Homeowners Tips

Wealth Is What You Save, Not What You Spend

By Jennifer Waters

Want to be a millionaire? Don’t overspend and use debt wisely.

We all may not be millionaires but there are plenty of financial and life-planning secrets we can learn from the well-heeled.

Most people know that wealth in the U.S. is in the hands of a small percentage of the total population. And, today, most of those folks with a net worth of $1 million or more have earned it themselves.

They’re mostly entrepreneurs who create everything from high-speed networks to garbage haulers. They dig ditches and build houses and grow corn and make jewelry. They deal stamps or coins or artwork and control pests and cut lawns. They also cure people and give them new teeth. Others will defend their neighbors or even feed them.

And they’re not big spenders. In fact, most of those with big bucks live well under their means — think about Warren Buffett still living in that modest Omaha home — and they put their money instead toward investments that help them stockpile more wealth.

“Wealth is what you accumulate, not what you spend,” according to Thomas Stanley and William Danko, the authors of the seminal tome on America’s wealthy “The Millionaire Next Door,” first published in 1996.

“It is seldom luck or inheritance or advanced degrees or even intelligence that enables people to amass fortunes,” the authors wrote. “Wealth is more often the result of a lifestyle of hard work, perseverance, planning, and, most of all, self discipline.”

Wealth is defined in many ways, though it’s generally determined as the value of everything you own minus debts. But there’s a difference between marketable assets — things you own that could be liquidated rather quickly, like stocks, bonds, real estate — and possessions like cars, clothing and household items that you use regularly and aren’t likely to sell.

Income alone does not make one rich. It helps, of course, to build wealth, but the financially independent look to their salaries as a means to an end, which is that pile of cash.

“The wealthy don’t spend their wealth on discretionary purchases,” said Pam Danziger, founder of Unity Marketing, a consumer market-research firm specializing in luxury goods and experiences. “They get rich by maximizing the value of their investments.”

That doesn’t mean they don’t pay big bucks for pretty shoes or outfits, but that most choose those items carefully and shop for value and quality. “They truly evaluate the purchase as an investment, not an expense,” Danziger said.

What they do though is diversify those investments, which gives them more flexibility to ride out difficult times. “The wealthiest clients have very, very diversified portfolios that go way beyond just stocks and bonds into hedge funds, currencies, commodities and emerging markets,” said Leslie Lassiter, managing director of the JPMorgan Private Wealth Management.

“There are many, many mutual funds out there that will allow you to get exposure to those types of asset classes,” Lassiter said.

Among the biggest differences between those flush with cash and those wishing they were is in how they pay for things. Millionaires tend to use cash for most of their purchases, including cars, homes and boats.

For the average wage earner, of course, that’s not always an option but it still holds this lesson: Don’t look to debt to fund your lifestyle.

Most wealthy people use debt for investment purposes and are careful not to over-leverage themselves. “A prudent use of debt is an appropriate thing for anyone,” Lassiter said.

They also plan very well and spend a lot of time at it. Many are compulsive savers and investors who often say the journey to riches was far more fun than the reaching the goal.

And they’re patient, willing to invest in the long term and wait it out. “They stick with their investments and are more likely to have a financial plan,” said Sanjiv Mirchandani, president of National Financial, a subsidiary of Fidelity Investments.

Many take the long-term approach to investing because they’re working at being financial independent. When they retire, for example, many will know exactly how much they need to live on, to give away and to leave as a legacy.

“The best ones really understand how much liquidity they need to cover their expenses and make sure they have that much cash on hand,” Lassiter said. “That’s something the average person should do as well.”

At the same time, she said most are very careful about leveraging debt. “The wealthy tend to balance between the two,” she said.

Recommendations for accumulating wealth:

Live below your means: People with high incomes who spend all that money are not rich; they’re just stupid.

Plan: That means plan for today, tomorrow and 30 years after retirement. Take time doing it too and spend time monitoring it every day. Use budgets and stick to them.

Diversify: As Lassiter said, look for mutual funds that allow you exposure to asset classes that aren’t related to each other.

Reduce use of credit and turn to cash: It’s easier, of course, for a prosperous person to pay for a house in cash than it might be for most folks, but credit-card debt for luxury purchases or extravagant vacations will never pave a road to riches.

Have access to cash: While the rich keep much of their wealth invested, they can get cash when they need it. “Have some kind of line of credit available, like a HELOC (home-equity line of credit) that you never use,” Lassiter said. “It’s a safety valve.” She suggests a year’s worth of cash to cover expenses; Danziger thinks three years worth is a better bet.

Spread cash around: When the wealthy pulled money out of the equities markets two and three years ago, they opened a bevy of bank accounts, all guaranteed up to $250,000 of deposits by the Federal Deposit Insurance Corp.

Bring your children into the mix, and remember the importance of estate planning: The affluent can go to great lengths to teach their children about money and how to manage it — something every family should do. Though talking about money with children consistently ranks as one of the most dreaded conversations, it’s important that your heirs know where all the bank accounts and safe-deposit boxes are — even that their names are on them, too — who the attorney is, where the will and trusts are filed.

