender went with this particular appraiser since he had a reputation to go slow. Fast forward to at the closing, I sign the papers, and get the keys to my first rental house. Woo!

Here is where I went wrong again.

I bought this house with the intention to do the rehab work myself. Not all that bad in my opinion, I wanted to get the experience of working on a house without tearing apart my own house I live in. The problem was, I was inexperienced. Weird huh?

The rehab took a few months and I thought it IT SHOULDN’T BE THAT BAD. (more on this expensive and problematic phrase later) I did the work myself, and got the house rent ready in about 4 months working part time with no experience doing house construction.

Next mistake incoming! I didn’t leverage other people’s time and skill.

While it was part of my goal to do the work myself, it would have been much faster if I hired someone who knew what they were doing and it would have turned out so much better. There are things I remember doing that most people wouldn’t notice but it keeps me up at night thinking about it. Door trims can be hard to do if the door isn’t installed correctly. Also, if I had hired the professional contractor to look at the house during the inspection, he would have told me not to buy it. The house was a dry rot nightmare on the exterior. The amount of work to get it fully fixed would be too much for the house’s worth.

I believe the cost would have been more, but my main goal is to have other people do all the work for me so I don’t have to. I didn’t follow my goal.

So now the house it rent ready. Time to look for tenants. It SHOULDN’T BE THAT BAD.

I did some reading and decided to dive in by managing the house myself. (BIG mistake) Where I live, there is a huge shortage of affordable rentals. Which is why I got into real estate investing to solve that problem. I listed my house and I was bombarded with calls and emails. I should have known that was going to happen but I let my self doubt tell me, no one is going to rent this piece of the junk house.

I’m still working full time at my job and now, I have to stay later at work since we are short handed and it only leaves me a couple of hours a day to answer tenant inquiries. I’m getting emails saying they want to see the house, people putting in application requests and phone calls CONSTANTLY. I immediately got overwhelmed.

To make matters worse, the website I was using to track all these request locked my account! Apparently someone thought I was running a scam house that didn’t exist just to get application fees. So my account is locked with all my resources on it and I’m still getting bombarded with offers to see the house and I can’t get in contact with them.

I quickly pulled the plug on my listing. This is too much for me to handle.

Now, I’m looking at hiring a property manager. You know, something that aligns with my original goals?

So let’s recap. This is why I will forever call this the shouldn’t be that bad house.

First, I didn’t run the numbers correctly on it. I thought, it’s cheap the costs SHOULDN’T BE THAT BAD. My margin is getting thinner by the day. There are utilities that I knew I would have to pay and the mortgage itself was higher due to the nature of the loan for an investment house. I did manage to get a low enough price for rent to get interest but read on…

Second, I did the rehab work myself and ran into several problems that could have been avoided. (with the house and in my personal life) During the inspection I thought, IT SHOULDN’T BE THAT BAD I can do all that work myself! I had to replace doors and windows and I’ve never done either. In the end, the windows came out great, the doors are another story. If a professional had done it, it would have been faster and a much better finish.

Third, I forgot my goal of not being involved and got overwhelmed by tenant inquiries and now my house may have a reputation of being a fake house listing. Now I have to go with a property manager and my cash flow is getting smaller. I may not make much at all on this house but I will break even.

Here is what I should have done.

  1. Be patient during the house hunt! Find a good deal not a cheap house.
  2. Hire a professional to do the rehab work.
  3. Hire a property manager.

I said to myself the whole time I was buying the house. Oh, it shouldn’t be that bad I’ll figure it out. Now I know better. If I catch myself saying that, I’m reevaluating the deal. It can and will be “that bad”. Don’t let your self say that when getting into real estate. It will bite you really hard.

In the end, I’m not giving up on real estate. It is the path to my financial goals and while my first deal is pretty sour, I know the next one will be much better with the knowledge I have from my mistakes on this house.

Supplementing Income with a Side Hustle

Reffering back to my post about budgeting, I mentioned that income from a job is pretty much fixed. As long as you show up to work and don’t get fired, you will be making money off the time you traded for a paycheck.

