Finance – For You and Your Family


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October 17, 2022 by Scott Crosby - Views: 30

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Finance – For You and Your Family

S427-1.jpgSometimes it seems like young adults just out of college try to buy a house as big as that of their middle-class parents.  

The fact is:  coming out of college, you are at the poverty level, not middle-class.  You may have a good job and a decent starting-salary, but you have no savings, and not much of substantial value.  If you are to have a middle-class life-style in your future, it is up to you to build it.  

Buying a House

Your biggest purchase is going to be a house.  It may require living in an apartment for a while, until you can save up enough money for a down-payment.

Your down-payment should be ten percent of the price of the house you want to buy.  Under the right circumstances, you may be able to buy with only a five percent down-payment, but it will cost you more to do so.  

With a ten percent down payment, the cost of your purchase (i.e., fees, etc.) will be lower, saving you money.

How much house can you afford?  Do the math:  multiply your salary by 2.5.  That is the most you should spend on a house.  If you are married, add your salaries together; then multiply that number by 2.5.

May your marriage be happy, and never end in divorce.  Divorces are expensive.  “Choose wisely.”

If you buy a less-expensive house – say, only twice your salary – then you will have more money for furniture, your car, vacation travel, or whatever else is in your plans.

A bigger house may impress your family and friends, but who cares?  You are the one who will live in it, and you are the one who will have to pay for it.  Is a more-expensive house really worth giving up the other things you want to have and do in your life?

When you talk to a realtor about house-hunting, they will try to convince you to buy a more expensive house.  They will tempt you and try to break your will-power, stressing that a house is an “investment”, and with all kinds of schemes that they will assure will make home-ownership much easier.

Well, of course.  The more expensive house you buy, the bigger is the realtor’s commission.  It is as simple as that.  And realtors can be very persuasive – it is their job to be so.  Right up until you have signed the final signature and the house is yours.  Then you are on your own.

To buy a home, you typically get a loan, with your house as the collateral – a mortgage.  Mortgages include monthly payments by you for 15 years, 20 years, or 30 years.  

A 30-year mortgage is one of the ways to make a more-expensive home more affordable.  Beware:  multiply the monthly payment times 12 months times 30 years.  That will be your total payment for your house.  With a 30-year mortgage, that sum will be about three times the original price of your house.

If you can pay your house off in 20 years – or even better, in 15 years – do it.  Your realtor will not be pleased – but you will be grinning like the Cheshire Cat.  Especially when your kids are about to start college:  because you finished paying off your mortgage, paying for the college tuition will be much more affordable.

Buying a car

How much should you pay when you buy a car?  About half your salary, or less.

Like buying a home, the less you pay for a car, the more money you will have for other things.  

When buying a car, just count your salary.  Leave your spouse out of the equation.  She (or he) has her (or his) own car to buy.

Ideally, a married couple should alternate:  first for one of you buying a car, and once the car payments are done, then the other.  That way, you will have only one payment on a car loan each month.  Again, that leaves you more money to spend on other things – like the children you want to have.  

Budgeting

Learning how to budget is key to your success as a parent and as a family.  It teaches a good level of frugality and care in how you spend your money.  But most important, it helps you stay out of debt.

Most importantly, pay off your credit cards every month.  The interest rates charged for not paying them off is huge; you might as well just throw your money away.

As your kids grow up, it is also good to teach them to budget.  When they are old enough to start wanting to buy their own clothes, set up specific chores and allowances which they can earn.  

When they first go clothes shopping, they may purchase the more-expensive fashion clothes that they want.  But soon they will discover that they can afford more clothes if they buy economy brands.

Most importantly, your kids will have several years of budgeting experience by the time they go off to college – a huge benefit that will be in obvious contrast with the spending habits of other young adults without that experience.

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