Wringing out tax savings

Tax day, April 18, quickly approaches, so now’s the time to familiarize yourself with what is and what is not deductible when it comes to the things you own. And, better yet, some purchases can win you tax credits, which are far more valuable than any deduction can be. A deduction lets you reduce the amount of income that gets taxed, so if you’re in the 25 percent tax bracket, a deduction saves you 25 cents on the dollar. A tax credit is a dollar-for-dollar reduction of your tax bill.

Here’s what’s deductible, from A through V:

Appraisal fees for casualty and theft losses. Deduct appraisal fees paid to determine the amount of a casualty loss as a miscellaneous itemized deduction.

Automobile. If you bought a car in 2010, you can add the sales tax amount paid on the vehicle to your state sales tax deduction, if you itemize and choose to deduct sales taxes rather than state income taxes. If the sales tax rate on the car or truck is higher than the general sales tax rate, you can deduct only the amount of tax due at the general sales tax rate.

Boats. As with cars, if you bought a boat in 2010, you can add the sales tax paid on it to the IRS table amount in deciding whether to deduct income or sales taxes on your 2010 federal return. If the sales tax rate on the boat is higher than the general sales tax rate, you can deduct only the amount of tax due at the general sales tax rate.

Company cars. Employers are required to report as taxable income to you the value of personal use of company cars. Among the approved methods of setting the value for 2010 are $1.50 each way if the car is used to commute between home and work, for example, or, for cars that cost $15,300 or less, 50 cents per mile. For personal use of more expensive cars, your employer is required to report higher taxable income, based on the amount it would cost to lease the vehicle.

Computer. It’s difficult to qualify to deduct the cost of a computer unless it is used in your business. However, if you use your computer to track investments and do your tax return, you may be able to depreciate part of the cost as a miscellaneous itemized expense. Such costs are deductible to the extent they exceed 2 percent of your adjusted gross income.

Diesel-car credit. Several clean-diesel automobiles qualify for a tax credit similar to the one available for gasoline/electric hybrids. Purchasers of a new 2010 Volkswagen Jetta sedan 2.0-liter TDI between July 1 and Dec. 31, 2010, for example, can claim a credit of $650.

Donation of car to charity. Your deduction is usually limited to the amount the vehicle is sold for by the charity.

Driving for charity. You can deduct 14 cents per mile for each mile you drove while performing services for a charity in 2010.

Driving to doctors. You can deduct 16.5 cents per mile for each mile you drove for medical-related travel in 2010 as part of your medical expenses. (For 2011 medical driving, the rate rises to 19 cents a mile.)

Homebuilding materials. If you itemize deductions, you can write off either the state and local income taxes you paid in 2010 or the state and local sales taxes, whichever gives you the bigger tax break.

Hybrid vehicle credit. A credit of as much as $2,200 is available to 2010 buyers of certain, but not all, hybrids. If you bought a hybrid in 2010, be sure to see if you’re eligible for this tax break. Vehicles purchased after Dec. 31, 2010, aren’t eligible.

Moving expenses. If a move is connected with taking a new job that is at least 50 miles farther from your old home than your old job was, you can deduct travel and lodging expenses for you and your family and the cost of moving your household goods. If you moved to take your first job, the 50-mile test applies to the distance between your old home and your new job. The deduction is allowed even if you do not itemize deductions. If you drive your own car, you can deduct 16.5 cents a mile for 2010 moves. (For 2011, the standard mileage rate for moving is 19 cents a mile.)

Personal property tax. You can deduct state and local taxes that are based on the value of personal property you own, such as an annual county tax on the value of your car. Sometimes this fee is included in what you pay to renew your license plate.

Safety deposit box fees. You can deduct such fees if you use the box to store taxable-income-producing stocks, bonds or investment-related papers and documents. This write-off is a miscellaneous expense, deductible only to the extent all your qualifying miscellaneous expenses exceed 2 percent of your adjusted gross income. You cannot deduct the rent if you use the box only for jewelry, other personal items or tax-exempt securities.

Sales taxes. If you itemize deductions for 2010, you can choose to deduct either city and state income taxes you pay or state and local sales taxes. This is a no-brainer for those who live in a state that does not impose an income tax … claim the sales tax deduction. You don’t need to keep all your receipts either. The IRS has a table with estimates based on your income, family size and where you live. Then you can add sales taxes paid on cars, boats, aircraft and other big-ticket items. Purchase of such items could lead some taxpayers in income-tax states to pay more sales tax than income tax.

Sales tax paid on leased vehicle. If you leased a vehicle in 2010, you are allowed to add any sales tax you paid on the transaction to the amount in the IRS sales tax table, if you choose to deduct sales taxes instead of income taxes on your federal return. If the state sales-tax rate on the purchase is higher than the general sales-tax rate, you can only deduct the amount of tax due at the general sales-tax rate.