Expenses can be cut but only so far. Some expenses are of things that you need and can’t avoid. What can one do? Get a second job? Kind of.

Side hustle, or side gig is what some people would consider a second job and in many ways it is. I started a side hustle a few months ago and it definitely feels like another job… BUT

This other job is a job that has a lot of freedom with it.

In the past, I haven’t always seen eye to eye with my superiors at my jobs. I never liked working for someone else and even in my current job, I still don’t like it. But thats where the beauty of the side hustle comes in. Instead of finding a job that you qualify for and pass the interview and then get a schedule that doesn’t work with you, you make your own job!

I’ve always enjoyed working on cars. I got good and it and one day, I was changing the oil in my car and my girlfriend came out to see how I was doing and was surprised and how fast I did it. She told me I should do oil changes for other people. So I started doing that.

I started a side hustle doing something I already know how to do and now I can get paid for it. Sure it’s not covering the mortgage, but the fact that I can make money outside of my job is a great feeling to me since I was raised to believe I should go to school, get good grades, get a good job and work that job until I die. Being my own boss is invigorating. I get to call all the shots and no one else can get in my way. Sure, the customer is a boss in a way but most people are very gratified with the work that I did and don’t treat me like some of my previous bosses have.

What I wanted to touch on was how easy it was to start.

I chose my hustle based on my strengths and what I had at the time. This will not work for everyone else.

I had knowledge of cars, years of accumulated tools and a desire to be my own boss. The first 2 things not everyone has. I posted an ad on craigslist services section and got my first customer. I don’t know anything about marketing, pricing or SEO optimization. With some work in those areas, I have no doubt I could increase my business but the point is I got work just by posting a $5 ad on craigslist offering up something I already knew how to do for money. A business was started right there and then. No storefront, no inventory, no marketing team, no business plan nothing. Just me, my knowledge and hard work to make my customer happy.

My tips to someone thinking of starting a side hustle,

Focus on your strengths

What are you good at? Writing? Picking up heavy things? Talking to people?

For me it was mechanical work but for you it might be baking for instance. Find your strength and use that brain of yours to figure out a way to use it to make money. Maybe you have an idea for a service that will change the way things are done in your town. That’s the beauty of side hustles – there is no limits to what you can do.

You’re going to make mistakes. Identify them and learn from them

An example I have of a mistake I learned was scheduling. My original idea was to let the customer tell me when would be a good time for me to do the work in their car. Instead, I found much more success coming up with a schedule of times I could work. So I told the customer what days I would be able to work.

May not seem like much and some may even think it’s stupid but the reality is, that’s what mistakes look like. Identifying mistakes and learning from them is important. Sometimes, identifying the mistake is the hard part. It was for me and still is. I know my way around a car, but I have no clue how to operate a business and I’m learning as I go.

Work on customer acquisition

This is a big one. Let’s say you got a few customers for your hustle and they are repeat customers. All is good and dandy but those are your only customers. Focusing on customer service over customer acquisition is a big no-no.

Putting efforts on acquiring customers rather then efforts on customer service is a key to success in any business. Customers are the reason the business is alive to begin with. So work on ways to to get more customers. Don’t get me wrong, customer service is very important but what good is treating one customer like royalty when they are your only customer? Quantity over quality.

My Number One Tip for Saving Money

This is not going to be a typical blog post about budget, blah blah, pay off debt, blah blah start a side business rent your cat to your neighbors for extra money.

This hasn’t been posted before and it’s a simple, but controversial, technique that everyone can do. Yeah, everyone. I guarantee it.

My number one tip for saving money?

Doing nothing.

Let me explain. The typical individual in the rat race goes like this, wake up, go to work, work 8 to 12 hours a day, go home, repeat until the weekend. When the weekend comes, they spend the money they made in the week because “I get paid this week”. So they do some smart things like going to buy groceries and maintenance supplies for the next week such as laundry detergent. But then they go out to eat and spend $50 on a single meal at a restaurant. Then they go to a store that sells space wasting junk that has no value and buy things there because “I wanted that coffee table”. The weekend ends, then they go back to work and repeat the cycle.

