Like many people in that situation, we went out and bought a larger home – a four bedroom affair. It gave us a lot more room for our family to grow – at least in theory.

What’s actually happened? Our three children enjoy sharing a single bedroom. One of the bedrooms sits largely empty as a guest bedroom. Our ample closet space mostly just stores stuff that we don’t really need to keep and we could sell off. We have a living room and a family room without any real reason to have two separate rooms for that.

While our original apartment might have been slightly on the small side, we really didn’t need a house nearly as big as the one we have. We have a lot of excess space that’s mostly used either to store stuff or to sit empty until the rare occasion comes when we might use it.

In our day to day lives, we mostly just use two bedrooms, the combination kitchen and dining room, and the living room. We use the family room a bit, but we don’t do anything in there that wouldn’t work just fine in the living room. One of the bedrooms is unused, and the other is an office that could work in the corner of the living room. We have a bedroom we basically never use and two bathrooms that are rarely used, too.

We could easily be very happy with 60% of our square footage.

That doesn’t mean I want to downgrade. After all, our house is fully paid for and it’s in an area where property values are inching up steadily even through the housing collapse. What it does mean is that our perception of what kind of house we needed was drastically overinflated before we actually made the purchase.

Here’s the truth: a big house seems like a great idea, particularly when you have a family, but an awful lot of it just winds up being storage space for stuff you rarely use. It’s effectively an overpriced storage unit.

So, what would I do if I had it to do all over again?

For starters, I’d buy a home substantially smaller than what I thought we needed. We did not need to triple the square footage of our apartment. We needed to perhaps increase it by 50% or maybe, on the outside edge, double it. Everything beyond that has essentially become storage space.

Why do it this way? A smaller home means a smaller mortgage, which means smaller payments and much smaller professional stress to maintain a certain income level.

How can you assess what you actually need? Rolling back the clock, I should have simply made a list of our needs and not our wants.

It can be hard to distinguish between the two. A technique that really works well for me is listing every reason I can possibly think of for the move, giving the list some time to rest, then going through it and eliminating those that are clearly “wants.”

That doesn’t mean you should buy a house because it has attributes that you want, but if you focus instead on houses that just meet the things you need, you’ll be paying far less and still likely getting some of the things that you want.

The result? You’re happy and your wallet is definitely happy, too, as is your stress level.

The post The House That Is Too Small appeared first on The Simple Dollar.

Today, I’m excited to share Randy Woods’ experience with home insurance claims and how much of a Catch-22 they can be. Be sure to read Randy’s guide to home insurance and some of the articles he’s written for The Simple Dollar too. Check out his tips on renters insurance, DIY home repairs, and home replacement costs.

Feel free to share your experiences in the comments, or reach out to the writers via their contact info.

-Trent
___________________________

Sometimes people acting with the best of intentions end up causing the greatest damage. Several years ago, some neighbors of mine – I’ll call them the Waterstons – found out the hard way that contacting your insurance about a seemingly innocent home repair question can end up costing you dearly. Remember: Talking to an insurance company is like talking to a police officer: Everything you say can and will be used against you, no matter how noble your intentions.

Talking to an insurance company is like talking to a police officer: Everything you say can and will be used against you, no matter how noble your intentions

3 Questions Before You Call
Often the status of a claim involving home repair comes down to three simple questions:

• What did the homeowner know about the maintenance issue?
• When did the homeowner know it?
• And who did the homeowner share this information with?

The Issue

The Waterstons first noticed a problem when they discovered a small amount of water flowing from under the concrete foundation of their home. Being conscientious folks, they looked at the age of the pipes in their home (about 30 to 40 years old) and noted that many of them had experienced a few pinhole leaks due to corrosion and rust. They determined that the old pipes under the foundation were starting to fail.

They knew that under their homeowners policy, repair of aged plumbing fixtures falls under the Property Not Covered exclusion, which also included repairs to flues and drains in the house. These repairs are considered to be part of the regular maintenance for “wear and tear,” which is not covered by most homeowners policies. Neither is seepage of water that occurs over a period of 14 days or more.

The Waterstons fully understood the reason for these exclusions. Their policy really only covered them for what the insurance industry calls fortuitous events, or losses that occur randomly and by accident, which nobody can accurately predict – for example, when a pipe with an undetected flaw suddenly bursts, causing water damage to the walls and floor.

The Policy Question

However, they did notice some wording under the Additional Coverage clause, stating that the insurer wouldn’t pay for repairs to the old pipes themselves, as well as any resulting loss or damage caused by the old pipes. After getting a few plumbers’ estimates on how much it would cost just to dig up the foundation to get to the pipes, the Waterstons heard a whole range of figures — from $5,000 to $15,000 — which were all well above their $1,000 deductible. They decided to file a claim to recover these costs.

Small Mistake #1

There was one small but significant error with the Waterstons’ thinking: They never experienced an actual property loss due to the leak. The water never entered their dwelling, instead escaping into the soil and down the hillside; this was not considered a loss.

Because of this, the insurer denied their claim. The insurer ruled that if no loss exists, any expenses to repair plumbing fixtures would fall under the exclusions clause. So, in essence, even though the Waterstons were trying to do the right thing and prevent what might be a much more expensive covered loss, they were denied coverage because the loss hadn’t yet occurred. Those familiar with Joseph Heller’s novel “Catch-22” might be slowly nodding your heads right now.

Bigger Mistake #2

But wait, it gets worse. After hearing that their insurer would not pay for the tear-out costs unless they actually experienced a covered loss, the Waterstons decided to leave the pipes as is and waited for a covered loss to occur. Huge mistake!

By admitting in their claim that they had intended to make repairs to their old plumbing fixtures, the Waterstons tipped off their insurance company that the pipes in their house were ready to fail. At that point, the insurer knew that any claims arising from future ruptures in the old pipes would no longer be considered “fortuitous,” and thus plausibly be denied.

Sure enough, several months later, the Waterstons did suffer a sudden rupture in their underground pipes, and this time there was minor flooding in the interior, costing tens of thousands of dollars in damage to wood floors, drywall and other possessions. The insurance company – cruelly, but correctly – denied them coverage again, saying the loss was entirely expected.

Would the insurance company have ruled the same way had the Waterstons never contacted them about repairs? It’s hard to say what they might have concluded without any prior knowledge of the pipe’s condition. Perhaps the insurer would have ruled it fortuitous after all. But the poor Waterstons did not do themselves any favors by tipping their hand with that first phone call and then shot themselves in the foot by not following protocol.

The Gray Area of Home Repair

One partial reason for the confusion over these kinds of claims is the murky relationship between insurers and their policyholders over maintenance disputes. This is especially true when it comes to water claims.

For most policies, property owners have no contractual duty to make any specific home repairs. Most only require that property owners only “take steps to protect their property in the event of a loss to covered property.” But with some policies, the insurer can prove that a policyholder knew about, and ignored, a potential problem. In this case, when something bad actually happened, the insurer considered that peril to be non-fortuitous.

One partial reason for the confusion over these kinds of claims is the murky relationship between insurers and their policyholders over maintenance disputes. This is especially true when it comes to water claims

Lessons Learned

After reading this sad cautionary tale of the Waterstons, you can avoid a similar fate by following these three rules of thumb:

1. Make sure you have suffered a covered loss before you file a claim. If you aren’t sure, re-read your policy language closely or contact your state insurance department for guidance. Otherwise, leave your insurer out of it.
2. Don’t report to your insurer damage or deterioration that isn’t covered. Most phone calls and emails to insurance agents and adjusters are monitored and/or recorded. A slip of the tongue over the phone about the condition of your property could potentially cause a future claim denial or cause your premium to increase upon renewal.
3. If you do mention that your property needs repairs – for goodness sakes, make them! The temptation may be strong to save your money and hope for the best in this troubled economy, but this short-sighted frugality could come back to haunt you. Once word gets out about a home maintenance issue, think of the Waterstons and start bringing those repairs to a speedy conclusion.

The post Avoid the Home Insurance Catch-22: Follow Through on Repairs appeared first on The Simple Dollar.

Think about it for a second. What do you do with storage space? You fill it up with stuff that you don’t have any consistent use for. If you had a consistent use for it, it wouldn’t be in storage.

Most of the stuff that people have in storage should actually be sold on Craigslist or eBay or put in a yard sale to generate some funds instead of taking up space. Sure, there are always a few things that make sense to put into storage – Christmas decorations, older tax documents – but those items take up perhaps one closet.

That’s only part of the equation, though. You actually pay for storage space.

Storage space counts toward the square footage of your home. The greater the square footage, the greater the cost. If you’re using some of that square footage for storage, then you’re spending a lot of money just to store stuff.

Let’s say you have a 2,000 square foot home, but 400 square feet are being used solely to store stuff. If you compressed that storage down to 100 square feet, you could purchase a less expensive 1,700 square foot home and not lose a single square foot of living space. What you would lose, though, is a healthy chunk of your insurance payments, a piece of your property taxes, and a portion of your mortgage.

Not only that, you’ll put some money in your pocket when you sell off that 300 square feet of stuff. That stuff could be anything from old CDs and DVDs to collectibles or pottery or clothes. Whatever it is, selling it will put money back in your pocket.

If you’re struggling to make ends meet and you also have a closet or two jam-packed with stuff, you have a solution to your problem sitting right there in front of you.

First, go through all of that stuff and get rid of it. If you haven’t looked at something in a year, trash it or sell it. If it’s “sentimental,” why is it gathering dust in a box somewhere? If you’re looking at old photos you can’t bear to get rid of, scan them and make digital copies that will last forever.

As you’re clearing it all out, put aside anything that has resale value. Entertainment items almost always have at least some value. Collectibles usually do, too (though often not as much as you’d expect).