Standard mileage rate for business driving. You can deduct 50 cents per mile for each mile you drove on business in 2010, plus parking and tolls. If your employer did not reimburse you the full 50 cents a mile for using your vehicle for your job, claim the difference as an employee business expense. For 2011, the rate is 51 cents a mile.

Vacation home. Mortgage interest on a second home is deductible, just as it is for your principal residence. Property taxes can be deducted on any number of homes. If you rent the place for 14 or fewer days during the year, the rental income is tax-free to you. If you rent it for more than 14 days a year, you must report the income but also may claim deductions for rental expenses.

Vehicle registration fees. Any fee you pay to register your vehicle is deductible on Schedule A as a personal property tax if the fee is based on a percentage of the vehicle’s value.

Top Green Gardening Tips

• Keep it real
  You know what they say about Mother knowing best? Well, Mother Nature never needed to steal sips from a chemical cocktail of pesticides, weed killers, and chemical fertilizers to keep her act together. Nix the poisons and layer on some all-natural compost, instead. Call in beneficial insect reinforcements to wrestle pesky garden pests to the ground. Who needs to play Command & Conquer when you have battlefield drama unfolding before you in real time?
• Make compost from kitchen scraps
  Compost like a champ by throwing in your vegetable waste, instead of allowing it to be trucked off to the landfill. Known as “gardener’s gold,” compost enriches soil fertility by giving it a shot of high-powered, plant-loving nutrients. Aside from stimulating healthy root development, the addition of rich and earthy compost also improves soil texture, aeration, and water retention. Why waste your hard-earned cash on commercial products when the real deal is free for the taking? Speed up the process with the help of earthworms or go wriggle-free (if you’re the squeamish sort).
• Buy recycled
  If your delicate aesthetic sensibilities balk at the idea of reusing yogurt or takeout containers to house your hydrangeas, check out the myriad environmentally friendly planters and raised-garden kits now available. It takes less energy to recycle something than to mine virgin materials, so whether you choose recycled copper, plastic, or even rubber to anchor your tender shoots, it’s all copacetic. Admire your handiwork and eco-smarts while lounging on recycled lawn furniture.
• Grow your own food
  Buying organic produce can admittedly get pricey, so how about growing your own food instead of painstakingly manicuring that lawn for the umpteenth time? An estimated 40 million acres of the 48 contiguous American states are covered in lawns, making turf grass the United States’ largest irrigated crop. American homeowners apply a cringe-worthy tens of millions of pounds of fertilizers and pesticides to their lawns, often at many times the recommended levels. All that for little more than ornamentation. It’s time to return to the use of gardens as food sources—you won’t find fresher (or cheaper) eating anywhere else.
• Join a community garden
  Urban dwellers bereft of a yard shouldn’t fret: You can still get in on the hoeing and growing action by signing up for a plot at your local community garden. Community gardens typically have a communal composting area, as well, so if you don’t have room for one of those triple-duty rotating barrel composters in your home, here’s your hookup.
• Go native
  Now that you’ve learned some of the merits of “de-lawning” your home, consider replacing the ol’ putting green with native and indigenous plants, whether they’re cactus gardens in Arizona or bottlebrush grasses in Northern Michigan. Already adapted to local conditions, native plants are easy to grow and maintain, generally requiring less fertilizer and water, as well as less effort to rein in pests.
• Harvest rainwater
  Adding a rain barrel is an inexpensive and effortless way to capture mineral- and chlorine-free water for watering lawns, yards, and gardens, as well as washing cars or rinsing windows. By harnessing what’s literally raining from the sky, you’ll not only notice a marked dip in water costs, but also a reduction in storm water runoff, which in turn helps prevent erosion and flooding. Pop a screen on top of your barrel to keep out insects, debris, and bird missiles, and make frequent use of your water supply to keep it moving and aerated.
• Water with care
  While we’re on the subject of water, adopting a few smart-watering habits will do much to stretch out your supply, especially during dry, hot spells in the summer. Adding mulch and compost to your soil will retain water and cut down evaporation. Plus, soaker hoses or drip irrigation only use 50 percent of the water used by sprinklers. Water early in the day so you can avoid evaporation and winds. And the best place to drench your plants? Directly on those thirsty roots.
• Bring on the butterflies and bees
  Provide a pesticide-free sanctuary for our pollinator pals, such as butterflies and bees, by growing a diverse variety of native flowers they’re particularly drawn to, such as wild lilac, goldenrod, and lemon balm. (Gardens with 10 or more species of attractive plants have been found to entice the most bees.) If you haven’t already heard, we’re in the throes of a major bee-loss epidemic, which is causing beekeepers in North America and Europe much hand-wringing. Because pollinators affect 35 percent of the world’s crop production—and increase the output of 87 of the leading food crops worldwide—extending a little hometown hospitality could go a long way.
• The power of 4
  Get hip to four “R”s of the U.S. Environmental Protection Agency’s GreenScapes program: Reduce, recycle, reuse and rebuy. You want to reduce your output of waste to ensure you’re using materials efficiently. Reusing compost and tree clippings for mulch, or rainwater for watering take up little time and energy, but offer plenty of environmental bang for your buck. Recycling saves resources, while rebuying means seeking products that meet your needs, but are more environmentally friendly than your usual purchases—take, for instance, solar outdoor lighting versus electric-powered fixtures.

