Money Instructor Blog

Save Money Buying a Home: The Government’s Tax Credit

January 26th, 2010 by MoneyInstructor No comments »

It is the American dream to own your own home. Home-ownership helps to stabilize a person’s financial future, assuming he or she buys the right home. However, many people have been scared away from home ownership due to the rising number of foreclosures. Home values climbed so high over the last ten years and some people were simply locked out of the housing market.

Times have changed for a number of reasons:

Property values have fallen drastically, making it far more affordable to buy a home.
Mortgage interest rates are at very low levels. You can get into a mortgage with good credit for less than six, sometimes five percent.
Government programs such as FHA make it even easier to qualify and they help to reduce the cost of closing on that property.

However, one of the most lucrative tools for saving money is the current tax credit available to home buyers. The First Time Home Buyer Tax Credit equates to an $8000 reduction in your taxes. In addition, those who are current homeowners who plan to buy a home (either new or existing) in the approved time period will earn a $6500 tax credit for doing so. Take a look at some of the details of this opportunity.

Qualifications

Those who are first time home buyers, or current homeowners who buy a new or existing home, will qualify for their deduction as long as they buy the home between now and April 30^th, 2010. This can be any type of home, including a single family home, co ops, condos and townhomes, though it does have to be your principal residence to qualify.

The amount you earn through this program is based on the price of the home and your income. Those homes valued at over $800,000 do not qualify for this particular type of tax credit. Single buyers with incomes up to $125,000 and married couples with incomes up to $225,000 will qualify for the maximum credit towards the purchase of their home.

Why Should You Invest?

Now is an excellent time for individuals to buy the property that they need and want to own. Do plan to stay in your home for some time so that the value can grow over time. Also, you do want to look for the right home loan for your investment. A low interest rate is critical to being able to afford a home. You do not want to put yourself in a position of foreclosure.

To make it even more affordable, follow these tips:

Have as much of a down payment as possible before you buy. Some lenders are now requiring 20 percent, though FHA requirements are less.
Do negotiate with lenders to get the lowest interest rate possible for a fixed rate mortgage loan. This provides affordability and stability to you both now and in the long term.
Do try to pay more than the minimum payment each month. This allows you to pay off your loan faster and saves you thousands of dollars per month.

Do take the time to consider how this tax credit can work to your advantage. For many people, it is an ideal reason to start investing in real estate. Keep in mind that you do have to close on or before April 30^th to qualify for this tax credit and there is no information available to determine if that date will be extended.

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Posted in Real Estate

Personal Finance and Your Future: Your Retirement Account

January 21st, 2010 by MoneyInstructor No comments »

Some people do not feel they have the money needed right now to live on. If you are employed, you should be thinking about your retirement. Social Security will not be enough. Your employer may not be offering you a pension. It is up to you to start looking at retirement right here and now, even if it means just a few dollars per paycheck.

Compound Interest

The sooner you start to invest in your retirement, the less difficult it is to accumulate the amount of retirement investment you need and want to have to pay for your expenses. The reason behind this is compound interest. When you put money into an account earning 2 percent interest, that 2 percent not only applies to the initial investment, but also to any interest earings you have in the previous period. For simplicity sake, if you have $1000 in a retirement account at just 2 percent interest, you would have $1020 after the first cycle. This time around, that 2 percent is applied to the $1020 and after the cycle ends, $1040.40. On a larger scale and with better investments, this build up in value over time is substantial. The sooner you start saving, the more time there is for compound interest to work on your behalf.

Types of Retirement Accounts

There are a number of retirement accounts available to you. Each one offers something different and is for a specific person. Take a look at a few of the options you have and their advantages.

401K: This common employer based account makes retirement savings easy. You choose the amount you deduct pretax from your paycheck and deposit into your retirement account. Like other employer based accounts, your employer may match any amount of that investment. Your money grows tax free throughout its lifetime until you start to withdraw it.

Traditional IRA:Perhaps your employer does not offer this type of benefit to you. That is no problem. You can set up your own IRA in a local credit union, bank or investment firm. You are able to deposit up to your limit (based on your age and the tax year) each year. The funds go itno your traditional IRA before taxation and you are taxed only when you begin to withdraw from your accounts during retirement.

Roth IRA: With a Roth IRA, the funds you put into your account are taxed prior to being placed into the account. Then, the funds grow tax free throughout your lifetime. You do not have to pay taxes later when you withdraw these funds. All of the funds within your account are in fact your own for retirement.

You Don’t Have Enough

Many people believe they just do not have enough money to start an IRA or a 401k and therefore they just do not believe they can put money away for retirement. Even a small amount per paycheck will make a difference in your future. Try for $20 out of your paycheck. Increase this as you get more comfortable with having less in your paycheck. Chances are good you will not notice it and it will provide you with an outstanding way to pay for your retirement expenses long term.

Going without a retirement account is not a good idea. It puts you in a position of having to worry about how you will pay your bills. Or, you could become one of the ever growing statistics in which elderly parents are relying on their children to care for them in old age. Start today to plan for your retirement.

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Posted in Personal Finance

Save Money By Cutting Out The Extra

January 13th, 2010 by MoneyInstructor No comments »

More people than ever are trying to save money. According to a New York Times report, more Americans are saving money now than they have been since 1993. People are putting away, on average 6.9 percent of their income. That is a great place for many to start, especially after the financial difficulties of the last few years. But, saying that you will save and putting this act into practice are two very different things. And, they can be incredibly limiting to those who think they do not have any money to put away. You do.

Save Money By Cutting Costs

The best way to save money is to have more money to put away. You could get an extra job (and this is something you want to consider if you hope to build your savings faster.) However, consider the following ways you can reduce your costs significantly and put those funds back into your savings account.

Do you work in the same five-mile radius as you live? If so, jump on a bike to go to work and leave the extra car at home. In fact, moving from a two or three car household down to a one or two car household could save you hundreds of dollars in interest fees (if you still have a loan) and hundreds of dollars on insurance costs, not to mention the discounts in fuel.
Find your money waster. This is the item that you buy every day or every week that you just do not need to. It could be that $5 gourmet coffee in the morning or the $10 a week you spend on soda at work. Cut it out. Put that money towards your savings. $5 a day savings equates to $150 a month for savings, or $1825 a year.
Eat out less. Buy a $30 slow cooker, start your meals in the morning in it and then skip the take out. This in itself can save most families between $50 and $150 a week in eating out. That is money to put into your savings account so that you can take a trip or even just pay down debt.
Cut utility costs. When was the last time you called your cable provider to reduce your monthly costs? Have you taken the time to consider bundling your services (phone, Internet, cable) into one to reduce your costs? How about the water bill? you can save hundreds by repairing leaky faucets and reducing shower time. A programmable thermostat keeps the home warm when you are home, but decreases costs when you are not. Unplug those electronics.

One of the biggest money savers is to have a budget. Work out a budget that you can live with and then stick with it. Do not rely on credit cards at all for your monthly costs. Rather, focus instead on a cash only budget. Give yourself money to eat out or for entertainment, but limit these costs so that you can actually be putting money away.

You can save a great deal of money by simply learning how to cut out the extras in your budget. However, to know what those extras are, you need to keep a record going of what you are spending money on. Everything from parking meters to the kid’s school lunches should be part of it. This gives you a clear idea of where your money is going. Then, you can cut out the extra and start saving money.