Joe's Money

Mortgage rates continue to decrease.  A 30 year fixed rate came through at 4.76% and 15 year fixed rate settled at 3.97%.

These rates are amazing!  When I locked in close to two years ago at 4.875, I didn’t think that rate would be around very long, much less, go lower.

Here we are almost two years after my purchase, and in my opinion, this country is still facing the same challenges.  Most people have strong opinions about how housing got to where it is today.  About four or five years ago, I announced my thoughts, and stick to them to this day.

When the housing market crashed, I think we can all settle on the fact that home owners simply couldn’t afford their payments in the first place.  You can pass the blame on the banks for issueing the loans, or take the personal accountability route and blame it towards the borrower.  Either way, I don’t think the borrowers could afford the payments in the first place.  Of course in return, we get the wave of forclosures.

So why after a few years, are we still experiencing the same issues?  The housing market is flooded with vacant homes, why aren’t people buying?  Well, on the surface we have high unemployment so those buyers are taken off the table.  Most folks that are well off, more than likely have already settled somewhere.  That leaves the poor and middle class.  The issue with these groups, is they still sipmly can’t afford a home.  The remainder of the market is simply waiting for homes to come down in price enough to meet their needs.  Until then, nothing will change.

To be honest, I thought rates would have been raised by now.  Once Fannie Mae and Freddie Mac stopped buying mortgages, I didn’t think there would be anyone left to borrow money at such low rates.  I was wrong.  Since the rates have stayed around 5% for a 30 year fixed rate, the only answer is lower home prices, or I suppose even lower rates, but I don’t see that happening.  There simply won’t be enough incentive to borrow the money out.

Hopefully, the market returns and stabilizes shortly, however, I think we’ve got a long road ahead.

Amazon’s most popular seller, the Kindle, is now available at a lower price point than in the past.  The catch, it’s ad supported.

What does this mean?  It means the kindle screen will add sales offers in different positions on the screen.  It sounds like the ads only appear on the top of the page, bottom of the page, and as a screensaver for power save mode.

The savings?  Only $25.  The standard Kindle is $139, while the ad supported version is $114.

Check out the full details at Amazon

Silver has been on a dominant run up over the last year or so.  However, the increases in price over the last few weeks have been unprecidented.  I have never seen such a large short term gain.

This morning, silver briefly opened up well above $48 an ounce before settling around $46.50 or so.

Individual investors generally pay a few dollars per ounce over spot for investment grade silver.  This could be pushing them towards the assumed resistance point of $50 per ounce and causing some resistance to purchase more.

In addition, the $50 per ounce price may also trigger some sell offs as well by both large and small investors alike.

In my personal opinion, silver and the commodity price rises as of late are caused largely by inflation fears so the rise in prices are to an extent justified.  I say to an extent because it would appear silver is rising at a significantly higher rate than most if not all other commodities including its close brother, gold.

Only time will tell if the wild silver rise is in line with current investors or if the market has been severly overbought.  Back in the 1980’s, silver also went on a intense rally reaching a high of approx. $50 per ounce.  We haven’t quite hit that yet.  Including inflation, we haven’t come close to matching the silver run up in the 80s.

The financial crisis hit individuals at all career levels.  The average 401k balance fell 30% to $45,500 from about $65,000.

The good news is, the recent rally has driven account balances back up to near pre-crisis balances.

The 401k hits affected everyone differently.  A 20 something that just started his of her career isn’t going ot be affected as much as someone nearing the retirement age.  Many people nearing retirement age didn’t have much focus on their retirement savings and never realocated to lower rusk securities.  This lack of action likely prevented many people from retiring as it was too late to correct the damage.

It also affected people in the middle age group.  Most of this group was also weighted heavily in stocks within their 401ks.

Unfortunately, many 401k contributors either lowered or stopped contributing all together when the markets started to drop.  While this seems like a good plan, generally 401k participants who continue to contribute at the same levels through down turns, make out better in the long run.  This is because you are able to but at a lower cost.  You get more shares for your money.  Over the last 100+ years, the market has made an average 11% return.  Based on statics, you can bet your accounts will grow again.  When you continue to contribute through a recession, your cost average per share goes down.  Example below.