What’s Behind H&R Block’s Free Tax Service

By Ben Steverman

What Happened to H&R Block’s Advertising Promotion of Previous Years, the “Instant Money” Refund?

The 2011 tax season is under way and the airwaves are full of a deal that sounds too good to be true: For another month, Americans can visit their local H&R Block (HRB) office and file their taxes for no charge.

How and why would the nation’s largest tax filer give its service away for free? In a nutshell: 1) H&R Block is being forced to scramble harder this tax season to compete with other filing services. 2) It’s unable to offer a service that brought in customers in years past. 3) The “free taxes” offer isn’t for everyone.

Here are the details:

What’s the Catch?

The promotion only covers those filing the 1040EZ federal form, which is about 16 percent of H&R Block customers. The 1040EZ form covers only the very simplest tax issues. It can’t be used by anyone who has dependents, makes more than $100,000 per year, is age 65 or older, claims adjustment to income like alimony or tuition deductions, or itemizes deductions. Thus, homeowners who deduct mortgage interest or people with large charitable contributions can’t use the 1040EZ.

Even those customers who can use a 1040EZ will have to pay H&R Block extra to file any state income tax returns. Just seven states—Alaska, Florida, Nevada, South Dakota, Texas, Washington, and Wyoming—have no income tax.

The offer began on Jan. 14, when H&R Block’s local offices started filing 2010 returns, and ends on Feb. 15. From Feb. 15 to Apr. 18 (the tax filing deadline is different this year because of a holiday on Apr. 15 in the District of Columbia), customers will be charged to file a 1040EZ at an H&R Block office. That’s an important consideration for taxpayers who may still be waiting for key end-of-the-year paperwork.

What Does H&R Block Get Out of the Promotion?

The free returns aren’t a charity project, even if many of H&R Block’s early filers tend to be poorer people who want their tax refunds as soon as possible. “It’s not about giving away business for free,” says Amy McAnarney, H&R Block’s senior vice-president for tax operations. One goal is to increase foot traffic at H&R Block offices. ” ‘Free’ can be a very powerful word,” she says. Until they arrive for their appointment, many of these new customers might not realize they actually need more complex tax forms—and thus will wind up paying for them.

Another goal is to attract younger taxpayers—those who can still use the 1040EZ—and win their loyalty in future years. The company estimates 55 percent of EZ filers will need to file a more complex form within two years.

Why This Year?

H&R Block’s retail operation has been losing customers, with retail returns falling 6.1 percent last year. Morningstar (MORN) senior equity analyst Vishnu Lekraj says in-office tax preparation services continue to lose market share to tax software and websites, which can be much cheaper. “The taxpayer is becoming more and more comfortable doing their own taxes,” he says.

Many software or online tax tools have already offered 1040EZ filings for free, including those from H&R Block and Intuit’s (INTU) TurboTax. Last year, McAnarney says, H&R Block tried offering free 1040EZ returns in offices in three cities—Miami, New Orleans, and Atlanta—”and it was received very well.”

Offering free returns is also part of the company’s effort to bounce back from some rough years, analysts say. A rise in unemployment has hurt business for all tax preparers, with industrywide IRS filings dropping 1.7 percent last year, the largest decline since 1971.

Those “refund anticipation loans” have come under fire by the federal government and consumer groups for high fees and finance charges. Compass Point equity analyst Mike Turner estimates RALs cost H&R Block’s 2010 customers about $67 each, which works out to an annualized interest rate of 54 percent on an average $3,000 refund. The pitch by H&R Block and other services has been that RALs let customers—generally those who lack bank accounts—get their refunds immediately, rather than waiting eight weeks or more to get a check from the IRS.

After regulators started cracking down, H&R Block’s lender, HSBC (HBC), announced it wouldn’t fund the company’s Instant Money program this year. As a result, H&R Block can’t offer RALs, while competitors like Jackson Hewitt (JTX) still can do so, at least this year. Regulators seem serious about ending RALs entirely, Morningstar’s Lekraj says, adding: “They just feel consumers at the end of the day are getting taken advantage of.” Compass Point’s Turner estimates H&R Block could lose 10 percent to 15 percent of its RAL users. H&R Block will offer alternatives, including a prepaid debit card and a refund anticipation check that can take eight days to clear. But the free tax service is designed to pick up some of the promotional slack.

Won’t This Eat into H&R Block’s Revenue?

