Standard Deduction or Itemize?

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Trust me guys. Buy a house and your taxes will be so low.

Trust me guys. Buy a house and your taxes will be so low.

Imagine this all too familiar scenario.  A young couple just a few years out of college are living in a small apartment.  It’s not the fanciest place, but it’s nice enough to have guests over and they’re comfortable living there.  It’s in a nice and clean building with front door security.  And if anything goes wrong maintenance wise, they can call on their trusted landlord to fix it up in a day or two.  But after a few years they start to get the “itch”.  They visit a couple of friends who recently got a nice house and it seems that more and more of their peers are buying houses or hunting for them.  It hasn’t really crossed their minds but the latest advice from a well meaning (but uninformed) friend puts them in the hunt:  “You need to buy a house because you get a great deduction on your taxes.”

The couple discuss this and decide it is time to buy.  It’s just the “right” American thing to do.  And besides, they’ll be saving so much money on taxes right?  The hunt begins, and they soon find a nice house not too far from where they both work.  They put in an offer and it’s accepted!  Because they’ve been working for a few years they were able to save up a 20% down payment on their home.  The monthly mortgage payment isn’t much more than their rent was, but with the awesome tax savings that they’ll receive, they will be so far ahead!  They move in, figure out how they want to decorate and they both live happily ever after.

Right?  That is, until they do their taxes and find out the awesome tax deduction isn’t as awesome as they’d thought.  If only they did a little research into the tax implications of the mortgage interest deduction, maybe they would need a more compelling reason to buy a home.  This happens all too often, and many well intentioned people are singing the praises of the home interest deduction without even knowing if it applies.  The issue at heart here is the misunderstanding (or ignorance) between taking the standard deduction or deciding to itemize deductions.

When you prepare your taxes, you have a choice to either take the standard deduction or to itemize your deductions (or neither if you’re a dummy).  When you take the standard deduction, you have your taxable income lowered by a predetermined value set by the almighty IRS.  This is a deduction that everyone gets just for being a US citizen.  See, the IRS ain’t all that bad.  For tax year 2013, the standard deduction for a married couple filing their taxes jointly was $12,200.  That means even if this couple didn’t have any specific deductions to make that year, they would get a $12,200 deduction on their taxable income just for filing their taxes.  Not bad.

If you decide to itemize your deductions, you have to calculate how much those eligible deductions add up to.  If it is more than the standard deduction amount, then you should go ahead and itemize.  Eligible deductions include state taxes, real estate taxes, charitable contributions and, the holy grail, mortgage interest deduction (Here’s a more official list).  If the combination of all of these deductions is more than the standard deduction amount, then you should go ahead and itemize.

So what happened to our happy home buying couple?  When they were living in their cozy apartment, they didn’t even get close to being able to itemize so they got the standard deduction every year.  Now that they own a home and can add the mortgage interest and real estate taxes to the mix, their itemized deductions amounted to $13,000.  They definitely should itemize their deductions but the difference in their deduction is only $800 more than if they took the standard deduction.  So their taxes aren’t reduced by much at all.

Another thing to remember which most people surprisingly don’t get is that a deduction doesn’t reduce your taxes directly but only your taxable income.  If you’re in the 15% tax bracket, that means a $10,000 mortgage interest deduction will save you $1,500 (10,000 x 15%) on your taxes and not reduce it by $10,000 directly.  So in the case of our couple, that $800 extra they could deduct because of mortgage interest only saved them $120 (800 x 15%) on their taxes as opposed to taking the standard deduction.  You could save more by going to Starbucks four days a week instead of five.  So if our couple knew these facts beforehand, they might not have gotten a house so soon.  Or they still might have because there are a lot of reasons to buy a house.  But doing it solely because of the mortgage interest deduction shouldn’t be one of them.

The US tax code is very complex but it pays (literally) to know some of its intricacies.  That’s because it is a tax code that rewards certain behaviors and punishes others.  For example, if you withdraw money too early from your 401k, you’re going to be hit with a penalty.  This is presumably to prevent people from raiding their retirement accounts and putting their future at risk.  If you pay student loan interest, you are rewarded by being able to deduct some of it from your income.  This is presumably because the government likes when citizens get educated (not so sure about this one).

