Archives For October 2012

How amortized mortgages work

Do you think they use an amortized mortgage??

Mortgage loans are good because they provide us the opportunity to purchase a home before we have all of the cash saved up, but do you know how amortized mortgages loans really work?  They definitely come at a price and you should try to pay it off before the loan term (easy for me to say, right?).

Most mortgage loans are amortized loans, which means each month your payment goes towards the interest and the principal until it’s all paid off. While I was researching the ins and outs of amortized loans, I found this interesting little tidbit from about.com:

This is referred to as ‘amortizing’ a debt, a term that takes it’s roots from the French term ‘ amortir’, which is the act of providing death to something.

I like amortized loans even less after learning the root word’s meaning! As long as I put death to it before the other way around…

How is your amortized mortgage payment calculated?

The payment is calculated in an amortized loan by adding the total loan amount (principal) to the total interest that will be paid over the life of the loan and then dividing by the total months (30 years x 12 = 360 months). Let’s use the following example: $150,000 mortgage loan, 5% interest, 30 year term.

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Why is it we’re so afraid to ask how much something costs, or even harder, ask for a better price? Is it pride or are we just afraid of looking like we don’t have the money as Benjamin Franklin said.

“A man being sometimes more generous when he has but a little money than when he has plenty, perhaps thro’ Fear of being thought to have but little.”

In some countries such as India, prices are sometimes set at a slightly higher level because it’s understood they’ll be negotiated down. Don’t get me wrong, there are many instances where I have no problem asking how much something costs, and I often negotiate prices as well, but other times I don’t.

The most common time I don’t ask how much something costs is when I’m at the doctor’s office. Since I had some recent experience with a broken hand and ruptured Achilles, it’s still fresh on my mind! I also used to be reluctant to talks costs at the vet, but after spending boatloads of money on our allergic-to-everything dog, I’ve overcome that fear!

With the doctor’s office, there are some strong psychological powers at play. First, when it comes to our health, we feel questioning a procedure is a form of abuse to ourselves because our bodies need it. In addition, we fall victim to the doctor as a total authority figure. As Robert Cialdini explains in his book, Influence: The Psychology of Persuasion, we’re trained to unquestionably follow authority from an early age.

Conforming to the dictates of authority figures has always had genuine practical advantages for us. Early on, these people (parents, teachers, etc) knew more than we did, and we found that taking their advice proved beneficial – partly because of their greater wisdom and partly because they controlled our rewards and punishments. As adults, the same benefits persist for the same reasons, though the authority figures now appear as employers, judges, and government leaders. Because their positions speak of superior access to information and power, it makes great sense to comply with wishes of properly constituted authorities. It makes so much sense, in fact, that we often do so when it makes no sense at all.

We feel like we shouldn’t question procedures or costs just because they know so much. This held true in my procedures and cost me extra money!

For example, for my Achilles surgery, the doctor preferred a non-hospital location because it’s more convenient and his staff assured me the cost would be the same because they’d lower the price to match in-network. One big problem, I had a separate, $1,500 deductible for out of network that wasn’t yet reached!

They didn’t inform me of the separate deductible, and I didn’t think about it. Nothing angers me more than leaving money on the table, and I do wish the hospital stuff would’ve alerted me of this. However, when I was in the situation and the surgery was an emergency, I didn’t even think about the cost. This is one of the reasons our health care costs are spiraling out of control.

There are some decent articles on how to negotiate medical costs you can check out, but in the end it’s up to you and me to ask the questions. I don’t think doctors cost us more on purpose, they just have so much other stuff going on that they aren’t able to think about our personal financial decisions. Maybe I need to go back and review the five things formal education doesn’t teach us and read the authority part!

Are there any situations where you’re afraid to ask the costs of things?

Are You a Loaner?

October 15, 2012 — Leave a comment

Ever since our school days when we were taught to stand in line, we’ve become accustomed to getting ranked.  Well, now it’s time for your “loaner” ranking – not personality wise of course – but your appetite for debt!

The loaner ranking is a snapshot in time and can change for the better or worse.  I used to be a big time loaner when I went $50k in debt, but I paid that off!  That’s the best part:  you can change.

The worst part is that it’s really easy to take on new loans and debt for nearly everything.  A new house, car, furniture, electronics, vacations, medical procedures, and even pets can get you a loan!  Businesses want to make it as easy as possible because loans allow us to “buy” more even if we don’t have the money.