Pretty much everyone lives like this. I lived like this for a long time.

How does my tip work in this?

 

A lot of people I know like to do things outside of work. It’s a great to unwind after work. Here’s where our paths split ways. My co workers will be my example.

My co workers go shopping, go to the movies, go drive out of town, get a new cell phone, buy a new car. Basically spending money they don’t have.

Me on the other hand, I go home and do nothing. Not in a sense that I go home and stare at the wall. Instead of going out and being tempted to spend money, I’m at home learning about index funds or researching stocks. Dipping my toes in Peer to peer investing. Learning about financial intelligence.

Or if I’m feeling lazy, I still have all my Playstation 2 games and a working Playstation 2 console and I love playing my old games again. I have an old library of Steam games that I bought ages ago that I use to pass the time. My girlfriend has a Netflix account that she lets me use and a Hulu account with our friend’s password on it. Or I’ll do some housework such as cleaning. Clean the house, clean the car or go for a walk.

My point of doing nothing is doing things that don’t cost money. It doesn’t cost me anything to play some old video games. It doesn’t cost me anything to clean my house. Going on a walk is free.

For some people that are compulsive spenders, doing nothing might be what they need to do to start saving money. The best way to save money is to not use it.

 

Paying off Debt with $18,000 a Year Income

I got the house I wanted. Now what? Time to pay off the ball and chain known as a mortgage.

Most blogs out there I’ve read have said the same thing. Budget!

But the problem with most blogs is the person who is saying they paid off $95,000 in debt in 2 years had to learn basic financial intelligence. They had jobs that paid them $40,000 or more a year and they just went crazy with credit cards and buying stupid things and racked up bad debt and then couldn’t afford more then the minimum payment. All they have to do is learn basic financial intelligence such as, don’t buy a new car every year, don’t buy stupid stuff that has no value in their life like 8 pairs of shoes just because they are the new hip thing to own.

Let me tell you my situation.

I work full time at a job I like but I don’t make much money. I make about $27,000 a year – gross. What does that mean? I make 27k a year before everything is taken out of my paycheck. Taxes, insurance and benefits are all taken out before I get my paycheck. So in actuality, I make about $18,000 per year – net. Net is the money left after expenses.

So I have to pay off a mortgage with $18,000 a year and my base mortgage payment is about $850 a month or $10,200 a year. That is without the extra principal each month.

So what is someone like me to do? How am I going to pay off the mortgage early?

Here is what I do:

Live with someone

I live with my girlfriend and she helps pay for bills and the mortgage by giving me $600 a month. You can do the same with a room mate or someone you know that can live with you. I’m the kind of person that will go into debt to escape room mates. My girlfriend however is with me in the regard. We both hate room mates but can live together no problem.

Start budgeting

I’ve done this on a mental note my whole life but never in a serious way. I knew that I need a certain amount at the end of the month to make the mortgage payment so I don’t get foreclosed on. But lately, I’ve upped my game on budgeting. I’ve started a spreadsheet that tracks my reoccurring costs such as bills and non reoccurring costs such as home and car maintenance.

budget

This is the first iteration of my budget and I’ll adjust as I go but this is the basis what budgeting looks like.

The income is pretty much fixed. I’m looking into starting a side hustle for extra income but at the moment, this is how much income I get per month.

Bill expenses are the fixed expense. My bills vary from those numbers. For example, my gas bill can be as low as $19 all the way up to $30.  In my budget, I put the highest the bill was ever in my time living in my house. That way, I’ve budgeted for the highest amount that I could spend on that particular expense so if I do a good job and my gas bill goes down to $15 for this month, I have extra money left over at the end of the month that I can put towards the mortgage principal. Over estimating on expenses can really help you in being frugal. If you think that your bill is going to be higher then usual, you won’t want to spend as much on non fixed costs like non food items to make sure you will have enough at the end of the month.

Important! You may notice that my mortgage expense is higher then what I said it was in the beginning of the post. That is because I budget my minimum mortgage payment with some principal already added. So if I cut my budget too short one month, I still can add some extra money to the principal.

