What Should You Do if You Get Laid Off?

There are a hundred pundits on radio and television today who have just one answer to that question, and you know exactly what it is. They look at the economic impact of your being out of work as a nearly personal assault on their own pocketbook with little regard for its effects on both your family and yourself. Being laid off, however, is different from being fired. If your company chooses to lay you off, but tells you that there’s a chance you may be called back in, particularly if they set an end date to your forced sabbatical, there are a host of things that you can do to not just curb boredom, but set yourself up for a better job later on, when your company decides to call you back. Take a few of these tips the next time your employer shows you the door, and maybe you’ll make them live to regret letting you go.

Brush up your resume and interview skills

So, yea, the first thing I go to is what the pundits all talk about. Sure. However, The reasons they want you to do it, and the reasons I want you to do it are quite a bit different. Here’s why: They say they want you off the unemployment rolls. Lower unemployment tends to mean higher stock prices in a roundabout way, and if they’re invested in whole-market funds, they have a vested interest in you getting a job. Any job. As for myself, I tend to look at it a bit differently. 

If you haven’t interviewed in a while, chances are you’re a bit rusty. No less will be that old resume that could well be starting to curl at the corners a bit! Take this opportunity to practice your interviewing skills - read up on the latest trends (yea, there are trends that really ought to be followed!) It’ll get you comfortable with talking to new people again, just in case your old company decides not to call you back after all! 

Get some training

If ever there was a better opportunity to better yourself intellectually, being laid off is it. Many states offer free extension courses for temporarily unemployed residents which can even include some college courses. Sure, you can take classes that might put you in a better position when you return to work - like say you’re a mailroom employee at a corporation that makes auto parts and decide to take an AutoCad training course, that might just be seen as initiative. On the other hand, there’s nothing wrong with taking the kind of courses you always wanted to take, too, like say, philosophy or art. You might even think of it as the first step toward the career you always wanted!

Vacation

If you’re in a pretty solid financial position, or are close to retirement otherwise, you might just think about seeing a few of America’s National Parks, or some foreign country you’ve always meant to visit. Who knows? It isn’t a sin to take a little time for yourself when you’re laid off. You just have to remember to be frugal. Sure, if you’re on permanent layoff, you won’t want to spend too much time hanging out on the beach, but at the same time, you’ve worked a long time, so why not take a little company-approved break? 

Getting laid off isn’t particularly pleasant, but at the same time, it isn’t the end of the world. Take advantage of the situation and, while still avoiding overdoing it on spending money, don’t be afraid to have some fun!  

Saving Money on your Home Heating Bills

With temperatures this winter teetering toward historical lows, biting winds keeping schoolchildren at home, and icy banks of snow piling up even in states that ordinarily don’t see very much wintery precipitation, you’re probably asking yourself how you can tone down those ridiculous home heating bills a bit. It might seem counterintuitive, but the problem is particularly poignant in southern states, unused to the extreme cold, when the heater seems to run pretty much non-stop to keep up with the heating demands. Fortunately, there are a few things you can do this winter to keep that heating bill from sucking down your whole budget! 

Layers!

Not everyone’s used to wearing layers, especially in the deep south, but layering up during cold weather gives you the chance to take the thermostat down a few degrees while still warding off the chill. While you’re at home, don’t be afraid of a cozy pair of fleece-lined slippers, thick, heavy sweatpants, and a nice, bulky sweater. Sure, it may not be particularly fashionable, and going out might require a change, but what’s better than a cool day and warm clothes - nothing, is what! If you have a hard time finding really comfortable cool weather clothes, try your local outdoor adventure store or a hunting supply store such as Cabella’s or Bass Pro Shops. These stores carry far more than the traditional camouflage clothes you might associate with outdoors stores, and their warm and cozy comfort might just surprise you!

Avoid the Fireplace!

Again, this seems a bit counterintuitive, but in reality, fireplaces in today’s newly constructed homes are not necessarily put in place for their functionality, but rather for the “quaint” appeal of having a wood fire on a cool day. Unless you have a heating system that circulates the warmth throughout the house, you might find that the room that has the fireplace in it gets nice and toasty warm while the rest of the house takes on a frigid temperature. Why does this happen? Well, it depends on the placement of your thermostat. If it’s in the room where the fireplace is located, instead of against an interior wall in another room, then the device will read that the house’s temperature has risen, and will shut off the furnace. Then, when you’re done with the fireplace, the furnace has to turn back on and work overtime to heat the house back up.  In these cases, remember that the furnace running at an average temperature uses less energy than a furnace that has to build temperature back up again. 

