Wise Bread (Xin Lu)

What I Miss About the Recession

Xin Lu — Fri, 29 Mar 2013 09:48:30 +0000

The recent "Great Recession" was officially deemed to be over in 2009, but it is only recently that the economic recovery seems to have really picked up speed. While it is nice to see the stock market go up and the unemployment rate go down, I do miss a few things about the recessionary years. I'm not actually looking forward to the next recession, of course, but when it comes (and it will, some time), here's what I'll be looking forward to more of. (See also: Preparing for a Recession)

Less Traffic

Lately I have definitely felt that traffic has increased during commute hours. It is great that more people are getting jobs, but I do miss the shorter commute times and less congested roads. Apparently the increase in traffic is happening all around the country, and the National Safety Council reported the first increase in traffic related fatalities in years.

Shorter Lines

During the recession we rarely had to wait for a spot at a restaurant, but now that is very common. Restaurants that did not need a reservation during the recession are bustling once again. It is great to see establishments have more business, but it was nice to eat in sparsely populated dining rooms where it was easier to hear your friends across the table. There were also shorter lines at many malls and parks.

Bargains

It was much easier to find a bargain during the recession. You could negotiate down the price of almost everything, including rent. Hotels and travel were also cheap, and there were more restaurant coupons than I could use.

Lately I have definitely seen fewer sales and coupons and an increase in prices on most goods and services. Large ticket items such as furniture and real estate were being sold at below replacement cost during the last recession, but now it is much more difficult to find a bargain that good.

Frugality and Saving

In the last few years everyone talked about saving instead of buying that next big thing. The frugal people were suddenly not so crazy!

Now it seems that the tide is turning, and saving money is beginning to be uncool again. The zero interest environment does not help the savers' argument at all, and there seems to be less urgency for everyone to save as a whole. The funny thing is that saving during the lean years when you have less income is much harder than saving during the flush years. I do miss that more people cared about saving money during the recession, and I hope they realize that they should try to save more now to prepare for the next recession.

There are many things about the last few years that were not very nice, but I definitely saw the brighter side of the worst economy since World War II. I hope some of you were able to get some great bargains that you could use for years to come, and that you are keeping up those good frugal habits you have learned. In the next recession those who have cash will have many more choices than those who don't.

What do you miss about the recession?

This article is from Xin Lu of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

Why You Should Allow Yourself Splurges

Xin Lu — Thu, 14 Feb 2013 11:24:32 +0000

Do you feel guilty when you spend money? Do you sacrifice things you enjoy in order to save as much as possible? If you are well on your way to reaching your savings goals, then you are seemingly in control of your budget and finances...or are your finances in control of you? An occasional splurge is not necessarily a bad thing. Here's why. (See also: 21 Frugal Ways to Reward Yourself Right Now)

Positive Reinforcement

When you are already cutting down debt and meeting your savings goals, you should give yourself some positive reinforcement. Being responsible with your money should be fun, too. When you let yourself have that massage or video game you wanted, you may become even more motivated to earn and save more. If saving money becomes hard labor for you, then you are probably less happy than you might otherwise be, but that does not have to be how you live.

Break Your Routine

Most of us have a daily routine that is fairly set in stone and that can sometimes make life quite monotonous. When you allow yourself to spend a little money on something that you normally wouldn't, your life might just get more interesting for that day. I have found that the non-routine days are usually more memorable, and having those memories is definitely worth the money spent.

Some Splurges Have Long-Term Benefits

Some splurges can benefit your life for the long-term. For example, I have found that some more expensive brands of handbags and shoes simply last longer than the cheap ones under $15. Other examples of splurges with long-term benefits include an upgraded mattress or better window blinds. There are many things that you could splurge on and use for years to come.

Price and Availability Are Never Constant

A few years ago my husband and I took a trip to China, and it cost around $900 per person. Now a similar trip costs $1,600 to $2,000 per person due to the rapid inflation of everything in China.

It is hard to predict how fast the prices of things you want will go up, so sometimes it is actually cheaper to enjoy what you want today. Worse, the product you want can completely go out of stock when you wait too long, and that defeats the purpose of saving and enjoying the fruits of your labor.

Ultimately, the money you make is meant to be spent. As long as you are not falling deeper into debt and hurting your savings goals, it is completely OK to enjoy your paydays and treat yourself a bit. I think everyone should have a "fun fund" to spend without guilt. I love to splurge on good food and short-term trips because I think having those experiences makes my paycheck more real than just a number in a savings passbook.

Have you splurged recently? How did you feel about it?

This article is from Xin Lu of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

What to Look for in a Fixer-Upper

Xin Lu — Tue, 01 Jan 2013 10:30:20 +0000

The housing market is definitely improving, and many of my friends are looking to purchase a new house. The problem is that in many areas inventory is quite low, and it is getting difficult to snatch a perfect house at a great price. However, if buyers are willing to put in some time and work, they are still able to find fixer-uppers that are worthwhile. Here are some tips on what to look for in a fixer-upper. (See also: 9 Costly Things New Homeowners Don't Prepare For)

Location

Location is extremely important in choosing a house. It is better to buy a fixer-upper in a nice neighborhood rather than a pristine and perfect house in a war zone area riddled with crime. Generally, houses in nicer neighborhoods have greater value to begin with, and whatever improvements you make will give you more return on your money. You should also look at the neighbors' houses on the same street and see how much you need to improve the house to make it fit in.

Age of House

Generally, newer homes have certain features that are more updated. For example, plumbing and electrical systems are usually better, and newer homes are up-to-date with modern building codes. From what I've seen, newer homes also have better insulation and are more energy efficient. These features may not be so visible, but they can be very expensive for you to fix. If you do buy an older home, you should check if these major systems have been updated. If you need to upgrade a house's infrastructure to comply with current laws or insurance requirements, then it can be quite expensive.

Costs and Savings

One reason to buy a fixer-upper is to save a little bit of money. To do that you need to assess how much the repairs will cost and have a reserve fund of cash to pay for those fixes. You should definitely get a professional home inspection and also estimate how much cosmetic repairs would cost. If there are major structural issues that cost tens of thousands of dollars to fix, it may not be worthwhile to purchase the house.

The fixes that get you the most bang for the buck are really the cosmetic ones, and that is why the best fixer-uppers are the ones that have great "guts and bones" but need a fresh coat of paint and some new flooring. The cost of paint and flooring is usually pretty easy to figure out, but major structural changes to the foundation and walls may become a real money pit.

Your Time

If you want to deal with a fixer-upper, then you really need to figure out how much time you have to devote to it. If you don't do the work yourself, then you will need to research which contractors to use, and for cosmetic changes you will need to pick out all the colors and styles. Depending on how much work there is to be done, it may take weeks to months before you can actually move into the house.

Some people love customizing their homes, but some really just want a move-in-ready house. If you do not have a lot of time to deal with a project, then it might be better to just pay a little more for a pristine house.