So, the question is, how much of a loaner are you?  Take this short quiz to find out.  You can either take it based off of what debt you have now, or you can take it forward looking on where you’d like to be.

If you do/would have a loan for the following, add up the points next to it:

1.  Mortgage (1)

2.  Student loans (1)

3.  Car/Auto (2)

4.  Credit Card Debt (3)

5.  Line of credit (4)

6.  Furniture, electronics, home goods (5)

7.  Vacation (5)

8.  RVs, boats, ATVs, etc (5)

9.  Pets (10!)

Now add up the scores.  For example, if you have a mortgage, car loan, and ongoing credit card debt, your total score would be 6 (1 + 2 + 3).

 

 

Well, you may not like it, but at least now you know where you stand.  My wife and I are currently a “Slight Loaner” with 1 point – woo hoo!  We’re eyeing you mortgage loan… you’re definitely next!

Do you need to subtract some numbers from your loaner score?  If so, check out how I took control of my money and knocked out my debt.   Where do you stand?

This post will be mostly pictures because it is too hard to even attempt to detail out our whole Route 66 road trip. In the end, we touched 8 states over 8 days and drove a total of 2,300 miles! Here’s a map to show our approximate trip:

 Route 66 Map

We didn’t start in Chicago where Route 66 starts, but instead started in Oklahoma – my home state. We stayed that night in Oklahoma City and left early in morning with the final destination of Albuquerque, NM.  Even on the highway it was a 10 hour drive, so factor in Route 66 back roads and stop, and we were sure to have a late night.

Our first stop was at the Indian Trading Post in Calumet, OK right off Route 66. Very cool place for souvenirs, and I also wrestled a buffalo there.

 Wrestling a buffalo on Route 66

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October 8, 2012

Sometimes it seems our goal in life is to eliminate all forms of detours.  Is there a river in the way?  Build a bridge over it.  Take too long to get through the city?  Build a highway around it.  In our haste to become “more efficient”, we bypass the things in life that used to make us slow down and enjoy it.  In turn, time seems to go by even faster.

One of the goals of our Route 66 road trip was to travel without a set schedule. Sure, we set a start and end date with things we wanted to do in between, but the “in between” parts were all flexible. This worked out perfectly all the way through Route 66.

Then we came to Utah. I had heard of the national parks in Utah such as Arches and Monument, but I wasn’t real familiar with the state. We had a couple of routes to choose from as we left Las Vegas on our way to Boulder, CO and one extra night which we planned to stay in Moab, UT.

Utah map

Here were our two options:

Option 1

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Today’s guest post is from Cheryl Therrien over at Geek Girl USA. Not only is she’s a great supporter and friend, but she’s becoming one of the go-to resources for technology and specifically mobile phone app reviews. Make sure you check out her site! Also, her guest post couldn’t be more perfectly timed… we’re ready to cut the cord but will take her advice first. Enjoy!

Giant Scissors

When Dan asked me to guest post for him I was both surprised and flattered. What could I possibly have to offer this financial guru? After some thought the answer is what follows.

How much do you spend on entertainment each month? Perhaps we need to clarify just what entertainment is. Going to the movies. Check. Attending ball games to cheer for our favorite teams. Check. Sounds like pretty straight forward stuff, doesn’t it? But if you really think about it isn’t that cable bill you pay every month paying for entertainment? What kind of package do you have? Basic package? How many levels do you pay for each month so you can watch a movie on HBO or Showtime?

Cable companies know what they are doing. They have their hands in our pocketbooks with our permission. As an individual consumer it would cost you considerable more than you pay your cable company to buy the same series they provide in their packages.

My husband and I have been evaluating our alternatives for this kind of entertainment. The first thing we did was we reduce our subscription to the ‘Basic’ package. Huge savings right there.

Then we began to look at what we actually watch when we do watch TV. We made lists of those shows we watch and then started looking them up online. Some shows will allow you to watch the full episodes if you don’t mind watching them later on after they have aired. So you might watch the full episode of a program that aired a week or a month ago. We decided that this aspect did not matter to us. We rarely ever watch anything live. We record everything on the DVR. I SO love skipping the commercials.

Then we looked at sites like HULU to see which shows we could watch for free. HULU Plus runs something like $7.95 and you have access to additional listings.

Lastly we looked at those shows that have no free options. How much would it cost to pay for those individually from places like Amazon streaming or iTunes? Some series have options to pay per episode while others allow you to purchase the entire season and get a discount.

