Thursday, June 14, 2018

Countdown to Financial Fitness: Should You Pay Off Your Mortgage?

Countdown to Financial Fitness: Should You Pay Off Your Mortgage?: Paying off my mortgage was one of the most freeing financial moves I ever made. But plenty of naysayers told me it was stupid. Should y...

Should You Pay Off Your Mortgage?

Paying off my mortgage was one of the most freeing financial moves I ever made. But plenty of naysayers told me it was stupid.

Should you pay off your mortgage? That depends.

Financial experts talk about "good debt" vs. "bad debt." Credit card bills, department store accounts, and car notes could be classified as "bad debt," i.e., financing a depreciating asset or continuing to pay for an experience or product that has already been consumed. "Good debt" normally produces a return on investment. For example, a mortgage on a home that not only provides you with a place to live but also is likely to appreciate in value. Some people consider a student loan "good debt" because you're financing an education that may enable you to land a higher-paying job.

By all means, don't pay off your "good debt" until you've paid off all your "bad debt."

Another reason to classify an obligation as "good debt" might be that the interest is tax deductible. Especially in the early years of a mortgage, homeowners can enjoy a healthy reduction in taxable income. Under the new tax law, with the standard deduction increasing so much that fewer taxpayers will benefit from itemizing, carrying a home mortgage might not be as attractive.

Mortgage interest rates tend to be lower than personal interest because the loan is secured by an asset. Credit card interest rates are high because there's very little the company can repossess if you default. (Another reason to get rid of that "bad debt" first.)

Interest rates have been low for many years, which reduces the incentive to pay off a home loan. Common advice is to buy as much house as you can afford, taking on the biggest mortgage you can qualify for. With borrowing so cheap, why not add a home equity loan to make all those needed improvements and further increase the value of your asset? Our federal government seems to subscribe to that philosophy, as the national debt continues to soar while the interest paid on Treasury bills is almost negligible.

If you have disposable income to put toward retiring your mortgage and you're otherwise debt-free, first look at other uses for that cash. For example, have you built an emergency fund with at least three to six months' living expenses? Are you contributing as much as you can to a retirement account? If not, fortify those areas first.

Assuming you have a healthy emergency fund and are already maxing out your retirement savings, should you then start paying off your mortgage? Or look for after-tax investments? That depends.

What is your tolerance for risk? What rate of return do you expect to get from your investment? When my husband and I paid off our mortgage, our interest rate was almost seven percent. We would have had to take a lot of risk to find an investment returning seven percent at that time. Paying off our own mortgage was a safe, guaranteed investment, and it took a huge chunk out of our monthly living expenses.

Lowering your monthly living expenses by getting rid of the mortgage payment might be especially important if you're planning to retire soon, or if you anticipate lower income in the near future. In our case, we both worked for the same company, which was teetering on the edge of bankruptcy, and we were concerned that one or both of us could lose our jobs.

If you have a very low interest rate on your home loan and your income status is secure, you might be able to find an investment that produces higher returns. But as mortgage interest rates climb, prepaying the loan might come back in vogue. In a future post, I'll discuss how to do it.

Have you ever considered paying off your mortgage? I'd love to hear your comments.

Thursday, May 31, 2018

Countdown to Financial Fitness: Making the Most of Leftovers

Countdown to Financial Fitness: Making the Most of Leftovers: On this blog, I've harped about the value of incorporating leftovers into future meals and saving money by avoiding food waste. But the...

Making the Most of Leftovers

On this blog, I've harped about the value of incorporating leftovers into future meals and saving money by avoiding food waste. But there's an art to making it worthwhile.

Restaurants usually serve more than enough food, more than enough calories for the average diner to consume. Even if the portions aren't too large, it's easy to fill up on bread or chips before the meal arrives. And if you order an appetizer, it might be hard to finish the main course without stuffing yourself. Rather than be uncomfortable, why not parlay the rest into another meal?

As a long-time Weight Watchers member, I've trained myself to plan on packing up half my meal in most cases. It takes about 20 minutes after the first bite for your stomach to get the message that it's full, so to be successful at this technique, chew slowly and stop eating before you feel your waistband tightening. Sometimes I even ask for a to-go box when the server brings my food, and I set aside the parts I'll take home. If I keep eating too long, I'll reach the "point of no return" where there's not enough left on the plate to trouble with a doggy bag.

Recently, I dined out with friends, and I was one of the only people at the table to ask for a box, even though some of my companions left more food on their plates than I took home. It was painful to watch all that nourishment being thrown away.

But know yourself. If you're just going to shove the to-go box in the back of the refrigerator and then toss it out when it starts reeking and you can no longer identify its contents, why bother?

When you're on the road, taking leftovers can be challenging. It helps if you have a refrigerator in your hotel room. If you don't see one, check with the front desk. Some hotels will provide one at no charge on demand.

