The Internet has become a dominating force in our lives and something that we would be hard-pressed to live without. In tandem with this social shift, the idea of using the web to sell products online is also becoming more commonplace.

The motivation to sell varies from person to person. You might be:

• getting rid of the crap in your life
• looking for extra money by converting hard assets into cash
• buying and reselling merchandise as a business
• monetizing your hobby or “side gig”
• unemployed and looking for quick money to get grounded

The means by which you go about selling products online also vary widely. Perhaps a good illustration of this is my own experience with selling online through the years…

eBay & Half.com

When I think back to early days of the web and the first time I started to buy and sell things online, I think back to about the year 2000 and eBay. I was only 16 at the time, but I was already helping my Mom sell things online, mostly outdated technology that we were no longer using at home. eBay had just launched a few years prior and the idea of online auctions was a new and novel one.

Anyone with an account could post their item for sale, set a starting price, and watch people bid up the item over the next week. Of course, the system had its fair share of early-day problems. One of my first online purchases was a laptop computer on eBay that turned out to be a scam. Today, eBay is a powerful marketplace not only for household item auctions but of everything from cars to collectibles.

Two to three years later, when I was working on my college degree, I used eBay’s sister site, Half.com, to buy and sell used textbooks and work around the locally monopolized textbook market. Half.com had almost any book, game, or CD I wanted to buy, and I was assured of a market when I wanted to get rid of items I no longer wanted or needed once the semester was over.

It was Half.com I turned to when I was getting rid of my old videos and DVDs, video games and books after graduation, and the prices I got for many of the items were good and fair.

Etsy

For a while, I feel, eBay was really it in the online world. People were selling things on their own sites and many had success with this model, but Etsy really introduced a new concept that has taken off in recent years to dominate the artistic and hobby-type market. I call it the “online shop” model.

For the first time, anyone with a small handful of goods, often handmade, could have an online storefront on a reputable website, get exposure, and greatly limit their overhead costs. I personally know artists who have made Etsy and many new websites like it their online home and have seen a lot of success in terms of sales.

Artistic items no longer had to be “auctioned off” to be online, or sit idle on an artist’s own website. They could leverage the power of a big website and leave their items for sale perpetually.

Personal Sites

Depending on the product you happen to be selling, another effective strategy could be to create and market your own website. Some people turn to ecommerce website templates while others start from scratch and build a website over the WordPress framework with pre-designed or customized themes.

This works especially well if someone has an established audience who wants to buy that person’s particular product, or if they rank well for the desired keywords in search engines. Rather than giving away their overhead and profit to someone else’s website, people who choose to run their own sales get to keep the large majority of their gross revenue for themselves.

One of my own goals for 2012 was to sell something online, and while I’ve always considered that this would be on a site that I created myself, I’m also looking at some of the other options available in terms of websites that have ready-to-go functionality.

How about you–are you currently selling things online, and how do you go about it?

(Photo credit)

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Unless you’ve been under a rock, you have probably heard that Facebook decided to “go public” and begin trading on the open market as of this morning. For Facebook (or any other company), an IPO (initial public offering) offers a unique opportunity for a one-time cash boost and other perks.

Are you investing in Facebook?

There was tremendous buzz around this IPO (initial public offering) leading up to today’s launch of the stock, so it’s very possible that you were part of the action and now own Facebook shares.

In fact, one of the unique things about Facebook’s IPO was the high level of participation from “retail” investors (like you and me) versus institutional buyers.

As I was watching Bloomberg this morning, there were reports of some online broker’s sites crashing from the investor traffic. They were also reporting that the delay in opening Facebook’s stock for trading this morning could have been due to all of the retail trades essentially “clogging up the pipelines” in the system.

Am I investing in Facebook?

I did not, and don’t plan to, though I might have.

Had I bought into the IPO, I would have bought shares for the ultra-long term (5-10 years), and mostly to say that “I was here” when it happened, rather than with the expectation of profit.

To believe that Facebook’s shares will go up would be to believe that the company can sustain continued growth, innovate, and generate healthy profits.

Given Facebook’s history, my impression is that they would rather implement changes by force rather than listen to feedback, and I’m also concerned about the increasing competition from new platforms like Google+, which can draw users and attention from one Internet mogul to the other.

Who’s making money here?

CNBC seems to think that it’s the retail investors that are getting shafted; that the deck is stacked against the casual investor who simply wants to be part of history or thinks this is a get-rich-quick opportunity.

A lot of analysts are worrying that Facebook’s IPO is widely overvalued, and that their income and future potential is not in line with the price of the stock. Yet the frenzy continues…

Dig deeper

Facebook’s recent purchase of Instagram for $1 billion was a hot topic of debate with investors as the IPO date loomed closer. Seeking Alpha reports that the move could be seen as indicative of a renegade leadership by Zuckerberg that could continue after the public offering.