H&R Block is confident that many of those new customers who enter offices looking for a free return will end up paying anyway—for more complex federal returns, for state returns, or for other services. Last year the average tax return at an H&R Block retail office cost $189, and executives don’t expect that to decline in 2011. “Our ability to monetize this program means a minimal impact on our net average charge,” H&R Block Retail Tax President Phil Mazzini told analysts on Dec. 7.

The high U.S. jobless rate, the cancellation of the Instant Money program, and the free filing promotion all make it difficult to predict how well the company will do this tax season, analysts say. “Everything is really up in the air in my opinion,” Morningstar’s Lekraj says.

Compass Point’s Turner expects H&R Block will stop losing business to the bad economy, but says it will continue losing customers to do-it-yourself, computerized tax filing options. “I would expect their total filers to be down slightly year over year,” he says.

Management is offering no guidance to investors. Analysts surveyed by Bloomberg estimate revenues will fall 1.4 percent, to $3.7 billion, in the 2011 fiscal year ending in April, following a 4.5 percent decline last year. Net income is estimated to fall 2.1 percent, to $469 million, after a 1.3 percent drop in 2010.

Now’s time to consider those key tax questions

Congressional inertia over the fate of the nation’s tax code has created some enormous year-end headaches for high earners. Many are torn between taking steps to reduce their 2010 tax bill now and pushing off deductions until next year, when they may be worth more if tax rates rise.

But for the majority of Americans, the old rules for maximizing deductions to lower your tax bill for the current year still apply. For example, increasing 401(k) contributions during your last few pay periods will reduce your taxable income and could qualify you for other tax breaks tied to income limits. This year, workers can contribute up to $16,500 to employer-based retirement plans, and workers 50 and older can contribute up to $22,000.

Another paycheck-related tax shelter is a flexible spending account. Now’s the time to figure out how much money to put aside for out-of-pocket medical expenses and dependent care for 2011, and, in case your employer is one of the holdouts still requiring all of 2010′s savings to be spent this year, to make whatever appointments you need to use up your set-aside.

And while you have the paystub out, think hard about how much you’re handing over to the IRS each month. Most Americans overwithhold — basically, giving Uncle Sam an interest-free loan — but about a quarter end up owing money, sometimes with a 10 percent penalty on top. Increasing your withholding in the last few pay periods is a perfectly legal strategy to make up for being behind.

Anyone, regardless of income, can convert a traditional retirement account to a Roth IRA, but only those who do so by Dec. 31 will have the added benefit of splitting the tax bill on the conversion between their 2011 and 2012 tax returns. If you choose the split, the conversion won’t increase your 2010 income.

Several other tax breaks are scheduled to expire at year-end, so if you qualify, grab them while you can. This is the last year that taxpayers in the 10 percent and 15 percent brackets, individuals with taxable incomes of up to $34,000 and married couples with taxable incomes up to $68,000, can cash in long-term capital gains tax-free. (The preferential capital-gains treatment also applies to qualified dividends held in nonretirement accounts.)

It’s still not clear whether retirees will be allowed to direct up to $100,000 of their required IRA distributions to charity this year. It is one of several expired tax breaks that Congress hopes to reinstate for 2010 during the lame-duck session in December, along with a higher exemption level for the alternative minimum tax that would spare more than 20 million middle-income Americans from paying the levy originally intended to tax the very wealthy. If you’re looking to invest in mutual funds around the end of the year — maybe you’re getting a bonus? — pay attention to your timing. You don’t want an excess tax bill as part of the bargain.

And mind the tax rules as you consider your generosity around the holiday season. If you’re giving to your favorite charity, try giving appreciated stocks instead. Both you and the charity could come out ahead. If it’s family members (or other lucky individuals) who are the beneficiaries of your largesse, keep in mind the rules on the gift tax exclusion: It’s a use-it-or-lose-it scenario.

Remember…

• The home -energy tax credit, which can reduce your tax bill by up to $1,500, is in its final days.  To qualify, you must install energy-effiicient window, close doors or skylights by December 31.  If you claimed the maximum credit last, YOU can’t take it again

http://www.sellmyhomevirginia.com

Tips On Saving

In these uncertain times, saving money is as important as earning. Saving money is a great and effective way to see your wealth grow day by day. It is also named as “achieving financial freedom” and the key to do this task is to spend less money than you actually make. It seems like a very hard task to follow but there are many easy ways to save. First of all you need to grow a financial habit.