The other expenses category is non fixed expenses. My car needs gas about ever 2 and half weeks if I only drive to work. If I decided to go out of town, I’ll need to get gas 3 times in a month rather then 2 so my budget of  $60 of gas may be getting close to the limit since I budget for only 2 trips to the pump. What I plan on trying is a combined non bill expense category of a fixed amount such as $400 a month. That $400 is used for everything else that isn’t a bill. Food, gas, non food items like clothes and car and house maintenance.

Car and house maintenance get their own budget because anyone smart who owns a car knows that they have a lot of maintenance up keep. Oil changes, new tires, new batteries, fluid changes. I still drive my first car that was hand me down when I turned 16. A 1996 Honda Civic with 215,000 miles. I do all the work on it myself and have saved thousands in repair costs. Most people are intimidated by car maintenance but we fear what we don’t know anything about. The cure for fear is education. In the age of the internet, there is nothing you can’t learn in a few minutes of searching and reading.

An example for car work would be, driving around in my car and then I hear a grinding sound when I brake. Get onto Google, type in “grinding sound when I brake” and you’ll get a myriad of results on what the problem might be. People will even post how to videos for your particular car and how to do the work yourself with what tools you’ll need. There is personal and financial investment in car care, but the dividends greatly outweigh the cost and you can keep a 20+ year old car on the road running great.

House maintenance is another one that like car maintenance, likes to pop up at the worst possible times. But, like car maintenance, you can find the solution to your problem by searching for it online. I bought my house with no knowledge of building anatomy (what’s a joist?) and used the internet to my advantage. As things go wrong, I search up on the internet what the solution is.

A real life example on my own house, I live in an area in the U.S that gets a lot of rain. Drainage is very important on the exterior of a house. In my home inspection report before I bought the house, it said that the gutters let out too close to the foundation. So I searched online for solutions. There were tons of options available. Some fancy options such as hiring contractors to come to your house and dig trenches for french drains that connect all the gutters to the street gutter and DIY options for digging your own trenches with regular corrugated plastic pipe attached to the downspouts and lead the pipe away from the house. Guess which one I did? I went to the hardware store and bought a 30ft roll of corrugated plastic pipe, dug out a trench just deep enough the hide the pipe and run it in the ground away from my foundation. Total cost? $75 for the materials and shovel and a lot of personal labor.

The point is learn to do things yourself. Not only will you learn some useful life skills that doesn’t get taught in school, but you’ll save money on doing things anyone can do. This applies everywhere in life not just physical work. I could have paid someone to do my budget for me and no doubt they would have done a great job, but it’s an added expense that I don’t need.

 

TL;DR

Over estimate your expenses. Work on decreasing expenses even if it’s a small amount.  Work on supplementing your income with side work to increase income. Learn financial intelligence, spend money on things that matter and not on things that don’t.

Tips for the First Time Home Buyer

In December 2017 I completed the long and emotional journey of a first time home buyer. While my experience was not as bad as some, it took almost a year from finding a home to closing.

This site is going to be about paying off a mortgage so why am I giving tips on how to buy a house and get into the most debt a person can accumulate?

Home ownership isn’t for everyone.

I’m targeting that person who is done renting or done living with room mates /family that eat your food and leave their clothes in the washer and dryer and never do the dishes.

The person who is ready for the challenges of home ownership. Who is ready to crawl on their belly into the crawlspace to patch a plumbing leak, who will climb on the roof to wash the outside of the windows and inspect the roof. Sure a mortgage is a lifetime of debt for some, but the reward of home ownership is far greater then owing the bank a large amount of money. The freedom is worth it.


My take ways from buying my first house:

1.Getting pre approved before starting your house hunt

I didn’t realize it at the time but having a pre approval from the bank I chose was a real time saver. The bank told me how much I could afford based on my income and gave me an estimate on how much house I could buy. This saved me and my realtor a lot of hassle of looking into houses I could not afford.

