Our New Home

We’ve been searching and searching for a house and putting in many offers. Our agent just called us back and told us that our offer has been approved. FINALLY!

We are very excited because we are ready to move. My adrenaline is pumping because she said that we can close by June 5th. I said let’s do it.

We are currently leasing an apartment with an end date of June 30th so that is perfect timing. Getting the keys on the 5th will give us time to clean and pack. I’m not looking forward to all the new expenses but we are ready to have space.

 

Alternative Transportation

May is bike month so I decided I’ll give it a try. There are so many benefits of commuting on a bicycle such as health and cost.

We all know that exercise is beneficial and this would be my only exercise. I currently do not exercise. I do if you count chasing my 18 month old daughter around. My one way commute to work is about 6 miles. I did a 3 mile test ride on Sunday. It took me 22 minutes and I was exhausted. I then realized that I had a flat so that needs to be fixed.

The initial cost was not too bad since I already had a bike and lock; however, I did get a helmet ($20) and a reflective ankle strap ($10).

Car vs Bicycle

Our current car is a Honda Pilot SUV which was recently purchased used because the Honda Accord was getting a bit small for the family. The SUV gets about 20 mpg. Currently gas is $4.05/gallon so round trip (12 miles) will cost me about $2.43 and then you have to add the cost of wear and tear which I don’t know how to calculate so I’ll just say it cost $2.50/day. My commute time is 22 minutes/day. On a bike, it doesn’t cost anything but my commute time is 1.5 hours/day but I do get the benefit of a good exercise which would prolong my life and that is priceless.

Making Changes

A few routines need to change. For one, I’ll need to leave to house an hour early and take a shower at work. Therefore, I’ll need to pack and bring my toiletries and clothes for the week. Two, I bring milk for breakfast, so I’ll need to bring in a week’s worth and leave it in the fridge. These are just small changes for the better.

Sister’s Finances

Over the weekend, I visited my folk’s house which is about a 90 minutes flight. I was telling my sister about this blog that I’m starting and she started telling me about her finances…and it is worse than I thought. Her debt soared to $65,000! I wanted to help her so I told her that I will be her financial coach.

My sister (Sis) didn’t really think about her finances much as long as she was able to get by paying for things from her part time job. Sis would only make minimum payments to credit cards and spend and get in debt with the mentality that she will pay it off when she finishes school. She thinks that she in debt because she was not making enough. She does not have a budget, not paying herself first, not saving, and wants to by many things.

Fast forward and Sis just finished college with a degree in nursing and started working with a starting salary of $60,000. She just got first full pay check. She now wants to pay off all her debts at the same time she needs a car and wants to move out. It seems a bit difficult with the amount of debt she had.

The Plan

My advice to her was to stay at home until the debt is paid off since she does not have to pay rent. As for the car, I told her to get something inexpensive until her financial situation is better where she can save for a car. As for her debt ($40,000 in student loans and $25,000 in credit cards debt), I told her to use the “Snowball effect” as David Bach calls it in his Automatic Millionaire books. Her minimum payment on all her debt does not give any room to pay extra or save.

Budget

 I’m not sure where I got this but here is the budget that I think would work for Sis:

Housing 35%
Transportation 15%
Debt Repayment 15%
Savings 10%
Living 25%
Total 100%

 

Since she does not have to pay for housing and she does not have a car payment, all that can go into paying her credit card which is about half her monthly income.

Road Block

The budget sounds like a good plan from my standpoint but I think it will difficult for Sis since she is not used to her income, sticking to a budget, and stop spending on wants. Also, she wants to move and plan on doing so in August which I think is a bad idea. In addition, she wants to buy the new 2013 Toyota Camary.

Keeping Track

 I made a spreadsheet for Sis to keep track of the balances on her credit card so she can see that she is making progress. Also, I will be blogging about how I’m helping her tackle her debt.

Blogging

I have finally started my first blog site ever. This is one of the things on my list to do. I’ve been following a few financial blogs and thought it would be good to create my own. I believe it makes me more conscious about my finances because when I’m spending, I’ll be thinking if I should blog about it.

I am no whiz in putting a blog site together and it has taken me hours for this one. As I write this post, I’m still trying to figure a few things out such as trying to create two separate blogs, life and money, in one site. So far, thanks to Google and forums, this blog is slowly coming together. I don’t beat myself because like anything I am learning, it takes time.

Debt Free or Not

I’ve always been in debt. It started with my first credit card in college at the age of 18. Currently, as I write this blog (as of 4/20/12), my debt includes a $12,900 car loan and two credit cards totaling $3,000, all at 0% APR (car loan is from Bank of Mom). The funds from my bank account and with the refund from my tax return, I am able to pay it all off. Debt free! With that in mind, I enjoyed that moment. It was a great feeling. Did I pay it all off? Nope.

My wife, daughter and I are living in a one bedroom apartment. It is getting really cramped. I didn’t pay off all my debt because I had an option and that is to purchase a home.

Before I met my wife, I purchased a 5 bedrooms-3 bath house. I lived in the master bedroom and rented out the other four rooms to my friends and co-workers. My mortgage was $1,450 and I was receiving $1,250 in rent. About a year in, I met my beautiful wife. About six month into our relationship, I knew she was the one and convinced her to move in. Shortly after, my wife got pregnant. Six month into her pregnancy, we decided to get an apartment of our own and rent out the master bedroom for $450. So I had a positive cash flow from my rental and I was renting an apartment.

The lease on our apartment is coming up at the end of July so we decided to look for another apartment because rent was expensive. During a discussion with my wife, she said “I wish we can get our own place” and I thought we are not able to because I am in debt, I have no money saved, and I already have a home so I wouldn’t qualify for any assistance. I was refinancing my home and figure I’ll ask the loan officer if I was able to purchase another home.

The good news was she said that I am able to BUT I would have to meet the requirements:

  1. The mortgage on the two houses cannot exceed 45% of my income (I do not make a lot)
  2. Because I have a home, the next home will be considered an investment home (higher interest rates)
  3. I will need to have at least 20% plus reserve fund, loan officer said $10,000 is good

Because of the income restriction, I was pre-approved at a max of $170,000. I think it was unfair that investors have higher interest rate. And I do not have 20% which is about $34,000 plus closing cost.

My parents came to visit, about a 6 hour drive, and stayed in the living room. They told me to get a bigger place. I told them when the lease is up, we’ll move to a 2 bedroom apartment. They told me to buy a house and they can help provide the 20%. It is awesome to have options.

Currently, we’ve been searching for a 3 bed-2 bath home. It’s a crazy market out there. Will I take that leap, if we find a house? Yes indeed.

Bank of Mom interest is at 0%. I can pay whenever I can. Of course, I would like to pay it off asap. So, when we find and purchase a home, I would digging myself out of a $50,900 debt!

Car loan

                     12,900
Credit Card

                   3,000
House loan

                 35,000
Total

              $ 50,900

And this blog is to track how I will pay it all off.