Read along for tips on saving:

• Pay your mortgages on time- You can save extra money by paying the mortgages every month with a set amount. An extra monthly payment every month can make a huge difference. You can set a goal, save and pre-pay your mortgage.
• Debt consolidation- It is the way to pay back other loans by taking a loan. In most of the cases, debt consolidation involves a safe loan against any asset mainly a house. Debt consolidation is very important to those people who are willing to pay the credit card debt.
• Saving money from salary- You can put aside some money from your paycheck as soon as you get it and can save the amount. You can also put the amount in a paying account to get higher interests. These amounts will help you to grow your savings.
• Use your credit card limitedly- Stop using your credit card or use the credit cards occasionally or in emergency. Make a habit to pay using debit card or cash. In this way, you can avoid debt problems as well as can save money. Don’t open new credit accounts.
• Use credit cards with 0% credit offers- You can save up to $ 1000 by using transfer credit cards with 0% balance. The cards offer you the liberty to spend more as well as help you to save money. But you need to be careful about the fees of balance transfer.
• Improve your credit score- Try to get a good credit score by paying off the credits as soon as possible. If your credits score increases, you can save up to thousand dollars in interest from a home loan to a car loan. You can also get benefit in the school loans. You can start from today by knowing your present credit card score and concentrate on to improve the score.
• Stay away from Private Mortgage Insurance (PMI) - If you are paying 20% of your monthly income, then you are only paying the private mortgage insurance. Contact with your mortgage company to remove the PMI and start saving.

Effective tips on saving also include investing regularly in a retirement savings accounts, cutting down unwanted expenses, getting rid of things you don’t need or avoiding impulsive buying sprees. How much you save is not important at first. The important thing is to get into the saving mode. Once it becomes a habit you will find it easier to grow your wealth portfolio.

Effective Home Buying Tips

“A house is built of beams and walls but a home is made of dreams and love”- this quote is an appropriate one for those planning to purchase a home of their own. A house changes into a home with the love and happiness you associate with it. You may have hunted for various houses but there will be just one which will hold your attention and you feel connected to it. However, purchasing such a home is not an easy decision as you need to discuss certain criteria with your family members. They also need to like it and support your decision.

Buying a home can be stressful if your research is inadequate. And an effective negotiation at a fair and reasonable price can boost your confidence. So here are few effective home buying tips that you need to know before purchasing a house.  

• Research: You need to research carefully about the house you are planning to purchase. Make sure that you know about the type of house you are buying, the location and its benefits, and how you are planning to buy the home – down payment or mortgage. The research will help you understand the general real estate price of your search area, the income levels, school system, the tax rate of the property and many more things that will help you negotiate properly.

 

• Start low but not very low: The next effective tip that you need to keep in mind while negotiating with your seller, is the asking price on the home. Start your price from a lower rate as 10% to 15% less than the price tagged by the seller. Rest assured that the seller will also be expecting to negotiate at their own price rate. It is necessary to put a price that is below the asking price depending on the market value. But make sure that you do not offend the seller by quoting a very low price that is way beyond reasonable.

 

• Don’t seem desperate: You have to keep a poker face while negotiating with your seller. If you have found your perfect home or desperately in need of a house, never let your seller know that. Once the seller understands your desperate desire to own the specified home then it will give him an upper hand in the negotiation.

 

• Don’t be afraid to enquire: Be ready to ask the seller if you find any kind of unanticipated problems during your course of inspection. You can either ask the seller to repair those problems for you according to the sales rules or provide you a credit on the price of the home. This can prove to be an effective negotiation technique.

 Try out some of these effective home buying tips to get the best deal out of your home buying exercise.

How to Save $10,000

Could you save $10,000 in a year? Sounds good right about now, doesn’t it. Many households could. And they could become millionaires as a result.

The average four-person American household spends more than $66,000 a year, according to the federal government’s most recent Consumer Expenditure Survey. Cutting $10,000 would mean scaling back a mere 15 percent. Or expressed another way, find ways to cut a buck from every $6 or $7 you spend.

And the great news? Your efforts to save $10,000 mean you’re $10,000 richer. That’s as opposed to earning an extra $10,000, of which you keep maybe $7,000 after taxes and Social Security take their bites.

How do you save such huge sums of money? Spending smart.

First, let me tell you what spending smart is NOT:  It is not about being a cheapskate. It’s not some “live cheap, die loaded plan” or some exercise in financial anorexia. I don’t tell you how to make sweater vests from dryer lint or separate two-ply toilet paper into two rolls.

No, spending smart is about spending on purpose, rather than by accident and habit. It’s about plugging the leaks of wasteful spending and redirecting that money to things you truly care about. In that way, it’s not about deprivation. It’s about liberation. It’s about how to spend smarter on stuff you’re buying already anyway. The goal is to reallocate spending so you satisfy all your needs and a whole lot of your wants too.

So how do you save $10,000 in one year?

Many personal finance writers who dole out such advice get their biggest savings from suggesting you refinance your home mortgage from a high rate to a low rate. I’m not going to do that. I’ll assume you’ve already refinanced if it was in your best interest. After all, we’ve had low interest rates for quite a few years now. If you haven’t refinanced, rates are revisiting all-time lows, so it might be worthwhile.

Instead, let’s look at your regular spending. It might reveal easy, painless cuts you might not even be aware of. Below are just a few examples of spending areas that, combined, reap a cool $10,725. These ideas may not all apply to your household, but they will give you some ideas.

FOOD

Food spending has two main categories: eating in and eating out. You can save big money on both.