The same article outlines a share-type and voting arrangement that could effectively leave primary control over all business operations in Zuckerberg’s hands, whether stock investors agree with his decisions or not.

Final thoughts

If you ask me, this stock is too hot right now to touch with a 10-foot pole. I’ve been an index-fund investor for some time, and this is not a stock that will bring me back into the open market. Facebook is already “here,” not the next hot thing, and I’m worried about the future growth for the company.

As always, I know nothing about the stock market, this is only my personal opinion, and you should make your own decisions after consulting with your financial professional. 

(Photo credit)

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While my personal investment style is conservative and focused largely on index funds, one of my goals for this site is to learn about and introduce some of the lesser-known investment opportunities available. With the proliferation of internet access and the rise of the “online broker” over the last decade, even those opportunities that seemed reserved for professionals and the elite are becoming available to the common investor.

One example is the upcoming launch of the Facebook IPO, which will reportedly be made available to investors with accounts at E-Trade and TD Ameritrade.

Playing with Forex

If you’ve ever taken a college-level finance course or browsed some of the brokerage websites out there (such as www.cmcmarkets.co.uk), you’ve heard of Forex. But if you’re like me, it’s very likely that you’ve never looked into what it means to be involved in trading Forex and how you can benefit.

What do I mean by “Forex” exactly? Forex is one of many terms to describe the foreign exchange market, essentially the market where different currencies from around the world can be traded. Some of the other names include “FX” or “currency market,” according to Wikipedia.

World Currencies

Comparing two currencies to one another is done in the form of a ratio. Essentially, you might get 10,000 Bongo Bucks for every 1 Dollar, or 6.57 Googoos for every 1 Dollar, and so on.

As currencies are traded and the forces of world markets act on currencies as a whole, and individually, these ratios will change. That’s what happens when you hear about the dollar, or another currency getting “stronger” or “weaker”—it’s worth with respect to other currencies is improving or worsening.

Currency trading attempts to exploit these shifts in relative value. Just like like the stock market mantra “buy low, sell high,” the idea with currencies is to “buy weak, sell strong,” picking up world currencies when they are undervalued and sell them back when their value grows.

One unique characteristics of trading currencies is that you always have money—you’re not trading your cash for stock in a company, or for a commodity, but simply exchanging it for another county’s form of money. Pretty neat, if you ask me.

Risk

Until the last few years or so, “the thing” to do if you were living in Poland, where most of my family resides, was to invest as much of your savings as possible in U.S. Dollars. There were a ton of banks in Poland offering strictly dollar-based accounts.

The main reason is that the Polish Zloty was subject to hyper-inflation after the Cold War wrapped up. In fact, the Zloty was redenominated in 1995 with 10,000 “old” Zloty being exchanged for each “new” Zloty. Inflation continued, with the Zloty worth less each passing year against the dollar, which meant that those who were holding dollars in their account were not only getting interest, but investment gains to boot.

The exchange rate of the Zloty against the Dollar held in the 3.5 to 4 Zloty-per-Dollar range for the better part of 2000 to 2005. Then a curious thing happened—it fell to nearly 2.0 in 2008. All of the dollars Poles had in their accounts now had only half the buying power in Poland as only a few years before. The rates eventually recovered to the low-3 range, where they have stayed for the last few years.

This example illustrates that, while there is tremendous upside potential and risk protection potential in currency trading, there is also a lot of potential downside risk to consider.

Conclusions

Online brokers are making long-term and short-term currency trading available to the everyday consumer. As these methods become more commonplace, it’s important to understand their risks and benefits, so make sure you meet with your financial professional or investment advisor before taking any action.

(Photo credit)

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When it comes to keeping expenses under control and spending within our means, regularly evaluating your ongoing expenses is a big part of the equation. Making sure that you have the cheapest car insurance at all times is one area where it pays to keep a watchful eye on your life and your options.

The College Years

I grew up in New York and later relocated to Florida, and as a result I didn’t have a license until I was 19, and didn’t own my first car until 22. I had limited use of my parent’s car and limited need to be on their insurance, but when I hit 22 and received ownership of my first ride, it was time to look at insurance for the first time.

Even with a perfect driving record, this 22-year-old male had a fun time finding any insurer that was willing to give coverage for anything less than an arm and a leg. After quoting 3-4 providers, I finally settled on GEICO for more than $200 a month, and stayed with them for the next few years.

Young Professionals

After I  got engaged with my girlfriend, I realized it had been a while since I looked at my insurance options. I spent a few hours pricing out the common players and ultimately discovered a little-know insurance company in my area – Seattle-based Safeco.