While the market is tightening, I think that it is still possible to get a deal on fixer uppers if you are willing to do the research and follow up work. However, it may not be a great idea for those who do not have a decent cash reserve and the time to do the legwork. I've only purchased houses that needed cosmetic fixes, and that is because I don't have a lot of time and money to devote to major fixer uppers.

One last consideration — it is better to get a house at a lower price because your tax basis will be lower, and that may save you money for many years to come.

Have you purchased a fixer upper?

This article is from Xin Lu of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

How Much Should You Invest?

Xin Lu — Wed, 12 Dec 2012 11:00:31 +0000

"How much should I invest?" is a question frequently asked by savers who want to start making their money work for them. This simple question can actually be quite difficult to answer since there are so many ways to invest and different people have different levels of risk tolerance. Here I will try to answer the question by explaining a few ways to invest and how risky they are, and you can be the judge on what path you should take. (See also: Investments Worth Making With $50 or Less)

Almost Zero-Risk Investments

If you absolutely don't want to lose your money, then you can put it in a high-yield savings or checking account, money market account, certificate of deposit, or U.S. treasury bond. You can put all your money into these investment vehicles and most likely be guaranteed that you won't lose any. The downside is that right now most of these are paying very little interest, so the purchasing power of your money could be eroded by inflation. If you don't have a lot of money and don't want to lose any of it, though, then this is probably the way to go.

Slightly-More-Risk Investments

If you have more than a few thousand dollars to invest and do not want to do too much work, then it is quite easy to just put your money in a mutual fund. However, there are thousands of mutual funds that put money in a variety of investments, and you need to investigate which is best for you. Personally I have invested in one of Vanguard's Target Retirement funds that invests in a variety of index funds. It is a low-cost and low-maintenance option if you want to invest for the long term without having to do much work. However, if you do take this path and you invest in mutual funds that are mostly stock based, you need to know that it is possible for the funds to vary wildly with the ebbs and flows of the stock market. If you tend to panic when you watch your money go down or if you need the money right away, then this is probably not for you.

Investments With More Risk and Work

If you are into research and do not mind watching your investments often, then you can try your hand at building your own stock portfolio by buying individual stocks or ETFs. I have not done this before, but I do have friends and family who like to do technical analysis on the stock market and trade stocks for the short term. They usually park a lot of money in cash and then only place a small portion of their capital on each stock pick or "bet." Many times the stock or ETF is sold within hours or days of their purchase. Some people also trade options, but that's not for beginners. If you want to try your hand at picking stocks, then I would suggest not putting all your money in right away, because it is possible to lose a large chunk in the matter of days. Some people call this speculation, not investing.

Investments With Lots of Risk, Work, and Possible Reward

When you know some investments well, it is possible to invest without putting up any of your own money and instead borrow the capital you need. For example, some real estate investors will borrow 100% of the money they need to buy houses and then either quickly flip the house or rent the house out and then refinance. Other investors borrow the capital for a business and then pay the loan back over years with the business's cash flow. These methods of investing require a lot more work, and if you don't know what you are doing, you are almost guaranteed to lose money. The upside is that if you make money, you are doing it with other people's funds and you can repeat the process and make more money. If you want to go down this path, you would need to do a lot of research and learn about the business you are targeting. You also need to invest quite a bit of your own time.

I have left out a lot of other investing possibilities in this brief article, but the truth is that how much of your time and money you should invest to make more money is completely up to you. That may not be the clear cut answer you were expecting, but what is clear is that if you have saved money, you should probably invest as much of your capital as you can so that eventually you will have an income stream that lets you be financially independent.

How much of your money and time do you invest to make more money?

This article is from Xin Lu of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

What Happens at a Foreclosure Auction?

Xin Lu — Wed, 14 Nov 2012 10:36:46 +0000

Foreclosures have declined recently, but many houses are still being auctioned on courthouse steps across the country. Recently I attended one of these auctions; here is a run down of what happened and what I learned. (See also: The Process for Purchasing a House With Cash)

Finding a Foreclosure Auction Near You

Generally the list of houses up for auction are posted at an official building in each county, and many listings are also accessible online through listing services such as LPS Agency Sales and Posting. These auctions are also called trustee's sales because the trustee of the mortgage is making the property available.

The auction we attended was for Solano County in California, which covers about a dozen cities. We arrived at the Vallejo City Hall a few minutes before the scheduled auction. The auctions happen on the front steps of city hall twice a day. When we arrived, the auctioneer was sitting on the ground filling out forms. A few more people filed in and waited quietly.

The Auction Process

The auctioneer stood up and asked if everyone was ready, and then she started the auction by reading out all the listings that were canceled or postponed. Many houses get taken off the auction block because the banks have worked out a short sale or decided to modify the loan, and cancelations can happen as late as the date of the auction. After she rattled off a dozen numbers and addresses, she finally got to the actual houses for sale.

The first house was a 2,000 sq ft property in Vallejo, and the opening bid was $147,000.

Bidding Requirements

Before bidding, the qualified bidders stepped up to show the auctioneer their money. Basically, you can only bid if you can show that you have cashiers checks that can cover the amount of the bid. The bidders all have hundreds of thousands of dollars in cashiers checks in their pockets. A few people went up with their envelopes and then the bidding began.

The Bidding

The first bid was for a penny over the opening bid, then bids of $100 and $500 came in from two or three bidders. Finally the house was sold to a bidder for $158,000. After it was sold, the winner and the auctioneer stepped to the side to fill out forms, and the buyer gave the auctioneer a number of cashiers checks adding up to at least the bid amount. Any overage would be refunded later. The whole process took about 10 minutes.

For Buyers With Cash, Savings Are Substantial

During one of the breaks we talked to the winner of the first house. He told us that usually buyers can get 25% to 30% off the market price at auction. For example, the property he purchased for $158,000 was probably worth around $200,000. However, the risk is that buyers can't inspect the inside of the houses they buy, and they are responsible for any liens such as back taxes or unpaid utilities. Buyers also need cash to close the transaction right on the spot. For these reasons, buyers are mostly professional investors or work for bigger companies.

After they purchase these houses, they often have to deal with the unpleasant business of evicting the former owners and making any necessary repairs. Currently many investors are renting out houses after they buy them. They are planning to sell after the housing market recovers further. The bidder we spoke to works for a company, and he said that he buys one or two houses per day.

Too Many Houses, Too Few Buyers?

In the end only a few houses sold. Many listings went back to the bank because the starting bid was much higher than the current market price. The investors had all done their research, so they did not bid on those properties. The houses that go back to the lender eventually will end up on the open market or will be sold to other investors in batches.

It is definitely possible to make money on these properties if you do your research and a lot of legwork in attending auctions in your area. I felt like it was actually much more transparent than buying a house from a realtor because everyone knows the bids, and there isn't a lot of competition. The deal also closes right away, so it is a much more efficient process. However, it is definitely not the way to buy a house for those who need a loan or those unprepared to make substantial repairs on their new, formerly foreclosed property.