Spending on eating in requires grocery shopping, of course. The idea while grocery shopping is you shouldn’t go to the store each week to buy what you need. Instead, you should buy what’s on sale and stockpile it. Think about that for a minute: You buy the exact same products and brands, you just buy them at ideal times. You compound your savings when you buy multiple items at the sales price. You further compound savings on those sale items by using coupons – both the Sunday newspaper kind and those you print off the Internet. Printable coupons are available at such websites as CouponMom.com, SmartSource.com, and Coupons.com.

To save money on eating out, the big idea is to do it less often. Dine out on special occasions and because you want to, not because you’re a poor meal planner. We’ve all done it. You come home tired and frazzled, and haven’t given dinner a thought. It’s just easier to head to a restaurant.

The solution is freezer meals. What are freezer meals? Whenever you cook, make double and triple batches. If you’re making meatloaf, make three and freeze two. Then on those rushed evenings, you’re only microwave minutes away from a healthy and inexpensive dinner.

And of course, you could bring your lunch to work. It doesn’t take much time. You could pack a lunch during television commercial breaks of American Idol or Lost.

You can easily save 20 percent on your grocery bill by matching coupons with store sales and stockpiling what you buy. Expert shoppers say they save 50 percent or more. For eating out, could you get by with $150 per month if you planned more home-cooked meals? Here’s the annual accounting, using figures from the U.S. Consumer Expenditure Survey:

•Food at home: $4,967 reduced to $3,974. Savings $993.

•Food out: $3,704 reduced to $1,800. Savings $1,904.

•Total savings: $2,897

INSURANCE

The main idea here is you don’t insure against little things. Insurance is to protect you from financial disaster, not nuisance expenses. That means “just say no” to extended warranties. They’re almost never worthwhile.

And life insurance is to protect people who rely on your income no matter how you die, whether from cancer or alien abduction. That usually means you just need plenty of term insurance, which is cheap.

If you already have term life insurance, you should “refinance it.” By that, I mean consider getting a new policy and dumping your old one. Why? Because rates have plummeted over the past decade. You could probably get a lot more coverage for less money, even given that you’re older than when you took out your current policy. A man who got a policy in 1994 for $1,300 a year could “refinance” to a new policy and be paying half that.

Also, raise those deductibles on home and auto insurance. Doing so will lower your premiums substantially. Raise auto insurance deductibles to at least $500, and, preferably, $1,000. Raise home insurance deductibles to $1,000 or $2,500.

Shop all your insurances regularly. Prices vary widely on the exact same coverage. And paying more does not ensure better service, a study by the Consumer Federation of America found.

Most people can knock off 20 percent from home and auto insurance premiums just by raising deductibles, comparing prices, and getting the discounts you’re entitled to.

So the accounting for insurance during a year might go like this:

•No extended warranties. $300 reduced to $0. Savings: $300

•Home and auto insurance: $1,600 reduced to $1,280. Savings: $320.

•Refinancing term life insurance. $1,300 reduced to $700. Savings: $600.

•Total savings: $1,220

TELECOMMUNICATIONS

This category refers to such services as phone and television. The big idea here is to make sure you’re not paying for more service than you need. That sounds like a “no-duh” type of advice. But take a look at your bills for wireless and landline telephone and television. Do you use all those services you’re paying for? Do you really need unlimited long-distance or Web access on your cell phone?

Telecom companies make pricing plans confusing on purpose, in hopes you’ll overbuy. There’s more competition than ever, so price and offerings change continually. That means shop around for telecom – frequently.

Having all the bells and whistles, including free long distance, on both your wireless and home phone is overkill for many people. In fact, some people might be able to ditch their landline phone altogether and use an Internet-based phone service. One of the cheapest ways to go is using MagicJack, www.magicjack.com, which costs just $40. The price includes a simple device that hooks to your computer and a year’s worth of service. If you’re a light user of wireless, say less than 300 minutes per month, try prepaid service, especially if you have dozens or hundreds of minutes left over every month. You might be able to reduce your cost to $15 per month, taxes and junk fees included, instead of the average $85 per month.

It might be radical, but what if you got your television over-the-air with an antenna for free? If you have a high-definition TV, those signals will look fantastic, although you’ll only be able to receive broadcast network stations. You can supplement your TV watching with all the online content available at the networks’ websites or such aggregation sites as Hulu.com and Joost.com. You can watch on your computer or hook your computer to your television. You could ditch a $75-a-month bill entirely.

•Landline phone. $600 reduced to $40. Savings: $560.

•Switch to prepaid wireless. $1,020 reduced to $180. Savings: $840.

•Pay TV. $900 reduced to $0. Savings: $900

•Total savings: $2,300

These are examples of becoming financially FIT – by addressing the spending categories of Food, Insurance, and Telecommunications. Even if you don’t take these exact tips, try concentrating your spending cuts in these general areas. They are ripe for painless cost-cutting.

How else can you save? How about breaking a few of your bad habits?