For whatever reason, while all of the major companies were pricing my coverage at about the same level at my existing GEICO policy, Safeco undercut the competition by about 30-40%, as best as I can remember.

It just goes to show you that different companies will target different risk groups, and that you should price out as many as you can think of to ensure you’re really getting the best deal.

Love & Marriage

After we got married, Safeco obliged and cut our policy further as a result of our new risk category (another lesson – always call your insurance company when your life “status” changes.) We were happy with the price and the coverage for the next few years, and thankfully never had to use the company to file any claims.

About two years ago, I went through the process of pricing out my coverage for the third time. To my surprise, nearly all of the major providers quoted me policies that were 30-40% lower (again, as best as I can remember) than my “low-cost” Safeco policy from just a few years prior.

It seems that while Safeco was the best option for us for that 2-3 year period, we shifted into different risk profiles during the same time period, and could get almost any policy we wanted for a lower price.

We went with Progressive, both for the price and the services they provide, and having to use them for claims twice in the last 2 years, I would say that I’m very happy with our choice.

I recently went through another round of pricing auto insurance, but all of the companies I quoted were either comparable or more expensive than our existing policy.

Conclusions

In my option, the days of insurance “loyalty” should be put behind us. There are still many people using their insurance provider because it’s “something their Dad did,” but for the most part, I think it should be a part of your budget that you look at regularly for price and value.

(Photo credit)

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Do you pay other people or companies for the privilege of dealing with even the simplest areas of your finances? If so, it may be time to re-evaluate whether you’re getting your money’s worth with these expenses.

Let’s look at three of the most common financial management areas where people often spend money for things where free alternatives exist:

Free Checking

About 5 years ago, right around the time that online banks were just coming into the mainstream, it seemed that you could get a free checking account anywhere you looked.

To some extent, that’s till the case today, but banks are increasingly turning to paid accounts that require specific minimums to avoid the “maintenance fees.” Some examples include:

• An average minimum balance over 30 days.
• An absolute minimum balance any anytime in the last 30 days.
• A certain number of transactions each month.
• Direct deposit of your paycheck.
• A mortgage, credit line, or credit card, sometimes with a specific minimum limit.
• A linked account of some other type.

Usually, any one of these is sufficient to avoid paying the fee, which on some “premium”-level accounts can be as high as $20-$40 per month. These accounts target high-income earners, since even the basic accounts offer standard features like FDIC insurance. This group shouldn’t have a problem keeping high checking balances, and in return get perks like:

• Free linked savings accounts with no fees.
• No-fee banking services.
• Interest rates on checking balances.
• ATM fee waivers.

I was even lucky enough to score a free business checking account with Wachovia before they converted to Wells Fargo in my state, and Wells has grandfathered in my account on the free level. For any of you who own a business, you know that finding a free business account is even harder than a personal account.

Because of the nature of my online work, I knew that my balances and transaction counts would be low, and that my needs would be simple, so the services offered by the free account were more than enough.

Credit Cards

If you’re a balance-carrying cardholder, you are already painfully aware of the cost of having a credit card each and every month. Beyond that, however, many cards also charge a membership fee, which is typically added to your bill every year.

Base-level cards rarely charge a fee, so there is an expectation that you are getting some extra benefits if you’re in the group that pays to have a card. The important question is whether those benefits are useful to you and worth at least what you’re paying to get them.

One example is my American Express Blue Cash card that I currently have, which is free. In recent months, I received a number of offers to upgrade this card to a “Preferred” card, which carries a fee of $75 per year. In return for this fee, I can expect to get:

• 6% cash back at supermarkets; with 3% and 1% tiers for other spending
• Premium benefits, like a travel hotline and accident insurance

For people who use their cards almost exclusively or travel a lot, this might be a fantastic deal. I declined the offer, but there are certain instances where I would consider a paid card. Many cards also offer a one-year fee-free period, which coincides with the time many of the bonus points kick in for new members. A lot of people take advantage of this period to get mileage bonuses and later cancel the card before the annual fees can kick in.

Beyond evaluating your own credit cards for fees and determining whether they are worth it, ensure that you’re also checking your card’s rates in case that you ever need to carry a balance on the card (credit card low apr).

Personal Finance Software

Another area where a lot of people spend money is tracking software for our money.

When Quicken was the only thing around, you may have been on the hook for $50 every year if you were an early adopter, and even less if you only upgraded every 2-3 years like me.

The advent of Web 2.0 has brought two new extremes to this genre. There are now free alternatives to Quicken like Mint.com (run by the same company), or Money Strands to name a few examples.

On the other hand, there are also companies charging monthly fees for cloud-based money software. While for many people, the cost may be justifiable, it usually far exceeds what we used to pay to analyze and track our money.

