Money, Love, and Change

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In my last post, I talked about the reasons we decided to buy a home. Because the housing market was crazy back in 2004, we ended up placing bids on 3 homes before we got one accepted. It was interesting to see the variety of homes that were on the market in our price range - almost all of them had something wrong with them, either in terms of location or condition of the home (my favorite was the home with the Confederate flag-flying neighbors; they made a point to come into the backyard with their raging pit bull when we we there. The dog was trying to rip apart the fence to get to us while we were looking at the yard. I wonder if that house ever sold…).

I honestly think that we were very lucky to get our home. When we bid on it the first time, we were immediately rejected because the sellers did not want to help with the closing costs. About a month later, their realtor called and asked us to consider placing another bid. Apparently, no one else had bid on the house, and the sellers were getting nervous because they needed the sale so that they could purchase their new home. It was a nice situation to be in. We placed the same bid as before (basically giving them their asking price but making them cover the closing costs), and all was well.

There were a couple of things that really amazed me about the sellers. First, they did nothing to clean the house. We couldn’t open closets until the final walk-through, and could barely walk into some of the rooms when looking at the home. I think that if the sellers had rented a storage unit and put their junk in it for a month, they would have had multiple bidders.

Second, the owners did nothing to repair some of the minor defects that probably turned off a lot of buyers. The home really didn’t have any major problems - in fact, there were features of the home that really made it attractive. It had forced heat and central air, a new roof, and was in an excellent location. The downsides were all easily repaired - the landscaping and yard were a disaster, it needed new interior paint, and the hardwood floors needed to be refinished or replaced.

We bought our home for $139,900 (100% financing) with a 30-year mortgage at 6.375%. After a year, we knew that we would be staying for awhile. The homes in the area had appreciated significantly, so we refinanced. The loan was for the same amount and interest rate, but we were able to get rid of the PMI, which was costing us $150/month. According to Zillow, our home is currently worth $180,000 - I am not sure that it would actually sell for that much. I think that $170,000 is more reasonable, given the current market conditions and the size of our house (we have the smallest house in a nice neighborhood).

On a side note, when using our home in our net worth calculations, I currently have it valued at $158,000 - this estimate is based on what we would make on the house after closing costs. We currently owe $135,788 on our mortgage, and our current monthly payments are $1201.

In general, buying a home for the first time is a lot of work. It took us awhile to find an honest mortgage broker, and I still regret not being around for the home inspection (a story for another post, perhaps?). We also didn’t realize that we had more rights as buyers - for example, the sellers took the closet shelving that was attached to the closet, the outlet plate covers, and the mulch from the front yard (yes, it’s true - the mulch!). We didn’t realize that we could negotiate over these things at the final closing. In the end, I don’t think that we would have brought these things to the table - if they really wanted the mulch that bad, they could have it.

What was your home-buying experience like? Are you glad you did it? We are so happy that we took the plunge, and that we did it when we did. If we tried to buy a house now, we would definitely need a down payment, and a lot of homes that were available to us back then would be out of our price range now.

Sorry for the lack of posts - a family situation took us out of state, and we’ll be back tomorrow evening.  Be back soon!

So far, I’ve reviewed our student loans and retirement accounts. Today is as good as any to begin the story of our home. We made our move to purchase in 2004, a couple of months after we got married (don’t worry, we had been dating for 10 years prior to getting hitched, so we had been discussing the idea for awhile). We had a couple of reasons for wanting to switch from renters to buyers:

1. The monthly cost of renting was coming pretty close to the monthly cost of a mortgage. Our apartment complex was becoming disgusting - we had roaches from our neighbors downstairs (there were at least 12 people living in a 2-bedroom apartment), and most of our wonderful neighbors on our floor were moving. In general, the whole complex was changing to a place that was not as nice to live at. Renting a nicer place in the same area would have increased our rent from about $800 to over $1100 (we had just gotten our dog, so there were some other places that were nicer for less money, but they did not accept animals).

2. We were living in an area where our commutes were pretty convenient (I was only minutes away from the train station, and my husband had a scenic commute), but the costs of living there were beginning to outweigh the benefits. The area was becoming too congested, and it was taking a mental toll on both of us. We dreaded going out since it was a pain to get anywhere, and because the area was becoming popular, it was costing more. We knew we did not want to start a family while living in this area, and we also wanted a yard for the dog. In general, we just really wanted a peaceful and quiet place to live.