BREAK DAILY HABITS

Daily habits are the most insidious because the expense is so small but it compounds so quickly. Cut an $18 case of beer a week, a $7 case of bottled water a week, a $4 latte every work day. and a $5.50 pack of cigarette a day.

•Beer: $936

•Bottled water: $364

•Latte: $1,000

•Cigarettes: $2,008

•Total savings: $4,308

The grand total of savings comes to more than $10,000 – in fact, it’s pushing $11,000. Of course, you’ll have to customize spending cuts to your own household. Most people will find plenty, just by taking the time to look.

Now, for the magic: If you can find $10,000 in spending cuts and invested the money for 30 years, earning a modest 8 percent return, you would amass $1.2 million.

Credit Scores Not Always On The Number

By Eileen Ambrose, Tribune Newspapers

Everyone’s got your number — a credit score, that is — and as a savvy consumer, you might want to find out exactly what they’ve got.

This three-digit number tries to predict whether you are a credit risk and can dictate the terms you get on credit cards, mortgage loans and insurance premiums. Once secret, scores are now widely pitched by companies, often for a price.

But the score you buy might not be anywhere close to the one your lender or creditor uses. Even a small difference could keep you from getting the terms you expected.

“They show you a score but don’t tell you it’s not the one that’s used by the lender, or not even used by a majority of lenders,” said Evan Hendricks, author of “Credit Scores & Credit Reports.” “That ain’t right.”

Scores and credit reports wield increasing influence on our financial lives. That’s why Congress has been looking into how they are created and used.

There’s also been a push on Capitol Hill to make credit scores more accessible. A provision in the House financial reform bill would allow consumers to buy the scores used by creditors. And next year, federal regulations take effect that could make free scores available to consumers applying for credit.

Credit scores remained a mystery until about a decade ago, when legislative pressure forced mortgage companies and credit bureaus to share scores with consumers.

Now they flood the marketplace. Fees run about $15 for a score and credit report, or $15 to $40 a month for a service that provides scores, reports and other features.

FICO is the oldest and most widely used score by creditors and lenders.

The three major credit bureaus, Experian, Equifax and TransUnion, created the VantageScore four years ago. Consumer advocates say it’s not broadly used by creditors, though TransUnion spokesman Steven Katz said many of the top financial institutions and credit card issuers use it.

There also are knockoffs, or so-called FAKO scores, that are purely educational and sold only to consumers.

Creditors select the score they want to use. It could be one that’s tailored for a specific product, such as autos or credit cards and not sold to the public. Or they can supplement a score with their own model.

Mortgage brokers find the scores a consumer buys can be 30 to 100 points higher than the FICO they use, said Liz Pulliam Weston, author of “Your Credit Score.” That can mean “not only don’t you have a good score, but you’re subprime,” she said.

Some creditors adjust every 20 points, Hendricks said. If you buy a score that says you’re a 740, but the lender is looking at one that pegs you at 720, the interest rate could be a quarter-point higher than you expected, Hendricks said.

If you’re just curious, try one of the free credit scores through Quizzle.com, CreditKarma.com and Credit.com.

But if you plan to refinance or make a big purchase using credit, buy your score at least three months in advance so you have time to improve it. (To boost a score, pay bills on time, avoid new lines of credit and reduce credit card balances.)

Buy the FICO score because it’s likely closest to the one your lender will use, credit experts say. Go to myFICO.com to get scores based on a TransUnion or Equifax report for $15.95 each. (Consumers no longer can buy a FICO score based on an Experian report, though lenders can get this.)

Get both FICOs in case the results vary significantly, a sign that one report holds more negative information than the other, Hendricks said.

“We focus so much on the credit score, we forget the score is driven by the report,” said John Ulzheimer, president of consumer education for Credit.com.

What Is A Lease Option?

Lease options were popular financing instruments in the late 1970s and early 1980s and were primarily used as a way to circumvent alienation clauses in mortgages. However today it has become one of the ways in which a person with low credit or credit problems can buy a home.

A lease option is a lease contract and a purchase contract combined together. A lease gives the tenant or the renter the exclusive use of the property for a specific period of time. An option gives the right not the obligation to buy a specific property at a specific price on or before a specific date. It is a grant of the right to purchase property, at set price and terms, from the owner of the property. The person who receives the option can purchase the property during a set period of time agreed to by both parties when they enter the option but is not bound to purchase.

The basic philosophy behind lease option is that you rent the home and have an option to buy it at a set price by a set date. Generally there is a non-refundable deposit which could be $1,000 or $10,000. This is also called option fee. The option fee is applied towards the purchase price when you close the deal. If you do not exercise the purchase option, you lose the deposit. Generally a part of the rent is applied towards the purchase price to enable you to more easily come up with a sufficient down payment to get reasonable financing terms.

Lease options are becoming increasing popular with those that have bad credit problems and can not normally qualify for a home mortgage loan. To qualify for a home mortgage loan, you have to fix your credit situation first. Lease options provide that solution

Next Page »