Look for Value

Just because things cost money doesn’t mean they’re inherently bad–that’s not the point at all. The idea is to be alert and aware of how you’re spending your hard-earned dollars and to make sure that the value and services you get back are worth every penny, and more.

I encourage you to take a good look today and make your own conclusions.

(Photo credit)

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For a lot of good reasons, the first question on my list of 72 when evaluating where and what you want to buy deals with the type of home.

Generally speaking, the options are single-family homes and condos, though with the second type, the selection gets more complicated. Whatever the setup, a condo is essentially ownership of a “unit” within a larger building and ownership interest in the common property shared by all the condo owners.

While an unspoken assumption on our family’s part has been that a single family home was our intended buying target for later this year, we’ve been finding ourselves talking about condos more and more in the last few months.

The more we think about it, the more sense it’s starting to make with respect to where we are financially and in our life progress.

Overall Cost

We’ve run the numbers. Our current estimates include the cost of buying a decent-sized, 2 or 3-bedroom condo in our area, including the mortgage, taxes, insurance, and HOA fees. We think that the monthly cost comes to about $800-$1,100. This is marginally lower than the cost to rent the same size unit in a similar location, which is a major plus.

Part of the reason is that condos in our area are significantly less expensive, foot for foot, than their single-family counterparts. Much of this may have to do with the cost of land, which is a big portion of the purchase price for a detached home.

The effect is that buying a condo has any, or all, of the following benefits:

• You can lower your overall purchase price, mortgage cost, and money required at closing.
• You can get more bedrooms or square feet to live in, for the same or lower cost.
• You can look at living options in a more urban setting, typically closer to work and shopping amenities.
• As a result of the last item, you can potentially reduce or even eliminate your transportation costs.

The actual (and potential risk of) maintenance costs is also reduced, because you’re only directly responsible for the things going on inside your apartment. I wrote last week that renting is a form living insurance because it spreads out the risk of major costs between tenants–it turns out that condo living also does this to some extent.

Ongoing utility costs paid out of pocket also have the potential to be reduced, since the common walls shared between units often make condos more energy efficient.

Fees & Common Expenses

Fees are neither a pro or a con to me. If a condo is managed effectively and you do your research before you buy, I think you can easily get your money’s worth in terms of HOA fees. It turns out that it’s not exactly “money down the drain,” even with some higher-end associations charging $500 to $1,000 or more per month in fees.

What do your fees actually cover?

HOA fees typically cover things like common area maintenance (cleaning, lawn maintenance, painting, upgrades, etc.), the cost of providing amenities (on my personal list of wants are a swimming pool and tennis courts), some utility costs like trash and cable TV, and hazard insurance for the building enclosure.

Fees are also a shared expense, which I believe makes them more efficient versus individually purchasing maintenance and insurance services as a single-family homeowner. Common area amenities are another perfect example. Rather than 100 (random number) tenants individually buying and maintaining something like a pool, they can share in the cost of a single common pool at the clubhouse.

Rules & Regulations

Condo apartments, just like gated communities and other forms of shared living, have a set of established rules and regulations that limit what you can do and when you can do it. Typically, this includes things like improvements to your home, policies about guests, and the use of common facilities.

In the context of a single-family home, these rules are something I really dislike and more often than not, I consider them unnecessary and overkill. For condos however, I think they are absolutely necessary and even beneficial.

Because of the proximity to your neighbors, these rules provide a framework for expected behavior and a recourse in the case that someone turns out to be a bad apple. If you own a single-family home outside any HOA authority, the only recourse you have is your own power of persuasion, the police, or possibly the court system.

Style Options

Unlike single-family homes, “condos” as a group come in a wide variety of shapes and sizes. Some of the potential condo setups you might encounter include:

• High-rise towers
• Apartment buildings
• Loft units
• Attached townhomes
• Duplexes or quads; attached or semi-detached

There’s really no end to the imaginative options developers and builders are coming up with for condo styles, even “inventing” their own building types.

The setting in which these are placed also varies significantly, but you’ll find many of them as part of a community that includes some of the common amenities I already mentioned. They may also be part of a larger development that mixes condo and single-family types.

This wide selection of condo options is one of the things I really like about the possibility of living in a condo, particularly some of the options that combine components of single-family and condo living.

Lifestyle

Condo living is not for everyone, particularly those who like their space. I personally enjoy the urban-living feel to a condo if it’s in the right setting.

Having a garage and a garden to call their own is very important to some people. Actually, it’s somewhat important to me as well, which is why we’re also looking into condo options such as town homes and duplexes, which often provide an attached garage and a small piece of dirt behind the house.

As part of a condo, we can expect to be much closer (in proximity at least, if not in heart) to our neighbors, which means a greater expectation of extending common courtesies like picking up after ourselves in the common areas, keeping noise levels down, managing large groups of guests effectively, etc. There are trade-offs in freedoms that someone with a single family home (outside a gated community) would expect to have, because you need to be considerate of others.