How did we decide where to go? It actually wasn’t too difficult, since we were easily able to eliminate a lot of areas where we did not want to live or could not afford to live. We didn’t want to live in the city, and most of the immediate suburbs convenient to the highways were too expensive. Our desire to live in an older home in an established area (as opposed to a newer home in a development) also helped cut down our choices.

My husband had a friend/co-worker who lived about 30 minutes away from us in another state. We had actually been in the area a couple of times, and always commented on how nice it was. We started looking into the area, and found that there were some great benefits. State and local taxes were cheaper, and single-family homes were still affordable. Although our commutes would increase, mine was temporary (I had to graduate someday…) and my husband could carpool with his friend. Our car insurance also dropped by a significant amount.

My husband’s friend could also refer us to a trustworthy realtor, which was a huge plus. When we met with him, we gave him an idea of what we were looking for, and also made it clear that we only wanted to use our husband’s income when applying for a home loan. Why did we do this?

1. We knew that at some point I may be a stay-at-home mom for a couple of years, so we didn’t want to take on more home than we could afford.

2. I was a graduate student with a small stipend and a lot of debt. Most of our debt was in my name (we did this on purpose to increase my husband’s credit score), so it made sense not to use my information.

We were pleased to find out that we could afford a nice little single-family home. In my next post, I’ll talk more about our interesting search and purchase of a home.

Yesterday was Wednesday, which is my favorite day of the week.  This is the day my son and I travel to a parent-child program, where he gets to play with other kids, make crafts, and cook snacks.   I really like this program - the other parents are really nice and my son really enjoys it.  The only bad thing is that it is about an hour away.

My son always falls asleep on the ride home.  This used to be an issue; after arriving home, I would try to gingerly get him into his bedroom to continue napping, which almost never worked.  This resulted in a cranky kid for the rest of the afternoon.

I altered the plan slightly about a month ago.  Now, when we get home,  I recline with him on the couch and he takes a nap in my arms.  Sometimes I fall asleep too, and other times I just watch him sleep.  He’s growing up so fast; taking this time to relax with him gives me a moment to reflect on how great of a kid he is, and how special he is to us.   During this time, he is also my little boy again, just napping in his ‘ol ma’s arms.

When he wakes up, he’s back to playing with trains, or building with blocks, or antagonizing the poor dog.  For me, there are dishes to be done, bills to be paid, and messes to be cleaned up.  But for those couple of hours on Wednesday afternoons, it is just him and I (and the dog curled up at my feet), and I love it.

After reviewing our pension and 401k yesterday, it is time to take a quick look at our IRAs. Both my husband and I hold Roth IRAs with Vanguard, and have been really satisfied with the low fees, investment options, and the ease of using the website. We have not maxed out our contributions for this year, and we probably will not be able to unless I find another job where I can work from home in the immediate future.

My Roth IRA - $19,677

My husband’s Roth IRA - $2,875

This brings our total retirement savings to $78,006 (401k + pension + IRAs).  This may not be a lot to some people, but it’s not an insignificant amount of money either.  Considering that I have been making less than a fast-food restaurant manager for the past 10 years, it’s not too bad (nothing against fast-food managers!).  Also, my husband brings home a decent paycheck, but is not making anywhere near a six-figure income.

My goal for this year is to bring our retirement accounts up to $100,000.  This is a lofty goal considering our current state of affairs (one income, with student loans, credit card debt, and a mortgage), but I like to think big!  I do think it is realistic that we can easily hit the $90,000 mark given our current 401k contributions.

What are your retirement goals for the year?  Whether you’re just starting out or are almost at retirement, I think it is really important to have a plan and a goal.  I’d love to hear what yours are!

After reviewing our student loans, I thought it would be a good idea to switch to something on the savings side. Today, let’s take a look at my husband’s 401k and pension. (I have only had a single 401k in my life, and I transferred it to an IRA, and then to a Roth IRA, after leaving the job.) I am going to use January’s figures since our monthly contribution does not happen for a couple more days.

401k - $46,025

Pension - $9,429

Total $55,454

We started contributing to the 401k plan in April of 2003, and we are currently maxing out the contribution at 20% of my husband’s salary. The company match is 75 cents to the dollar on the first 6% of contributions. There are a variety of investment options (mutual funds and company stock), and we can track our returns, but other than that we are not provided with a lot of information about the individual mutual funds.