Have you thought about purchasing a house at a foreclosure auction?

This article is from Xin Lu of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

10 Fun Toys and Games You Can Make at Home

Xin Lu — Wed, 03 Oct 2012 10:24:43 +0000

Now that I am the mother of a three-year-old boy, I have found that he always wants to be entertained, and constantly buying new toys is not an option. When I was a kid, I didn't have nearly as many toys as my son, but I remember that my parents and I played with a lot of homemade toys and games. Here are 10 do-it-yourself toys and games that will entertain your family for hours without denting the wallet. (See also: Great Financial Gifts for Children)

1. Cat's Cradle

This is probably the simplest "toy" you can make. Basically all you need is a few feet of yarn or string. Tie the ends to make a loop, and then you can start to make all kinds of patterns with your hands. The game is usually played with two people, and it is quite interesting to see all the variations. Check out some quick cat's cradle instructions.

2. Mancala

This is an ancient board game that can be made with an empty egg carton and some small counters like beads, beans, or even coins. The point of the game is to "capture" all the counters after putting them into the spaces in succession. You can see the basic rules of Mancala here.

3. Pinwheel

When I was young, my mom made pinwheels for me out of paper and little bits of wire. You can use any colored paper or even foil to make the actual pinwheel. You can find pinwheel instructions here. These toys are great for entertaining little ones.

4. Rattles and Shakers

These are also great baby toys that you can make on your own. You can use any kind of small container and just put in a few small beans, and it would be a cheap rattle. If you want to be fancier, you can paint and decorate the containers.

5. Play-Doh

My son is absolutely in love with Play-Doh, but he always ends up mixing all the colors into one big brown pile and then asks for more. Apparently it is much cheaper to make your own dough at home. There are many recipes online, and most of them consist of flour, water, salt, cream of tartar, and food coloring. My favorite homemade Play-Doh recipe is dough colored by Kool-Aid.

6. Kites

A simple kite is actually very easy to make. All you need is some fabric or paper, a couple dowels, and a lot of string. I still remember that my dad made me a traditional Chinese kite out of very thin paper and bamboo strips and painted a tiger's face on it. There are many patterns for kites, but the most basic one is the classic diamond shape. PBS has a great set of instructions for making such a kite. You can get very creative with your kites and have the kids decorate them as they wish.

7. Jump Rope

It's very easy to make your own jump rope. All you need is some braided polyester rope and a way to make a pair of handles. Here is a good set of instructions for a simple jump rope. Jump ropes are fairly cheap to buy, but if you make it on your own, you can make it any length you want.

8. Jianzi

Jianzi is a toy that is very popular in China. When I was young we made these out of several washers attached to some chicken feathers. The game is basically like hacky sack, and kids kick them around without letting the jianzi fall to the ground.

9. Tangram

This is an ancient puzzle game made out of a square cut into seven pieces.You can print out a pattern, and then cut the shapes out of hard cardstock, plastic, or thin wood. There are an endless number of shapes you can make out of these pieces. There are many tangram puzzles online where a finished tangram is presented, and it's up to the player to figure out how to make that shape.

10. Masks

Kids love to pretend to be superheroes, and one of the art projects I remember the most from childhood is making paper mache masks. A great set of mask instructions is available here. After the mask is made, the kids can paint them however they want.

These are just some of the toys and games you can make at home with very cheap and readily available materials. The great thing about making these toys yourself is that the process of making them can be fun projects as well.

This article is from Xin Lu of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

8 Fun and Cheap Things to Do During the Weekday

Xin Lu — Tue, 14 Aug 2012 10:00:41 +0000

A Wise Bread reader recently asked us what are some fun and frugal things to do during the day, since she works at night. Since I quit my day job, I have found that there are many things in my community happening during the weekday when most people are at work. Here are some of my suggestions.

1. Go to the Library

The public library is not only full of books and DVDs that are free to access (with a library card), but many libraries also have enrichment programs that are free. I have seen free guitar lessons, art classes, and readings of books by authors at my local libraries. (See also: 4 Reasons Why You Should Support Your Local Library)

2. Take a Factory Tour

There are many factories and stores that give tours of their facilities. One famous example here in the Bay Area is the Jelly Belly factory. The tours are usually free, and guests get to have a little sample of the products. Factory Tours USA lists many of these tours.

3. Visit a Public Park or Beach

These public recreation areas are usually open from sunrise to sunset. Before I had my son, I rarely took advantage of them, but now I find that it's quite nice to just sit on the beach for a few hours. The large state parks usually feature many miles of walking trails, and they are great for some exercise.

4. Take Advantage of College Campuses

Many adult schools and colleges offer seminars that are free to attend, but they're generally during the weekdays when school is in session. I have also found reasonably priced dance and art classes in the local adult school catalogs. Some colleges even have free concerts and events that are open to the public. You do have to research these opportunities a bit, but they are out there.

5. Take Photos

For beginner photographers, it is easier to practice the art in natural light before moving onto purchasing expensive nighttime lenses. So if you have a lot of time during the day, you should consider taking some photos for fun. This hobby requires a small amount of initial investment, but if your skill level advances far enough, it is possible to sell your photos.

6. Go Geocaching

This is a global treasure hunt game where people hide tiny "caches" at specific GPS coordinates. All you need to play is a handheld GPS and the website geocaching.com. This hobby may cost you some gas if you decide to purposely drive to a cache that's far away, but you can also create your own little treasure boxes for other people to find.

7. Visit a Historic Site

Many historic sites around the country are accessible to the public. You can find a list of local historic sites online. I have found that I have actually driven past some of these sites many times without bothering to visit. If you are a fan of local history, it can be quite fun to rediscover your own community via historic sites.

8. Go to a Discount Movie Theater

Depending on where you live, there may be a cheap movie theater nearby that shows movies for $2 to $3 at strange times on weekdays. They often screen movies that have been in the theaters for awhile or foreign movies, but sometimes there are a few blockbusters. It is fairly cheap entertainment for an afternoon.

I have listed eight possible fun activities for those who do not have a regular work schedule, but you may find many more activities in your community if you just venture out and take a look. Your hometown might be more interesting than you thought.

Like this article? Pin it!

This article is from Xin Lu of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

3 Reasons Not to Save for Your Child's College Fund

Xin Lu — Mon, 09 Jul 2012 09:49:59 +0000

Since I had my son, I have often heard from family and friends that college is going to be extremely expensive, and it is best to start saving now. After much research I decided that I wouldn't put too much into a college fund. This may be against the usual advice of saving for the future, but here are some sane reasons why parents should not pump too much money into their children's college funds. (See also: How to Save Money for College)

1. A Large College Fund Can Lower Financial Aid

This is mostly due to how financial aid offices calculate need. Most public schools use the FAFSA, and many private schools use a combination of the CSS/PROFILE and their own formula. Regardless of the method used, generally parents and students have to list their assets, and more savings means less need. So it is actually possible for two families with equal incomes to receive different amounts of financial aid, and the family with less savings would receive more. Retirement accounts are usually excluded from these calculations, so it is to the parents' advantage to sock away more for retirement rather than a child's college fund. The calculations also usually count a student's assets fully, so if you put a college fund under your child's name, then that would hurt your financial aid numbers as well.

