August 28, 2015

Another attempt at refinancing falls flat

Our interest rate on the mortgage sucks at 4.8%. Because our HOA is engaged in some legal shenanigans and no lender will refinance a property with the exact scenario we’ve got, we weren’t able to refinance when rates bottomed out. My penny-pinching heart bleeds. Yet another reason to thank the HOA. I gave it another go when I found SoFi, a new lender that started out in student loans and recently branched out into mortgages.

I’d forgotten what our break-even number was, so I went searching for a new calculation at the same time. I’ve banked with Citibank for ages so had a look at their rates while I cleared out a checking account. They offered an overly simplistic way of calculating break-even: The typical formula for calculating your break-even point is to divide your refinance closing costs by the amount you’ll save each month with your lower mortgage payment.

For example, if your refinance costs total $5,000 and refinancing will save you $200 a month, it will take you 25 months to break even. If you don’t plan on staying in your house for that long, refinancing might not make most sense in the long run.

That’s shortsighted. Looking at the monthly “savings” misses the point which isn’t just to save a bit per month, it’s to save vast amounts over the life of the loan. And it ignores the fact that in some cases, you can choose to change the life span of the new loan to a shorter one (and probably should) which may cost as much or even more than you’re paying monthly.

That’s the case for us: I’m not going to refinance a 30-year mortgage for a new 30-year mortgage – that’s just going to add to the total interest we’d pay over the life of the loan. I’m looking for a 15 or 20 year fixed rate.

My application was quickly pre-approved but we only got as far as a rate estimate and then stalled. It was looking really good: 2.8% fixed for 15 years.

The break-even calculator cautioned me:

Change in monthly mortgage payment: Additional $29 per month

Um, really? We would happily pay an extra $29 per month to save THIS MUCH over the life of the loan. HAPPILY.

The estimated closing costs, right before I provided documentation, stopped me short though: $10,000. Excuse me?? I shot off an email to them. After several go-arounds, that was revised downward drastically to “only” $3500 give or take, but underwriting said they wouldn’t (sigh) touch our loan for the same reason all the traditional banks wouldn’t.

Drat and blast.

I hadn’t quite started up mentally investing that extra $10,000 a year for the next 15 years that wouldn’t ultimately end up in the bank’s coffers by way of interest but I’d already gotten attached. Can you blame me?

August 10, 2015

My first real job and paycheck

I remember talking my parents into letting me get a summer job. They didn’t want particularly want me to work during high school, they made enough at the time to cover my basic needs, so it seemed fair to say that school was my first job and that I should focus on that.

The specifics of that persuasion are lost to the mists of foggy memory but ultimately they led to an exception to the rule: work summers. It’s not that I was too smart or too good to work, hah not even close, they just worked hard to provide for us and it meant a lot to them to be able to spare us from working during our teen years.

As an Honors student, I always had summer assignments but it still left me plenty of time to work a part time gig, whether it was paid or volunteer, so off I went to the Want ads.

Yeah, how old am I that I went to find my first jobs in the newspaper? And you remember the PennySaver? That thing is still around. I spent a lot of time sprawled on the floor, fingers all over in newsprint, circling and marking up the papers.

Those part time gigs barely count for professional experience but I earned about $500 summer of sophomore year and $800 summer of junior year. Every penny was (piggy)banked after taking out cash to pay for First Dog’s vaccines and vet visits. Seriously, folks, tell your kids they’re responsible for any pets in the house? Mean it. My parents did. Once I was old enough to earn income, the vet bills came out of my pocket. That, more than anything, taught me that pets are a responsibility, not just convenient mobile toy friends. A shame that I knew absolutely nothing about investing back then.

If I’m recalling correctly, that cash then paid for all my senior year expenses like a yearbook, tickets and a discount dress for prom. Again, not withdrawing from the Bank of Parents for my “fun” things meant that no money was wasted on foolish things like a class ring. Just the few things I thought were worth it.

Looking back now, even the yearbook was a waste of money. Who looks at those things after you graduate, anyway? Who remembers those random thirty people that signed it? And did anyone really keep in touch because of those three little letters “KIT”?