What about itemizing your deductions and, specifically, the mortgage interest deduction?  It seems to favor those in higher tax brackets who have bigger mortgages, unlike our couple who was in a lower tax bracket and had a modest amount of mortgage interest.  So is the government promoting high rollers to buy big houses?  Maybe.  But it is important to know what rules favor what type of behavior so you can pay the least taxes (legally) possible.  This deserves a whole series of posts in itself, so look for that sometime  in the future.

Has the mortgage interest deduction been a big help for you or not so much?  Comment below and join the discussion.

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Filed Under: Banking, Money Savers

Diamonds in the Rough Roundup 7/18/14

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Lots of stuff going on in the world lately.  From Palestinian children being killed left and right to the lives lost on the Malaysian jet liner, it seems senseless loss of life common nowadays.  Makes me feel really grateful for living in a safe place with enough food and resources to last a lifetime.  Hopefully we can use those resources to help those around the world who really need it:

–A Nation of Well-Educated Debtors by How to Save Money:  This post gives some scary stats on student loans.  Student loan debt is really affecting this country and it will unfortunately only get worse until a bubble or something drastic occurs.

–The American Dream Now Costs 130K by Club Thrifty:  The American Dream is this nebulous idea of having 2 kids, a house and a dog with 2 full time working parents.  This is also costs a lot of money according to USA Today.  Some of these expenses seem ridiculous.

–Are You Living the Life You Want? by Retire by 40:  We only get a finite number of years on this planet and we don’t get a do over.  It’s always a good idea to take stock of where you are in your life and compare it to where you want to go.  If you’re not in the right place, do whatever you can to get there.

–Weathering a Financial Storm by Student Debt Survivor:  They say two things are inevitable:  death and taxes.  Which means we should at least be saving for funeral costs and tax bills.  Add to that list car problems and medical issues.  Emergencies are going to happen and it is up to you to be financially ready for them.

–22 Things You Should Always Haggle For by Len Penzo:  Haggling is definitely an art.  Successfully being able to haggle can also depend on who you’re haggling with.  If it’s a low level employee, you’re not really going to get much help.  Always ask for a supervisor who can actually change things.

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Frugality Can Make you Wealthy

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They should call him "Froog" Mc Duck

They should call him “Froog” Mc Duck

The word “frugal” can elicit different emotions from different types of people.  In the personal finance world, frugality is a virtue that allows you to save money every month and not get caught up in Keeping up with the Joneses.  The frugal practices of Warren Buffet, for example, are well documented and legendary.  For those people who know money, being frugal is a way of life.  But if you tell a guy who knows nothing about money that you try to live a frugal life, one word will come to their mind: cheap.  This is loaded with a ton of connotations and this person will think you are this stingy and mean person who only cares about keeping their money (as if keeping your money was a bad thing?).

Being considered frugal (or cheap) is frowned upon by most people.  But it shouldn’t be.  In fact, if everyone practiced frugality this would would be a much better place with much happier (and wealthier) people.  This post is not going to talk about different ways to live frugally.  You can search my other posts for that (like how to save money on eating out) or the countless other great frugality blogs out there.  I just wanted to touch on the idea that frugality is the ULTIMATE way to become wealthy.  It’s an idea many people propagate but I have not seen it explained better than in this article by the Badass himself, Mr Money Mustache.

While saving ten bucks a month doesn’t seem like a whole lot by itself, the implication is much greater.  If you’re able to kick a habit that costs $10, you have to realize that will be $10 a month you shouldn’t have to spend for the REST OF YOUR LIFE.  This will allow you to reach your savings goals that much quicker and will let you retire that much earlier.  The whole point of personal finance is increasing your assets and decreasing your spending.  Saving $10 a month does both of those things.

It should be obvious that the goal is not to stop at just $10 a month.  Look at ways to save on housing and transportation, usually the biggest money sinks for most people.  Learn to eat more at home and bring awesome lunches to your workplace.  Evaluate your cable and cell phone needs.  Most people can easily find ways to save a few hundred dollars a month by looking at where their money is going.  At the same time, you should try to increase your income and put those savings and increased income to work in the form of investments and/or paying off debt.  This is the sure path to financial success and it all starts with living a frugal lifestyle.

One thing you will most likely get from living a completely frugal life is resistance from others.  People are not used to living frugally.  Most want to spend their hard earned money on things that will only end up bringing temporary happiness.  Many people scoff at the idea of trying to cut down on your morning coffee, for example.  But this little change can free up money which you will have for the rest of your life.  Cutting out things you can live without to create a life that you enjoy is nothing to scoff at.  Let others think what they want while you trim your monthly expenses and reap the enormous benefits.