The pension plan is something that we didn’t really think much of until last year, when we were given the option to take the money from the pension plan when my husband leaves the company. This would not benefit us if we thought that he would be there for the rest of his life, but this is not the case. He just got a different position within the same company since his old position is being outsourced to China - the job stability at his company is questionable. Also, we do not necessarily see ourselves in this area for the next 20-25 years.

My big question for this year is whether we should lower his contributions to the 401k (still making sure he contributes enough to receive the company match, of course) and use them for Roth IRA contributions. Here are my thoughts on why we should make the change:

1. I think that we have enough financial discipline to do this now, and we would have more control over the money (in terms of investments).

2. Since we are only 31 and 32, taking the tax hit now makes a lot more sense. Also, we are still paying state and local taxes on 401k contributions, so there is no added benefit on these fronts.

3. I don’t have a regular job anymore. Therefore, I don’t see us moving into a higher tax bracket anytime soon.

Any thoughts or suggestions?

I almost liked shopping today, but it was only because of the amount of money we saved. Sometimes I think that I am the only female who doesn’t like to shop - I hate buying clothes, shoes, and don’t own any make-up (unless you count my yearly purchase of a tube of chapstick). When I do shop, I know what I want/need, and like to get in and out as fast as I can.

All that being said, I have to admit that I don’t mind shopping as much when I know there is a great bargain to be had. Also, I do like taking my time when selecting gifts for others. This all ties into our finances because our family tends to spend a decent amount of money on shopping. The three biggest holes in our finances that need to be fixed are:

1. The amount of money we spend on gas.

2. The amount of money we spend on groceries.

3. The amount we spend on extraneous “stuff” each month. This category covers everything from those little emergencies (like a couple of months ago when our dog got bit in the rear end) to the purchases of things we want (but don’t need).

For now, there is not a lot we can do about the amount we spend on gas. My husband has a truck (older model Chevy S10) with about 200,000 miles. The gas mileage is not that bad (approximately 23 MPG combined). However, he has a 70-mile commute (round trip) each day. Other than saving our grocery points for fill-ups and putting the gas on a credit card with rewards (that we pay off in full each month), we’re kind of stuck. The truck is paid off, and is in great condition for its age, so we won’t be purchasing another vehicle until we absolutely have to.

This leaves groceries and “stuff”. I am working hard on both of those categories - let’s take a closer look at today’s shopping trips as an example.

Our first stop was CVS. I have recently become a fan of Extra Care bucks. Extra Care bucks are printed at the bottom of your store receipt when you make particular advertised purchases. For example, in this week’s ad, there was a deal where you could get $10 ECBs if you purchased a combination of Advil and Robitussin products totaling $20 or more.

I used the slickdeals.net forums as a reference for coupons, and we also have money from our HSA (health spending account) that we need to spend by March 15.

Here’s a summary of our first trip:

2 Robitussin cough syrups - 2 x $6.00 = $12.00

2 Advil - 2 x $4.00 = $8.00

1 rubbing alcohol (impulse purchase) = $1.79

I had $10 in manufacturer’s coupons for the Advil and Robitussin, and a CVS coupon for $4 off $15. My total was $7.79, which I will get back since all of my items were HSA eligible. I also got $10 in ECBs for my next purchase.

There was another deal where you get $10 ECBs for purchasing $20 in selected Pepsi products. I had already purchased about $9 from a previous deal, so I needed to spend another $11. I bought some Doritos, 4 two-liters, and a fridge pack of Diet Pepsi. After applying the $10 ECB from the last purchase, I spent $2.34 out-of-pocket for our contributions to a Super Bowl party.

Not too shabby!

Next, we went to Waldenbooks. After filling out some surveys at e-rewards, I was able to get $15 in Borders Bucks (also good at Waldenbooks). My son is still reading/eating board books (as soon as he keeps them out of his mouth, we will be getting books from the library), so we got him 2 new books. I also picked up a new planner since they were deeply discounted ($4). After using my Borders Bucks with a 30% off coupon, our total was $3.91.

I can handle spending $14.04 (0r $6.25 after we get reimbursed for the HSA items)!