Your next project is to sell off all of that stuff you’ve put aside. Use eBay for the collectibles. Use Craigslist for the larger items and the functional items. Use yard sales for the stuff that doesn’t sell on eBay or Craigslist.

This will take some time. In fact, it’ll take a lot of time. It’s a great way to fill up some spare hours, though. Every item that sells is another bit of space cleared out of your home and another few dollars in your pocket.

Once money starts flowing in, put every dime of it aside. Don’t spend it (unless you’re covering shipping expenses for selling some of the stuff). Hold onto it and enjoy watching it build up.

When everything is gone, you’ll find yourself with a lot more space than before. In fact, you may find yourself with enough extra space that it makes complete sense to move into a smaller and less expensive place.

You’ll also find yourself with a lump of cash. That lump of cash can be used to pay down debts or serve as the start of saving toward something big, like a house down payment.

Spring cleaning isn’t just an opportunity to clear out your living quarters. It’s a chance to earn some money, re-examine your possessions, and even look toward the possibility of more cost-efficient housing. Take advantage of it.

The post Storage Space and Spring Cleaning appeared first on The Simple Dollar.

Our jobs were in two different towns about forty minutes apart, so it seemed to make sense to live in a place that was halfway between the two so that neither one of us had a long commute.

In terms of our money, this was a horrendous decision.

For starters, it meant that we had to continuously maintain two vehicles. Every morning, when we went outside, we needed two vehicles to start. We had to maintain insurance on both vehicles as well.

Another problem is that our actual home is pretty far away from many services. There’s a Subway and a post office within reasonable walking distance of our home – and by reasonable, figure you’re going to spend an hour walking to get there and back. There are no grocery stores (outside of top quality gas stations) within a ten mile radius of our house.

Even worse, there really were no basic services right along our commuting paths to work. My old commuting path took me by a number of specialty shops, but I didn’t drive anywhere close to a grocery store without going at least a mile or two out of my way. My wife’s commute is almost entirely interstate.

In a lot of ways, we were in a much better situation right after we were first married. We owned one vehicle between us that Sarah used for commuting. I used public transportation to get back and forth to work. Like many forms of public transportation, there was a stop directly in front of a grocery store, where I’d stop a couple times a week to pick up groceries.

This saved us a ton of money. We had one fewer vehicle, saving us on the cost of the vehicle, the insurance, the maintenance, the license, and so on. We didn’t have to make a special trip to pick up groceries and we had to be careful with our grocery purchases so they could easily be carried on the bus. Most of the services we needed were within walking distance of our residence.

Today, we could easily own a home within reasonable distance of Sarah’s workplace. In fact, I’ve actually shopped for homes in that area. She could use public transportation to get to work, our children could school within a mile of our home, and we would actually rarely have to drive anywhere for anything.

Sounds great, right? There are a few catches.

One, there’s a higher up front cost for this location. A similar home to the one we have right now would be more expensive there.

However, our savings on our vehicle expenses would be tremendous. My best estimate is that our home price would increase by about 30% to 35% given the relative property values using online property estimators, but by moving down to one vehicle we would almost exactly recoup that difference over the course of a year. If you then assume that Sarah uses public transportation rather than the vehicle to go to and from work, we would save significant money on the move.

Two, Sarah and I both desire living in a rural area. Here’s the thing, though – living rurally does not make a whole lot of sense when Sarah is commuting into the middle of a metro area for work. That means a very long daily commute for her, adding significantly to her day.

However, if she were to look for a job in a more rural area – and there are jobs in the area much closer to where we live now that she would be very qualified for – that would change our equation substantially. A drastic reduction (or even elimination) of her commute would be a tremendous money saver for us and enable us to live in the rural area we desire.

So, what’s the real lesson here? You can save thousands of dollars each year – no exaggeration – by finding a home that minimizes your commute, transportation costs, and home insurance costs. This doesn’t mean you need to live right down the block from your job, but that if you can live in a location that is served by mass transportation that can take you to work and to other services you need, you’ll save tremendously because of that. Carpooling is another option that can work well in these types of situations.

You’ll likely need one fewer vehicle for your family if you’re able to do this, and even the remaining vehicle will see fewer miles on it. You can then sell off the remaining vehicle, giving you a small cash boon, a lower insurance bill, one fewer car to license and fuel and maintain, and fewer parking fees. Sure, you’ll probably need a mass transit pass or two, but the cost of those is far less than the costs you’re giving up.

What if you’re more rural, like us? Live very close to one person’s workplace rather than the other, enabling that one person to go vehicle-less for work, using a bicycle or walking to work. (That’s essentially what we do at this point, except that I work from home so I could theoretically work anywhere we moved to.)

The place you choose to live has a huge impact on your housing costs (take home rebuilding costs for example), but it also has a tremendous impact on your transportation costs as well. This should be a factor when you’re trying to calculate the total cost of living in different areas, and you should strive to minimize that total cost until you’re in a very financially secure place.

The post Picking the Right Spot for a Home appeared first on The Simple Dollar.

Over the years, we’ve held to this dream. It’s been our primary savings goal over the past several years. We would love a home like this.

Recently, we’ve reached a point where we could start realistically planning for this goal. We’ve been looking at pieces of land in the country within the county where we live (as well as adjacent counties) and we’ve even looked at the cost of building a home to our specifications.

Sounds good, right? Well, the longer we look at this choice, the less likely it becomes.

Why?

First, the practical: every piece of available land we’ve seen in the last year has a significant drawback to it. Most of the time, it ends up putting us in a school district we’re unhappy with. When we find land in a school district we like, the land is either located near a hog confinement or has a 7,000+ square foot industrial building on it. Seriously. This is what we’ve found in our area in the last year of pretty regular searching.

Beyond that, though, our needs have started to change. Our two oldest children have built some very close relationships with children their age all around us. I can walk out of our front door and point at ten different house and name the children that live there, some things about those children, and my children’s connection to them.

We’ve also re-evaluated our current living situation. We’re in a school district we like. Three of our closest friends are within twenty minutes of our house. We have access to a wide variety of grocery stores within ten miles of our home. We live in an area where our children have many friends, yet it’s rural enough that I can look out the window of the room I’m sitting in right now and immediately see cornfields and trees.

So, why were we considering moving? One big reason was space. Right now, our three children share one bedroom. It’s something like a barracks in there and our children spend little time in there except for sleeping time. As they get older, that will change. They will naturally want some degree of privacy, and a 70 square foot room with three teenagers (or even pre-teens) in it is a recipe for sibling conflict.

We don’t necessarily want a home with a big increase in square footage. Instead, what we want is a home with the square footage distributed a bit differently.

So, after a lot of discussion and planning, we decided on a different path. It’s a less expensive route, one that preserves what we like about where we live now while also handling the space question.

We’re going to do a significant remodeling, likely next summer.

What does that entail? For starters, we’re going to build a new master bedroom atop our garage. According to the blueprints I’ve seen, this shouldn’t be a major problem, but we’ll obviously have to have an architect investigate the question more seriously.

We’ve asked around for some off-the-cuff estimates for this job and we can already afford the worst estimates for the job (ones that include adding load-bearing beams and other features).

Have we abandoned our dream of a house in the country? No, not really. However, we are realistic enough to know that this home might be ours for quite a while and we want to make the home as perfect as possible for our family as our children grow up. This move will add value to our property, keep the window of opportunity open for an eventual move to the country, and still preserve the things we really love about where we currently live.

Sometimes, the road you envision for the future doesn’t go exactly where you want, but I’ve found that you never regret planning for it.

The post Making a Housing Decision appeared first on The Simple Dollar.

In my journals, I tried to keep notes on the houses we looked at. When I reflect on that time, I really only remember looking at a handful of houses, but my notes show me that we looked at a lot of houses.

So, what’s interesting about that? The first ten houses we looked at were all at least $50,000 more expensive than the house we ended up buying.

Our initial assumptions about the house we needed were very much on the high end. We were looking at houses with five bedrooms, huge amounts of open space on the lower floor, basements that were either finished into a giant parlor or could be finished in such a way, amazing open kitchens with huge islands, and so forth.

These are things that we desired in a home, but honestly, we didn’t need them, particularly in our first home.

What changed our minds? A few things did.

First, we sat down and talked about what we actually needed in a house at that time. Although we really wanted all kinds of neat things, we didn’t need them. We needed three or maybe four bedrooms. We didn’t need a really big kitchen. We only needed a single modestly-sized family gathering room.

Everything else, when we got right down to it, was unnecessary.

Our second clue was when we seriously calculated what our homeowner expenses would look like. Insurance was much higher. We’d be facing property taxes. Our utility bills would jump. Our actual cost of living there would also jump, as our rent in our small apartment was quite a bit lower than our expected mortgage payments. Any repairs would come out of our pocket, not that of the landlord.

It’s not just a matter of comparing your mortgage bill to your rent. Home ownership comes with quite a few additional expenses that you’ll have to deal with.

For us, the final straw was a serious talk with our lender. She was quite happy to lend us any amount we asked for, but our lender actually had a conscience. She told us that in good conscience she wouldn’t sign off on a large preapproval, but only one for a relatively small amount. Why? On paper, it was an acceptable risk for the bank, but in reality, it was a pretty big risk for them – and for us, too. Home ownership is financially hard, especially at first.

Our lender was right, and I truly wish all lenders acted with such responsibility during the housing bubble.

After that, we started searching in our own price range, and we eventually found a perfect house that really met our needs that was well within a reasonable price range for us. We’ve lived here for several years and couldn’t be happier with our decision.

When you’re shopping for a house, particularly your first one, you don’t need the house you think you do. Aim lower. You’ll find that you won’t be choked by your finances and that the house actually works really well for you. Build up some equity and maybe in a few years you can move on to the house of your dreams. It’s a far better path than the tightrope walk that comes with a house that exceeds your means to easily pay for it.

The post Buying Less House Than You Can Afford appeared first on The Simple Dollar.

To put that in perspective, if you have a $200,000 home loan, your monthly mortgage payment for a thirty year loan would be $930.78, and on a 15 year loan, you’d only be paying $1,385.01.

That’s pretty low. For many people, these rates would be lower than what you might expect to pay on a similar rental.

When Sarah and I bought our home, interest rates were falling pretty quickly. We got a rate that was under 6% on a thirty year mortgage and were thrilled with how low it was. Today, we could have received a mortgage with the same monthly payments but for an amount tens of thousands of dollars higher. The pendulum really has shifted in favor of the buyer.

These low rates bring about a big question: how low do rates have to be before it’s a good idea to get a mortgage, even if you don’t have a 20% down payment?

This is really a tricky question to answer, because much of the answer has to do with one’s personal ideas about money. There is no good way to “run the numbers” over the long term, because the true answer to this question relies on the future of the housing market in the particular area where you’re buying the house, as well as things like the homeowner’s desire and ability to keep their house in good shape.

Given that we can’t know such things, my perspective is that you should buy when your total monthly cost for owning the home is less than the total monthly cost of renting. Right now, the interest rates are making the home ownership cost quite low.

For example, let’s say you’re looking at buying a townhouse that’s similar to the apartment you’re renting with your spouse. You’re currently renting for $1,200 a month and you pay, say, $25 a month in renters insurance.

If you buy a $200,000 home with nothing down, you’ll be paying $930 a month in mortgage payments, another $80 or so a month in PMI, another $80 a month in homeowners insurance, and another (say) $200 a month in property taxes. That adds up to $1,290, which means it’s a solid deal, but not a great one.

Now, if you buy a $150,000 home with nothing down, your total goes down to somewhere around $970 a month, which makes it a better deal.

In other words, if the total cost of your rental is more than the total cost of home ownership, then you should own. If it’s really close, I lean slightly toward renting, simply because there are usually extra costs in home ownership, such as home repairs and the like. You can no longer just call a landlord.

Right now, the pendulum is about as far toward home ownership as can be, but it’s still not all the way there for everyone. If you’re in an inexpensive apartment and don’t have a down payment saved up, you’re better off staying put.

What about the pendulum swinging back the other way in the future? The possibility of something becoming more expensive in the future is not a good reason to put yourself in a financially risky position today, particularly if your financial position isn’t strong enough for home ownership. If you don’t have a lot of money to spare, leave the risky investments to others and play it safe.

The post Should You Buy When Mortgage Rates Are at Record Lows? appeared first on The Simple Dollar.

I just heard an ad on the radio offering a 3.99% mortgage. That makes sense to me. Where I’m confused is when the ad then mentions a 4.22% APY immediately after that. What does it mean? What interest rate will I actually be charged?

First, let’s break down the terms.

APR, or Annual Percentage Rate, defines the interest rate that is charged to the principal of the loan. You will be charged a total of 3.99% interest on that loan over the course of a year.

APY, or Annual Percentage Yield, describes the percentage of the principal of the loan that you’ll have to pay over the course of the year.

The trick here is to understand that we’re talking about two separate and somewhat different things. An example will illustrate this difference clearly.

An Example: Quarterly Interest
Let’s say you have a loan from a bank that has 3.99% with interest that is compounded quarterly. That means that every three months, your loan is charged 1/4 of the interest for the year, which would be 3.99% divided by 4, or 0.9975% interest.

Let’s say your loan has a balance of $100,000 at the start of the year, to make the math more clear.

At the first quarter, your $100,000 loan will be charged 0.9975% interest, or $997.50. This gives your loan a new balance of $100,997.50.

At the second quarter, your loan has a balance of $100,997.50 and that balance will be charged 0.9975% interest, or $1,007.45. This gives your loan a new balance of $102,004.95.

At the third quarter, your loan has a balance of $102,004.95 and that balance will be charged 0.9975% interest, or $1,017.50. This gives your loan a new balance of $103,022.45.

At the fourth quarter, your loan has a balance of $103,022.45 and that balance will be charged 0.9975% interest, or $1,027.65. This gives your loan a new balance of $104,050.10.

Over the course of a year, your $100,000 loan turned into $104,050.10, earning $4,050.10 in interest. That’s 4.05% of the balance of the loan, which is your APY.

Thus, this loan has a 3.99% interest rate, but a 4.05% APY.

In the United States, APY is legally defined as being the rate achieved when using daily compounding. In this case, that would give you an APY of 4.07%. So, where does the rest of that 4.22% come from?

The Other Parts of a Mortgage
What the radio ad isn’t telling you is that in order to get that 3.99% interest rate, you’ll have to pay some fees and possibly a discount point or two. These are up-front costs that add to the balance of the loan.

In this specific case, the fees and points will add enough to the balance of the loan to raise the APY from 4.07% to 4.22%. In other words, the total of the fees and points will be somewhere around $165 on a $100,000 loan, or about $817 on a $500,000 loan.

These fees will be rolled into the true APR that the lender has to give you (not that nominal rate given on the radio that doesn’t include these fees), and it’s that APR that you should be paying attention to if you’re intending to live in the house for a long time.

Another point worth considering is the fact that banks are allowed to advertise interest rates as much as 0.125% lower than what they’ll actually give you. In theory, this is done to allow for market fluctuation between the time you hear the ad and the time you sign on the dotted line, but lenders often push this so that they can advertise with seemingly incredible low rates.

What’s the moral of the story? Two things.

First, shop around. Getting a mortgage is a major financial decision, one that will have an impact on you for a long time. You owe it to your finances to shop around.

Second, get the APR on paper. Remember that APR takes into account most loan costs (points, most loan fees, mortgage insurance), but doesn’t account for some other charges, like application fees, title insurance, title examination, appraisals, document prep, and so on. You’ll likely have to come up with some additional cash for those when you move forward with the loan.

No matter what, never take out a mortgage based on an advertisement. This is far too important of a decision to do it based on a radio ad. Spend the time doing your homework and shopping around first, even if your favorite radio host is recommending a particular product.

The post APR, APY, and Mortgage Math: A Real World Example appeared first on The Simple Dollar.

My husband and I are sitting on a thirty year mortgage (with twenty six years left to go). We still owe $330,000 on our home. A week ago, a very similar home to ours two blocks away sold for $220,000, so we’re under water by at least $100,000. We are thinking of just walking away from this mortgage and renting an apartment for a while until our credit clears up. What do you think?

First of all, there’s a strong personal moral element to this type of decision. Is it morally wrong to walk away from a mortgage? You’ll get strong, impassioned answers on both sides of the question. Some will argue that if you make an agreement with another entity, you’re obligated to stick to it to the best of your ability. Others will argue that banks know what they’re getting into with a mortgage and that foreclosure is a risk they accept in the agreement, so you’re just doing something within the bounds of the agreement.

As with most morality questions, I can’t tell you what to think. I personally feel walking away from your agreements when you have the capacity to fulfill them is morally wrong, akin to lying. If I were a lender, I would never lend to someone who walked away from a mortgage because I would simply view them as too big of a risk. But I’m not a mortgage lender.

Aside from that moral concern, though, is it really a good financial choice? I think it can be, but it depends on the other choices that the person makes.

First of all, walking away from a mortgage will drop your credit rating by 150 points and it will take several years to recover. Such a drop has a huge impact if your credit is good, but a much smaller impact if your credit is already bad.

What kind of impact? It will become incredibly difficult to get a car loan or another mortgage with any sort of competitive interest rate. Lenders will look at your credit score and if your score is low, they won’t offer you a prime loan (if they offer you one at all). You have to accept that you’ll either be paying for cars and homes in cash for the next several years or you’re going to be taking out loans with incredibly painful interest rates and down payments.

If you’re going to do this, your best approach is to make sure you have housing and automobiles lined out for the next several years before your credit collapses. If you’re going to get a mortgage on a second home, do it now and get a fixed rate mortgage while your credit is still good. If you’re going to rent, get your rental agreement set up now before you walk away. If you’re going to need a car in the next seven years, you might want to make the move now (unless you’ll have the cash to do it later).

Another impact is that many other services use your credit ratings to determine what to charge you and whether to do business with you. Insurance is one example of this – most insurance companies regularly do a “soft pull” of your credit and use declining credit as a reason to raise your rates. Many upscale renters will do the same thing and not rent to people with poor credit, which may limit the places where you can rent your housing. Potential employers often pull your credit (I’ve had two employers in the past do this) and use that as an element of their hiring decision, often leaning towards people with good credit over people with poor credit. These are all serious additional costs of walking into foreclosure.

In the end, I don’t think Kelli should walk away from her mortgage as a first response. She should try several other avenues first that would preserve her credit and perhaps even allow her and her family to remain in the home.

First, I’d simply talk to the lender. Explain your situation and discuss options available to you. It’s often easier for a lender to just refinance with you (sometimes even removing some of the principal) than it is to put the homes in foreclosure. Many lenders are currently focused on refinancing in this way rather than taking on more foreclosed homes, so it’s certainly an option.

Second, I’d look at the extra financial costs of what will happen if you do foreclose. Run the numbers carefully here. Include all the extra costs – a serious bump in your insurance rates, for example – and make sure you also include some estimate of the cost of the risks mentioned above – the extra cost of a new car or the challenge of finding a rental home or a new job. Those things have serious financial costs if they occur – or they might have no cost at all. A good way to appraise it is to figure out the cost if it does happen, then estimate the odds of it happening. So, if something has a cost of $100,000 and has a 40% chance of happening, it’d be a $40,000 cost.