One final argument for frugality.  Living a frugal life and being able to live on less will teach you skills that will last you for a lifetime.  Almost everyone will go through tough times financially at some point, so it would be ideal to learn to live on less when times are good.  Cutting expenses won’t be such a shock and that will help you dig out of any hole you get in.  Besides, living frugally when times are good will allow you to save more which will hopefully prevent those tough times from affecting you too much!

Taking the time to go through your monthly expenditures and cutting things you don’t need, and banking the savings, can be one of the most powerful things you could ever do for your finances.

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Filed Under: Investing, Money Savers, Self Building

The 3 Letter Word You Need to Know to Get Ahead

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There are cliches abound when one tries to find ways to get ahead in the workplace or in their business.  “Work smarter, not harder” is a frequent one.  “Keep it simple, stupid” is another famous one.  In the hyper consumer culture that we live in, it is generally frowned upon if someone takes days off of work and does not to give 110% at what they’re doing.  We need to be working as hard as we can whenever we can, often to the detriment of other important things in our life.  In my work experience, however, I’ve noticed there is one powerful thing that will nearly always get you on the fast track to success.  I have noticed this working as an optometrist and even the jobs I’ve worked before I became a professional.

What is this magical method to success?  It’s actually pretty simple.  One word.  ASK.

You heard it here first.  ASK.  That is the path to success in any field.  And this is because when you work, be it as an employee or self-employed, you’re working to prove something to someone else.  As an employee of a company, you most likely have a supervisor or someone that will want to know how you’re progressing.  As someone who is self-employed, you are working to gain customer satisfaction, not only to bring in new customers but to keep the people coming back.

Most people usually try guess what their boss wants and hope it sticks.  As an employee, many people will make it a point to work hard and hope that the powers that be will notice that hard work and keep rewarding you.  This may work in certain positions where everything is based on numbers, but even then hard work alone won’t differentiate you from the others.  The best thing to do is just ask.  Ask your supervisor what is most important to them and find ways to make their job easier.  Ask if there are any extra projects you can work on.  If you’re looking to get promoted to the next position, just ask what it will take and do what you can to get there.  If you make a habit of this and make a habit of succeeding, you will fast track your way to success.

For those who are self-employed, the customer is king.  It might take a little more work to find out what customers want because you can’t just go around and ask people random questions.  That will annoy them.  Set up some type of survey on your website or give the customers the ability to leave feedback after their experience.  After a while, you will notice some trends and you can adjust your business practices along the way.

I can personally attest that simply asking worked for me recently at the workplace.  About a year ago I had a conversation with one of the more seasoned doctors in the company.  I just asked him what the next positions available are int he ladder and how to get them.  He mentioned what it would take but did say all those positions are filled in my area.  A few months ago, one of those positions opened up and in a discussion about who should get the new spot he mentioned my previous interest to the higher ups and it went from there.  It was not necessarily because of hard work that they asked me, though I’m sure working hard didn’t hurt, but simply because I asked at one point.  That’s all it took.

And asking just shouldn’t be used to help yourself get ahead.  It can be used to help others and make things easier for everybody in general.  If you see a co-worker struggling or just in need of some help, ask them what you can do to help.  There doesn’t have to be anything you receive in return right away, but it can give you the reputation as someone who can be counted on to help when times are tough, which is definitely a good reputation to have.

Part of getting ahead in the workplace is being able to showcase yourself and your talents.  If everyone just worked hard at the task they’re given, it would be very difficult to see who should get a promotion or a raise.  Managers look for those who are proactive, and simply asking a supervisor what they are looking for can be the first step to get your foot in the door to getting some recognition.

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Filed Under: Self Building

Diamonds in the Rough Roundup 7/11/14

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Ah only Lebron’s decision making (or lack thereof) could eclipse the World Cup final in sports news.  It would be pretty cool if he ends up going to Cleveland.  It would really transform his image from the guy who left his hometown to achieve glory elsewhere but now he can be the prodigal son who returns.  Once he makes a decision then the dominoes will start following.  While I would like Carmelo to come back to the Knicks, I’m not convinced he’s worth max contract money as he’s pretty limited defensively.  I guess we can only wait and see where these millionaires decide to go.