Insulate!

It’s never too late in the season to throw down some extra insulation in your attic! In fact, it’s a particularly good idea in the south, since builders don’t typically put much insulation in to begin with. Houses in warmer climates simply aren’t constructed to deal with harsher cold temperatures. What’s the benefit, then? For starters, you’ll pay less on your summer cooling costs, as well. The extra insulation will help keep the cool air in place this summer, and keep the warm air in this winter. It’s a win-win scenario!

It takes a force of will to turn down the thermostat in your home, particularly when you’ve got family to think about that doesn’t necessarily want to feel cool when they’re getting out of the shower, but it is the single best way to save money on your energy costs. Sure, some family members might gripe a bit, but after all, when it could save you hundreds of dollars over the course of the winter cold spell, don’t you owe it to yourself to make ‘em suffer a little bit? It’s cathartic, really! 

Are Interest Only Mortgage Loans Making a Comeback?

In the world of loans, there really is very little that can’t be accomplished. From reverse mortgages to pawn loans, just about anything you can imagine is on the table and can be used to obtain financing for the situations in your life in which you find you need some extra liquid capital. Mortgage loans have changed dramatically in the last fifteen years in response to the collapse of the housing market, but that doesn’t mean that banks aren’t giving up on their tried-and-true moneymakers just yet. Just before the housing crisis, a popular style of mortgage loan was one in which the loans interest came due at the front of the loan. This was helpful for buyers in those times to afford homes that they might not ordinarily be able to afford, but that they speculated would increase in value by the end of the mortgage’s term. Sound like bad news to you? It was tricky financing then, too.

Loans of these types depend heavily on speculation. First off, buyers can speculate about whether they will earn more income later on in the payment term (which became a problem when people became unemployed en masse during the housing crisis) It allows the buyer to purchase a home and then pay the principal when it’s convenient to do so. Since the interest only payments are lower than the amortized payment, it can have the effect of giving temporarily low income borrowers the ability to purchase more home than they otherwise might have been able to previously. 

These types of loans come in two durations. Five years, and ten years, which opens up a whole different set of financial possibilities for you. On the positive, albeit risky side, is the potential to invest the money that you might have otherwise spent on principal and interest together. Let’s say for a moment that the difference in the housing payment is $200. Further, let’s say your mortgage interest rate is 5%. Over the course of five years, if invested conservatively at 8% in common stock, you would realize a gain of nearly $15,000! With the same figures but in a 10-year time frame, the amount reaches $37,000! That’s no small change, but it requires an extraordinary amount of discipline. You can’t spend it, you can’t think about it. It just has to be gone to the stock fund of your choosing without looking back. Then, once the time comes, you simply pay that amount onto your home, and you magically make it possible for yourself to reduce your mortgage payment. Just like that! Except, well, there are a few little problems...

First off, what you’re doing is basically investing the future equity in your home, and as we all know by now, the stock market is FAR from a sure bet. Stocks go up, the DOW goes down. Everything runs in cycles, and if you happen to be in a down cycle when you were supposed to slap that big chunk of cash down on the desk, the effect is liable to be a whole lot less dramatic than you might expect. Further, suppose the housing market in your area dries up? Suddenly, you’ll be left with a full-priced home, no equity, and no reduction in your mortgage payment or premium. That would hurt, and it’s one of the problems that we ran into during the downturn.

Now, this isn’t to say that an interest-only mortgage is a bad idea. In the right hands, it can be an effective and useful financial tool to build your future wealth and make the most of your home- particularly if you don’t ever plan to move. It isn’t for the uninitiated, however, and if you’re new to mortgage finance, or have never bought a home before, it would serve you well to make sure that your financial situation is perfectly suited for the intricacies of an interest-only loan. Simply stated, it isn’t for everyone, and can be an extraordinarily bad idea for home buyers who don’t quite fit the criteria involved. Remember in this case to tread carefully!

How Does Buying Stock on Margin Work?

Most investors these days are woefully unprepared for the intricacies of diving head first into the global stock market, and so may not understand the concept of buying stock on margin. Simply stated, buying on margin is taking out a loan to purchase securities. Sound dangerous? It can be if you’re not careful!

Can Canning Your Own Soup Really Save you Money?

Although there is a ton of money to be made there relatively easily, many investors believe that there’s nothing to it - you just pick a few of your favorite companies, buy the stock, and watch it grow. Unfortunately, nothing could be further from the truth. If you ever want to see any sort of return on your self-guided investments, you have to become intimately acquainted with at least the basics of how the stock market works. Now, that being said, there are tens of millions of people out there who make a dedicated hobby of the stock market, and they generally don’t do too bad, financially speaking. There are also tens of thousands of people out there who make a VERY comfortable living working over the intricacies of the market.

Unfortunately, there are also a large number of investors who, thinking that they know a little bit about the stock market, get in too deep and lose substantial amounts of cash- quickly. Buying on margin is one of those advanced stock market terms that neophytes in the world of securities trading might hear on the wind, but may not necessarily understand. Perhaps you’ve heard that you can make substantially larger investment gains on margin than you can on standard trading, and that isn’t too far from the truth. However, there is a downside.

First off, margin trading is not for newbies. It’s as simple as that. Ask any professional financial advisor, and they’ll tell you that unless you’ve been swimming in the great stock market pond for a few years, it’s best to leave margin trading to the big fish, and here’s why: You might see some phenomenal increases in stock value while trading on margin, but what goes up, can quickly come down. Sure, margin amplifies your positive stock returns, but it can also amplify your negative returns, and it can get really ugly really quickly. You need to be able to stomach those downturns in the market, or else be smart enough to stay on top of the market’s movements so you can mitigate any potentially disastrous losses.

The Day Trading Connection

Margin and day trading practically go hand in hand. Without it, attempting to trade at a faster pace than once per week without sufficient funds in your investment account is known as “freeriding.” It happens when an investor attempts to perform a trade before the funds from a sale have cleared to the account. For example, let’s say you have $100 worth of equities in your account. You buy $100 worth of stock on Monday, but the price rises on Wednesday morning, so you try to sell so you can get in on the profit. Trouble is, you can’t. That would be freeriding. The money from the purchase of the stock won’t have cleared yet, so you can’t sell (because it hasn’t been paid for yet.) It works out to about four days worth of waiting for the money to clear. For instance, you might make a trade on Monday, and the funds won’t clear until Thursday.

Margin trading does away with this limitation when used wisely. For most investors (particularly day traders,) margin is essentially an extension of credit that can be used to perform trades on a day to day basis while still having enough in your account to cover any quick trades you might wish to make. It would be like having $100 of your money in the account, and $100 of credit (though the amount varies considerably.) so that you can use all $100 for investment rather than the $50 you would have had to use before to cover the sale and purchase of the stock. 

As an investor, you’ll have to apply with your brokerage company to open a margin trading account, because you won’t be able to trade in that fashion without clearance. The account itself is treated just a little differently. Check out a later post when we’ll go over how to actually make trades when you have a margin account. Until then, happy trading!

Should I Rent or Buy My Next Home?

Regardless of whether you’re just about to break out on your own after college, or a retiree looking for a downsized place to park your stuff while you see the world, you’re going to run up against that immortal question: should I rent or buy? Unfortunately, the answer isn’t an easy one to give, because more than anything, it depends on just how you want to live. After all, an apartment, a condo, and a home all have very different needs that must be met. If your life is more globetrotting adventurer than stay-at-home dad (or mom,) then the choice shouldn’t be that hard to make, since apartments require no maintenance on your part to keep them looking good. A home, on the other hand, requires daily attention to ensure that everything looks good, performs well, and returns your investment to you should you decide to sell. 

What are the upsides of renting?

Renting, in a nutshell, is the easiest way to live. You (generally) don’t have to deal with lawn maintenance, leaky pipes, or old roofs. You simply ensure that your rent is paid up every month, and your landlord takes it from there. Depending on the location, you have the benefit of living close enough to other tenants that someone’s bound to notice if someone decides to plunder your place for everything they can carry off. Additionally, there may even be multiple levels of security to protect you, depending on how upscale your apartment is. This means that you’ll be more able to travel, if that’s your thing, without having to worry about your abode.

