Savvy Ladies Community

What Size Mortgage Can You Afford?

With real estate prices free falling in many areas, mortgages seem to be the topic on everyone’s minds. It is hard to narrow down all the different concerns people have into a structured format, but my facilitators report that one of the most frequently asked questions in the Savvy Ladies Empowerment Circles is: what size mortgage can I afford?

This is a great question! Even better, it has a simple and straightforward answer. Most lenders limit the size mortgage an individual or a couple can take on to 28% of the gross income. If you have other types of debt, the total payments for your debt, including your mortgage, needs to stay below 36%.

This comes as a surprise to many, as it is not unusual for people to spend 40% or more of their income on rent and still make all their payments on time. Because of this, some lenders will let you borrow a little more, especially if your credit rating is stellar or if you put down a decent down payment.

But what you also need to ask yourself is . . . how much can you pay, without having to cut down on things like contributions to retirement savings accounts? Don’t forget that taxes and insurance costs will pile up on top of your mortgage payment. As houses are illiquid (today more than ever), take an in-depth look at your finances – or hire an expert to do so – before you commit to a mortgage. 

Stacy Francis, Savvy Ladies

www.savvyladies.com

What Type of Spender Are You?

One of my hubby’s friends works with statistics. He’s one of those people who take an honest interest in how many pets we have per capita in different states, and how many more children families produce in

Arkansas

than in

New York

. His latest thing is spending habits. I perked up when he told me his fundings. After spending years and years analyzing who spends how much on what, he has started to divide spenders into six different categories. Any of them sound familiar?

1. The frugal spender. I know it sounds like an oxymoron. My hubby’s friend defines a frugal spender as “a person who spends as little as possible.”

2. The impulse spender. This person aims to be frugal, but can’t resist pulling out the plastic when he or she spots a good deal.

3. The indulgent spender. While this person may keep tabs on money spent on staples, he or she loves the sweet things in life: spas, vacations, designer clothing, five star restaurants, etc.

4. The balanced spender. This person buys mostly cheap things, with a few luxury items thrown into the mix.

5. The continuous over spender. This is the most dangerous kind of spender. Always in the red, this person fails to learn from his or her mistakes and continues to rack up more debt.

6. The guilt trip spender. This person is often a divorced parent or a cheating spouse. He or she often tries to mend a bad conscious by shelling out the big bucks.

Stacy Francis, Savvy Ladies

www.savvyladies.com

Credit Card Myths

I went for a run in the park this morning, with my favorite workout pal. Thank goodness she is a good friend as I don’t run as fast as I used to now being pregnant. Anyways, she surprised me mid-run by asking whether it was really necessary to keep six months’ worth of income in an easily accessible emergency fund. Wouldn’t it make more sense to put her money in retirement accounts so that she could cash in on the tax benefits, and then do a cash advance from one of her credit cards if she got into trouble?

This got me thinking about credit cards, and how even though almost everyone uses them, few have a real perception of how they work. Below are three common myths about credit cards, starting with my running buddy’s.

1. Doing a cash advance from your credit card is like taking cash out of the ATM. No. Rates and fees are sky high for this transaction. Avoid it.
2. In times when money supply is short, you can stick to the minimum payments on your credit card balances. Again no. Not only will you waste horrendous amounts of money on interest, but paying the minimum balance only will drag down your credit score.
3. It’s OK to take your cards to the limits. Third time no. This is OK only if you don’t care about your credit score, and don’t mind spending your money on interest instead of investing it – or enjoying it.

Stacy Francis, Savvy Ladies

www.savvyladies.com

Scoring a Mortgage in Turbulent Times

“For years,” a woman said during a recent telephone conference, “I was waiting for the real estate bubble to burst so that I could buy something. Now that it finally has, no one can get a mortgage.”

While it is true that it is much more difficult to score a mortgage today than, say, two years ago, it is still far from impossible. My husband and I just got a mortgage 3 months ago. Here are three things you can do to increase your chances:

1. Work on your credit score and history. If you have a stellar credit score and a flawless history, you’re halfway there. And even if you’ve had a few hiccups in the past, paying down your balances and making your payments on time will greatly increase your chances.

2. Don’t ask for a larger mortgage than you can afford. Banks are very wary of this problem right now. If your household income is, say, $6,000 per month before taxes, don’t ask for a mortgage where the interest alone will cost you $5,000 per month. Be realistic, and banks will think higher of you.