Here are some great posts that might not make you a multimillion dollar athlete, but will get you on a better financial footing:

–Double Dose of Credit Card Fraud by Broke Millennial:  Credit card fraud is one of those things that you always hear about but you never think it will happen to you.  But the fact is, it will happen to everyone at some point most likely.  Good thing the credit card companies are pretty good at detecting it nowadays.

–My Favorite Way to save Money: Do it Yourself by Common Sense Millennial:  When you hire someone to do a project for you, be it a big home remodeling job or an oil change for your car, you will mostly be paying for labor.  If it’s something that you would feel comfortable learning on your own, it can be worth it to do it yourself.

–Should I pay off my student loans with a huge lump sum payment? by Student Loan Sherpa:  Being able to pay off your student loans right away is admittedly a good problem to have, but if it is a lower interest loan, it might be better to put extra money into your retirement accounts.  But I wouldn’t question anyone who wants to make the lump sum and just get rid of the student loan debt shackles.

–How to Maintain a Good Work Life Balance when You’re Self Employed by Wealth Way Online:  I’m currently not self employed, but the ideas in this post work for everybody.  Basically, it’s important to take some time to yourself for reflection in order to re charge and to make sure you are working as efficiently as possible.

–Latest App-O-Rama by Your PF Pro:  I’m kind of a credit card junkie so I love reading about other bloggers adventures in getting multiple cards.  Looking forward to my next churn in a few months.

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What Soccer (Futbol) Can Teach you About your Finances

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Savings GOOOOOOAAAAAAAALLLLLLLL!!!!!!!!

Savings GOOOOOOAAAAAAAALLLLLLLL!!!!!!!!

Regular readers of my blog know that I’m a big basketball and football fan.  But like the rest of America, I have been stricken with a case of World Cup fever.  I hardly ever watch soccer, but the games in this year’s World Cup have been really exciting, especially in the knock out rounds where there has to be a winner.  And in my never ending quest to equate sports and life, and specifically personal finance (click here to see how baseball is related to your finances), I have thought about some ways that the “beautiful game” is a lot like your financial life.

Make BIG goals

One very unique thing about soccer compared to most other American sports is that scoring doesn’t happen often.  In basketball, most teams will score a basket on 30-40% of possessions.  Scores are routinely in the 100’s.  In American football, touchdowns are scored in pretty much every quarter, with the good teams scoring multiple times.  And in baseball, you do have your 1-0 score once in a while, but most games will have at least a couple of runs by each team.  But in soccer, scoring is much tougher and you will regularly have games ending in a score of 0-0.

To an outsider, this can make it seem that it was a slow game and nothing was really going on.  But the exhausted players and torn up field will show that hard work was definitely being done.  The players and coaches can evaluate the game tape and find out what they did well and what they need to shore up.  And eventually, when a team scores a goal and is able to win a game, that hard work in the scoreless game was definitely worth it.  This should be similar to our approach to our financial goals.  While making lots of little scores is nice, we should try to make big and worthwhile goals and work tirelessly towards them, constantly evaluating what works and what doesn’t.  While it may be frustrating not to reach a goal quickly, the worthwhile goals almost always take some time.  Finally hitting that goal will make that effort all the more sweet.

It takes determination AND skill

A soccer game is 90 plus minutes of constant play.  That’s a long time.  With hardly any breaks in play and few substitutions, all players have to be constantly on alert.  Even a momentary lapse can produce disastrous results.  This is where the determination to stay involved and alert comes in.  Having this constant determination will help you play great defense and maybe even get a shot or two at the goal.  But you also need players who have the skill and creativity to overcome any defense that comes their way.  You need those type of players to have any long term success.  This is particularly seen in the US team as they are described as having a lot of “grit” and determination but hardly ever make it close to the World Cup finals since they lack the talented players that the Brazils and Germanys of the world have in abundance.

This concept applies to our personal finances as well.  While we definitely need consistency and determination to achieve any big financial goal, such as having a comfortable retirement, it also takes skill and creativity find ways to cut your expenses and make more money so you can increase your chances of being successful in the long term.  Things like inflation and changes in your field will be there, so you have to find smart ways to overcome those to stay on track.

Diversify, diversify and diversify

Some people say that the NFL is the ultimate team sport since you need offense, defense and special teams working together.  But there are plenty of examples of teams that do well while having a poor defense or a poor offense.  Heck, the Baltimore Ravens won the Super Bowl in 2000 with an offense that couldn’t score a touchdown for 7 straight games!  I would argue that soccer is even more of a team sport because any deficiency on offense or defense will severely hinder your chance of winning.  Most games are decided by a goal or 2, so if you have a defense that is not playing very well you almost have no chance to win no matter how good your offensive players are.

This couldn’t be more true in our finances as well.  The two sides of the personal finance coin are making money versus spending money.  If you make good money but spend it with reckless abandon, you’re gonna be in bad shape.  If you are also frugal with your money but don’t start making more, you’re not really going to go far.  It takes a combination of a good income and good spending habits, with adequate insurance serving as your goalkeeper, to have a solid and balanced financial team.

I meet a lot of people that hate sports, and even more people that hate sports analogies.  If you’re one of them, you probably didn’t read this far.  And you should get some professional help.  But if you did, I genuinely appreciate that and will ask you to add some analogies of your own in the comments.  Here’s hoping for an exciting finish to the World Cup!

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Filed Under: Investing, Self Building

Get Rewards for Buying your Stuff

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I enjoy writing about credit card sign up bonuses.  And for good reason.  They’re awesome.  They allow you to get a nice pile of bonus cash (or points or miles) for buying stuff on your credit card that you normally do.  If you can get past the silly temptation to use your cards more than you need, you can easily get at least a few hundred dollars worth of rewards in a year without much effort.  Put some effort into the sign up bonus game and you can get rewards in the thousands.  But what about those times you’re not chasing a bonus?  Should you just use any card for any type of purchase?

The answer is, of course, no!  There are certain cards that are very good for certain categories and some that are good for everyday spending.  I always say there should be a reason you pull out a certain credit card for a certain purchase.  Just using a card for no reason is selling yourself short.  After a while using the best credit card for your particular purchase will become second nature.  Here are what I think are some of the best current cards to use for different categories:

(By the way, none of these are affiliate links so I don’t get any commission if you sign up for these cards.  These are my honest to goodness recommendations from the bottom of my heart).

Groceries

Money spent on groceries is a huge expense for everyone so I think getting a good rewards card for groceries should be the first thing on everyone’s list.  And not just because of food.  You can buy household stuff, greeting cards and gift cards and get the same great cash back as you would on food.  My favorite card for this is the Blue Cash Preferred from American Express.  This card gives you 6% cash back on grocery store purchases on the first $6,000 you spend on groceries in a calendar year.  That’s $360 cash back for the year right there.  The card does have a $75 annual fee which eats into that, but that’s still a decent amount of cash back for making your regular purchases.  You also get 3% cash back on gas with no yearly limit which is nice as well.  If you search around on Google you should be able to find a deal with a good sign up bonus.  I got one with a $150 sign up bonus but your results may vary.

Gas

Gas is another expense that many people incur regularly, so you might as well get some cash back for it.  As I just mentioned, the Blue Cash Preferred is probably the best gas card as well since it gives you an unlimited 3% cash back on gas purchases.  The Chase Freedom gives you 5% cash back on gas, but only during certain months of the year.  This year, for example, there are 2 quarters where 5% back on gas is offered.  The Freedom is a good card to have in general so I recommend it because it gives 5% cash on other categories throughout the year as well such as movie theaters and Amazon.  It also has no annual fee so it’s a nice card to keep around to help improve your credit score over time.

Wireless

Driving around the other day I came to one of those intersections that attract panhandlers.  Before pretending I dropped something on the car floor and needed 3 minutes to look for it, I noticed one of the panhandlers was on his cell phone.  An iPhone no less.  This shows how ubiquitous cell phones are in our society nowadays.  And that can come with a price tag of course.  While I haven’t really found any good personal credit cards that give cash back on wireless purchases, there is a great business credit card from Chase called Ink Cash.  It gives you 5% cash back on your wireless bill as well as your cable bill.  It gives you 5% cash back on office supply stores as well.  The card also has no annual fee.  You can currently sign up and get a $200 bonus when you spend $3,000 in 3 months.

And most people actually do qualify to get a business card.  If you dabble in something on the side or sell things on eBay or Amazon, that’s technically a business.  (Here’s a great step by step guide to a business card application from Million Mile Secrets).

Everyday spending

There are a lot of times when you have to buy things that don’t fall under a certain category.  Random stuff like parking garage fees, medications etc. crop up from time to time.  For things like these it’s best to have a good everyday spend card.  My card of choice is the Fidelity Investment Rewards card.  It gives you 2% cash back on every purchase with no annual fee.  There are some hoops to jump through to get this card which I have already written about.  But if you’re able to get it, it will serve you well.