One curious phenomenon of condo living in Florida is that many of the condos in our area are second homes, which means they are primarily occupied only during season (December-April) and sit empty the rest of the year. This is either a good or bad thing, depending on what you’re looking for from your condo experience.

Financing

Much of the information in this section is particular for Florida (and especially South Florida), and it has the unfortunate potential to derail our entire idea of buying a condo. Obtaining a loan for a condo is significantly more difficult than for a single-family home, according to many of the people I’ve talked to in recent years who have gone through the process and most of the information you can find online.

One of the reasons is that lending standards must approve your financial state and the financial state of the community you wish to buy in. In theory, the bank’s standards should weed out any potential financial problems with the community that slip through your own research (you are doing your due diligence, right?). In practice, getting a condo mortgage in Florida is hard and frustrating work.

The lender might check metrics like the owner-to-renter ratio (the more owners the better), owners delinquent on dues, bank balance, outstanding lawsuits, and more. Depending on the underwriter (Bank, Fannie Mae, FHA, etc.), requirements are more or less lax.

The same goes for down payment requirements which with FHA, similar to single-family homes, can be in single digits. However, and it’s a big however right now, the condo must be on an FHA-approved list to qualify. Otherwise, you may be looking at 20% down payment requirements as an absolute bare minimum, with many lenders walking away from questionable condo deals entirely.

This is still a relatively new procedure, so many condo associations are only beginning the process, or may be entirely unaware or unmotivated to get on this list, to the detriment of potential buyers.

There’s a lot to think about, and your best bet if you’re serious about buying a condo or any kind of property is a lot of research and a face-to-face with a banker who can go through all the available options. The light at the end of the tunnel is that, as foreclosures work through the system, bankers catch a breath and condo boards catch up with current standards, the local financing picture should change for the better.

Options & Life Plan

Last and certainly not least, we’re trying to look at this decision within the larger context of our life.

At this point, we’re still not sure where and when we want to buy for the long-term, or whether we want to build a home ourselves versus purchasing something off the market. We’re also unsure of whether we’re going to try to have a second home somewhere outside of Florida if that’s a possibility for us in the future.

The cool thing about condos, and especially a condo in a nice tropical location, are that people are always looking for part-time or full-time rental opportunities. A well-kept condo in a good location can easily pay its way in rental income if we decide to relocate locally or somewhere out of town.

Conclusions

There are no simple or definitive answers here, and it would be fair to say that we haven’t even begun to make a decision when it comes to buying a condo. It’s simply one option, and we’ll have to look further into it as the journey to home ownership continues and things change.

I think the biggest obstacle we face right now if we go down this road is financing, and I think that time is one of the few things that can alleviate it.

There is, of course, another side to this, and that is the pros and cons of buying a single-family home. For my own benefit at the very least, I plan to consider those ideas by the end of the month. Cheers!

(Photo credit)

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I had an experience last week that rattled me a bit. I was getting major repair work done on our beloved rental car for the first time since we bought it two years ago, and a dealer error almost cost me $106 in erroneous charges.

I’ll walk you through what happened and share some tips on dealing with similar situations in the future.

The Setup

To illustrate what happened, let’s use an example with simple & round numbers:

• The repair cost, labor and parts included, was $300.
• My extended warranty covered $200 of this amount.

If you did the quick math and decided that I owe $100 (which is my deductible), you’d be correct. The problem came in with another line item on the invoice that charged for my $100 deductible, bringing my total to $200 owed.

Now, if this was the only repair on the bill, the double-billing error would be glaring and would presumably be fixed without a whole lot of fuss.

Unfortunately, not only did I have three other repairs done at the same time (none of which were covered by warranty), but I also pre-paid for some of the parts on a previous visit. As a result, the invoice had about 10 charges (for the various parts and labor costs) and 3 payments (2 from me and 1 from the warranty company).

The mistake got buried in the math.

This made it difficult to spot (though I did), but even more difficult to explain and get corrected. The whole process took about 40 minutes and 4 staff members. Eventually, logic prevailed and a manager was able to see that I was overcharged for my deductible and the associated taxes.

Tips for Dealing With Errors

Invoice, receipt, and bill problems are not rare, but they are often overlooked, or we simply don’t want to spend the energy to fight over a couple of cents or dollars. In the long run that might make sense, since your time and energy are both valuable assets, just as money is.

Every once in a while, however, the error is large enough that it’s worth clarifying, following up on, holding on the phone, arguing, and doing everything possible to get back what’s rightfully yours. Here are a couple of tips from my experience:

1. Don’t trust the computer/calculator, etc. Computers and their systems are set up by humans, and it’s humans that use them on a daily basis. While policies and procedures are in place to make sure that things are done right, it’s these same policies that break down and get in the way of simple common sense prevailing over an obvious computer error. Cultivate a mini-culture of electronic dis-trust when dealing with these situations.
2. Don’t let complexity get in the way of getting it right. The more moving parts to the story, the harder it will be to sort through it all. Find any way possible to cut through the unnecessary parts and explain the problem in the simplest terms.
3. Don’t give up on making your point—elevate the issue. It’s possible that the offender has made the errors countless of times before, and has never been challenged. Don’t let someone else’s habit get in the way of getting your money back. Insist that your point needs to be heard and you might eventually get a manager that understands your half of the story.
4. Keep an open mind. I was fairly sure my math made sense, but I didn’t want to eat my words if things didn’t pan out as planned. I was firm, but approached the situation from a point of view of discovering the truth, not proving my point of view.
5. Use credit for all purchases over $100, just in case you need to open a dispute. Having a plan B in case the argument doesn’t initially go your way is critical. While a debit card dispute might take weeks or months to get resolved, potentially tying up your money for the entire time, a credit card charge can be challenged with ease.

As much as possible, urge the people you’re dealing with to use their best judgment rather than established procedures or what their machine is telling them. Many service providers are so entrenched in tunnel-vision-type thinking that you’ll have to pull them out, kicking and screaming.

Best of luck!

(Photo credit)

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I’ve been on and listened to both sides of this debate over the last 3+ years. Most of you are aware that one of my goals this year is to buy a home, but last year, I also outlined a long list of benefits to renting. Recently, a compelling counterpoint emerged from Baker at Man vs. Debt, outlining the case for renting as the new American Dream.

I believe Baker correctly points out that “there is no one-size-fits-all answer.” I also believe that the arguments many people use against buying and for renting fall completely apart when looked at in further detail. Today, I’d like to make a strong case for buying.

The Landlord

Consider your typical landlord. Some are companies or large organizations; others are people just like you and me who got into real estate through one avenue or another. But what motivates them all?

Profit.

I think we can all agree that the typical landlord is not out to lose their shirt on their purchase/business. If they are, they will not be in business for long.

In this simple concept are some important implications, the most important of which are the landlord’s income and expenses.

On the expense side:

• The landlord must pay for all of the typical things that a “homeowner” is typically liable for in the argument against owning a home, which includes property taxes, maintenance, upgrades, insurance, equipment, landscape maintenance, and often many of the utilities like trash pickup and water.
• In fact, I would argue that the landlord’s expenses are often greater than the typical homeowner’s “share,” since the landlord must also pay for things like security, property management, the cost of cleaning up and re-renting apartments, damages caused by renters, and more.
• Finally, and hopefully, the landlord can take a profit for all of his or her troubles in this business venture.

On the income side, the landlord has rent income. Property appreciation aside, that’s really it. Rent in, expenses out.

Your rent must pay for all of the above expenses, profit, and more. Your rent pays for maintenance. It pays for upgrades. It even pays for taxes, even though I have yet to convince Financial Samurai.

This is also where the “guy next door” factor comes in. If the next guy decides to trash his unit, you pay the cost. If he decides not to report that roof leak, you eventually pay the cost. You get the idea…you are paying more, however marginally, in order to have the peace of mind that your rent will cover whatever comes up.

I believe the idea that renting is “cheaper” than buying a home because of all the maintenance and upgrade expenses required is a fallacy of the highest proportions. I do believe that people spend more as homeowners, but I also believe this is due to two other factors:

• Most people rent apartments, while they buy single family homes. The upkeep on a SF home is significantly greater than on an apartment, and their bottom lines reflect this reality, many times to the new homeowner’s surprise.
• People feel the need to, enjoy, or are otherwise compelled to upgrade/renovate their homes beyond what is required.

If upkeep is not your cup of tea, why not consider a condo purchase? To the other point, learn to practice contentment with what you have, or accept the fact that you’ll be inspired to modify your space to your own needs, at a future cost.

Why Rent

Having said that, renting is not out of the question. To me, renting is a form of insurance. In this particular case, we’re insuring against:

• The risk of having to do property upgrades and not having the money.
• The risk of having to do major maintenance and not having the money.
• The risk of having to or wanting to move in the future and not being able to sell your home.
• The risk of any of the other expenses unexpectedly going up (taxes, insurance, etc.).

If you rent an apartment, the cost of doing repairs, maintenance and upgrades (and in fact, all of the expenses) is spread among all of the tenants under the landlord’s care. If your air conditioner breaks, the cost is absorbed by your rent and the rent of the 300 other people that might be renting with you. You might effectively pay a couple of dollars for that new A/C, hence the “insurance” concept at work.

(Note: If you rent a home from someone who only owns one property, this idea doesn’t apply. All costs are effectively transferred into the rent, though perhaps not immediately.)

Personal Responsibility

Buying a home means taking on personal responsibility in the sense that you assume all risk. If something breaks, it’s on you. You must pay for it, take care of it, and/or repair it yourself.

However, it also means that:

• You don’t pay your landlord’s mortgage, taxes, and all other associated expenses.
• You reap the tax and asset benefits of paying all of the above.
• You don’t pay to fund your landlord’s profit margin.
• You don’t assume the risk of other people under your landlord’s care, only your own.

You decide how to manage your property to reduce risk and minimize expenses. You select the insurance products, the equipment, the maintenance companies, and everyone else that services, protects, and otherwise touches your property, and you make sure they’re to your own satisfaction, standards, and long-term value.

Yes, it’s absolutely true. You might buy a “lemon” or the house Gods might pick your home for a tree to fall on, or some other calamity might wipe you out. But that’s the risk you take…

More Reasons

There are countless more reasons for home ownership (8 of them, actually), but let’s stick to financials. Here are a few more:

• Tax benefits. Not for all, and not a reason in itself to buy, but they do provide some tangible benefits.
• Inflation. A 30-year loan at any percentage but especially 3-4% is a dream, since the payment will remain identical until 2042. What kind of rent will you be paying by the time 2042 hits?
• Retirement. Let’s call it “old age” since we may not retire at all, or even retire early. By the time we are 60 (and much earlier, hopefully), we could have a home without a loan payment. Will you be paying rent until the day you die?
• Moving costs. Constantly moving from place to place can result in a lot of expenses, from re-connection fees to lost deposits.
• Appreciation. Again, not a reason in itself to buy a home, but the potential for asset appreciation over the long run is definitely there and one of many available options to build lasting family wealth.

New Conclusions

Baker’s article made me re-think the financials behind the decision to buy a home. Like many of you, for years I simply accepted the notion that in terms of maintenance, repairs, and upgrades, buying a home was way more expensive than renting. I was willing to  take on this extra cost regardless.

If you follow my logic though, you can see that this is simply not the case. Renting can in fact be more expensive when it comes to these costs, although the risk is spread more evenly among the renting population.

Your thoughts & debate in the comments are appreciated, especially if you disagree with me!

(Photo credit)

If you liked this post, check out these related articles:

1. The Benefits of Renting: A Surprisingly Long List
2. When Home Ownership Went Downhill
3. 9 Appliance Repair Tips for Renters

After the economy suffered a downturn and my employer cancelled their health insurance program in 2010, I switched to individual insurance and started to leverage the power of a health savings account.

Long-time readers will recall that it was not only the awesome tax benefits that made the HSA such an attractive choice, but that the HSA-enabled plans were significantly cheaper than most of the other options. As a reminder, we ran the math and determined that we’d come out ahead even if we had to pay our entire deductible, every single year, which is still a relatively-low $3,000 right now.

As a result, and even with some rate increases, we continue to use the same HSA plan and fund our health savings account to this day.

My attention has now turned to a new question: how can I leverage the HSA even more? The key lies with how the funds in the account can be used, now and in the future.

HSA Rules

Health accounts are subject to many rules, but here are some basic concepts:

• To contribute, you must have active health insurance that’s “HSA-compatible,” sometimes known as a “high-deductible” plan (though not all HD plans are HSA-friendly).
• You can contribute up to a certain amount every year, which accumulates in your account. The 2012 family maximum is just over $6,000 per year.
• Most importantly, withdrawals can be used to pay for qualified medical expenses at any time, even if your health insurance no longer qualifies you to contribute.
• With a family HSA account, you can use the funds for ANY family member, even if they don’t have a qualifying plan.
• Finally, deposits are tax-deductible AND funds can be invested AND you can withdraw everything penalty-free after age 65. In that sense, it essentially acts like a Traditional Retirement IRA.

Case Study

How does that translate into a plan of action for your money?

Many people with HSAs treat them as complimentary to their health insurance. They save enough to cover their deductible if something should happen and turn to their regular or retirement savings for everything else. I think there is a better approach.

The key lies in some of the HSA rules above, and the current definition of a “qualified medical expense.” Let me give you an example of how things could play out in our own life.

For the next 10 years, we could put a little over $6,000 into the health savings account, and assuming no investment income, we would be looking at deposits of over $60,000.

First, let’s point out that the entire $60,000 was most likely tax-deductible and already saved me thousands of dollars in additional tax that I didn’t pay.

Next, let’s say that we reach the deductible on our plan two out of the 10 years, which costs us $6,000. Additional doctor’s visits for sicknesses and check-ups might cost us another $10,000 overall.