What did we learn from this research? First and foremost the cable companies really do know what they are doing. They put together packages very strategically. If you are attached to particular shows and you have a number of them, it is actually more cost effective to purchase a package from the cable company than to purchase only the shows you want to watch. Seriously…

Think about how much you pay for cable and then look at how much you would have to pay for the shows you want to watch if you purchased them yourself from the vendor you choose. Those few dollars per show or series add up pretty quickly.

If you are thinking about taking the plunge and ‘cutting the cord’, do some serious research. We have to decide just how important the shows we watch are to us, and if we can live without watching them. Most of ours are available for free or for minimal cost. However, when we start adding up those minimal costs for each one… well…

The conclusion: Most people will probably let the cable company can keep their hand in our pocketbooks. As for our household, we have not made the final decision yet, but we are getting close. At this moment we are still on the ‘Basic’ package. I am a big sci-fi fan and many of the shows I watch are not free. I am still undecided as to how important they are to me. Sci-fi provides me with a much needed escape when I am just too tired to read or write. It takes no effort to just hit the button on the remote and veg out…

So what do you think? Could you ‘cut the cord’ and live without cable TV? Have any great tips you’ve used?

If you’ve been around here a while, you know Susan Cooper.. if not, let me spend a second introducing her. She’s an incredible person who is probably the reason I’m still blogging today. Back in the early days, we were the only ones commenting on each other’s sites, but luckily that has changed! She’s continued to support me and teach me new things about blogging. She’s a former executive, turned unofficial life coach who’s an incredible story teller, artist, and wine connoisseur! Check out her site, Finding Our Way Now – you won’t regret it.

Take it away, Susan!

October 1, 2012

Have you ever heard the proverb “Money doesnt grow on trees? I would argue that point. But I digress. Our feeling or sense of how we treat money can be affected by so many factors but before I tell you my tale, let me define how I see Money.

Full Money Tree_SCTo me, Money is a sophisticated system of bartering. Our time and energy in a job is then translated into the form of a currency. We use that currency to exchange our time and energy for goods or services that we need, want or desire. So what that means is when we buy something, we’re saying that the time it took to earn the currency we are parting with is worth the item we’re purchasing. For example, lets say it takes us a month to earn $1.000, and we want to purchase a TV. When we buy that TV, we’re saying the value of that TV is worth a month of our work.

So now back to “Money doesnt grow on trees”? It does if you’re an apple grower. This quote is really a proverb that refers to: “dont waste money because its hard to get”. For me what the idiom or proverb is really saying is we only have so much time (The Tree) to work. Making the best use of our time and how it translates in to a currency (The Leaves) to barter with is extraordinarily valuable to us.

So where am I going with this? About 6 months ago I made a decision to reduce our household expenses. Because I was no longer working, it just made good sense to do so. My goal was simple, cut costs by at least 15% without substantially changing the overall convenience that some things offered. I had already reduced our costs by some, the low hanging fruit if you will. So this was a real effort to see the other areas that could be changed. I know what you’re thinking, how in the heck are you going to that.

You see, when we view money as a bartering system then everything is negotiable. I researched all my services, the going rate for each service, who provided them and what their reputation was as a service provider. I made a lot of phone calls. Some areas weren’t adjustable such as power and water. However, many other areas were such as cable, internet service, cell phone, and the list went on. You get the idea.
In other cases, it was substantially more. Let me give just one example. I had a gardener who was top dollar, and I asked what he could provide if we reduced our cost to half of his current fee. He gasped and acted as if the world would end, and my yard would look as if an apocalypse had

Money with basket_SC

arrived. We went back and forth. In the end, I decided to change to another gardener who I knew by reputation and from the neighborhood. I not only got the same service at half the price, but he was actually better and more attentive to my needs.I then checked for any specials that were being offered that I was not getting. In some cases, I was willing to change my provider all together if I saw not appreciable difference in the service they provided by doing so. With some services, it reduced the cost by only a few dollars, but hey a dollar is a dollar in the bartering world, and it all adds up.

I systematically went through each and every item, reducing just about everything to a lower cost. The overall outcome was I succeeded in reducing our household operating expenses by a whopping 25+%. Why I hadn’t done it before was disappointing, but at least I got there. The best part, it’s been over 6 months since I’ve made these changes and we haven’t seen or miss the differences in any way. In some situations, I am actually getting better service at a much-reduced price. What’s there not to like about that.

Money is a tool that represents our time and energy. When we part with it, we need to make sure that the time and energy it took to acquire it matches with the product or service we’re purchasing.