Updates Blog

If you’re a homeowner, fortunately there are some things you can do to reduce the high costs of homeowning:

• Deduct mortgage interest.  If you itemize deductions on Schedule A of your income tax return, you can deduct the interest portion of your mortgage payments.  Keep in mind that for the first few years the interest you’ll pay on your mortgage will probably be about 80% to 90% of your mortgage payments.  So if you pay $10,000 in mortgage payments yearly, you can deduct $8,000 to $9,000 of that amount.  Also deductible on Schedule A are state and local income taxes, property tax, charitable contributions, medical expenses above 7.5% of adjusted gross income (AGI), and miscellaneous expenses above 2% AGI.

  Your other choice is to take the “standard deduction” which in 2007 is $5,350 for single persons and $10,700 for married couples.  If you don’t have many itemizable deductions, you may not get much more benefit from a mortgage interest deduction compared to the standard deduction.

  You can use the Mortgage Interest Deduction Calculator at right to figure out how much money you’ll save deducting mortgage interest on Schedule A of your federal income tax return.

• Get a good refinancing deal.  That’s a bit complicated, so we’ll cover that in a future post.
• Reduce property insurance costs.  It’s often possible to cut the cost of your homeowner’s or renter’s insurance by 25% or more and save hundreds of dollars every year (scroll down to see a list of ways to save).

If you’re thinking of buying a home, here are some more money-saving ideas:

• Buy small.  Only buy what you can comfortably afford.  Some people think they’ll make a lot of money by buying a bigger home and selling it later, but this is speculative and could backfire on you.

• Buy a fixer-upper.  Some homes don’t cost much because they’re not well maintained.  If you’re handy and willing to work, that’s an opportunity to buy at less than market value.
• Get the best mortgage deal possible.  Again, that’s a discussion all it’s own so we’ll cover that in a future post.
  

Buying a home you can barely afford can be a big mistake:  nearly 1.3 million Americans had their homes foreclosed in 2006, at an average loss of $75,000.  On the other hand, if you rent long-term you’re missing the opportunity to build a nest egg out of “home equity” — which is defined as the worth of your home minus what you still owe on your home loan.  Here are the major homeowning costs:

• Mortgage payments include principal and interest.  In the early going, interest is often over 90% of your monthly mortgage payment.  When borrowers make a downpayment of less than 20% of the home’s value, they must also pay for private mortgage insurance (you can stop it when your home equity rises above 20%.)  Its yearly cost is usually around 0.5% of the property’s value.  Many Americans are unnecessarily paying for PMI (they may not even remember having ever got it!)  Here’s two explanatory pages: PMI Tips, How To Remove PMI.
• Mortgage closing costs, $1000 - $3000.  These include:
  1. Origination fee.  A lender may charge 1% of the loan principal as their fee for loaning you the money.
  2. Credit Report.  Usually $50-$100
  3. Home Value Appraisal.  Usually $200-400
  4. Recording, and Notary Fees.  Usually $50-$100
  5. Lender’s Title Insurance (ATA).  Usually $200-$400
  6. Escrow Fee.  Usually $200-$800
  7. Document Preparation Fee.  Usually $50-$100
  8. Tax Service.  Usually $50-$100
  9. Property Inspection Fee(s) (Termite, Roof, etc.).  Usually $150-$250
  10. Homeowners Assoc. Transfer Fees.  Usually $0-$100
  11. Attorney’s Fees.  Usually $0-$500
  12. Miscellaneous Fees (courier, underwriting, wire transfer, etc.).  Usually $75-$150

  “No closing cost loans” are often advertised, but this doesn’t mean that there are no charges.  It means the company are eating these costs and raising the interest rate they charge to pay for them.

  “Impounds” are charged at closing:  these are simply payments that you make in advance for homeowner’s insurance premiums and real estate taxes. These fees are relayed to the local tax authority and your insurer when you get your home.

• Homeowners insurance, 0.5% or more yearly.  Yearly homeowners insurance costs usually amount to about 0.5% of the value of the property.  But this cost can be much higher in disaster-prone areas.  Unlike auto insurance you are not required by law to get homeowners insurance, but while you have a mortgage your lender will probably require you to carry it.
• Property taxes, 0.25 to 0.4% yearly.  This can vary greatly from one city to another, even within the same state.  In some places you could pay $8,000 yearly on a $255,000 home, while in other places it’s only about $1,000 for the same home.  Here’s a list of property taxes by state, but remember that those are average tax rates and some locations within the same state could have double or half the average rate.  To find the real rate you would need to call a knowledgeable person in the area (e.g. a realtor.)
• Transfer tax, 1% - 5%.  Sometimes called the “excise tax “, this
  is charged by the city, county, and/or state in most areas.  It’s usually between 1% and 2%, but can be as high as 5% in some places.  It’s paid by the seller, but again it has to be paid again when the home is sold.