You might be surprised to find that staying put is the best option, even if you happen to be underwater in your mortgage. If you still find that abandoning is the best option. then it becomes the moral question discussed above – and moral questions are things we all have to decide for ourselves.

The post Why Not Walk Away from My Mortgage? appeared first on The Simple Dollar.

One of the most common tactics that you’ll see in cost-cutting articles is calling up your insurance company and requesting an increase in your deductible – the amount you have to pay before the insurance kicks in.

On the surface, this works well. If you increase your deductible, your premiums (the amount you pay each month/quarter/year) will go down, meaning your monthly bills are lower. You can chip hefty percentages from your insurance bill just by making this move.

One of my long-time readers, Jeanne, has been writing to me about insurance this week. She has considered doing this, but something is convincing her that it’s not the best move:

I understand that raising a deductible will lower your premiums. But why do we have insurance in the first place? Doesn’t raising the deductible through the roof defeat the purpose?

The first thing to note here is that the purpose of insurance is to insure that you’ll survive financially due to an unforeseen event. We don’t have homeowner’s insurance because it’s fun – we have it because it will help us start over with a new home should our house burn to the ground. Without it, most of us would financially sink. The same goes for renter’s insurance – it’d be tough to lose all of your possessions in a fire without any way to recover. Again, with automobile insurance – if you total your car without insurance, you might be sitting holding just a car loan and nothing to show for it.

Obviously, if you have a ton of money, insurance on smaller things is a lot less important. People with huge bankrolls have no need to carry full insurance on their cars – they just cover the parts that might worry them or that they’re legally required to cover.

Saving money by raising a deductible assumes that you have the cash on hand to cover the deductible in such a situation. If you raise your auto deductible from $200 to $1,000, you’ll see a big drop in your bill, but if something goes wrong with your car, you’re going to need that $1,000. If you don’t have that $1,000 in an easy-to-access place, then you’re in real trouble.

The solution is simple: if you have a well-funded emergency fund in a savings account somewhere, you can raise your deductibles some without worry. A well-funded emergency fund means a minimum of a couple months’ worth of living expenses, plus more if you have dependents. If you have that kind of cash that can be accessed with ease, then by all means, raise your deductibles.

Won’t this cost me more in the long run? Many people who consider this ask themselves whether such a move will cost them more in the long run. After all, if they’re having to come up with a lot more money on each claim, are they really saving money overall?

The average homeowner makes an insurance claim once every nine years. If you raise your deductible on your homeowners’ insurance by $1,000, you only need to save about $120 a year in your premiums in order to create a net savings on average – and, likely, you’ll save a lot more than that.

Similar math exists for other types of insurance. The claims made are so infrequent that you only have to save a little bit on each insurance payment to make up for the additional cost on the deductible.

The key, though, is making sure you have the emergency savings to handle that higher deductible. If you don’t have that, make it a priority before you consider making changes to your insurance policies.

The post Raising Deductibles to Save Money on Insurance: Does It Work? appeared first on The Simple Dollar.

My wife and I have been running our own home-based business for three years now. We rent and work out of a smallish 2-bedroom apartment in the very expensive SF Bay Area. One of those bedrooms is an office that we both share as an office. We spend day in/day out working together in this small space.

About a year ago we realized we could afford to buy a house in an outer suburb of the Bay Area now that the prices have come down. After a year of looking, we’ve now found ourselves in contract on a wonderful 4-bedroom house that we love. However, it’s at the top of our price range–about 30% of our income would go to the mortgage.

I realize that typically this would not be a good idea, as at least at the beginning, we would be stretched. However, the biggest reason we are looking to move right now is to gain more space so that we can grow our business. Currently, we feel like we’ve reach critical mass with what we can do in our small office. With this house, we feel it could be an income-generating asset for us in that it will afford us more space for us to grow our business and make more money. I very much feel like if we had more room to operate and a more official dedicated workspace, we could increase our income significantly.

Most financial advisers I’ve been reading say to buy a small, inexpensive home. This would be fine for us if we didn’t both work from home, but we simply need more space to operate our business.

Of course we could buy a small house and rent an office somewhere, but I’ve done the math on that too, and when you combine smaller house mortgage with separate office rent, the cost is essentially a wash.

The other option would be to rent a bigger house. Rents in the Bay Area are still high, and we would spend about $200/mo less doing this. I know every bit counts, but I don’t know if this savings outweighs the emotional benefits that go with working and living in a home that we own. We also want to start a family and are ready to put down roots.

Finally, we could ditch the Bay Area entirely and move somewhere much cheaper, such as Oregon. While there is some risk in leaving a few of our local clients behind, we could do this with not much risk, as most of clients are all over the country. This option would put us where we want to be financially, but as I mentioned, we want to start having kids soon, and most of my family is here in the Bay Area. Moving away seems daunting.

First of all, your emotional argument is clearly in favor of buying the home. Most of the argument you lay out here is one that makes the case for buying above all else.

Most of the time, regardless of the dollars and cents, people operate with their emotions. They’ll find ways to make the dollars and cents work. In fact, that’s when personal finance really cooks – people spend time soul searching, discover the key things they really want, and then stop wasting money on the things that don’t really matter to them.

In this case, it’s clear that the home matters to you. What things are less important in your life that you’re willing to trade for it?

The maintenance costs of home ownership are far higher than renting. When you buy a home, you no longer have a landlord to call when a toilet breaks or a hot water heater goes out. Instead, you’re calling a repairman – or doing it yourself – and all expenses come out of your pocket. You also have lawn maintenance costs. You also have homeowners’ insurance. You also have property taxes. You also may have association fees. Those can be enormous – they can be enough to break the back of someone who thinks they can afford home ownership.

Beyond the financial cost is the time cost. Suddenly, you’re spending time mowing the yard. You’re spending time changing filters and doing maintenance work on your equipment. You’ve also got more space than you had before, so you’re spending more time cleaning.

Paying these costs – in addition to merely writing the check for your monthly mortgage payments – will exact a toll on your life as you currently live it.

In exchange for that toll, you will gain other things – the room to grow your business and the room to house your family.

It’s an emotional decision that you have likely already made. There are just two things I would suggest seriously evaluating before you actually make the leap to buy.

First, do you have an adequate down payment? This is important for two reasons. First, if you don’t have the financial fortitude to save up that payment while living in a rental unit, where the costs are much lower, you may not have the fortitude to handle the costs of home ownership. Second, without a 20% down payment, you’ll be paying a higher interest rate and/or mortgage insurance costs.

Second, do you have a written, clear plan for how you will make ends meet and how you will utilize that space to grow your business? These both may be nebulous concepts for you right now, but if you buy, they will become your reality. Spend some time actually planning for both of these events. Make a home budget. Make a business plan. Make sure you can actually do this with some breathing room (and an emergency fund) intact.

Yes, this seems like a lot of planning that takes away the “fun” of buying a home. Without that planning, though, you’re quite likely to find yourself losing that very house in a few years. A little planning now makes your dreams come true.

The post Rent or Buy Is a Stickier Question When You Look at Real Lives appeared first on The Simple Dollar.

On one bright spring day, my wife and I were visiting three homes for sale on the same block that were all having open houses at once. None of them really struck our fancy, but we did notice a fourth house on the corner that was for sale at a price about $60,000 over our price range.

We toured that house. We fell in love with that house. Even now, it’s really obvious to both of us that it was our favorite house that we toured.

But it wasn’t the house that we bought. We ended up with another home that was within the price range we had originally set.

It was a difficult choice. It was a choice that, if we had entered into the home-buying process with less planning and less self-control, probably would have turned out differently. It would have been quite easy to simply give into our desires and buy that house, but if we had, we would have been drowning in mortgage payments now. It was also a choice that many people made differently – and that difference in choice caused the housing bubble and a giant mountain of foreclosures.

It is so easy to just let our emotions take control when we’re making a major buying decision. It would have been so easy for us to walk into that house, tour it, smile at each other, recognize that we could probably make the mortgage payments, and then sign the papers.

But that one choice puts us on a different life trajectory. I would have been much more worried about leaving my full-time job. In fact, I probably would have wound up choosing it instead of choosing a writing career – and that would have meant the closing of The Simple Dollar. I would have had less time to spend with my kids – instead of taking them to the zoo or the Science Center of Iowa or just spending afternoons with them at the park, I would have been behind a desk somewhere. We would have had more money stresses on our marriage. We would likely have never chosen – or even considered – having a third child.

Yes, I would have loved to have that house. Yet, when I step back and look at all the good things that happened in our life because we stuck to the budget, I wouldn’t trade any of it for that house.

A house is not a home, after all.

The next time you’re about to make a major purchase, whether it be a home or an automobile or even just a high-end home electronic device, and you’re thinking about jumping outside of your budget for that purchase because you fell in love with somethng that dazzled you, step back for a moment and ask yourself about what you’d be giving up for this thing. Would you be tied even more to your job, at the mercy of your boss? Would you not have the financial resources to take advantage of opportunities that came your way? Are you going to have to push yourself more to earn more, taking away time from the other things you value in life?

On the other hand, if you simply stick to your budget and get a slightly downscale model, you gain the freedom to choose the life you want. What’s better, after all? The 2,000 square foot home that you have time to enjoy, or the 2,800 square foot home that requires you to work tons of extra hours?

Houses and cars and televisions and boats are just stuff. Don’t sacrifice your life for them because you want them in this moment.

The post Home Buying (and Other Big Purchases) as an Emotional Purchase appeared first on The Simple Dollar.