We might have another baby, and depending on the health plan my wife has at the time, pay another $5-$10,000 from this fund. (Even though her own plan is not HSA-enabled, I can still use the family-HSA funds for her needs).

Next, I have my yearly ophthalmologist appointments and get 5 new pairs of glasses during this time, one every 2 years. That might be another $1,500. My kids grow up and need dental care, particularly braces. Cha-ching! Let’s just say that’s $15,000 for the sake of argument.

At the end of year 10, I decide to switch insurance plans, and have spent $42,500 on medical expenses, with $17,500 still remaining in the account. While I can no longer fund this account, I can still use that entire amount tax-free for any medical expenses until the day I die, and I can withdraw it penalty-free in a manner similar to a Traditional IRA once I hit retirement.

As more and more of us live longer and need extensive medical care in our elderly years, this kind of account can be hugely beneficial to a family’s finances. You get the tax and health benefits now, in your working years, and get the enjoy the additional tax benefits and your thoughtful pre-planning in retirement.

In addition, you get to pay you entire family’s medical expenses with pre-tax dollars, and you can use the money for very expensive (and rarely covered) medical procedures, like the braces I mentioned, or the removal of wisdom teeth, and on and on…

Conclusions

Medical HSA accounts are fantastic vehicles for short-term health spending and a key component if you have a high-deductible plan, but they can be even more powerful if leveraged for the benefits they will provide in the future, for yourself and your family.

(Photo credit)

If you liked this post, check out these related articles:

1. What is a Health Savings Account (HSA)?
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Journaling is sadly dismissed as an activity best left to teenage girls, depressed writers or people with too much time on their hands. So what in the world is financial journaling and why would you want to do it?

Every so often, I take up financial journaling for one reason or another. It might be a particularly stressful time in my life, or spending in a problem area may be getting out of hand, or perhaps the family is on a trip and we want to be conscious about how we use our money.

Whatever the particular reason might be, the desired outcome is always the same—more mindfulness when it comes to our money, which simply means being self-aware about how and why we’re using our resources.

Why a Journal?

This kind of self-reflection does not have to be a complicated thing. It doesn’t even have to be written down. In fact, the more you practice mindful spending and earning, the more it becomes a natural extension of your thought process and a habit you just do.

However, if you’re trying to bring some focus to your money for the first time, or you’re doing intermittent, intense periods of self-awareness like me, a physical or electronic journal dedicated to your finances can make a world of difference.

The benefits of journaling for other reasons are discussed by a wide variety of self-help literature. When it comes to your finances, there are some unique benefits as well:

• A written record of your spending decisions and why you made them.
• An ability to correlate state-of-mind or certain triggers in your life with specific spending habits.
• A broad overview of how you spend, and if you (as they say) “put your money where your mouth is.”
• A place to keep ideas and reminders about expected, unexpected, and potential future spending. (Just to be clear, all three are different: Expected—things you know you’ll have to buy, Unexpected—areas you need to save for, and Potential—things you might like to buy but aren’t required).
• A record of your family discussions and decisions.
• A list of income opportunities, as well as ideas for cutting your costs.

There are more, of course, depending on how you personally decide to use your money journal and the connections you make between the data and ideas inside it. Being able to see macro-level trends and ideas is one of the best uses of this kind of journal.

How to Journal

Telling someone how to journal is like telling them how to make love. You can write about the technical components all day long, but it comes down to an intensely personal interpretation of the ideas and an ability to react “in the moment” to what’s in front of you. With that in mind, I’ll share some of the things I’ve found to be successful in the past:

• Journaling works well in a small, physical notebook that you can carry with you to take notes during your day.
• If any part of your journaling involves the collection of data, whether it’s dollar amounts or the number of times you do something, transferring this to a spreadsheet gives you the added benefit of analytical tools.
• The simple act of writing down the vendor and dollar amount of every purchase you make during the day (and possibly sharing this information with your family daily or weekly) has the power to change the way you spend.
• Notice and write down the mental process that you go through before you spend. While you may not get immediate insights, looking for patterns over a period of time can help you understand why you spend.
• If you have an insight or something surprises you, don’t dismiss it as something you’re not capable of thinking of. Our brains work on our problems while we’re busy going about the rest of our day, so it’s entirely possible that a critical key to turning your financial life around pops into your head at 2:45 on a Monday afternoon. Grab it and write it down.
• Bring your notebook to every formal and informal meeting you have about money with your loved ones. Record decisions, lingering issues, and questions.
• Be consistent with your practice, but don’t be afraid to start and stop journaling based on what your life requires.

Most importantly, make the process your own. Adapt the practice to how you work, process information, deal with issues and analyze problems best.

Do you keep a financial journal? Share your own tips for how to get the most of out this habit in the comments!

(Photo credit)

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