• A buyer’s agent.  They usually don’t charge you anything, but they’ll receive up to a 3% commision from the seller.  Sellers may be more likely to cut you a good deal if they don’t have to pay that fee.
• A seller’s agent, 3% - 7%.  As we mentioned, buyers aren’t directly
  charged a comission.  When you or your heirs sell your home, a real estate agent will charge anywhere from 3% to 7% unless you sell it yourself.  It is still a cost of homeowning.  Sellers must also pay attorney, closing agent and other professional fees costing several hundred dollars.

• A home inspection, $300.  You should always pay for a home inspection because they almost always find defects that can help you bargain for a lower price.  Usually it costs around $300.  Be aware that a faulty home inspection that does not find bad structural damage can cost you tens of thousands of dollars (some have even lost hundreds of thousands.)  A good way to make sure the home inspector is qualified is to ask for proof that they have liability insurance, and make sure any agreement you sign does not absolve the home inspector of liability for his mistakes.
• Moving-In Costs.  These expenses can apply to both buyers and renters.  Costs include the moving van, deposits on electric and other services, and perhaps a few purchases of furniture and appliances.
• Maintenance Costs, 1% - 3% annually.  On average homeowners spend between one and three percent of its value yearly on maintenance and repairs, increasing as the house ages.  Sometimes people think they can skimp on these costs, but it may lead to depreciation of the home’s value, and you never know when the government will “assess” your home for repairs.  Assessments can cost anywhere from a few thousand dollars to 20% of the value of your home.  Renters do not have to pay for most repairs and maintenance.
• Utilities, $50 - $200 per month.  These include electricity, water and heat.
• Homeowners Association dues.  Many if not most neighborhoods charge dues that can range from $20 a month to hundreds of dollars, depending on how much is provided (for example, trash pickup and lawn care will drive up the cost).  Dues are usually between $100 and $250 in middle-class neighborhoods and condominiums.
• Capital gains tax.  Most people can avoid this completely because when you sell your residence you can make up to $250,000 in profit if you’re a single owner (double that if you’re married) and escape paying this tax.  However, you can only get this exemption once every two years.  The regular capital gains tax for most taxpayers is 15 percent.

ChristmasFreebies.com has a
collection of holiday “gifts, samples, digital holiday cards, freebies for children, and free Christmas software. We also offer such goodies as free services that’ll make sure a child’s letter gets to Santa, as well as free Christmas clipart, games and contests.”

To save money this Christmas, you might adopt one or more of these ideas:

Gifting:

You can almost always find lower prices online than in retail stores. You’ll also save on auto expenses of about $0.25 to $0.50 per mile if your local retail destination isn’t nearby. On the other hand, shipping costs will raise the price of online shopping by about 5-10%; however most online stores offer free shipping with a minimum amount of purchase, and most people can avoid paying sales tax by ordering from out-of-state locations. Most online shopping is safe, but it’s wise to observe at least some of the following precautions when shopping online:

Store selection:

Some people shop only at well-established online stores like Amazon.com, Buy.com and Target.com. Some sites are fake knock-offs of other sites, so make sure your browser’s address bar contains the domain name (e.g. it contains “amazon.com/”).

Don’t buy anything from someone you don’t know who emails you. Even if you think you know the source, remember that spammers are often “phishers” who can fake a fairly realistic-looking web site in order to get your credit card number.

If you’re suspicious of a store, visit sites such as Bizrate, Complaints.com and the Better Business Bureau to make sure they’re legit and consumer-friendly.

Make sure the Web store lists contact information, including a street address.

Smart browsing:

Most online stores have a security program in place, which is detected by spotting closed padlock icon on the lower bar of the browser window and an “https://” in the address bar rather than “http://”.

Don’t use a shared computer if it’s used by anyone you don’t know or don’t trust — they might be able to get enough of your personal info to commit ID theft.

Maintain good computer security, including an always-on firewall, antivirus and antispyware protection, and security patches for your operating system.

Type site addresses yourself (or use your Favorites menu), rather than clicking on links which may be phony. Before buying, check that the URL in the address bar has a reputable domain name.

McAfee’s Site Advisor plug-in can help tell whether a site is dangerous or safe.

Use Consumer Radar to shop — it will help you save money, find product reviews, track your shipments and more.  The Radar Help Page has more on that.

Use consumer guides such asConsumer Reports, Consumer World,
Consumer Search, Amazon.com, Epinions and ConsumerGuide to decide which products are best.

Saving money:

Shop early online, to have the best chance of finding good deals and free shipping. They tend to disappear as Christmas gets near.

Check which states the store charges sales tax:  this info may be on the store’s policy page, or you can test for it by adding an item to the shopping cart without giving out your credit card.  Some online stores are located in states where there is no sales tax, in which case nobody has to pay them any sales tax.

Use shopping agents like Froogle,PriceGrabber and MySimon to compare prices for you.

Coupons for $5 to $10 or even more are common at many online stores. Use coupon sites such as FatWallet, DealCatcher and MyCoupons in addition to the shopping agents.  FatWallet has a nice added benefit:  it pays you rebates when you shop at scores of popular sites such as Amazon.com. 

Shop for private-party deals at EBay, CraigsList and your Local Newspaper, which sometimes offer new products at very low prices.

When completing your purchase:

Pay by credit card, definitely NOT by debit card.  This helps ensure that the maximum you’ll lose is $50 by federal law.

If you dedicate one credit card to online shopping only, you can more easily track your purchases and limit your vulnerability.

Use Paypal if possible, especially on eBay:  you’re protected from fraud up to $1,000.

You can track the progress of your packages using UPS, Federal Express and/or the Post Office whenever you’re given a tracking number for a product you ordered.

After receiving the goods, check your credit reports regularly and your credit-card statements as soon as you receive them, to catch fraud problems early.

A SmartMoney.com article 5 Ways to Save on Child-Care Costs suggests some interesting ways to cut costs on child care:

1. Tax credits of up to $3,000 for one child, or up to $6,000 for two or more children
2. A Dependent-Care Flexible-Spending Account makes such expenses tax-free
3. Ask your employer if they’ve negotiated any discounts with child-care centers
4. Adjust your work schedule with your spouse so someone is at home more often (ask your employer for “flex time”)
5. Share the costs of a babysitter with another family
6. Cut your babysitter’s pay, or barter goods instead of paying cash

A BankRate.com 8 tips for investing in hard times outlines eight principles for investing while the economy is sliding.

1. Pay down loan balances
2. Be prepared: Get a line of credit
3. Look beyond the headlines — recovery may be very near
4. Stay the course with good investments
5. Find your “sleep number” (the risk level you can accept peacefully)
6. Start looking for “value play” stocks
7. Keep money in stocks
8. Don’t chase “yield”: the bond market has its own problems

You can read the article to better understand these principles.

An article 11 Common Tax Planning Mistakes will help you plan now so that you’ll maximize your tax refund next year. The article explains how to avoid these common tax errors:

(1) Ignoring the Alternative Minimum Tax (AMT)
(2) Ignoring Entitled Tax Deductions
(3) Not Accounting for Mutual Fund Dividend Reinvestments
(4) Failure to Track Year-to-Year Carryover Items
(5) Failing to Name (or Naming the Wrong) Beneficiary to Your Retirement Plan
(6) Not Maximizing Your 401(k) Contributions
(7) Missing Quarterly Estimated Tax Payments
(8) Not Planning Correctly for Exercising and Selling Stock Options
(9) Not Adjusting Withholding When You Change Jobs
(10) Contributing to a Roth IRA When Your Income Is Too High
(11) Making an Estimated Tax Payment Right After a Big Income Event

Here’s another installment of the best articles over the past few weeks, this time a baker’s dozen:

1. Pediatricians Double Vitamin D Requirement (ABC News):  They now recommend 400 international units per child per day.

2. 19 ways to have fun for less (BankRate.com):  Inexpensive entertainment options.

3. 10 winning ways to land the job you want (BankRate.com):  Ten fundamentals of job-hunting.

4. 10 biggest money blunders (BankRate.com):  Keep your finances in good order by avoiding these mistakes.

5. 6 deadly investing mistakes (BankRate.com):  Here’s what gets many investors into trouble.

6. Would Your Family Survive a Natural Disaster? (iVillage.com):  How to make sure your supplies and planning are adequate.

7. Stop Living Paycheck to Paycheck (Kiplinger.com):  How to use budgeting your improve your finances.

8. Your Financial-Crisis Questions Answered (Kiplinger.com):  Kimberly Lankford, Kiplinger’s financial whiz, answers your questions.

9. How the Rescue Plan Helps Taxpayers (Kiplinger.com):  Tax breaks for college, charitable contributions from an IRA, sales taxes, teachers, alternative minimum tax relife, and disaster victims.

10. Bottled water versus tap: Which is safer to drink? (LATimes.com):  Often bottled water isn’t the best way to go.

11. Which Comparison Shopping Site Is Best? (PriceGrabber.com):  PriceGrabber.com was declared the best site for finding the best prices.

12. 15 Ways to Squeeze Your Budget (ThirdAge.com):  Some fundamental money-saving tips here, others are fairly creative.

13. What’s Really in Your Food (WebMD.com):  Here’s how to tell if a food product’s labeling is “for real.”