This is a stage that I see us approaching as time goes on. We’re not quite there yet, but we’re close. Right now, I’m trying to knock out my final student loan (it’s a doozy), and then start focusing on my home mortgage.

Our home mortgage payment is just shy of $1,100 – that doesn’t include homeowners’ insurance and taxes, so when we get the house paid off, we now have $1,100 more a month to spend on whatever we choose.

I, for one, would roll that extra amount directly into savings. I’d simply change the automatic payment to be an automatic transfer into a savings account of some sort – perhaps an index fund. Then I just keep living life as normal until one day that account is full of cash for something great. For us, that “something great” is our long-dreamed-of house in the country, with a small barn out back, a big garden, and a chicken coop.

Is It A Crazy Goal?
My parents recently finished off their home mortgage after paying on it for thirty years. They’re pretty much debt free at this point for the first time in their marriage. So, for me, I have a great example in front of me that you can get rid of all of your debt. However, many people don’t have that example and it seems like an impossible goal. On page 186:

Anytime I speak about paying off mortgages, people give me that special look. They think I’m crazy for two reasons. One, most people have lost their hope, and they don’t really believe there is any chance for them. Two, most people believe all the mortgage myths that have been spread.

The “hope” factor is something I see popping up over and over again whenever I talk to people about money. Many people I talk to view their mortgage as simply a fact of life. If they were ever in a position that their mortgage became really easy to pay, it wouldn’t be time to double-up on the payments – no, no, it would be time to upgrade their homes.

I think this points to a prevalent mindset out there when it comes to debt. Many people simply view debt as a way to leverage the lifestyle they want now. It comes from a lack of patience – people don’t want to live in a small apartment watching their savings grow slowly when they could just get this loan and be in that house now – even if it costs them hundreds of thousands of dollars.

I think patience is one of the biggest tools a young professional can have when it comes to his/her money. Just wait for a while – you’ll be way better off over the long run.

The Tax Deduction Myth
Owning a mortgage just to get a tax deduction is something of a fool’s game, as outlined on page 187:

If you have a home with a payment of around $900, and the interest portion is $830 per month, you have paid around $10,000 in interest that year, which creates a tax deduction. If, instead, you have a debt-free home, you would, in fact, lose the tax deduction, so they myth says to keep your home mortgaged because of tax advantages. [...] If you do not have a $10,000 tax deduction and you are in a 30 percent tax bracket, you will have to pay $3,000 in taxes [...] According to the myth, we should send $10,000 in interest to the bank so that we don’t have to send $3,000 in taxes to the IRS.

All the tax deduction does is lower the effective interest rate you’re paying on your home loan a little bit.

In fact, Dave doesn’t even make the case as well as he could. If you’re using your mortgage interest on your tax return, that means you’re foregoing your standard deductions because you have other things to deduct. So, take our situation – we have two adults in our home. Our standard deduction in 2009 is $11,400. If we choose to itemize our taxes (which we’d have to do to deduct our home interest), we have to have more than $11,400 in interest on our home mortgage (or other deductible expenses) to beat what we would already get.

So, if your only significant deductible expense is your home mortgage – and your mortgage isn’t gigantic – you’re not actually gaining much of anything at all in terms of taxes.

The Risk of Having a Mortgage
Another disadvantage of holding on to a mortgage is the risk – if something goes wrong in your life, it’s a lot better to not have a mortgage payment than it is to have one. On page 189:

If I own the home next to you and have no debt, and you (because of your investment adviser guy) borrowed $100,000 on your home, who has taken more risk? When the economy moves south, when there is war or rumors of war, when you get sick or have a car wreck or are downsized, you will run into major problems with a $100,000 mortgage that I will never have. So debt causes risk to increase.

I think this is a vital, overlooked point. Having a mortgage – or any debt – is a type of risk. You’re gambling that your future will be stable, no different than putting cash down at the roulette wheel. With a mortgage, your life is simply more at risk than it was before.

I have two young children at home. Risk stares me in the face every day. I encourage our children to push their limits a little, but I still stand very close by when my three year old grabs onto playground gymnastics rings and hangs there. Having a mortgage is something like telling my three year old to grab the rings for the first time while I stand far away. Sure, he might hold the rings for a while and then drop without a problem, but my distance increases the chance of a hurt elbow or a broken arm.

The risk of owning a fat mortgage is much like the risk of putting your child on a bike for the first time and shoving them down the sidewalk. Sure, they might ride like the wind, but they might also fall flat on the pavement. Instead, it’s better to do a bit of planning (like saving for a home) and then let go when they’re ready (like when you have enough saved up for a house). No broken bones, no broken lives.

Thirty Years Versus Fifteen Years
Many people advised me to get a thirty year mortgage instead of a fifteen year mortgage, arguing that I could make an extra payment each month and get the same speed benefit of a fifteen year without the risk of the larger minimum payments. That’s a bad idea because something will often come up, as is spelled out on page 190:

A big part of being strong financially is that you know where you are weak and take action to make sure you don’t fall prey to the weakness. And we ALL are weak. Sick children, bad transmissions, prom dresses, high heat bills, and dog vaccinations come up, and you won’t make the extra payment. Then we extend the lie by saying, “Oh, I will next month.”

A higher minimum payment is actually a good idea, because it forces us to work with what we have left over. A lower minimum payment means that we just have more to work with – if that extra payment isn’t required, it’s easier to argue that something else is more important for the moment.

With expenses like prom dresses, heat bills, bad transmissions, and dog vaccinations, you can always find ways to make it work. If you have a decent emergency fund, it shouldn’t be too tough at all.

What do you get in exchange for these little sacrifices? Your mortgage goes away in half the time. You find yourself free of that load much, much faster. Plus, the interest rate on a fifteen year loan is lower, meaning your payments won’t actually be anywhere close to double what they would be for a thirty year mortgage.

Home Equity Loans Make Poor Emergency Funds
One common question I get from readers is whether or not they should take out a home equity loan to deal with some problem in their lives. My feeling is that if you’re in that situation, you need to rethink about your emergency fund. Sure, the home equity loan might be the right solution for right now, but if you’re living your life in such a way that it has to be used, you might want to rethink how you’re managing your money.

On page 197, Dave dips his toes into this idea:

Even a conservative person who doesn’t have credit card debt and pays cash for vacations can make the mistake of the HEL by setting up a loan or a “line of credit” just for emergencies. That seems reasonable until you have walked through an emergency or two, and you realize very plainly that an emergency is the last time you need to be borrowing money. If you have a car wreck or lose your job and then borrow $30,000 against your home to live in while you make a comeback, you will likely lose your home. Most HELs are renewable annually, meaning they requalify you for the loan once a year.

Think of it this way. You’re using your home equity loan as an emergency fund. You lose your job, so you take out $30,000 to live on – it’s fine, since you have tons of equity in your home, right? Well, the end of the year comes and you still don’t have a job. The bank says, “Sorry, we’re not renewing your loan,” and they call in the $30,000. You don’t have it. They repossess your house. Any equity you built up is gone.

An emergency fund needs to be cash, period. If it’s not liquid or it puts you at risk to get it, then it’s not an emergency fund.

Our local credit union has hinted to us that we should have a home equity line of credit. I have torn up every single offer they have sent to us. I’m not interested in that kind of risk.

Paying Cash for a Home Is Impossible
I agree with Dave that it is indeed possible to pay for your home with cash. So why don’t people ever do it? It’s not easy. It’s a lot harder to go this way than it is to just go get a mortgage. On page 198:

Paying cash for a home is possible, very possible. What’s hard to find is people willing to pay the price in sacrificed lifestyle.

I think the problem is that many people view their home as more than just living quarters. They view it as a status symbol – they need a house they can show off to family and friends. It’s more impressive to live in a house than an apartment, isn’t it? So, if you back up and think about it, you pay hundreds of thousands of dollars in interest, home maintenance, and other costs – not to mention time – in order to impress others.

Again, the only people impressed with such things are people that you never speak to, who don’t matter in your life. They look at you and admire your home, but they don’t build a relationship with you. The people you build lasting relationships with like you, not your house.

We chose to buy a home with a mortgage. I don’t regret it, but if I had to do it all over again, I would have looked intensely for a great rental situation instead (since we originally lived in an apartment too small for two toddlers and two adults – we had to move) and kept saving.

Do you have any other thoughts on this chapter of The Total Money Makeover? Please share them in the comments – and feel free to respond to any of my impressions as well. After all, a good book club is all about discussion!

On Wednesday, we’ll tackle the twelfth chapter – Build Wealth Like Crazy.

The post The Total Money Makeover: Pay Off the Home Mortgage appeared first on The Simple Dollar.

Whatever it is, it’s big. You could tackle it yourself, but you’d be working on it after work for weeks, losing many, many hours that could be spent on other activities. So you either dig into the drudgery yourself, put it off, or, worst of all, hire someone to do it.

I suggest a different route.

A few years ago, a close friend of mine decided that something needed to be done about his cracked driveway. One Saturday, instead of putting it off yet again, he pulled a big grill around to his front yard, iced up some coolers with a bunch of tasty beverages, and invited a bunch of friends over to help. They all worked together getting the old, busted cement out of the driveway and adding a fresh new batch. One friend was a carpenter who took charge of the operation, but more than a dozen guys offered up their labor, knocking out chunks of concrete, carrying things out of the way, putting forms in place, and smoothing freshly-laid pavement. Along the way, they enjoyed freshly grilled brats for lunch and some excellent thick steakburgers for dinner.

In one day, my friend got his driveway refinished with no labor costs – his only expense was a lot of beverages and a fair amount of food. Everyone else there got two free meals, a lot of free beverages, and an afternoon spent outside with a bunch of fun people.