Even if you have a refrigerator, reheating your food can be a problem when you're away from home. But maybe you're at a hotel that provides a self-service breakfast, and there's a microwave in the dining area. Or maybe you're working at an office with access to an employee break room equipped with kitchen facilities.

When my meal arrives and I'm deciding what to consume on site and what to take away, I consider how well each item will survive recycling. Hot soup spills and leaks through the doggy bag. Salad wilts fairly quickly, although some of its ingredients can be repurposed into other dishes. (For example, one restaurant I frequent puts black olives on their salads. I don't care for black olives on my salad, but I ask for them on the side and take them home. They're great for doctoring up frozen pizzas.)

Most sandwiches have a longer lifespan, and some don't have to be heated. Get it cut in half; eat one half and the side course, take the other half to go.

Pieces of meat like steak, fish, or chicken transport well. Mine often see a new life as part of a casserole, pasta dish, or as topping for a big salad.

And of course, pizza, Chinese food, and certain Mexican foods taste fine reheated the next day. At a Mexican restaurant, I'll eat the crispy items, like tacos, on the premises and save foods like enchiladas, burritos, beans and rice for a future meal.

Fried foods don't taste as good the next day as their counterparts that are baked or broiled. But if you have access to a conventional oven, you'll be surprised how well they can come back to life. Reheating for a couple minutes in the oven can revive French fries, bread, pizza, and tortilla chips as well. (Stuff that most customers leave on the table, to be thrown away.) Just watch the time carefully so you don't burn them to a crisp.

With all the food waste in the world, why not do your part to reduce it? And at the same time, help your budget by stretching your restaurant leftovers into additional meals.

What tips do you have for repurposing leftovers? I'd love to hear your comments.

Monday, April 30, 2018

Countdown to Financial Fitness: Buy What You Love

Countdown to Financial Fitness: Buy What You Love: Last week's Weight Watchers theme was "eat what you love." The theory is that no weight-loss plan can be successful long-term...

Buy What You Love

Last week's Weight Watchers theme was "eat what you love." The theory is that no weight-loss plan can be successful long-term if you permanently deprive yourself of the foods you love.

Sooner or later, most dieters will cave in and end up chucking the whole regime. Or else they'll reach their goal and then go back to the eating habits that made them overweight in the first place.

Weight Watchers teaches you to make permanent, healthy changes to your lifestyle that will allow you to lose weight gradually and keep it off. The plan involves compromise, moderation, accountability, and being kind to yourself. It may not work for everyone, but it works for me; I've been "free lifetime" since 2005.

The same principles apply to achieving financial fitness. Most of us can't buy whatever we want, whenever we want. But with a few trade-offs, some delayed gratification, we can buy what we love… and savor it.

If your expenses consistently exceed your income, you'll have to make sacrifices to turn the train around and get back on track. But once you're living on less than you earn, reducing or eliminating debt, contributing religiously to a retirement account, and building an adequate emergency fund, take a breather. Spend a little on something you love.

Think about why you're saving. Most people don't strive to accumulate money for money's sake; they want the purchasing power and freedom that money represents.

You can't take it with you when you die. And you never know how much time you, or your loved ones, have left on this earth. Start tackling that bucket list while you still have your health and energy.

One of our neighbors, athletic and vital in his early sixties, was riding his bicycle one day on the cart path. As he sped down a hill, a golf cart cut in front of him. Our friend tumbled over the handlebars and into a ravine, breaking his neck. In one chilling moment, his life changed irreversibly. Fortunately, he had already traveled the world, raised a family, and lived life to its fullest. But he'd had every reason to believe it would continue that way for many more years. Now, as a quadriplegic, he's still able to enjoy life to some extent, but it's much more difficult, if not impossible, to do many of the things he loved.

Perhaps you're socking away every penny so you can leave a good inheritance for your children. It's certainly noble to want to help them out, make life easier for them than it was for you. But an even better legacy would be to instill in them a healthy attitude toward money and the skills necessary to build their own wealth.

Did you get a big tax refund or bonus check? While it's not wise to squander the whole amount, set aside a portion for your own pleasure. Try that new restaurant. Buy that toy you've been dreaming about.

Do you have a travel fund for a dream vacation? Set a goal of how much you'll need, and then once you reach the goal, go! Take that trip, make the memories, and when you get back, rebuild your savings for your next adventure.

Planning for tomorrow is important. But don't forget to live today.

What are your reasons for saving money and building wealth? I'd love to hear your comments.

Wednesday, April 18, 2018

Countdown to Financial Fitness: Saving Money Ashore

Countdown to Financial Fitness: Saving Money Ashore: Last post, I discussed saving money on a cruise, and all the shiny objects on board to raise the cost of your vacation. Another big exp...