The Fidelity card is an American Express card, which means it won’t be welcome everywhere.  In that case, an alternative card to have for everyday spending is the Barclaycard Arrival Plus card.  While this could technically be considered a travel card, if you make any type of travel purchase throughout the year (like plane tickets, rental cars etc.), this card can serve as your everyday spend card.  It gives 2 “miles” on every dollar you spend and you can use those “miles” to get rebates on your travel purchases.  It is essentially a 2% cash back card used towards your travel purchases.  It has a great sign up bonus of 40,000 miles as well.  You do need a pretty good credit score to get approved for a Barclaycard credit card, so make sure you have all that sorted out before hand.  And this card also has an annual fee of $89 after the first year so it might not be worth it for some people after a year.

For people that hardly ever travel, the next best everyday spend card will be the Capital One Quicksilver.  The one Samuel L. Jackson really wants us to get.  It gives you 1.5% cash back on everything with no annual fee.  No frills and pretty simple.

Those are my picks for best credit cards.  I have all the cards that are mentioned here and they all work very well for their intended use.  It’s always important to remember that if you’re in credit card debt or would like to get into it sometime soon, reward cards are not for you.  You first need to not incur debt and then possibly switch to a low interest card via a balance transfer.  Most reward cards have very high interest rates so you don’t want to get into debt with those.  And remember to keep an eye on your credit score.  A great credit score will not only allow you to sign up for these great cards, but will give you the best interest rates for any type of loan you may have to take in the future.

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Filed Under: Credit cards

Diamonds in the Rough Roundup 6/30/14

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Been a crazy week with changes at work and job offers from other companies.  And a chance to strike out on my own.  I’ve never really been the entrepreneurial type, but am definitely considering it.  The first post of this week’s roundup reflects that.  Enjoy:

–Quit Your Job and Die Alone by Financial Samurai:  Though the examples in this post don’t apply so much in the field of optometry, the message is clear:  it is tougher to make a lot of money on your own than on the job and it’s tougher than most people make it seem.  There is a ton of work that goes on behind the scenes in any successful business.  Very thought provoking article.

–Save Thousands on Credit Card Debt with Balance Transfers by Broke Millennial:  Balance transfers can be useful especially for those with credit card debt, but they come with a pretty big risk.

–Proof Banks Caused the Financial Crash by Financial Samurai:  I’m a firm believer that it was the greed and incompetence of banks that played the major role in causing the financial meltdown.  This is another great post giving an inside look into the behind the scene workings of the mortgage industry.

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Congress: Here’s How to Stimulate the Economy

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What "stimulating the economy" really means.

What “stimulating the economy” really means.

All politicians love talking about certain issues over and over.  Be they Republican or Democrat, they all want to “stimulate the economy”, “create jobs” and “find ways to screw the citizens over as long as our political donors and friends make out like bandits.”  You might not hear that last one spoken in public but just videotape Mitt Romney secretly and you’ll eventually get it.  In any case, they make all of these platitudes and have their own party line ways of solving them.  Increase regulations on big businesses (while others say decrease).  Increase the minimum wage (while others say decrease).  Close tax loopholes (while others say make more).  But there is one area nearly all politicians don’t want to fix but would definitely help solve a lot of the problems the economy suffers from:  student loan debt.

A few days ago I heard a little factoid on the news which stated that home ownership among those under the age of 35 is at its lowest point of ALL TIME.  Think about that for a second.  There are a decent amount of people under the age of 35 in this country, yet most of them aren’t owning homes.  It would seem that by 35 most people would have their act together and be able to swing a modest mortgage.  After doing some hard core research (Google) to find some real numbers, this article by NPR laid it out nicely.  It states that while the housing market as a whole is improving, the home ownership rate for those under 35 is steadily declining.  They state that the home ownership rate for those under 35 is 36%, when just 10 years ago it was 43.6%.  This seems like a huge difference in just one decade.

The article goes on to list 4 main reasons why this may be happening: it’s tough to find jobs, people are getting married later, low credit scores, and, my bitter enemy, student loan debt.  I would argue that student loan debt actually causes the other reasons, and that should be the focus of any action by Congress to stimulate the economy.  When the housing market’s bubble burst, Congress was in a frenzy, ordered a bailout of all the greedy companies which caused all the trouble, and then tightened the standards to get a mortgage.  With the effect that student loan debt is having on the economy, it is astonishing to see that Congress is not in a similar frenzy (though if you recall the previous statement about friends making out like out like bandits, you can understand why).

You would think that with reports like the NPR there would be more of a push for reform.  If people under 35 aren’t buying houses because of student loan debt, they’re not buying other things that can stimulate this consumer based economy.  And people under 35 like buying stuff, trust me.  Personally I would use the extra money to pay off more student loans or increase my savings rate, but most people would buy more stuff which is what the economy wants.  If a report came out that talked about the effects that student loan debt is having on all the different economic sectors (aka how companies could make more money off of young people with money), maybe big reforms would be on the horizon.

Big reforms along the lines of limiting the amount college tuition can increase or a substantial decrease in student loan interest rates.  Not only do we see nothing of the sort, we see bills like the one President Obama signed recently which allows more people to be eligible for the “Pay as You Earn” program which says that student loan payments can’t be more than 10% of one’s income.  I appreciate that this president is at least trying to make some effort when it comes to student loan debt, but this measure will help a small subset of borrowers, and will be a small help at that.  Unfortunately the only thing that motivates the lawmakers in this country to action is a disaster.  I don’t predict any real change until student loan borrowers simply stop making their payments in droves similar to what happened in the housing market.  And that time may be sooner than most think as the latest student loan default rate stands at about 10%.

Well to repeat the question most Americans eventually end up asking themselves, what can I do about this situation since Congress is doing nothing?  The only person that cares about your financial health is you.  Lawmakers don’t, and this is not a surprise to anyone.  If you’re thinking about applying to college, find ways to lessen your student loan burden either by working part time or even delaying college.  Yes, I think it has gotten bad enough where people should consider delaying going to college in order to be in better financial shape in the future.  If you already have a mountain of student loan debt, start paying it off by throwing what you can at your highest interest rate loan and work your way down.  This means cutting back on useless expenses and concentrating on getting rid of that debt.  Hopefully by being diligent and recognizing student loan debt for the disease it is, we can open the path to financial freedom a little quicker.

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Filed Under: Self Building, Student Loans

Diamonds in the Rough Roundup 6/20/14

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What a crazy week.  I wasn’t even able to get a regular post out this week I should be back on my regular posting schedule next week.  Had a lot going on with some changes at work (all positive thankfully!) and family stuff.  Oh and my week long celebration of the Miami Heat losing in the Finals!  It was also quite amazing to see the way the Spurs easily beat them.  Even after being down 22-6 in the first quarter, you had the feeling that Miami could not maintain this lead and the Spurs would come back soon.  Not only did they come back and win, they beat Miami handily by a double digit margin once again.  It reminded me of the 2004 NBA Finals when Detroit easily beat the Lakers and their star studded roster.

The theme in both Finals matches?  Great teamwork beats great individual players any day.  The level of precision in the Spurs shot taking (and making), passing and player movement was amazing.  While the Heat put all their hopes on the shoulders of Lebron James, and big shoulders at that, it wasn’t enough to beat the best TEAM of the year.  Hopefully the rest of the league will take notice and try to play more team ball instead of letting the stars do everything.

This actually does lead into a good financial lesson: don’t put all your eggs in one basket.  Don’t just depend on one investment because if it goes south, you lose it all.  Don’t just depend on your job for the rest of your life because you may get laid off or your position might even cease to exist.  Keep your skills and knowledge current and look for other sources of income to fall back on.

Well if you read all that, you deserve to read these great posts I found this week:

–Five Reasons Why You’ll Never Be Rich and One Reason Why You Already Are by Financial Samurai:  Sam continues to put out quality posts, and this is certainly one of them.  We all want to be wealthy, but very few get there.  Find out some of the reasons why.

–How Paying Off Debt is Helping Me Change My Life for the Better by Disease Called Debt:  Very enjoyable post about the positive changes that can come about from paying off debt.  I have seen some of these changes myself in my quest to pay off my student loan burden.  Looking forward to that payoff day, and beyond, is what’s keeping me working hard and trying to find new ways to make some extra monies.

–Can Getting Fit Improve Your Finances? by Money Rebound:  In general, taking care of your health will reap financial benefits.  It can give you more energy, force you to spend less on eating out and hopefully help you avoid medical costs associated with poor health.

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Filed Under: blog
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