How can such projects work? In order to make it happen, you need to plan ahead in several different ways – but the extra planning and effort will really pay off later. Here’s what you need to do.

Always volunteer to help with projects that others are doing. If a friend of yours needs a hand with a project, don’t hesitate to burn an afternoon helping to put up a deck, assemble a shed, re-shingle a roof, or install a driveway. Even if you don’t believe you have any skills to offer, there are always things you can be doing, even if you’re merely a gofer or you wind up being the food preparer. Every task that you can help with helps the entire project move forward.

Give some advance notice. Don’t just call people on the morning you plan to get started on the project. Instead, give them a couple weeks’ notice at least, and keep track of the ones who seem at least interested. Let them know that there will be plenty of people, food, and beverages – don’t just focus on the work.

Plan out your work. Know exactly what your project is going to entail. Have all the supplies you’re going to need on hand well in advance of the working party. Have a plan in place that details what needs to be done and in what order the tasks need to be accomplished.

Be organized. On the day of the working party, get all of the supplies you’ll need out and organized before anyone else arrives, so that they can easily be found when work begins. Do some of the early steps yourself – measuring, marking, and so forth. This way, when people begin to arrive, the real work can begin.

Don’t be afraid to ask for extra help from experts. If you have a friend who is skilled at carpentry, don’t be afraid to ask for a bit of extra assistance and advice from this person. Invite them to come over earlier – and don’t hesitate to give them some gift of appreciation if they go beyond what you might reasonably expect from them.

Have a wide array of beverages available – and plenty of them. Water and sodas are good choices for earlier in the day – beers are usually good choices for the end of the day. If you’re unsure what you should get, ask people when you call them. Make sure you have more than enough.

Keep the beverages cold. Take empty milk jugs, fill them 2/3rds full with water, and fill your freezer with these jugs in the week before the party. The day before, ask around for coolers to borrow – try to get two or three of them. That morning, take out the jugs, smash them, and fill the coolers with beverages and ice. Make sure you don’t run low on cold beverages – on a warm day where people are outside working, it’s vital that you keep plenty of cold beverages available for them.

Thank everyone that shows up, both when they arrive and when they leave. This is simply good manners and goes a long way towards ensuring that people don’t leave with a bad taste in their mouth. Thank people for coming as soon as they arrive, let them know where the beverages are and when/where the food will be, and brief them on what’s going on.

Work hard. Never stand around while others are working on your project. Be involved at all times – and if you’re not directly involved, be doing something else clearly productive or purposeful. There’s no better way to sour the mood of a working party than to have the host standing around while other people are building his or her deck.

Have someone focus on food preparation. Although you’re the host, your role should be out there working as hard as anyone else on the work project. This means that, for food preparation, someone needs to give a hand. One great tactic is to simply ask someone appropriate – your spouse is a good choice, as is someone who might have a physical handicap that makes it possible for them to prepare the food, but difficult to engage in the work. Arrange this ahead of time so that it’s not a concern.

Make it fun. Have a radio available, and tune it to something that many of the people will find interesting. Growing up, when my father would have events like this, he would make sure that the radio was tuned to a baseball game of one of the local teams – this is actually a pretty good suggestion. At the same time, keep conversation going – and keep people talking. Introduce people to each other if they don’t know each other well.

If you’re called later by someone who helped you, help them. These types of exchanges are often the beginning of a long-term relationship that will be beneficial for both of you.

A working party can be a great way to build friendships, have fun, and get a major task accomplished at a very inexpensive rate – but it does require a lot of work and preparation. Good luck!

The post How to Organize a “Working Party” appeared first on The Simple Dollar.

I grew up in a home that measured about 850 feet of floor space. It was a three bedroom house, though one of the bedrooms was extremely small. Growing up, I shared a bedroom with both of my older brothers for several years, then eventually inherited that room as my own as the older ones moved out.

We currently live in a home that’s very close to 2,000 square feet. It’s far larger than the home I grew up in – it has four bedrooms, for one. Our two children share a bedroom together – there’s also the master bedroom, an office, and a guest room.

Both houses have a kitchen, a living area, a dining area. Both houses have plenty of room for two adults and two kids to live.

What’s really the difference between the two situations? What makes up the added value in that extra 1,200 square feet?

In the end, it’s mostly used for storage.

I think I realized this most clearly over the past weekend, when it seemed that time and time again, all four of us wound up congregated in the same room. We spent a lot of the day in our living room, playing with toys, reading books, and enjoying the relative freedom that a family weekend brings.

On an average day together, we spend most of our time congregated in either the family room or the living room (which could easily be one room). At nap time, both kids fall asleep in a single bedroom, and we sleep in a second bedroom. We use the kitchen and the dining room for meals. As for the rest? The guest bedroom is often unoccupied. I could do most of my writing at a small corner desk in the family room instead of using an office. The laundry room could basically just take part of the space used for the entryway. We could eliminate all but one of the bathrooms without a real crisis.

And suddenly we’re living in a 1,000 square foot home.

Does this mean I regret this house purchase, and that I’m now looking to downgrade to a smaller place? Not at all. I like the area in which we live, where there are children the same age as my son (or within a year or two) in virtually every direction. Last summer, my kids spent almost every evening and good chunks of every day running around in the yard with other children their age – well-mannered children who are also being raised to be intellectually curious. We have a nice big yard that borders on a field and also on other yards, creating a huge green space for our children (and other children) to play together on.

What I did learn is quite simple, though: the square footage shouldn’t be the primary factor when choosing a house. Although there are times when it feels good to have room to spread out, most of the space is completely unused most of the time (except for storage of things we probably don’t really need to keep). Even more important, choosing a lower square footage usually means much less expense over the long haul – you don’t really lose living space, but you do lose storage space, which means that you can’t accumulate as much stuff, which thus means you’ve got less money invested in material items that are just tossed into storage.

One thing’s for sure – as my wife and I consider these factors and re-work the plans for our retirement home, the plans are slowly growing smaller and smaller.

The post Bigger Dreams, Smaller Houses appeared first on The Simple Dollar.

On New Year’s Eve 2005, my wife and I made a solemn commitment to start seriously saving for a down payment. We had a one month old child and were living in a tiny apartment that, even with just the three of us, was already getting tight for space. We knew that we would have to upgrade our living quarters soon and so together we resolved to make a change.

It didn’t go so well. Just four months later, we reached our financial low point – and we realized that just making such a resolution didn’t really help anything at all. We needed a plan in place if were were going to make things work, and so we got down to business with a real plan for saving for a down payment. Today, we’re happily entrenched in our own home.

What could we have done differently back then to make our resolution work? Here are some tactics that we used later on for our down payment plans that would fall right in line with such a hefty resolution.

Set a very clear goal right off the bat. So, you want to save up for a down payment. How much money is that?

Surprisingly, many people stumble even at that first question. The idea for a down payment is very vague in their head. I know that our original thoughts on the subject were incredibly vague – we just knew that we needed to save quite a bit of money.

Chasing after such an intangible goal is almost a guarantee that you will fail. Instead, do some basic house hunting in your area and get an idea of the prices on the type of house you would like to buy, then set a savings goal based on that price.

Let’s say, for example, that you decide that a $200,000 house is right for you. How much of a down payment on that house are you going to save for? A 10% down payment? 20%?

The larger the down payment, the better. You’ll need 20% down in order to get a typical fixed rate mortgage at a low interest rate. If you have less than that, you’ll usually have to get separate mortgages (an 80% mortgage along with an additional 10% mortgage) or, if they’re still being sold, an adjustable rate mortgage of some kind.

These two numbers will tell you what your dollar goal is, but what’s your timeline? Are you intending to save $40,000 in four years? That’s roughly $10,000 a year – $800 a month will get you there.

Your timeline, you see, will help you break down this big goal into smaller short-term goals. $800 each month – can you do that? Can you do it if you get creative with it? $800 is a tangible goal that you can shoot for each month – a vague notion of “saving for a down payment” will never push you towards your goal.

Make sure the goal is a realistic one. Once you’ve started breaking things down into real numbers, you’ll probably start gasping at the high amounts. Can I really afford that? Likely, you can make a pretty strong goal each month if you put your mind to it, adopt some frugal strategies, and settle in for the battle.

However, there is often a temptation to make the goals too high. If you’re attempting to save 50% or more of your monthly income for this goal, you’re probably not going to make it.

My suggestion is to try your savings plan for a month or two and see how it works for you. If it’s beyond your means, go back to the drawing board. Don’t be afraid to toss your plans aside and adjust things. Perhaps you can expand your timeline. Perhaps you can set your sights lower in terms of the house you intend to buy.

The key is to not decide that things are hopeless just because you’ve decided that your first attempt at a plan is just too much. Step back, look at the overall plan, and make some adjustments. Don’t just walk away because you find it too difficult.

Figure out where that money is going to come from. So, you’ve elected to save a certain amount of dollars each month. Where is that money going to come from?

In some situations, people are already natural savers and they already spend less than they earn, but this seems to often be the exception rather than the rule. Quite often, people who make a resolution about a down payment aren’t saving much at the moment to begin with, and coming up with a savings plan is going to be difficult.

First, look for ways to easily cut your spending. Look for big pieces and also ones that repeat monthly. Instead of leasing a car, perhaps you can buy a late model used one and drive it for many years, saving yourself a car payment that you can put away for your down payment. Perhaps you can eliminate that monthly Netflix bill, or maybe you can cut back on your cell phone usage – do you really need that many minutes or that big of a text message plan? Maybe you can adopt a “one meal out a week” plan instead of dining out every other evening – that will likely save you $10-20 a meal at least.