My first real paycheck, at a real not-just-for-the-summer job, was exciting stuff. Real money for real work – real satisfaction!

I wasn’t even 18 though, so after opening the envelope and petting the check, all I could do was stuff it in my piggy bank until I could open my own bank account. I wasn’t about to pay to get that baby cashed, and symbolically it was important that it go into my own account now that I was a real adult, so it was deposited about 7 weeks later into my very own, brand-spankin-new Washington Mutual, no fees ever, checking account. (Ah, the good ole days, before bank bailouts and subprime mortgage folly!) The first things that check paid for were a fundraiser roll of gift wrap which I still have, and a credit card bill for my college tuition.

The world still seemed bright back then, with 5% interest rates on savings accounts and great credit card bonuses though I hadn’t yet discovered churning.

Do you remember your first job(s) and paycheck(s)?

Note: There was something magical about the first month of this job – nothing had gone terribly wrong at home yet. These first checks were really for me and my expenses.

July 13, 2015

Money Goals: I have a problem

I keep moving the finish line. I’ve admitted I have a problem before but now I’ve caught myself in the act.

Adding up our net worth, I realized we were 85% of the way to a major milestone. It happened a lot faster than I was expecting to be. We’re not right on the edge of there yet and I don’t know off the top of my head how long it will tale naturally but it’s in sight.

My breath stopped for a full 30 seconds as my brain went into overdrive: what could I do to force that number to hit the 100% mark? And considering the generally slow creep of increases each month, how much time could I shave off the previous ETA?

Explaining my bouncing tapping fingers to PiC, in the same breath as declaring us close to Milestone 1, “but then I need to figure out how to deci-uple that!”

Look at that! From meeting Milestone 1 straight on to Milestone 10, without a pause for breath, celebration, or even Milestones 2-9.

I have a problem. That’s the first step right? I’m addicted to hitting goals. I’m addicted to saving money. I’m addicted to self validating by meeting expectations.

I can never exceed expectations because the second I’m in shouting distance of a goal, it becomes the first of ten other goals. If I don’t have ten other goals? No problem, my next goal is to come up with ten good ones.

This is pretty much exactly the same impulse as my shopping problem. Got a cookie? Great! What’s next?

I need to learn to stop and savor the moment. Wait, I need to actually reach the moment first and then savor it. And not immediately be staring at the horizon scanning for the next flag to capture.

See? I told you PiC was good for me. If it weren’t for him insisting on celebrating, ever, I’d never even recognize my problem.

June 29, 2015

The road to financial freedom starts here

The following blog post is part of The Road to Financial Wellness Blog Tour. Over a period of 30 days, the Phroogal team will go to 30 locations to raise awareness about financial empowerment. Today they will be in San Francisco! Our goal is to help people learn about money by starting the conversation. We understand that local conversations can help bring about national awareness.

Fifteen years ago, I had $78 stashed into my (actual) piggy bank, a $1000 scholarship for college expenses, and an  optimistic plan for my life: college, post-grad education, and a career.

Reality paid us a visit and in quick succession:
My parents lost their businesses after years of  toiling 18-hour days, 365 days a year.
My grandmother moved in with us for end of life care.
My mom was diagnosed with a chronically debilitating disease (terminally, as it turns out).
My sibling, always irresponsible, started on his lifelong co-dependent relationship with debt.
And I turned 18.

Today, I’m happily married to the best partner I could ask for, have a wonderful dog and hilarious baby, and am nurturing a solid nest egg for our future.

I can hear “Well BULLY FOR YOU”. Hold on a second. I’m not gloating, and there’s a point to all this.

What Happened?

This wasn’t the plan. Any of this. I had a very clear vision of buying homes, getting doctorates, and there was nothing in there about getting married or having kids.

As my family fell apart, I coped by planning to take care of them, get them on their feet, then move on with the regularly scheduled program. Five years, tops. Five years turned into six, then seven, then eight. Around year 10, it sank in. This was it. There was no magic solution. Another $5,000 wasn’t going to cure Mom, or my brother, or get Dad a job.

I had to dig in for the long term and make the best of it.

This was my journey out of debt

I’m not sharing this to say “If I can do it, anyone can!” Though I would like to believe it, that’s too simplistic. While it’s true that if *I* can learn a new skill, almost anyone could probably also learn a helpful new skill but that doesn’t mean that my road is your road is the other person’s road.

I am saying that, given the inclination and a few resources, we can usually make the improbable happen.

These are some of the key lessons I learned, maybe sharing these will help someone avoid learning the hard way.

Debt is awful.
The tens of thousands of dollars in debts incurred over years of running their small businesses, some on credit cards and some in personal loans, meant that my parents were shackled to huge monthly payments forever and ever amen. Paying the minimum every month made them the credit card company’s dream. Sure, keep on paying 1% of the principal plus 27% of pure profit, make their day.

I used my as yet unblemished credit history to shuffle high (think, 27%) interest debts over to 0% interest credit lines, $5,000 at a time, to actually start paying down principal. Rinse and repeat several times.

With each credit card down, I tucked away a little bit more cash, so that the next time an emergency happened (and it would, many times), I wasn’t just jumping back into the black hole of credit card debt.

To this day, the only recurring debt that doesn’t give me the screaming heebie-jeebies is mortgage debt and that’s only because we have to live somewhere.

Making money usually means work.
It wasn’t always fun and it definitely wasn’t pretty. But the end result of working my tuchus off was surviving college without any debt, emerging with some savings, and even better yet, seriously reducing that debt.

Scarlett O’Hara had a point
I never (ever ever ever) wanted to go back to that so I maximized savings and income. Overtime was my best friend. So were coupons, credit card bonuses, and credit card rewards. Points programs for surveys? Points programs for email clicks? I was all over them. Every penny.

Negotiating raises and promotions was awkward and nerve-wracking but I dove in, flailing like drunken monkey.  It stayed awkward but I kept trying.

Being poor sucks but it doesn’t make you a bad person
There was a certain amount of luck involved. There’s been a bit of help from people that I couldn’t ever repay. This is true of most people, even if they don’t know or acknowledge it.

But throughout it all, I was ashamed. I was ashamed that I hadn’t pulled off the Rescue. I was ashamed that my family I’d been so proud of for so long was unable, or unwilling, to do what was needed to fix our problems.

It didn’t matter that going from being a schoolkid to a student supporting a whole family in a single step was probably too large a leap. It didn’t matter that I had been traveling an almost parallel course of chronically declining health, with very few answers, even as I struggled to prop my family up.

It felt like our economic status was a reflection on me and if I didn’t want to be judged, no one could know our struggle or that we were poor. It’s strange living in a country viewed by many as the land of opportunity, particularly as the first generation of immigrants born here. You’re in the unique position of having been given a gift of life in one of the best possible places (a first world country rather than second or third) and you’ve got to make the best of that gift.

It’s not wrong, but it’s not entirely right, either. I should make the best of winning the genetic lottery, yes, but the problems we faced, just because I had taken on the responsibilities, they weren’t my fault. It wasn’t my failure. That’s probably been the hardest lesson to learn.

The most painful conversation of my life was the one I had with my dad was the day before my wedding. I finally confessed that I felt unbearably responsible for Mom’s last years, for my brother’s inability to do life like a fully cognizant human being, for being unable to fix everything and everyone. The guilt I carried was worse than the heavy lifting of the work itself and I finally had to lay it down.

Taking our next steps

These days, it feels like I’m living the high life. Sure, compared to my regional neighbors (ahem, Silicon Valley), we’re pretty far down the economic food chain, but for me? We’re doing well. We can always do better and I’ll keep working at it because there is still so much I want to do. I love to help people with their finances, but on a larger scale, there’s still so many people out there that need help.

The better life gets, the more we can give back. Years ago, others who were doing well took the time to lend me a hand, to support or encourage me in some way that was small to them, but huge to me. This is a life cycle I’m proud to be a part of.

June 22, 2015

Help a Reader: Emergency Credit Cards?