Unfortunately, renting also comes with its share of downsides. First off, you are literally inches from where your neighbor sleeps. Seriously. If she’s got a snoring problem, you’d better get used to it or figure out some sort of music to put you to sleep, because that’s going to be your cross to bear every night until you move out, or she does. On the financial side, renting an apartment means that you won’t be able to deduct your interest expense as you can with a home purchase. Additionally, when you rent, you don’t build equity. If you’re retired, that may not be a priority for you, necessarily, but if you’re just starting a family, that really is something to think about. You might be surprised the sticky situations that you can get out of by using a home equity loan or line of credit.

So, What about Buying?

If you choose to buy your home, there are upsides, but be wary of the downsides, as well. If we’ve learned anything since the 2008 financial meltdown, it’s that home values go up, and they come down too. If you think for even a minute that you might not want to stay in the house for more than a minimum of five years (but 10 is a more adequate number these days,) then don’t buy the house. You could end up losing tens of thousands of dollars if a job offer in another city takes you away and you have to sell. Additionally, you’re on the hook for all the maintenance, fees and taxes that go along with home ownership. That can often mean a substantial extra amount tacked onto your mortgage payment each month. 

On the positive side, though, buying your home can mean lots of benefits. Sure, there’s the difference between a house and a condo, wherein you may or may not have to deal with maintenance, depending on the contract you sign when you buy. Also, there are loads of tax deductions and incentives that are provided for home buyers, particularly in the shadow of the meltdown, when the federal government has been incentivizing home ownership. There is a sense of permanence and structure that a family can enjoy together, and really, nothing beats having really great neighbors that become really great friends!

When you ask yourself, “Should I Rent or Buy my next home,” make sure to take into account all the different facets of home ownership versus renting that you’ll run into. That way, you’ll be able to make the right decision when the time comes, and avoid making mistakes that could cost you money and aggravation in the long run. 

How Does a Reverse Mortgage Work?

If you’ve ever watched “The Price is Right,” than you probably have heard a thing or two about reverse mortgages, but not the sort of thing that actually answers your questions about it. Daytime television is the preferred media for the advertisement of these relatively new financial products, since they cater to the retired set rather than to younger folks. The ads that come up typically involve some trusted, much loved character from the baby boomer generation talking about how grand it is to have all that extra income every month to pay bills and cover medical expenses. While they do touch on some of the benefits of reverse mortgages, they often say little or nothing about what the product actually is, how it works, or how you might qualify should you be interested in obtaining one. Also known as a “Home Equity Conversion Mortgage,” it’s a good idea to know what you’re getting into before you make a decision.

Do You Qualify?

Qualifying for a reverse mortgage isn’t particularly difficult- there are just two primary criteria that must be met for you to get to the paperwork stage of the game. First off, you have to be at least 62 years old. This isn’t an equity loan for youngsters. The entire point of the HECM was to assist seniors with rising medical costs and to help them to avoid the kind of financial pitfalls that can lead to bankruptcy later in life. Secondly, you have to occupy the home as your primary residence. You won’t be able to do a reverse mortgage on your vacation condo in Boca. Sorry. While it really should go without saying, there’s also a little extra proviso that has to be met in order to qualify. You actually do have to have equity in the home in order to secure this financing. 

How much Can I Get?

The amount of payments on reverse mortgages varies according to the value of your home. For instance, if you have $100,000 in equity in the home, you can obtain a $100,000 Home Equity Conversion Mortgage. The amount you get is also determined by your actual age (older applicants will generally be able to get more,) the interest rate of the program that you choose, and whether you choose to take the payment as a lump sum, a line of credit, or a monthly payment. The amount you receive is then reduced by the typical fees you’d expect from a mortgage: Mortgage insurance premium, title insurance, appraisal, and any origination fees that the lender might assess. Of course, you could pay these up front, if you wish.

What Happens at the End of the Loan?

At the end of the loan term, which is when the borrower dies, sells the house, or doesn’t keep taxes and insurance up to date, as well as if you move out for more than 12 months, your heirs have some decision making to do. If they want, they can assume the mortgage under a traditional refinance, or the home may be given to the bank. At the end of the loan, the lender has a claim on your property, (the house,) but not you.They can’t, for instance, come after your checking account or those old coins you’ve got squirreled away in a safe deposit box.  

Any Final Tips?

If you decide that a Reverse Mortgage is the way to go for you, then there are a few things that you do have to keep in mind. First off, don’t squander the proceeds in Vegas. BAD IDEA! Seriously, though, it’s critical to keep the taxes and insurance up to date, and the interest you pay on the loan isn’t deductible until it’s actually paid off at the close of the loan. The proceeds don’t affect Social Security or Medicare unless those funds are kept in a liquid account such as a savings or checking account. In that case, they could potentially affect your eligibility. To be safe, make certain that you completely read through all the loan materials before you sign, so that you know exactly what you’re getting into.

How much down payment should you make on a new home mortgage?

It should go without saying that the bigger the down payment you make on a new home, the more home you’ll be able to purchase, and the less you’ll end up paying overall for the home. The trouble is that very often, home buyers find it a little tough to come up with the tens of thousands of dollars required to make that down payment. With budgets tight these days, it can be downright impossible to save up the $30,000 needed to put down 20% on a $150,000 home. In areas where average housing prices can quickly top $600,000 or more, that 20% can seem like an insurmountable obstacle to home ownership. Can you put 20% down? What if you can only get a few thousand dollars together? In what cases will that be sufficient?

 Use this Mortgage Calculator to Help Determine How Much YOU can Afford!

The down payment is really a balancing act, and what I mean by that is that while it is technically possible for you to obtain a mortgage with little or even nothing down in some cases, you might be doing yourself a disservice by doing so. After all, the down payment does more than just open the door to a mortgage for you. First off, the down payment may in itself help you to get a mortgage, particularly if you’re a first-time homebuyer. If you offer little or nothing down, then the banks that you are attempting to do business with might be less likely to want to extend you credit. By the same token, they might also limit how much they’re willing to loan you, putting the house of your dreams out of reach. Secondly, the down payment significantly reduces your monthly mortgage payment. For instance, let’s say you’re going to put $75,000 down on a $400,000 home.  At a 5% interest rate for 30 years, you’re looking at $2160 per month, give-or-take. Running the numbers at $10,000 down, however, puts your monthly payment at $2510, a difference of $350. Doesn’t sound like much, you say? Try this on for size: That difference will save you $43,000 over the life of your loan. Sounds pretty good now, doesn’t it?

Try These Tips to Simplify Your Finances!

The down payment is a personal thing, though. Sure, it is very much about how much you can afford and how much house you want to buy, but there is more to it than just that aspect. For instance, how comfortable in your job are you? If you’re pretty set up, you might be more comfortable with a higher monthly payment and lower down payment. If you’re retired, though, you’ll probably want to think about making sure that your monthly payment is as low as possible, just in case you run into other issues during your retirement that need to be attended to. After all, that trip to London isn’t going to pay for itself, is it?

Yet another aspect to the down payment is, of course, PMI. Private Mortgage Insurance helps protect the lender from default on the loan, and if you put down less than 20 percent of the home’s value, chances are you’re going to have to pay it. It doesn’t usually seem like much, but it’s a big chunk of change. In the above example, the PMI would be calculated to an extra $162 added to the monthly payment, culminating in a grand total of $18,850. All paid by you until the equity in the home you buy reaches 22 percent of the amount financed. So, the $43,000 saved above suddenly becomes a savings of $61,850 over the life of the loan.

Our society has conditioned us to believe that we can life in debt and be happy, but there are a host of studies that have told us that “society” is full of it. We want to be solvent. We want our stuff paid off so that there aren’t any bills coming in the mail. After all, who dreams of sitting in their home’s new office filling out stacks of bills? While the down payment is a matter of what you can afford, it can be easily distilled into a simple fact that’s easy to see when you really take the time to look: Paying more for the down payment will make you happy in the long run. Paying less will eventually make you unhappy. With that in mind, who wouldn’t want to save up a bit longer for that house they want?