Second, adopt some simple long-term cost savers. Install CFLs throughout your apartment to cut down on electrical use. Install a programmable thermostat in your apartment (check with your landlord) and program it so that you’re not wasting money on your heating or cooling bills while you’re at work. Put your home electronics on a switch so you’re not paying for your cable box to sit there idle while you’re not at home. These solutions will save you significant money on your energy bill without thinking about it.

Finally, look for some extra income. Perhaps you could work a part-time job to earn some extra cash, or maybe you have some marketable skills that would work well in a freelance environment. If you can bring in extra cash, that cash could go straight to your savings without skipping a beat.

Automate the savings. As you begin to save, you’ll find that it’s often tricky to keep your savings in balance with your normal spending. You’ll try hard to keep money swept into a savings account, but it doesn’t always work smoothly.

Make it smooth. Institute an automatic savings plan with an online bank that has a good rate of return on their savings account (I use ING Direct). Then, each week, have the plan automatically withdraw a certain amount from your checking account. $190 a week, for example, equals out to roughly the same amount as $800 a month over the course of a year.

With an automatic savings plan, you know that the amount will be withdrawn each week, and you can plan ahead for it. It’ll force you to be much more careful with your spending, even if you seem to have the cash on hand to afford something frivolous. Even better, after a while, you can check that new account and see that the savings is really starting to add up.

Utilize windfalls effectively, even small ones. Another useful tactic is to immediately pass along any windfalls that come your way straight into your savings. Did you just get a small inheritance? Don’t spend it foolishly – instead, apply it directly to your savings without a thought.

This goes for little savings and windfalls, too. Let’s say you find a $20 bill on the street. You might be tempted to spend it on something fun, but why not just go ahead and put it towards your big dream? The same goes for any small savings you might make – let’s say you don’t eat out at all this week and save $25 in the process. Go ahead and sweep that straight into your savings.

What this will do is accelerate your dream just a little bit, and perhaps take some of the pressure off.

The real key to making a resolution to save for a down payment work is persistence. This isn’t a goal that will happen overnight. Instead, you need to provide a degree of constant focus in order to make it work. Good luck!

The post New Year’s Resolution Workshop #3: Save for a Down Payment appeared first on The Simple Dollar.

As I studied our homeowner’s insurance policy, I was surprised at how high the value of the insurance was for replacing home contents. It was one of those little things that threw up a red flag for me, and it kind of stuck in the back of my mind.

About a week later, I was still thinking about that number, so I took a very careful inventory of our home’s contents, adding up how much these items would cost to replace – and sure enough, the cash value of everything in the home was only about 40% of the amount we were insuring. Reducing that number would surely save us a significant amount on our policy, so I was about to call up and start discussing things with our insurers when my wife popped in.

She was curious as to how much value I was putting down for some of our most valuable personal items, like some of the handmade wooden artwork her grandmother made, a painting done by my great grandmother, and some mementos from our wedding.

I went through the list I’d made and rattled off a few prices, which were estimations of what they’d cost to replace with similar items. My wife shook her head and told me, flat out, that I was drastically shortchanging the items.

But was I? This has been a big question for discussion around here for a while, actually.

My wife’s position initially was that such items have a very, very high value. She propositioned it this way: how much would I accept in payment for that painting by my great grandmother? The price would have to be very high – and I don’t think I’d sell it at any price.

That’s the conclusion that many people come to when they consider insuring the property in their home. They look at those irreplaceable and personally valuable items and think about how much they’d feel was an appropriate price to let go of something so valuable. Quite often, that price is insanely inflated – but for good reason. The item has a great deal of personal value.

But consider this: would you be able to replace that item if it were destroyed? Would you even think about replacing it?

My grandmother’s painting is invaluable to me. I can’t even realistically name a price that I would sell it for. But if it were destroyed in a disaster, I wouldn’t even think of replacing it. I’d have my memories of it, and I’d probably lament that it was missing, but how could I possibly replace it?

In our new home, I would probably put up a print on the wall, or possibly an original painting by another artist, but neither one would come close to the value that I personally ascribe to my grandmother’s painting.

This gets back to the original question: how much should my grandmother’s painting be insured for? Considering that it’s not something I would ever be able to replace – nor would I really attempt to – I’d argue that it shouldn’t be insured for much at all.

Then, if you apply that rule of thumb to items in your house that really only have a deep personal value, you’ll often find that the cash value of the contents of your house is not nearly as high as you might think it is. In that case, you’re likely vastly over-insuring the contents of your home – and paying an extra premium for that privilege.

Now, that’s not to say that there isn’t a good argument for insuring on the high side of what you own. You’re far better off having a little bit of breathing room than cutting your insurance down to the bone.

But when you consider the value of the property in your home, think carefully. Ask yourself whether you’re insuring the value that you personally ascribe to things – or the real value of replacing things that you would actually replace. You might just find that you’re over-insuring your contents just because of your own personal feelings – and that’s a financial leak you can easily plug.

The post Are You Insuring the Irreplaceable? appeared first on The Simple Dollar.

What is the “small house movement”?
From the website of the Small House Society:

The Small House Society is a voice for the Small House Movement. That movement includes movie stars who have downsized into 3000 square feet, families of five happy in an arts and crafts bungalow, multifamily housing in a variety of forms, and more extreme examples, such as people on houseboats and in trailers with just a few hundred square feet around them. Size is relative, and mainly we promote discussion about the ecological, economic and psychological toll that excessive housing takes on our lives, and what some of us are doing to live better. It’s not a movement about people claiming to be “tinier than thou” but rather people making their own choices toward simpler and smaller living however they feel best fits their life.

In other words, the “small house movement” includes people who are making a conscious choice to live in a smaller home rather than choosing a larger one. It includes people who could afford McMansions but live in only a 3,000 square foot home all the way down to single people living in a tiny one-room home (as depicted beautifully on that site).

There are a lot of reasons for doing this.

Ecology A small home simply uses fewer natural resources than a large one, both in the construction and in the maintenance (energy use, for example).

Psychology Because the home is small, one can invest fewer “mental cycles” in the upkeep of the home as compared to a large home.

Time Not only that, the actual upkeep takes significantly less time as well. With fewer square feet, it takes far less time to get the house clean.

And the big one…

How can a “small house” save me money?
There are several strong financial reasons for considering the “small house movement.”

Less initial cost Purchasing a smaller house means there’s a smaller initial cost to purchase the home. This may mean a smaller mortgage, a potentially lower interest rate on that mortgage, or perhaps even the ability to pay for the house using only cash.

Less maintenance cost With a small home, you’ll have a far lower energy bill. You’ll also have less expense for cleaning materials and fewer repair costs, too – a smaller roof means fewer shingles are needed to re-shingle, after all.

Less room to store unnecessary stuff If you own a smaller house, you have less space for storage, which directly impacts the amount of excess “stuff” you can accumulate. Thus, it becomes more difficult to spend money on impulsive buys – there simply isn’t anywhere to put it!

More time to devote to other money-making endeavors With the decrease in time needed to be spent on housecleaning and home upkeep, one can devote more time to other activities. Take those extra few hours a week and start a side business – or perhaps take up a part-time job for more income.

My personal take
My belief is that part of the recent trend towards large houses was fueled by the crazy housing bubble of the first part of the decade. People would build larger houses than they need under the impression that this house would be a great investment that would make their expenditure worthwhile.

In a normal housing market, you can reasonably expect that your home will appreciate to some degree, perhaps slightly ahead of inflation, but you should not expect that your home will be a great investment. Instead, it makes sound financial sense to view a home purchase as more of a functional investment than as a financial one.

In short, before you buy a home, know what you can afford, compare it to the rental options in your situation, and don’t put pressure on your budget. All three of these factors point toward buying a small home rather than a large one, as a small home is more initially affordable and won’t pressure your budget as much as a large home.

In other words, when it comes time to purchase a home, set your sights lower instead of higher. Taking all factors into consideration, a more modest home might be the right choice for your long-term financial future.

The post Some Thoughts on the Small House Movement: Is It Something Worth Considering? appeared first on The Simple Dollar.

As a homeowner, this change in the season means one thing: what do I need to do to protect my enormous investment in this house from the brutal change in the weather and keep money in my pocket?

One big first step is to minimize your winter heating bills. I wrote a lengthy post covering twelve tactics for doing this – here they are in a concise list:

Air seal your home.
Make sure the attic is well-insulated.
Dress warmly inside and keep the temperature low.
Get a programmable thermostat.
Minimize or eliminate use of vent fans.
Turn off the heat in unused rooms.
Use space heaters.
Make sure you have a fresh furnace filter.
Use an insulation blanket on your hot water heater (if it needs one).
Keep blinds and curtains open on the sunny side of the house and closed on the other side.
Cook at home using the oven.
Microwave a hot water bottle before bed each night, then dip the temperature.

What else? Here are twelve additional useful steps for preventive maintenance for your home. These steps will help minimize the wear and tear of the changing of the seasons of your home, putting off potential major repairs for many years.

Call an HVAC professional to inspect your furnace and your ductwork. You should always do this before the first winter you spend in a house, as well as every few winters thereafter. It’s essential that your furnace remain in good working order with clean ductwork that’s in good repair, and a professional can properly evaluate things for you quite well.

Prepare your fireplace (if you have one). Make sure the chimney’s swept and that the damper opens and closes. Also, if your chimney is made of brick, examine the brick and mortar to make sure it’s in good repair. Have plenty of firewood cut and on hand for use. You may also want to install a screen on top of the chimney to keep pests out.

Check your roof shingles and do any minor repairs you can. Ice and snow buildup on a roof can wreak havoc, so make sure that your shingles are in good shape. At the very least, do a careful ground inspection of your roof, but it might be better to just go up there on a ladder and look around for yourself. Replace any worn out tiles you find.