2. Working During College Can Be Beneficial for Students

Research from the U.S. Department of Labor (PDF) showed that young adults who had to work and pay for at least part of their college actually did better in school than those who did not have to work. This is not that surprising since the kids that had to work and study at the same time are more invested in their education and are generally more disciplined to be able to manage work and school. Those who had to work probably valued their education more than those who didn't. Additionally, these students who had work experience usually fare better after they graduate in their job searches because any job experience is better than none in the eyes of employers.

3. College Isn't the Right Choice for Everyone

There are currently many college graduates with no marketable skills who are not doing better than those who pursued an apprenticeship in a trade. If parents put away a lot of money in a college fund like a 529 plan and later find that their children no longer wanted to go to college, then they would have to take a tax penalty to take the money out for other uses. I think it is best to wait and see what a child's pursuits and talents are before deciding on that college is the best path.

My son will be college bound in about 15 years. I don't yet know what he will do, but if he decides to go to college, we will definitely support his decision. For now we are putting in $100 per month into a 529 account. In 15 years it will grow to a significant amount, but it probably will not be enough money for four years of college given the rate of increase in higher education costs. However, we're not that worried about it because ultimately I think that young adults should start taking responsibility and shoulder at least some of the costs of college. I think the whole point of raising and educating children is so that they can be independent and survive on their own, and it would be good for my child to learn that as soon as he is able.

What do you think? Are you currently saving a lot for your children's future college costs?

This article is from Xin Lu of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

What Do the Chinese Spend Money On?

Xin Lu — Tue, 12 Jun 2012 09:36:38 +0000

Four years ago I wrote about some money habits of Chinese people. Most notably I said that Chinese people have a very high savings rate. Some readers have asked me what Chinese people are saving for. Recently I just made another trip to China, and I would like to share some of my observations on the subject of how Chinese people spend their money currently.

First of all, I should clarify that I am writing from the point of view of a upper-middle-class urban Chinese family that makes around $1,000 to $2,000 a month. There are many extremely wealthy Chinese people, and there are countless Chinese people who are much poorer. Their spending habits may be vastly different. (See also: How Your Last Name Affects Your Spending Habits)

Housing

Housing prices have zoomed out of control in the last decade, and the government has made efforts to cool the market. Prices have come down since 2009, but most young people still are not able to afford a house without help. In my hometown of Yangzhou, apartments are selling for about 400 to 600 yuan per square foot. This means it would take an upper middle class family eight to ten years of savings to buy an 1,000 square foot apartment in cash in Yangzhou. In larger cities like Shanghai, apartments generally cost over 1,000 yuan per square foot, so it is much harder to pay cash.

Those who take a mortgage in China are called "fangnu," which means house slave. Another slang for mortgagees is "woniu," which means snail, because they are weighed down by their shelter. These people generally are extremely frugal with everything in their lives, but they spend a large percentage of their income on their mortgages. Additionally, mortgages are all adjustable in China, and the government can raise or lower the rates at will. So when people can pay cash they will do it because they just don't like the uncertainty. Upper-middle-class families generally try to provide housing for their sons once they get married, and including a new condo as a wedding gift pushes the cost of some weddings into the hundreds of thousands of dollars.

Education

Chinese public schools are not free through the 12th grade. Parents usually have to start paying for high school, or if they want to go out of their predefined district they can do so by paying. When it comes to college, many upper-middle-class parents prefer to send their children abroad because they believe foreign colleges provide a more solid education. Additionally, there are many college students without jobs now in China, so a foreign degree gives a person an extra edge in the job search. Some parents actually sell their houses to fund these international students, but others simply pony up decades of savings. There are student loans in China, but they are very rare, so most people pay for college with cash.

Cars

Cars are very expensive in China if you consider the initial cost and the cost of upkeep. First of all, all imported cars cost two to three times the list price in America due to taxes and other markups. So a car that is about $30,000 new in America can cost $60,000 to $90,000. That makes a car almost as expensive as an apartment. There are cheaper, China-manufactured alternatives to import cars, but Chinese people prefer to buy import Audis and BMWs because they say that the quality of the cars made in China isn't as good. Since they're spending such a big chunk of money, they would rather buy something nice. In addition to the initial cost of the car, there are steep costs for car registration in some cities to help curb congestion. In Shanghai it costs on average $10,000 to just register a new car, and registration is done by a monthly lottery. After you get the car and start driving, you will find that practically all the highways have a toll of around 10 cents per kilometer (16 cents per mile). Even with these costs, more and more cars are getting on the road.

The common thread that I saw in China is that Chinese people are still very frugal in their daily lives, but many people are saving up for that one big thing. Another notable thing is that Chinese parents pour everything they have into their children even after their children are adults. Ultimately, Chinese and Americans all want to live better lives, but the difference is that most Chinese people don't reach that higher standard of living on borrowed money. Sometimes I don't know if the Chinese method is smart or naive, because it seems that so many Americans get what they want without saving for years, and it is not that hard to get rid of debt through legal maneuvers.

What do you think? Is it silly to save for purchases in your life when you can just finance everything?

This article is from Xin Lu of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

Forgiven Mortgage Debt May Lead to Huge Tax Bills

Xin Lu — Thu, 26 Apr 2012 09:48:12 +0000

Congress passed the Mortgage Forgiveness Debt Relief Act during the national housing crisis. This little-publicized law protected those who lost their principal residences to a foreclosure or short sale from a big tax bill, and it is expiring at the end of 2012. This means that those who lose their homes or receive a partial loan reduction next year may be facing a huge tax bill. (See also: How Foreclosure, Deed in Lieu, and Short Sale Affect Credit Scores)

Most people are not aware that most debt forgiven by a lender is taxed as ordinary income by the IRS. In the case of a foreclosure or short sale, the lender usually issues a 1099-C to the borrower for the balance still owed, minus whatever the bank sold the house for. Issuing a 1099-C means that the lender will no longer go after the borrower for the loan, and hence, the debt is forgiven or canceled. In cases where homeowners walked away from their houses, it is very easy to get an "income" of thousands of dollars, and the IRS will once again tax that income at the borrowers' highest marginal rates.

For example, suppose that a couple with an annual income of $70,000 owed $500,000 on their loan when their house was foreclosed, and the bank sold their house for $150,000, then they would have a 1099-C with a balance of $350,000. If that foreclosure happened on January 1, 2013, then this couple would have a taxable income of $420,000 for the year 2013 in the eyes of the IRS. This means that this couple would owe over $100,000 to the IRS. To complicate the matter, many states also passed tax laws that conformed to the federal law. So those who have discharged debt on their principal residences in 2013 will also have to pay state income taxes on their loan balance. In California, this would add approximately another $30,000 to this fictional couple's tax bill.