3. Make a down payment. Not only will doing so make the amount you need to borrow smaller, but it also shows the lending institution that your finances are sound and that you are ready to be a house owner. We actually  put down a 25% down payment making our monthly mortgage more manageable.

So while I won’t disagree that first time home buyers will have a harder time making their dream come true today, there is certainly hope. After all, many houses do sell even in today’s market – and so someone must be buying them. If you follow these easy guidelines, you may very well be next one.

Stacy Francis, Savvy Ladies

www.savvyladies.com

Money Making Tips for Tough Times

Money Making Tips for Tough Times

One of my mom’s friends has a daughter who studied interior design, and then scored an assistant manager position in an upscale furniture store right out of college. She was estatic, loving everything about her job . . . until last week, her employer cut everyone’s hours from forty per week to eighteen. She was on the verge of tears – how was she supposed to make any money?

As she is far from the only person facing a situation like this, I thought I should throw some ideas out there for how to create extra income in tough times.

1. The first, obvious idea is to take on an extra job. While many businesses are crumbling, some are still doing well and hiring.

2. Another idea is to finally clean out your closets, shelves and storage spaces and have a garage sale. You’ll make money and have a less cluttered home.

3. If you want to unload a smaller amount of stuff, or you don’t want strangers coming to your house, try selling some things online instead. There is a reason eBay has grown so much over the past decade; many people do make a good deal of money there.

4. Trade your car for a smaller one. If you play your cards right, you may end up with not only a chunk of cash, but lower bills at the pump, too.

Stacy Francis, Savvy Ladies

www.savvyladies.com

How Much Debt Is Too Much?

How Much Debt Is Too Much?

I was in back-to-back meetings all day today. This is not unusual – neither is the fact that four consecutive meetings started out with a prospective client informing me that she had come to me because she is in debt and would like to regain the control over her finances.

Debt is truly a widespread problem these days. So with each of them, I started out by breaking down their finances – income, costs, spending, and debt. In every case, their debt-to-income ratio came out higher than the limits most lending institutions use when determining how large a mortgage an individual can carry. According to them, if your debt payments (including mortgage payments) eat up more than 36% of your gross income, you should consider changing your lifestyle. If you do not own a home, of course your debt payments should be much smaller than that. Still, many people are far deeper in debt.

The good news is, by taking an honest look at your finances, drafting a budget, and making changes – some smaller, some bigger – you can turn this around and face a brighter financial future. I see it happen all the time. All you need is determination and a network of people who support you.

Stacy Francis, Savvy Ladies

www.savvyladies.com

Steal These Four Habits from Extremely Wealthy People

This weekend, one of the moms from the park told me her two older kids had become obsessed with baseball games on TV. When their lack of productivity started to bug her, she asked them what was so fascinating about all that baseball.

“We want to be pros one day,” they told her, as though it was the most natural thing in the world, “so we are learning by watching the very best.” This, from two grade schoolers.

I though the concept was genius, so I decided to apply it to finance. Because apart from fat bank accounts, what really does set the very wealthy apart from the rest of us? What habits do they have in common that differs from the grand majority?

Here’s what I found.

1. They are more likely to be business owners. Because let’s face it, while you can create a very nice life for yourself while on the company payroll, few employers will pay you enough to make you the next Bill Gates.

2. They pay cash for their cars. Most people know that from an investment perspective, new, financed cars are some of the worst things you can get into, as their value drops like rocks during the first couple of years while your debt remains.

3. They are smart about debt. Extremely wealthy people rarely carry balances on their credit cards – in fact, they are less than half as likely to be in credit card debt as the average person. They know that financing charges will eat your fortune faster than a herd of hungry lions an injured zebra colt.

4. They donate to charity. Whether you believe in karma or not, helping those in need creates goodwill and a sense of generosity, which makes people more positive toward you. This promotes wealth.

Stacy Francis, Savvy Ladies

www.savvyladies.com

The iPod Issue: How Much Can -- and Should -- You Spend on Your Children?

I took the subway uptown today, to meet a colleague at a favorite lunch place. Turns out, the subway I was in also had twenty-something ten-year-olds, on a field trip coming back from the New York Stock Exchange. As Sebastian is only three, I don’t spend a lot of time around older kids. Now, I couldn’t stop staring at their iPod Nanos, glossy cell phones, Seven jeans and designer handbags.

It got me thinking about the finances of reproduction. How much do parents spend on their children these days, and how much should they spend?