There is also the issue of which lender to go with. I decided that since I already bank with Wells Fargo ever since my first job at Safeway back in 2006, I decided to go with them. I didn’t realize it at the time but they offered the lowest interest rate. Being a first time buyer and not shopping around, I got really lucky. I only submitted pre approvals with Wells Fargo and US Bank. Remember, being pre qualified and pre approved are two very different things!

Learn from my mistake: Do research for your lender. What interest rate and loan terms are they offering? Will they have an option to add principal to every mortgage payment? How much are the closing costs? Don’t just go with one lender and hope for the best like I did. You may end up with loan terms that don’t work for you. 


2. Finding a good realtor.

Here is my next mistake. Being an introvert and having phone anxiety, I didn’t call realtor companies in my area and interviewed each one to find one that worked for me. What I ended up doing was going to a home listing site and requested a showing at a house that I liked. I got a call later that day from a realtor who ended up maker herself my realtor. Luckily, she was good with first time home buyers but there are some out there that are not so first time buyer friendly.

Before I worked with my realtor, I had some other realtors I “worked” with. There was a gentleman from another company that talked me through a listing I had requested for more information on Zillow. He was knowledgeable about his work but he lacked something that I needed most: Local knowledge. When choosing a realtor, you want someone who knows the area better then you. They may know about the noisy 24/7 convenience store that has nightly revving competitions by the local car club or the nearby rendering plant that melts hog fat but is closed on the day you go see the house in person.

Your realtor must know how to handle problems. My first accepted offer was on an older manufactured home that had tenants living in it. The owners of the house had planned to give the tenants their 60 notice to leave after the house would close. Me being a first time buyer had no idea what I was getting into. After telling my family about my exciting (to me) home purchase they told me to back out. The owner of the house, after closing, would not have to be liable to kick out their tenants after the house closes. It would fall on me to do that. I wasn’t a landlord at the time and I didn’t know what to do so after a frantic text to my realtor, she figured out a way to get me out of the contract without losing my earnest money.

Learn from my mistake: Choose your realtor wisely. They represent you in the buying process. You want someone who is in the 21st century. By that I mean, you want someone to send you documents to sign electronically and someone who knows how to text. You will be signing a lot of documents if you put in lots of offers and it helps to do in from home on the computer to save you trips to the realtor’s office. If a realtor cannot do things electronically, move on and let the dinosaur find other clients. Don’t waste your time.

Find someone that works in the area you want to live in. They will know the area and which houses are worth looking at. They will let you know that the $200,000 house has plumbing problems and the $100,000 house is all cosmetic problems.


3. House hunting. Patience is key.

This is a big one. Let me tell you my situation. I was living in an apartment and they just raised the rent from $800 to $1050 per month. At the time, typical house payments were in the $700 range. Along with this rent hike, they removed the month to month option that I was on and forced me to sign a lease. Timing the lease ending with a house closing is not an easy task.

House buying is already expensive. I haven’t even gotten to the down payment yet! And now I’m going to tell you to have extra money to cover extra rent payments? Reluctantly, yes if you are a renter. Getting a house to close at the time time as a lease ending is very hard. But it is possible.

Finding the right home takes patience. I personally went to 25 houses with my realtor before I found the one I live in now. Most of the time I didn’t get a house was because of competition. People were offering more then the asking price. How is a first time buyer with a measly $125,000 pre approval supposed to compete? The answer? Patience.

There was always another house for sale. There is no sense in getting into a bidding war with other buyers and raising your mortgage payment higher then the area average rent. This is why you need a calm head while looking at houses. Don’t get too attached to a place you like. Just put in your best offer and wait. Sure there are things you can do like sending personal letters and cookies to the seller but I won’t get into that here. I found the home I live in now with the alerts on Zillow and as soon as I saw it, I sent a text to my realtor to schedule a time to see it. Turns out she was already thinking the same thing! I saw the house, I loved it, my girlfriend loved it and it had everything that I wanted in my house. I put in an offer but there was already an offer in place that was accepted. My realtor jumped in before I said forget it and told me to put in a back up offer. She said that first offers fall through and back up offers do end up getting the house. So I did just that. Long story short, my back up offer got accepted and I closed on the house. Woo!

Learn from my mistakes: Research as much as you can about a house. There are tools such as the County Assessor that lets you access public files about properties for free. Learn if the house is up to date on it’s taxes, who the owner is and (depending on your Assessor’s website) loads of other things. Just Google your county assessor office and it will give you the website of the assessor’s office. Just type in the address you are interested in and it will give you the information.

If you are stuck on a lease at your apartment, talk with the manager on site. You might get lucky and end up living an extra month lease free so you don’t have to sign a new lease as you close on a house. The manager at my apartments didn’t care too much and let me live for 4 months on a 3 month lease and I was able to get out in time for my house to close without signing a lease.

Be patient. If you miss out on what you think was the perfect house, keep looking. Don’t give up. More houses will come up for sale and you may find one that is even better then you one you found before.


4. Don’t forget about closing costs!!!

If you ask any first time buyers if they are prepared for the closing costs, a lot of them will say, “Closing costs?”

That’s what I said when I found out about them, The secret about home loans is closing costs. They can range from $2000 to $6000 depending on how much you buy the house for.

Closing costs are the bank fees, escrow fees, tax fees, fee fees and the fee fee fee. There is a lot of details in closing costs but what you need to know is when you have a house under contract (accepted offer) and you get the necessary information to the lender (W2, pay stub) and the loan underwriters will accept your loan application and you will enter what is called the closing phase. The money is sent into an escrow account which is a fancy way of saying third party that distributes the money.

Your down payment, insurance payments (you have to pay a year worth of home insurance and or flood insurance upfront) any taxes owed and any loan fees. Good news though! Remember that earnest money check you wrote when they accepted your offer on a house? That comes back to closing and goes towards the closing cost. Put down $1000 earnest money? Your closing costs went down by $1000!

So your total will be the down payment, and all those upfront costs combined. Yikes! That’s a lot of money!

Learn from my mistake: Don’t just budget in your down payment. Budget in your closing costs. If you talked to a lender that you went with, ask them the typical closing cost amount. It will help you a lot when it comes time to close.


5. Downpayments

The biggest hurdle for potential home buyers is the down payment. Good news that these days there are way to circumvent the down payment hurdle. Some exmaples:

FHA Loan

Some lenders offer FHA loans which are insured by the Federal Housing Authority. What you need to know about FHA loans are they allow down payments as little as 3.5%. Found a $100,000 house you like? All you need is $3,500 for the down payment!

The downside to these loans are, super long closing time. There is a lot of paper work involved with FHA loans. Also, you are required to live in the property for 1 year if you use an FHA loan. Most first time home buyers this won’t be an issue but if you move a lot in short time frames, this may be a problem. Don’t try to get an FHA loan, move in for a few months and then move out and put renters in your house. That is mortgage fraud and it is a felony.

Down payment assistance

A quick Google search will show you many options for down payment assistance. These can work as interest free loans, grants, or debt you pay off when the house is paid off. Depending on where you get the assistance from will determine what terms you will get.

USDA Rural Housing loans

The same USDA that grades the meat you buy at the grocery store offers home loans. The best part? You could get a loan that is 0% down! The downsides? You have to be in a rural area. The USDA site has a map where you can type in the address of a house and you may be surprised to see it is considered rural. Some obvious points, if you are in a big city such as San Francisco, don’t even bother looking. But if you are considering living out of the big city, this is definitely something to look into.

Learn from my mistake: I didn’t know about low down payment loans at the time I bought my house and I could have saved a ton of trouble coming up with the down payment for my house. I planned on living in my house full time so I was the perfect candidate for an FHA loan but went with a conventional loan. Luckily my lender had a first time home buyer program that didn’t require 20% down and I was able to put less but had I known about other loans, I wouldn’t have had to scrounge out the money for the down payment.


If you’ve read this far, Thank you! It is a giant wall of text but these are actually experiences I went through during my home purchase and I hope that future home buyers will find something of use here.