Even if an underwater homeowner manages to get a principal reduction on their loan and keep the house, the loan forgiven will be considered ordinary income starting next year. Not all cancelation of debt is taxable, and you can read about the details of the law. This change will affect those who have money and want to walk away from their loans the most since the IRS will not tax insolvent folks. A person is insolvent if his or her total debt is more than the sum of his or her assets, so those who really have nothing to pay will not be affected.

Since there is no guarantee that Congress will extend this law into 2013 and beyond, if you are underwater on your mortgage, then this year may be the last year to finish up a foreclosure or principal reduction without incurring a tremendous tax bill. For those considering a short sale, it is best to get the process started right now, since it may take many months for a short sale transaction to actually close.

I think the expiration of this law might change the decision-making process of many underwater homeowners if they knew about it.

What do you think? Should this law be extended? If you are underwater on your mortgage, would a potentially huge tax bill prevent you from walking away from your house?

This article is from Xin Lu of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

Get Help With Your Underwater Bank of America Mortgage

Xin Lu — Fri, 30 Mar 2012 10:24:07 +0000

In February 2012, the major lenders in the United States struck a deal with the government to avoid prosecution for improper processing of foreclosures. In order to reduce its share of penalties, Bank of America has revealed recently that it is willing to forgive the principal of many mortgages so that the borrowers will no longer be underwater. Some borrowers may qualify for reductions of $100,000 or more. Here are the details of the program and how you can find out if you qualify. (See also: 6 Options If You're Underwater on Your Mortgage)

This new principal reduction program is a part of the National Homeownership Retention Program rolled out by Bank of America since Obama's Home Affordable Modification Program. The borrowers that will receive help must meet these qualifications:

The borrower must be at least 60 days late on payments as of January 31st, 2012. So people who have been paying their loans on time do not qualify unless they can demonstrate that they will default soon due to a rate reset on an ARM. Borrowers who are current also need to submit documentation showing financial hardship.
The amount owed must be more than 120% of the current value of the house.
The loan cannot be a Fannie Mae or Freddie Mac Loan. Only loans owned by Bank of America or private investors are eligible.
The property must be owner-occupied.

The maximum amount Bank of America will forgive is 30% of the remaining principal or the difference between the current value and the loan, whichever is smaller. For example, if a house is currently worth $150,000 and the loan is $180,000 then they will reduce the loan to $150,000. If a house is worth $150,000, but the loan is $250,000, then they will only reduce the loan to $175,000, since that is a 30% reduction on the loan. So a borrower in the second situation will still be underwater, but it would still be a significant improvement to pay interest on 70% of the previous principal.

The principal forgiveness is also spread out over three or five years, depending on the individual case. From the examples given by the bank's site, it looks like they will take future appreciation of the home into consideration and reduce less of the principal if the house's value goes up. It's unclear what would happen if the house's value goes down.

The program ends on December 31st, 2012, so borrowers that possibly qualify should go to Bank of America's site right away and see if they are eligible. The website allows you to type in your mortgage account number to see your options. You can also click the FAQ tab on Bank of America's page for more details. Bank of America says it will help 200,000 people with this program. As part of the National Mortgage Settlement the other major lenders are also supposed to offer more principal reductions, but Bank of America's site is the only one with clear guidelines so far.

Are you a Bank of America customer who will benefit from this? Do you think this program will be more successful than previous attempts to curb foreclosure?

This article is from Xin Lu of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

Are You Getting Charged by a Text Message Scam?

Xin Lu — Fri, 16 Mar 2012 10:24:17 +0000

Recently, I started to receive some spam text messages. Then I got a text that was more disconcerting. It said that I signed up for a $9.99-a-month service called Bingoroo, which I never did, and welcomed me to the service. (See also: Living Without a Landline)

I was a bit confused, so I looked up the company name in the text message — it's some text message bingo game. Their website says that you have to text them to subscribe, and I never did. So called AT&T customer service to ask what this is all about.

The AT&T customer service representative was very apologetic and told me that this is a third party company that is using the AT&T direct billing system to sell their content. I asked her how I can get rid of it. She said that this happens often and told me that I have to text STOP to them right away, and if I do get a $9.99 charge on my bill, I should call them back to get rid of the charge. Also, in her system she did see that the subscription is active even though I did not purchase it.

Here is what is really scary — I asked the AT&T employee if any of these SMS content companies could just bill me if they had my phone number, and her answer was yes. Then I asked what would have happened if I hadn't read my text and replied STOP, and her answer was that basically they would keep on charging me through my wireless bill. Essentially, for these text message services, having someone's phone number is as good as having their credit card, especially if the victim is someone who does not even use texting and just ignores the messages.

I asked the representative how I could prevent these schemes, and she told me that there is actually a free-purchase blocker option that I could set up for my lines. However, this option is only available to technical support as part of parental controls, and there is no option on AT&T's website to turn it on. I told her that I would like to set it up for all my lines. This means all automatic purchases through SMS will be blocked, but AT&T will issue me a PIN that can be used in case I want to make any purchases. Also, AT&T will cancel all current subscriptions.

After this ordeal I researched premium SMS scams a bit, and they can come in many forms. There are actually many mobile phone apps that are disguised as games but actually sign people up to these useless services that charge a monthly fee. However, most service providers have an option to block content purchases. Here are a few tips to stop yourself from being a premium SMS scam victim.

Check your phone bill and content subscriptions, and make sure everything is what you ordered. If you have AT&T, premium subscriptions can be checked on their Manage Mobile Purchases & Downloads page.
Read your spam texts and text STOP immediately to messages that say you've signed up for something. According to the AT&T customer service representative, this gives the phone company a record when you unsubscribed, so when you contest the charges, you have them on your side.
Contest any charges for services you did not purchase as soon as you can. I've read some stories that some people have been charged hundreds of dollars over years of being victimized.
Turn on premium content blocking with your phone company so that purchases through texting can be only made by you with your PIN.

Hopefully in the future I will not have to deal with unauthorized SMS purchases again, but it really bothers me that the phone company knows that this is going on, yet still allows the offending companies to be operating on their network.

What do you think? Have you experienced a premium SMS scam?

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This article is from Xin Lu of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

The Process for Purchasing a House With Cash

Xin Lu — Mon, 30 Jan 2012 10:48:22 +0000

Several years ago I wrote an article about the pros and cons of paying cash for a house. Some readers asked me how this can be done and what the procedures are. Last year my husband and I actually did purchase a property with cash, and here is our experience. (See also: How to Live a (Nearly) Cash-Only Life)

The property we bought was listed on the public multiple listing service. It was bank owned, so I called the listing agent and asked for an appointment. The listing agent immediately told us that the bank could only accept cash offers at this point because the property already has another cash offer on it. After seeing it and finding that it was in great condition, I made a pretty fair offer that was about 95% of the listing price. I also had to submit evidence of my funds along with my offer. The bank gladly accepted, and I sent in an earnest deposit check for $5,000. This check was then put into escrow towards the purchase of the house.