Clean out your gutters. Similarly, when the temperature hovers around freezing and you’re facing a lot of melting and freezing water, clogging in your gutters can create a huge logjam of ice on your roof. Prevent most of this by cleaning out your gutters in advance of the winter season, removing leaves and bird nests.

Prepare your lawn-care and garden equipment for winter. Drain the oil and gas from your mower, tiller, and weed eater. Put into careful storage any lawn and garden equipment. Drain all of your hoses and put them into storage as well, as sitting water freezing and re-freezing inside a hose can really damage it.

Service your winter equipment. Make sure your snowblower starts up after you’ve properly tuned it and put gas and oil in it (as per the directions). You don’t want to go out there and fire up your snowblower for the first time and discover that it needs oil or new spark plugs.

Pull all vegetation away from your foundation. Vegetation near your foundation can continue to grow near the warmth of your home, possibly causing the roots to grow towards your foundation. Pull any vegetation near your foundation away from it to keep your foundation in good shape.

Check (or install) your carbon monoxide detector and smoke detectors. You should have a carbon monoxide detector near your furnace and a smoke detector in all rooms in the house. Check them all to make sure they’re in proper working order.

Trim any nearby trees. If you have tree limbs near your house, particularly ones anywhere near windows, trim them back. When they get weighted down with snow and ice, they’ll bend and perhaps break – and that can spell disaster for your windows or your roof.

Seal your driveway and deck. The constant freezing and thawing of a winter season can wreak havoc on unprotected outdoor surfaces. Spend some time in the next few weeks sealing your driveway and your deck to keep the freezing water from damaging your property.

Move in your potted plants. As the weather gets colder, your plants will be affected by the temperatures more and more. Move them inside for the winter and place them in an area with adequate lighting to ensure that they live through the cold season.

Prepare an emergency kit. Major winter storms can sometimes result in multi-day power outages. Have an emergency kit with plenty of flashlights, an emergency radio (that’s powered by batteries or hand crank), plenty of blankets, and some food and water on hand in an easily-available place.

The post A Guide to Winterizing Your House appeared first on The Simple Dollar.

Right now is the perfect time to walk through a checklist of ways to save money on your home. Starting on these things as early as possible will allow you to start saving money sooner rather than later.

Here are eighteen things to check on or do immediately that will reduce the energy and maintenance costs of your home over the long haul.

1. Check the insulation in your attic – and install more if needed. If you have an unfinished attic, pop your head up there and take a look around. You should see some insulation up there, and there should be at least six inches of it everywhere (more if you live in the northern part of the United States). If there’s inadequate insulation up there – or the insulation you have appears damaged – install new insulation. Here’s a great guide from the Department of Energy on attic insulation, including specifics on how much you should have depending on where you live.

2. Lower the temperature on your hot water heater down to 120 degrees Fahrenheit (55 degrees Celsius). This is the optimum temperature for your hot water heater. Most people do not utilize water that’s hotter than that, and thus energy used to keep the water that hot isn’t effective. Lower the temperature, save some on your energy bill, and you’ll never skip a beat.

3. Toss a water heater blanket over that hot water heater as well. While most modern hot water heaters are well-insulated, some are insulated better than others and many older heaters aren’t insulated well at all. A small investment in a blanket for your water heater will slowly and gradually save you money on your heating bill over time by keeping the heat in the water instead of letting it spread slowly out into your utility closet.

4. Install ceiling fans in most rooms. Ceiling fans are a low-energy way to keep air moving in your home. Because of the air circulation effect, you can get away with keeping your thermostat a degree or two higher in summer and a degree or two lower in winter, netting a rather large savings. A while back, I wrote a guide to maximizing ceiling fan use – most importantly, the air directly below the fan should be blowing down on you in the summer and should be pulled upwards away from you in the winter – you can use the reversal switch on your fan to switch between the modes.

5. Wrap exposed water pipes with insulation. Exposed hot water pipes lose heat as they move water from your heater to your faucet. Insulating them makes a two to four degree difference in the temperature of the water and also allows hot water to reach your faucet faster. Check the pipes into and out of your hot water heater first, as the first three feet out of the heater (and the last few feet of inlet water) are key. Use good quality pipe insulation for the job – it’s actually quite simple. Find out more about water pipe insulation at the EERE website.

6. Install a programmable thermostat – and learn how to use it. A programmable thermostat allows you to schedule automatic increases and decreases in your home’s temperature. This lets your house naturally warm (or cool in the winter) while you’re at work or asleep, saving quite a bit of energy use, and then when it comes time for you to actively use the house, the thermostat automatically adjusts the temperature of your home back to what you prefer. Such devices save money on cooling in the summer and heating in the winter.

7. Hang a clothes rack in your laundry room (or, better yet, an outdoor clothesline). A clothes dryer can really eat up your energy costs, but it’s convenient for many people. Battle that convenience (and save money) by hanging a clothes rack from the wall in the laundry room and use it for some items – t-shirts and underwear dry great on clothes racks. If you can hang up 20% of the clothes in a load on this rack, you can get away with running the dryer 20% less than before, saving you cash. Even better: if you can, install a clothes line outside where the wind can catch it and hang most of your clothes outside.

8. Check all toilets and under-sink plumbing for leaks or constant running – and check faucets, too. Do a survey of the plumbing in your home before you settle in. If you find a toilet is running constantly, it’s going to cost you money – here’s how to easily fix that constantly-running toilet. You should also peek under the basin of all sinks in your home, just to make sure there aren’t any leaks. Got a leaky faucet? You should repair or replace any of those, because the drip-drip-drip of water is also a drip-drip-drip of money; not to mention the terrible interplay between mold and home insurance.

9. Replace your air handling filter. When you first move in, you almost always need to replace the air handling filter (don’t worry, it’s easy to do – it takes about ten seconds). Go down to your air handling unit, find where the filter is (it’s almost always a large rectangle), and mark down the measurements (printed around the edges). Then, go to the hardware store and pick up a few of these, then go home and install one of them, replacing the old one. An outdated filter not only doesn’t filter as well, it also has a negative impact on air flow, meaning your air handling system has to work harder to pump out lower quality air.

10. Make sure the vents in all rooms are clear of dust and obstructions. None of the vents in your home should be covered or blocked by anything – doing that makes your heating and cooling work overtime. You should also peek into all of your vents and make sure they’re as dust-free as possible, and brush them out if you see any dust bunnies. This improves air flow into the room, reducing the amount of blowing that needs to happen.

11. Mark any cracks in the basement with dated masking tape. Many homes have a few small cracks in their basement walls from the settling of the foundation and the weight of the house. In a stable home, the small cracks aren’t growing at all – they’re safe. If they’re growing, however, you’ll save a ton of money by getting the problem addressed now rather than later. Take some masking tape and cover up the end of any cracks you notice inside or outside, and write today’s date on the tape. Then, in a few months, check the tape – if you see a crack growing out of the end of the tape, you might have a problem and should call a specialist now before the problem gets out of hand.

12. Install CFL and LED light bulbs in some locations. CFL and LED bulbs can save you a lot of money on energy use over the long haul, plus they have much longer lives than normal incandescent bulbs. Consider installing some in various places – we usually use CFLs for hall lighting and LED bulbs for closet lighting (though LED bulbs are improving all the time…).

13. Choose energy efficient appliances, even if you have to pay more up front. Unless you were lucky enough to buy a fully-furnished home, you’ll likely have to do some appliance shopping. Focus on reliability and energy efficiency above all, even if that seriously increases the cost you have to pay up front. A refrigerator that uses little energy and lasts twenty years is far, far cheaper over the long run than a fridge that runs for seven years and guzzles electricity. (If you’re worried about the up-front cost, check out tip #17.)

14. Set up your home electronics with a SmartStrip or two. Looking forward to getting your television, cable box, DVD player, sound system, and video game console set up? When you do it, set things up with proper surge protection (to protect your equipment). You might also want to consider a SmartStrip, which allows the on-off status of one device (say, the television) to control whether or not there’s power flowing to other devices (say, the DVD player or the video game console). Having the power cut automatically from such auxiliary devices can save a lot of money over time, especially since many such devices eat quite a bit of power as they sit there in standby mode, constantly draining your money.

15. Air-seal your home. Look for any places where air may be leaking directly into or out of your home. These aren’t just air leaks – they’re money leaks. Thankfully, fixing small air leaks is pretty easy – here’s a great Department of Energy guide to caulking and weatherstripping, which will keep such air leaks from costing you.

16. Plant shade trees near your house. Shade trees naturally cool your home during those warm summer months, reducing the amount of direct rays that hit your house. Lowering the external temperature of your home saves significantly on your cooling bills during the summer, plus it increases your property value. Plant them now, so they’ll grow and shade your house sooner.

17. Take advantage of tax benefits for any improvements you make. For starters, there’s the first time home buyer tax credit, which is essentially an interest-free $7,500 loan from the federal government for new homeowners. This is perfect money to help you with fixes you may need to make when you move in, like buying good appliances or putting in shade trees. Similarly, if you make energy-based improvements to your home in 2009, you can receive up to $500 in tax credit for that purchase, essentially making things like insulation tax free. Your state may have even more benefits, so be aware of all of these when you invest money improving the efficiency of your home.

18. Develop a home maintenance checklist – and run through it for the first time. One final tip – create a home maintenance checklist. This list should include regular home maintenance tasks that you’d want to do on a monthly or quarterly or annual basis. Then, make it a habit to run through the items on this list each month. Doing so will extend the life of almost everything in your home, saving you buckets of money over time.

Any other tips along these lines from the readers?

The post 18 Things a New Homeowner Should Do Immediately to Save Money appeared first on The Simple Dollar.