You buy 100 shares of a stock or mutual fund for $10 each for a total of $1000.

You then buy another 100 shares or the same stock or mutual fund when the market is down.  Say the price is now $5 per share, or $500 total.

Your cost average is is now $7.50 per share.

Assuming the stock or mutual fund price continues to rise to say, $20 per share, you would have actually made more money on your investment by sticking in through the down trend.

Keep in mind that accounts like 401k are long term investment vehicles, usually 30 years or more.  Don’t let emotions drive your long term investment goals.  Stick with the facts.  The market on average, returns 11% per year.

Buying a used car can save you loads over the price of a new comparable car.  Follow these tips to make sure you don’t get taken for a ride.

1.  Have a plan

Do some research first.  Narrow down your search by looking online at multiple dealers, private party sellers, etc.  Compare the prices and know about what the vehicle is selling for both at dealers and via private party.

2.  Know What You Want

Have all the features you need planned out ahead of time.  If you have a few kids, a third row seat may be needed, know how many miles you put on the car, etc.

3.  Do All Research and Shopping Online From Home, Not at the Dealership

There are way to many places online to research and find exactly what you need.  Don’t waste time by going into the dealership until you have narrowed down your search.  Look at the local dealers and find out which ones have cars you are looking for.

4.  Go to All of the Dealerships and Look before Making Any Offer

Check out all the vehicles on your list.  Get a asking price for all of them.  Since you know what you need, the salesman shouldn’t be able to ask you all the probing questions.  How many kids do you have, how much do you drive, etc should all be avoided.  Never let the salesman know if you are out of a car at the moment.  You want to stay clear of anything that makes you look like you can’t walk away.

5.  Don’t be Afraid to Walk Away

Even if you are in love with the car and know its the one for you, don’t be afraid to walk away.  Use your research to your advantage.  Let the salesman know that a comparable vehicle can be had elsewhere for less money.  If they don’t budge, walk away.  There are tons of cars on the market, you’re bound to find a similar one again.  Stay calm and don’t let the salesman get you.  Walk away.

6.  Leave Emotion Behind

Whenever you are shopping for a big ticket item, always leave emotion behind.  If you are sitting in front of your dream car, don’t let them know you fell in love.  If they know you want or need the car badly, they know they can probably get you for more money.  Keep a neutral face and attitude.  Let them know its the right car, but it needs to be the right price.

7.  Don’t Be Afraid to Be Rude

Salesman usually are, at least when it comes to getting the price down.  Being rude can show them you mean business and you are not going to tolerate the typical nonsense.  You are not there to make friends, you are there to get the best possible price on a very expensive purchase.  Again, don’t let emotion get in the way.  You only care about you, not how much the salesman makes in commission.  They will always say we can’t go any lower.  Its a lie.  Used cars have much more margin than new so there is much more leg room to negotiate.

Follow these steps and you will hopefully be on your way to a new set of wheels.

Well, it turns out no matter what income bracket you’re in, you probably still broke with negative net worth.

This book was a real eye opener for me.  It describes the perception and the reality of millionaires and how they got their millionaire status.  The truth is, the average millionaire is not driving a $100,000 sports car, or even a new car for that matter.  The folks driving the $100,0000 sports cars are usually just as worse off financially as the person making $8/hour if not worse.  They make more they spend more.  The doctors and lawyers may be book smart, but according to the author, they are decades behind on financial literacy.

Check it out, this is a good, inexpensive read!  Enjoy!

Link to purchase book – Used copies starting at only $.50

I hear a case of living beyond your means just about daily.  The entitlement factor in this country is unreal.  You need to get realistic and buckle down your finances.

Unfortunately, most people in our society have been brought up to live beyond their means.  We are surrounded by images and videos of people living extra large lifestyles that are simply out of reason for most.  Growing up with the constant barrage of the rich and famous, has created a society that not only thinks they need this lifestyle, but think they are entitled to it.

When growing up, most teenagers spend their parents money.  Unless they are working, they are likely spending their money on frivolous things like fancy clothes and electronics.  According to statistics, only about 42% of high schoolers find paid employment.  According to the statistics, less than 50% of teens are working, so their parents are funding their popularity contest.  They are simply keeping up with the teenage Jones’s.

Unfortunately, this upbringing sets the teenagers up for failure later in life.  They are taught that at no matter what expense, they must appear to be keeping up.  This is proven by their average credit card debt of over $5,000 for age groups 25-34 year olds.  Had they been taught the value of the dollar at a younger age, perhaps the frivolous spending would have stopped.

The worst part of this ridiculous spending spree is, that age is not a factor.  The statistics are similar for just about all ages.  Many books state the same.  The more you make, the more you simply spend.  Doctors, lawyers, and the like are all chasing their tails with the fast food burger flippers just on a different scale.  If you earn $20,000 per year, maybe you spend $10,000 on keeping up with the Jones items.  If you’re making $100,000 per year, your simply spending $50,000 on most expensive Jones items.

I don’t know the Jones’.

Many people have the ability to carry the perception of being well off for long periods of time.  However, eventually, the jokes on them.  The charade is over and all that is left is the consequences of leading this type of lifestyle.  The result is usually a lifetime of debt.  I like to refer to this as chasing your tail.  You can chase it all you want, but your never going to catch it.

What you need to realize is, you need to stop buying items you don’t need on credit.  If you don’t have the cash, DON’T BUY IT.  Its that simple.  You need to learn to sacrifice for the better long term goals.  Take a serious look at your spending. Tell yourself, you don’t know the Jones’.

Here are a couple of quick tips

1.  Learn to budget and search for bargains.  If you can’t pay cash, don’t buy it.
2.  Do not give children credit cards.  They do not have the financial foundation to handle them.
3.  If you have credit card debt, call your provider to negotiate a lower rate.
4.  Pay off small balances first, then tackle the larger ones.  Remember, always pay at least the minimum though.
5.  Once you’re out of debt, don’t go chasing your tail again, stay out of debt!

I am confident that we can agree that simply put, you must spend less than you make to build wealth.  Whether rich, poor, or somewhere in between, if you often spend more than you make, you will never accumulate wealth.  Although this concept may be equally as important as some of the things listed below, it is not the number one reason people fail to build wealth over their lifetimes.

Reason No. 9:  Procrastination

Many people fail to invest in their own financial future until it’s too late.  While you are young, you have a excellent opportunity and a definite advantage over the older folks because you have time.  The reasons behind not starting young vary quite a bit and are wide ranging.  Also, age seems to have an effect on why you fail to save.  While young, people in their twenties are just entering the workforce and tend to indulge themselves with the hottest trends, electronics, cars, etc.  Once you hit your thirties, maybe a young family is preventing you from putting away as much money as you would like.  At this point you may be living check to check and this is where debt problems stem.  Forties hit and you may have children in college or unforeseen medical expenses.  By the time you hit your late fifties, it is already probably too late.  Compound interest no longer has time to grow as much as it would have had you saved earlier.

Reason No. 8: Lack of Discipline

Most people find it difficult to save because they constantly buy, and very seldom, save.  It is much easier to say yes to your impulses.  Those who are able to say no, are going to have a much easier time building wealth.  Most are lead by advertising and the ease of being able to swipe a credit card.  The “I don’t need to pay for it now” ideas kick in.  Worry about it now, not later.  Until you find the power to say no, you will never get ahead.  Stop trying to keep up with the Jones’.

Reason No. 7:  Inadequate Protection Against Unexpected Expenses

Life unfortunately throws a lot of curve balls at us throughout the years.  May it be a water heater, car repair, or medical expense, these can all put a damper on your financial well being, and quickly.  Implement an emergency fund to cover these unexpected expenses so you don’t fall back on using credit.

Reason No. 6:  Poor Debt Management – Borrowing too Much

Lack of patience can cause you to turn to credit to get what you want NOW.  Again, learning to say no now, will save you tons of money in interest payments as well as buying items you may not have really wanted to begin with.  When using credit, unless you can afford to pay the item off in full at the end of the month, the item can end up costing much more than the original sticker price.

Reason No. 5:  Failing to Adjust How You Live

When people are used to a certain lifestyle or are used to spending, it is very hard to break the trend.  Try to find a way to break the routine. Otherwise, you will never change, and never seek the financial freedom you were looking for.  Don’t be afraid to try something new.

Reason No. 4:  Lack of Foresight

Winners have the ability to look beyond the immediate and into the future.  Although some may see your visions as dreams, don’t forget you need to have a vision to make your dreams come true.  You are not going to win the lottery.  Set a goal and create a path to help you get there.  Look into the future, find what you want, and plan how you will get there.

Reason No. 3:  Using Time Poorly

You’ve heard it a million times, time is money.  You have a choice to spend your time on watching TV all day or taking a look at how you will finance your future.  No one is going to knock on your door and give you the magic formula needed to plan for yourself.  Once time has been wasted, it’s gone.  Use it to your advantage.  Plan what you desire.

Reason No. 2:  Failure to Plan

My old man said it best, if you fail to plan, you plan to fail.  It couldn’t hold more true.  If you don’t plan what you want, you have essentially removed all hope of ever getting where you want to be.  According to polls, only 5% of people plan and only 2$ have their plans written down. Planning and writing your goals down can be a great motivator.  Everyday when you get up and look at your goals, you are setting the mindset that the reward is later and you can and will stick to the plan.  If you don’t have a plan or goals, how can you succeed?

Reason No. 1:  Lack of Knowledge

This should actually read lack of willingness to gain knowledge.  Most people give up after reading one thing they don’t quite understand.  Make an effort to read more about financial literacy.  This subject can be found in countless books and online websites.  The knowledge is there for the taking.  It is up to YOU to take in and process it.  This will help you find what is best for you.  No one, including financial advisors, have a better picture of your financial future than you.  Turn off the tube and read a book.

Stop living paycheck to paycheck.
Stop blaming your financial problems on anyone and everything besides you.
You are the only one that can control your future.
Find motivation to plan the rest of your life and stop living like a sucker!

Interesting read I stumbled across…  The below graph shows the average credit score for each email domain listed.  The data is a sample of 20,000 credit scores and their corresponding email address.  I would have suspected AOL to be lower than Yahoo.  Whats up with the Yahoo users?

Well well…  I received a notice in the mail today informing me the ownership of my mortgage has been transfered, sold, or assigned to our good friend, Fannie Mae.  What does this mean for me?  According to the notice, nothing.

Since I am in a fixed 30 year loan at 4.85% interest, my loan rate will never change.  The Fannie Mae notice also reflects this stating: The transfer of ownership does not affect any term or condition of the mortgage.

Something I learned from this notice…  I was always under the impression that Fannie Mae, along with others, originated (Issued) loans.  This appears to be a false assumption.  It states “Fannie Mae is a shareholder owned company with a public mission.  We do not make mortgage loans but instead provide funds to lenders by purchasing the loans they make.”  I had no idea.  Maybe I’m the only one that was clueless about this.

I had heard of loans being sold over and over when I started to look for financing for my home.  I chose a local credit union to try and avoid this but it looks like I failed considering my loan was sold not even 6 months later.  I still make my payments to my credit union but I still find this odd.  At least I didn’t end up sending my money to another bank I really can’t stand.  My credit union has always been leaps and bounds better than any bank I have ever tried.  I really wanted to keep my money within this community based organization.  At this point, I would only assume the interest made off my mortgage payments will go to Fannie Mae.

I wish I could make the assumption that all loans picked up by Fannie Mae were as secure as mine is.  If that were the case, maybe I’d buy a few shares.  After seeing them implode as of late throughout the housing bubble, I doubt thats the case.