Next, we hired an inspector to look at the property to see if there are any defects. Unfortunately, the air conditioning system was broken, but the bank refused to pay for it, and we agreed to fix it out of pocket. The bank did agree to pay for title insurance, half of the escrow fee, and clear all liens from the property. So I made sure that all the unpaid bills and taxes on the property were paid before closing.

Meanwhile, I was gathering my funds all into one account so that I could send it into escrow before closing. We were able to choose our closing date to be the end of June, since we didn't have to deal with a loan. This was advantageous to us, since the bank had to pay all the property taxes for the first half year. I asked for the HUD closing statement about three days before closing and made sure that everything looked correct.

On the day before closing, I made sure all the funds were in my account and then sent the money to escrow. Everything went fairly smoothly, and the whole process took about three weeks from looking at the property to getting the keys. The closing costs were less than 1% of the price of the property because we didn't have to deal with a loan.

We were able to fix the air conditioner for a very fair price, and we rented the property out after several weeks of open houses. Now that we've owned the property for more than six months, we are actually eligible to take money out via a cash out refinance, but we don't need the money right now. The point is that if we didn't make a cash offer, then we would not have been able to procure this property at all. Basically, the process to buying a house with a cash on the open market is pretty much the same as buying a house with a loan, but you have more flexibility on the closing date, and that is a competitive advantage over offers with a loan contingency. You don't have to sign as many papers, but you still have to do your due diligence and make sure that you have a bit of cash buffer left over after the purchase for possible repairs and improvements.

What do you think? Are you thinking of buying a house with cash?

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This article is from Xin Lu of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

Tips for Thriving in Long-Term Unemployment

Xin Lu — Mon, 02 Jan 2012 10:48:08 +0000

The sagging economy forced many people from their jobs and left the young and old alike searching for income. According to the U.S. Bureau of Labor Statistics, 8.6% of the U.S. labor force is unemployed, as of November 2011, and the unemployment rate in the U.S. has remained in the 8-10% range since February 2009. Additionally, millions of the long-term unemployed have fallen off the official unemployment rolls, and these folks are labeled as "discouraged workers." Here are some tips to making your long-term unemployment an opportunity for advancement. (See also: Help! I Lost My Job!)

Use All of Your Resources

There are many new and innovative job resources available to help you find a job and put some food on your table. Many community colleges and community centers host career fairs to allow members of the community to meet prospective employers, so be sure to check your local listings for career fairs in your area. If you went to college, you still may be eligible for career guidance from your school. Consider contacting a career counselor at your alma mater or checking your school’s career advising websites for job postings in your field. Otherwise, social media has turned many websites into personal job boards. Check for job postings on sites like Mashable, LinkedIn, Twitter, and Facebook. Some of these sites have separate areas for job postings, but your friends may also post an opportunity in your newsfeed.

Build Your Resume While Unemployed

It sounds horrible if you tell a prospective employer that you’ve been doing nothing but searching for a job for the past three years because you were unemployed. Instead, find something to productively occupy your time. Volunteering is a great way to gain job experience to put on your resume and show potential employers that you’re a productive go-getter. Most businesses, political campaigns, organizations, hospitals, and religious groups love having extra hands to assist with free labor. Look for opportunities in your field or in a field you’re passionate about, and see if a business or organization in that field will let you help out for a few hours a week. You’ll pick up some job skills and experience, and you can add the extra line to your resume to show that you were not sitting on your butt while the unemployment rate was high. With the 2012 elections coming up, there are many opportunities to volunteer for your favorite candidates.

Learn New Things

Look for training classes in your area that you are interested in. It is possible to start a completely different career than what you had before. I have heard of laid off police officers who became barbers and laid off engineers who went back to school and became dentists. It really depends on your interests and motivations. You could also just go to the library, borrow books, and learn skills. You could even read about how to improve your interview skills.

Supplement Your Income With Odd Jobs

Babysitting and mowing lawns may sound like jobs for teenagers, but young people do them because they provide quick, easy, and tax-free money. Do your kids’ friends always need rides to school or after-school activities? Consider forming a chauffeur service for kids in your neighborhood. Also, there are multiple, legitimate opportunities to make money online. From taking surveys to writing blog posts, there are virtual odd jobs that can fit anyone’s interest and skill level.

Work on Your Own Business

I have talked about having your own side income before, and if you are unemployed it is actually a great time to work on a side business. You have more time to try out different ideas that you had and perhaps bring your business to the next level. Sometimes being unemployed lights a fire under people's butts and successful businesses are born. The key is to use your energy and time in a productive manner.

The job market may be dismal, but there are still so many opportunities for financial gain, no matter how big or small. Be creative, be enterprising, and find your opportunities. Remember that every dollar helps, and every work opportunity may open a new door for you. Use your unemployment as an opportunity for advancement and don't be a "discouraged worker."

What are your experiences? Have you been unemployed for more than a year?

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This article is from Xin Lu of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

When Being Frugal Isn't the Solution

Xin Lu — Tue, 29 Nov 2011 11:24:30 +0000

Here at Wise Bread, we have a lot of articles on how you can become more frugal and still enjoy a great lifestyle. All of these articles are very useful, but sometimes being frugal isn't the solution to improving your life. Here are some instances when frugality isn't the whole answer, and some additional solutions for achieving a happy balance. (See also: 12 Frugal Compromises)

When Your Savings Are Limited by Your Income

If you are trying to achieve financial goals simply by spending as little as possible, then you are ultimately limited by how much income you have. Some readers have written to me and said that it is impossible for them to save just because their fixed expenses eat up most, if not all, of their income. Most of them are not lavish spenders, but are just making so little that they're surviving paycheck to paycheck. In that situation, it's better to focus more on increasing income than saving nickels and dimes. If you think about it, an extra $25 earned a day equates to $500 a month, and that side income will definitely help pay down debts faster.

When Being Frugal Is Wasteful

I have seen those extreme couponing shows, and it actually scares me that some people buy so many boxes of processed foods. I'm not sure if all that stuff actually gets consumed, but I have seen many instances where people bought so many of something just because they got a good deal, and then a lot of it went to the trash. With the rise of deal sites like Groupon, I've also heard of stories of many paid coupons that aren't redeemed. I am a fan of looking for coupons for the things I need immediately and buying just enough, and I really like Phillip Brewer's article on shopping European style. I think more people can actually save money by buying what they need on demand instead of buying too much of something on sale.