A bit of Internet research told me that the average family spends $7,500 per year and child, not including added expenses pertaining to the increased living space. If you have enough money to set 10% aside for retirement savings, live comfortably, and stay out of debt while spending $7,500 per child -- go for it! But if you have to cut back on savings, skimp on your own needs or pull out the plastic, you should consider cutting back. But how do you make this happen without turning into the mean mom on the block?

An excellent way to go is to give your children some financial responsibility. If you increase their allowances, and in return require that they buy their own clothes, they may think twice about those $200 jeans when they see everything they have to pass up to get them.

Other ideas include sticking to the cheap stuff while your child is still too young to care about brands -- and outgrows things quickly. Vintage stores for baby clothes can be true treasure chests – and you can sell the clothes back when your child has outgrown them. You can also scale down on things like extravagant birthday parties, and of course, encourage your children to take on part time jobs when they grow older. I know that my years at Dairy Queen helped me become the hard-working successful woman I am today!

Stacy Francis, Savvy Ladies

www.savvyladies.com

Should You Do Your Own Taxes?

My college friend was red-faced and bursting with anger when we met for after-work cocktails the other day – of course mine was nonalcoholic as I have a beautiful baby on the way. She arrived straight out of a meeting with her tax accountant, who had failed yet again to get her the tax refund so many people received last spring, and for which she was eligible. “Next time,” she muttered between her teeth, “I am going to do the taxes myself. What am I paying him for anyway?” I tried to explain to her that whether or not you get a tax refund should not reflect on the quality of your accountant.

In the safety of my condo, away from her rage, I realized that her real question is “Should you do your own taxes, or hire someone to do them for you?”

To answer the question, here are a few things indicating that you could be better off on your own:

1. You know your filing situation (you are up to date with legislation, know your status, etc) and have a very simple financial situation.
2. You are organized and have your paperwork ready to go.
3. You prefer not to disclose your financials to anyone.

On the other hand, these things may be signs that you need help:

1. Your financial situation is complex.
2. You don’t want to waste time and energy preparing your return.
3. Your life has changed drastically, and your filing this year will be very different from last year.
4. You want the confidence of working with a trust advisor.

Or, alternatively, if you are so furious at your accountant that you run the risk of expiring from a heart attack, you may also be better off on your own.

Stacy Francis, Savvy Ladies

www.savvyladies.com

Credit Card Overwhelmed: Notes on Debt Consolidation

“My credit cards are driving me insane,” a friend complained to me over mochas (bought with cash) yesterday morning. “It’s like I can’t stop thinking about how much debt I’m in, because the minute I’ve sent off one minimum payment, I get a bill from a different company.”

I asked her if she had considered debt consolidation, and she replied that she had heard about consolidation loans, but don’t you need to own your home to get them?

The truth is, there are numerous options for those looking to save time, hassle and frustration by combining all their monthly payments into one. Below are a few:

1. Credit card transfers. This can be an excellent way to go, if – and only if – you are certain that you’ll be able to pay off your balance before the low introductory interest period is over. BEWARE: Watch out as rolling your debt from one card to another can hurt your credit scores.
2. Home equity. This is the loan type to which my client thought I was referring. For those lucky (or unlucky, depending on how you view things) enough to own a house, this can be a great way to lower your interest and get better payback – and overall – terms for the money you owe. BEWARE: I know too many people who have innocently moved their credit card debt onto their home equity line of credit, only to rack up new credit card debt only months later.
3. Loans against retirement funds or life insurance policies. Most employers allow this for 401(k) plans, and most insurance companies don’t even require that you pay back the loan – you can deduct the balance from the benefits paid to your beneficiaries. While the latter may not be too happy, this is an option and worthy of a mentioning. BEWARE: Taking money from a 401 K can impact your retirement security. Not to mention many loans are due in full 60-90 days after you leave or are fired from the company.
4. Nonprofit credit counseling agencies. The employees of these agencies do debt consolidation for a living. They negotiate with credit card companies daily, and will be able to score you the smallest possible fees and most favorable interest rates. BEWARE: Not all credit counseling agencies are the same. Do your homework and make sure that you are working with a reputable company.

These are just a few examples of ways to get control over your debt situation – simple ways to commit to a plan that both eliminates your debt and takes your mind off it. Always remember that many people have had this problem before you – and many have gotten out of it.

Stacy Francis, Savvy Ladies

www.savvyladies.com