Today, I’m very pleased to answer a reader’s question about credit cards.  Feeny asks:

My husband and I unfortunately ruined our credit (before we met) in our early 20’s. We are working on being debt free but as we all know it takes time.
We are expecting our first child in about 2 months.  I keep getting told that we need a credit card in case of emergencies.  Right now we don’t have anything.
My question is two fold: would you recommend a credit card “in case of emergencies” and if so, what is a low credit/no credit card you recommend?

I asked for some more detail about their debt repayment plan so that I could give a slightly more informed answer.

We are repaying what we can without living in poverty. Putting cash money in savings means more to me than paying back debts, although some days I can’t decide if that’s a good or bad thing!

Without numbers, I can only give some philosophical guidance but I think that’s still useful.

You do need something in case of emergencies and that something will vary depending on your circumstances and your habits. A credit card is an easy thing to recommend if you’re just looking at the situation superficially.

My reason: If you don’t have the cash on hand to pay for that emergency, then what exactly does a credit card change? It floats your emergency costs for about 20 days, give or take, after which the CC company then starts charging you interest up the wazoo. And there are plenty of people for whom that interest would take a relatively manageable surprise expense into a long term shackle around your ankle.

Now, if you have another backup plan for the emergency, like some saved cash that you just have to transfer back from an online only bank, or a family member who can bail you out temporarily while you get the cash together from your usual income because the emergency is just a bit bigger than for the cash you have in hand, then credit card? Sure!

Credit cards are a useful tool, I use them all the time to my benefit, but it only works if you know how to be responsible with them AND you have the means to be responsible with them. Knowing what you should do doesn’t help you when you don’t have the cash to pay the balance in full before they start charging you extra, right? Then you have Emergency Cost + Interest (which is calculated daily, just to further benefit the credit card company), which compounds every month.

What would I recommend, then?

I am actually in favor of putting cash away into savings even while you’re paying down debt, as long as you can keep the interest rates on your existing debt under control. No matter how slowly you build this cash savings, having it is a buffer against another unexpected expense putting you into a debt spiral. This was part one of my two-pronged approach to taking down the huge six-figure debt for my parents: putting a stop to more debt while paying down the existing debt. It’s not easy but it worked very well for me.

If you know that you can comfortably and responsibly put a credit card on ice, essentially only taking it out for actual emergencies that you can later cover with that savings, then yes, I would recommend doing that. It’s a tool, after all, and there’s no reason not to have multiple tools in your toolbox.

What cards would I recommend?

Specifics I look for: No annual fee. Good rewards. Moderate interest rate in case you have to carry a balance even temporarily. The interest rate will depend on your credit score, so I won’t list those here. They tend

For customer service, American Express is hands-down my favorite so I’ll share what I’ve carried for over a decade but you don’t necessarily want to use a travel-specific card unless you have to travel a lot anyway, in which case you may as well benefit. Chase and Citi have both been good over the years.

American Express Hilton Honors:
No Annual Fee
Complimentary Silver status,  Rewards are Hilton Honors points

Citi Double Cash:
No Annual Fee
1% cash back at purchase and another 1% back when you pay the balance.

Citi Simplicity:
No Late Fees, No Penalty Rate and No Annual Fee
Current offer: 0% Intro APR on purchases and balance transfers for 21 months – sort of an argument to wait a little bit to get the card, I guess.

Chase Freedom:
No Annual Fee
1 Ultimate Rewards points per dollar spent
0% Intro APR for 15 months

Bonus:

These are the rewards programs I like for this stage of life (debt reduction) should you decide to use the credit card regularly and paying the balance in full every month.

Chase Ultimate Rewards: My favorite thing about this cash back program is that it’s true cash back. Redeem your points for a direct deposit into your bank account and defray whatever bills you have. Rinse and repeat. This was one of my little debt repayment strategies: Every dollar had to work twice for me: once in paying for whatever I bought, the second time in generating cash back.

Citi Thank You points: Not a favorite but I still like it. Redeem TY points for gift cards, either to use as gifts or to cut down on what you have to pay out of pocket for regular purchases.

Those are my thoughts, what would you recommend to Feeny?