When Frugality Makes You Unhappy

A phrase that has been popping up lately is "frugal fatigue." Basically, it means many people became frugal due to the recession, but now they are sick of pinching pennies and out to spend again. I've heard stories of people giving up their coffee or changing the grocery store where they shop, and it's the mentality of sacrifice that makes people unhappy. I think as long as you can comfortably afford something, then there is nothing wrong with treating yourself once in a while. Sometimes happiness costs very little, and you don't have to feel guilty about spending.

Ultimately, I think that a combination of living below your means and generating extra income will help you reach your financial goals faster. You can't just concentrate on looking for deals and clipping coupons to improve your financial situation. Just like a well-balanced diet is good for your physical health, a well balanced set of financial actions will improve your financial health.

What do you think? Are you too fixated on saving money and not on earning money?

This article is from Xin Lu of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

Should Conforming Loan Limits Be Increased?

Xin Lu — Tue, 25 Oct 2011 09:36:14 +0000

On October 1st, 2011, the conforming loan limit for loans backed by the FHA, Fannie Mae, and Freddie Mac fell back down to the levels they were at before 2008. Less than a month later, the Senate has passed an extension of the law that raised those limits. Now the bill is going to the House for approval. Here is how it may affect you. (See also: Guide to Home Loans)

First of all, let me explain what a conforming loan is. Basically, a loan is "conforming" if it is smaller than the limit that the FHA, Fannie Mae, or Freddie Mac set. Conforming loans can be purchased by these agencies, so these loans are more liquid, and borrowers with conforming loans qualify for the best mortgage rates. If a loan is larger than that limit, then it would be a "jumbo loan," and the interest rate is generally a percent or more higher than a conforming loan. Right now over 90% of new home loans are backed by FHA, Fannie Mae, or Freddie Mac, so new house purchasers should know that if their loans are larger than the conforming loan amount, they would be more expensive and less likely to be funded.

Fannie Mae and Freddie Mac currently have a conforming loan limit of $417,000 in most areas, and a maximum of $625,500 in high-cost areas for a single-unit residence. FHA loans currently have a conforming loan limit of 95% of the median home price in an area or $625,500, whichever is less. In 2008, the Housing and Economic Recovery Act raised these limits significantly. The maximum loan amount for all the agencies was as high as $729,000, and the FHA loan limit was raised from 95% of the median home price to 125% of the median home price. Basically, now the lawmakers want the loan limits to be back to the limits under the 2008 law.

This loan limit issue affects FHA borrowers the most, since the difference in the loan limit in many areas changed more than 30%. FHA buyers typically only bring 3.5% of the home cost to their down payment, so basically the loan limit is the maximum price of the house they are purchasing. The good news for today's buyers is that housing prices have already come down more than 30% since 2008 in many areas, so the change in limit might not be a big deal because many houses are just plain more affordable.

The loan limit issue also affects upper-middle-class buyers in high-cost areas. Here in the San Francisco Bay area, there are many upper-middle-class families who look for very basic two-to-three bedroom houses that cost more than $800,000. For these families, they may have to lower their price points by $100,000 or pay thousands of dollars more every year.

Personally, I believe that the government should not encourage more debt by raising the limit. If you look at a history of the conforming loan limit, then you will see that it was raised drastically during the housing bubble. If large government-backed mortgages were not so easy to come by, then people might have bought cheaper homes, and perhaps we would not be in the situation we are in right now. I actually think that these loan limits should be decreased so that the private markets will have to shoulder more loans and more than 90% of the mortgage market is not backed by American taxpayers.

What do you think? Do you want the loan limits to go back to the 2008 limits?

This article is from Xin Lu of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

The Worst Investments You Can Make

Xin Lu — Thu, 01 Sep 2011 10:24:11 +0000

Generally, people love to talk about the best investments they have ever made, but we rarely hear about others talk about the worst investments they made. Good investments are those that maintain your principal and give you a positive return with time. The worst investments are those that burn through your principal and then continually pull money out of you without giving any return. The following are some of what I consider to be the worst investments. (See also: 7 Common Investing Mistakes)

Timeshares

Timeshares are set up by developers and hotel conglomerates to sell shared interest in their properties. They usually give great presentations where you can get a free stay at the property, and then they will try to sell you the right to use the property for a portion of the year. There is nothing wrong with this business model, but those who buy a timeshare directly from a developer should know that it is a terrible investment. First of all, the resale value of a timeshare is almost always lower than its original price. It's possible to find secondhand timeshares for 50% of the developer's price or even less on the resale market. Next, timeshares have maintenance fees that could be thousands of dollars every year. So if your intention for buying a timeshare is vacationing, it might be cheaper to just pay for the vacation yourself. If you don't use your timeshare for vacationing every year, then the money will be wasted. It is possible to rent out your deeded timeshares, but usually it is difficult to find a renter just for your time slot, and it's tough to recover all the fees you have to pay.

Penny Stocks

Penny stocks are stocks that are priced under $1 per share. They are usually at that price for a reason. The prices of these stocks are generally easier to manipulate because trade volumes are low. This is why there are many sites and marketers that promote penny stocks. If they get enough of a following, they can change the price of a stock on the open market and make it seem like it is easy money. The truth is that the promoters of the penny stock websites and mailing lists are the ones making the real money. There are legitimate penny stocks out there that appreciate suddenly, but to actually find them consistently can be difficult.

Badly Chosen Higher "Education"

It is often said that higher education is an investment in your future. However, there are many institutions of "education" out there that are nothing more than degree mills. Many of these schools accept nearly everyone who applies and leave the students with a pile of debt and low chances of employment in this competitive world. Recently there were several cases of students suing their alma maters after they graduated and were unable to find employment. I think more people should treat higher education as a financial decision and calculate the potential return before financing it with a huge student loan. It is fairly easy to look up the reputation of a school and the expected pay for your intended profession. If you do not choose carefully, then education funded by student loans might be the worst investment you could make, because student loans are not dischargeable.

Investments You Don't Understand

Many investments can be the worst investment you ever make if you don't do your research. For example, some investment products have fees and surrender charges that you need to clarify before you buy in. There are also investments such as rental properties or a small businesses that require you to put work into them to keep their existing yields. The bottom line is that you should get as much information as possible before putting any money down.

What are the worst investments you have ever made? Have you put money into any of the above and regretted it?

This article is from Xin Lu of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

What if the Mortgage Interest Deduction Went Away?

Xin Lu — Tue, 16 Aug 2011 10:24:17 +0000

Recently, the United States Congress raised the debt ceiling after a lengthy and ugly debate about spending cuts and tax increases. One of the issues discussed is eliminating or capping the mortgage interest deduction. This deduction is quite popular amongst the American people and is often heralded as the best tax deduction for the middle class. What would happen if it no longer existed?

In the United States, the mortgage interest deduction allows taxpayers who itemize their deduction to deduct the interest of up to $1 million of debt used for buying, constructing, or improving a residence or a vacation home. The deduction also applies to the interest on up to $100,000 of home equity debt. This means that those with large mortgages and high tax rates benefit the most. (See also: The 7-Year Mortgage: Take It or Leave It?)

It is no surprise that a recent report by the Tax Policy Center shows that most of the tax benefits went to wealthy households. For many middle class families that buy an affordable home around the national median price of $184,000, the mortgage interest deduction may be moot because the standard deduction for a couple would be more than the mortgage interest. For these households, the elimination of the deduction would not change their tax liability. Those households that have large mortgages and already itemize will see their taxes go up without the deduction, but these households may just sell taxable investments to pay down the mortgage and break even on their total taxes.

The real estate industry is staunchly against eliminating the mortgage interest deduction because they argue that such a move will drag down home prices when the market is already weak. The deduction is also a great marketing tool for realtors. Practically every realtor I met has touted the deduction as a great reason for buying a home. I think prices may come down a little bit without the deduction in expensive markets where every mortgage holder takes the deduction, but in parts of the country where mortgage interest is smaller than the standard deduction it may not matter that much.

Even if prices drop, I don't think it will be catastrophic since housing prices are already severely depressed and many foreclosures are selling at or below replacement cost. According to the Tax Policy Center report, a little reduction in home prices may even raise homeownership rates because houses will just be plain more affordable, and that is not a bad thing.

If the deduction were eliminated, the Treasury would collect an additional $108 billion in tax year 2012. That is a decent chunk of change that could be used to chip away at the trillions of debt the country has. Although I do take advantage of the mortgage interest deduction right now, I would be happy if it went away because I don't think those who have small or no mortgage should subsidize other people's debt via the tax code. Ultimately, all mortgage interest goes to the banks, and I don't think it is good policy to encourage more debt and inflate housing prices for the benefit of large financial corporations.

What do you think? Do you love your mortgage interest deduction? Do you want it to be eliminated or reformed?

This article is from Xin Lu of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

U.S. Government Offers "Free" $50,000 to Troubled Homeowners

Xin Lu — Fri, 01 Jul 2011 10:36:16 +0000

A new program called the Emergency Homeowner Loan Program is offering a small group of struggling homeowners up to $50,000, and the money does not have to be repaid if the homeowners meet certain requirements.

This program has a funding of $1 billion and is being offered by the Department of Housing and Urban Development and the nonprofit housing advocacy group NeighborWorks America. Applicants apply for an interest-free loan from these groups, and the money goes directly to the lenders for a part of the borrower's mortgage and fees. This assistance runs up to two years or $50,000, whichever occurs first. After the two year period, 20% of the loan will be forgiven for each year that the borrower is current on his or her mortgage. Basically, the loan would be completely forgiven after five years.

The U.S. government is doing this because the Home Affordable Modification Program is winding down and that program has not helped as many people as it hoped to. The purpose is to keep people who have temporarily lost their jobs from losing their homes, and then hopefully these folks can find another job and start paying their mortgages again. However, this program isn't expected to make any significant impact on home prices since it will only help a small group of homeowners.

This is an amazing deal for those who qualify for the program since it is essentially "free" money if you comply with the terms of the program. To qualify, applicants must have lost income due to involuntary hardship and at risk of foreclosure. There is also an income limit to receiving this assistance and you can find the income limits of your county here at the EHLP Area Median Income Limits site. You also have to use the home in danger of foreclosure as a primary residence. This program is currently available in the following states and territories:

Alaska, Arkansas, Colorado, Hawaii, Iowa, Kansas, Louisiana, Maine, Massachusetts, Minnesota, Missouri, Montana, Nebraska, New Hampshire, New Mexico, New York, North Dakota, Oklahoma, South Dakota, Texas, Utah, Vermont, Virginia, Washington, West Virginia, Wisconsin, Wyoming, and Puerto Rico.

To apply, you need to go to the NeighborWorks website and fill out a Pre-Applicant Screening Document. They are accepting pre-applications until July 22, 2011, and the final applicants will actually be selected by lottery since there are only about 30,000 applicants that will receive the assistance.

If you don't live in one of the states or territories participating in this program, then there are actually similar programs in all the other states. Connecticut, Delaware, Idaho, Maryland, and Pennsylvania have their own EHLP equivalent programs and you can apply for them in the links below:

Connecticut, Delaware, Idaho, Maryland, Pennsylvania

Here in California there is a program that gives struggling homeowners up to $3,000 a month in mortgage payments under the Hardest Hit Housing Market Program. You can find the program links for states in the Hardest Hit Housing Market Program below:

Alabama, Arizona, California, Florida, Georgia, Illinois, Indiana, Kentucky, Michigan, Mississippi, Nevada, New Jersey, North Carolina, Ohio, Oregon, Rhode Island, South Carolina, Tennessee, Washington DC

Essentially the government is handing out free money, but you have to apply quickly and hope you get lucky. Personally I think that this will help people who have a home they can afford and just need a little time to get their income back up again, but for those who have a mortgage that they could not afford in any circumstance then this assistance is just kicking the can down the road.

What do you think? Would this program help you out?

This article is from Xin Lu of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

How to Get Into a Good School District for Less

Xin Lu — Fri, 24 Jun 2011 10:24:19 +0000

If you have children in public school, then you probably chose where you live based on the quality of the school district. Often the areas with the best school districts have the most expensive real estate prices. Here are some ways to get into the good school district without buying an extremely expensive house. (See also: Live Where It's Cheap)

Rent

Generally schools do not care if you are a renter or an owner. As long as you live in a school district, your children are eligible to attend. In many of the best school districts in the San Francisco Bay area, it is much cheaper to rent than own a house. It is possible to rent in a good school district for a while and then buy a house in a cheaper neighboring town. This is what my parents did, and the school district I was in allowed me to continue in the same school after we moved. My parents bought a house right on the boundary of the school district, so I was able to walk to school. Since the house wasn't located in the good school district, it was about $100,000 cheaper than the houses on the other side of the line.

Apply for an Out-of-District Permit

Most school districts in America have some slots for out-of-district students who want to enroll. However, these permits are often issued on a lottery system and enrollment in the school you desire isn't guaranteed. Usually the out-of-district students have to maintain a certain grade point average at the school accepting them. The requirements vary from district to district, so you should look up the rules in your area.

Pay Tuition

Some coveted public school districts actually allow out-of-district students to attend if they pay tuition. In most cases the tuition is less than what private schools charge and also less than what a family would pay if they had to pay for property tax on an average-priced house in the district. If this is an option near you, then you could consider living in a less expensive town and paying for the good public school out of pocket.

I'm not familiar with how public schools work in other countries, but here in America living in a good school district can really cost an arm and a leg. I completely understand why parents want to purchase a home in a good school district, but it is entirely possible to send your child to excellent schools while living in a cheaper town and saving hundreds of thousands in the process.

What do you think? Did you purchase your home based on the school district?

[Correction: Post was updated by Editor and some parts were removed.]

This article is from Xin Lu of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread: