Establishing Credit... the Right Way!

Do me a favor:  Head to Google.com and search for “build your credit”. Once you hit “search”, I bet it’s no surprise that in under 1 second, about 50,000,000 results can be found. And if you’ve never had a credit card or a loan, your credit history is most likely a blank slate, leaving at least half of your search results inapplicable. Your credit history, as documented on your credit report, is a record of how responsibly you’ve repaid the money you’ve borrowed… and creditors and lenders use your credit history to make decisions about whether or not to give you a credit card or extend a loan. If you have no credit history, however, there’s no record of how you might manage debt. And as a result, many creditors and lenders won’t lend you money. The quickest way to build good credit is by using a credit card, but you can’t get a credit card without good credit. So what can be done to establish credit? And how do we find out if it’s working?

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Become an Authorized User on Someone Else's account

To become an authorized user, a person (usually a family member or significant other) grants you permission to use his/her credit card account. Authorized users can be added to bank accounts and loans for withdrawing, depositing and transferring funds to and from their account… but unlike joint account holders, are not responsible for paying the bill on the credit card or loan account; the repayment responsibility remains with the primary account holder.  As an example, my daughter just graduated college with a great credit score because my wife opened a couple of credit cards, in her name with my daughter as the authorized user, when she started college.  So when she graduated, she had 4 years of excellent credit and now a great score.

Find a Secured Credit Card… and Apply for it!

A secured credit card is a great tool to use when attempting to establish credit. It functions just like any other credit card in the sense that when you use it to make a purchase, you’ll then make payments on that purchase on or before the due date, gathering interest if your balance is not paid in full. The most unique thing about them is the fact that you’re required to place a refundable security deposit when you apply. If approved, your credit limit will generally equal the amount of that deposit, which the issuer will hold as collateral until you close your account. If your application is rejected, you’ll get the money back right away.

All major secured credit cards report account information to at least one of the big three credit bureaus on a monthly basis, and that’s all the opportunity you need to improve your credit score. As long as you pay the bill on time every month, positive information will flow into your credit reports, building a track record of responsibility and covering up mistakes from the past, if applicable.

Get a Co-Signer

While a secured credit card is a great way to build or repair your credit on your own, you can also apply for an unsecured credit card using a co-signer. The co-signer agrees to pay back debt in the case that the borrower is unable. This may include any late fees and collection costs, on top of the full amount of debt. If you do plan on applying for an unsecured credit card by means of a co-signer, make sure you use it responsibly, paying your balance early or on time and never charging more than you can pay back.

Check your Progress by Checking your Credit Report and Score

After six months of timely credit card payments, check your status by viewing your credit report and score. Pay special attention to what is on your credit report and any positive or negative factors listed, so you have a better idea of what you need to work on next. Also make sure to take a look at your credit score – it will help you make sense of your credit report and give you an idea of how well you’re doing.

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There’s a lot to keep track of, but with some strong focus and planning, you can stay on top of your finances and greatly improve and establish credit. After a year of paying your bills on time, potentially adding a new form of credit and removing any errors from your credit report, your credit could look vastly different. If you or your client’s goal is preparing your credit to be a first time home-buyer, by following just a few simple steps, you’re that much closer in making that goal a reality.

Education vs. Asset: The Post-Grad Dilemma

It's almost graduation time and you know what that means! Final exams, graduation parties, moving back home, and finding a job within 6 months to begin paying down the average $45,000.00 price tag attached to your degree. While it sounds almost impossible, and quite frankly insane, for the 44 million college graduates now indebted to the federal government (and several private student loan lenders) it’s a stifling and dreadful reality.

If you’ve followed my blog over the past couple years, it shouldn’t come as any surprise that I am as passionate about the financial future of our students and graduates as I am of my own. And as a mortgage advisor, managing student loan debt for first time homebuyers is a routine part of my job. But what can we as real estate and mortgage professionals do to assure young graduates that by financing another huge purchase, they will be benefiting their bank account and not that of a landlord? After all, being a homeowner is a huge part of the American dream, so why shouldn’t our college graduates have a shot at finding theirs?

According to a study by American Student Assistance, 55% of student loan holders said their debt has caused them to put off home-ownership—and many would-be buyers aren't even TRYING to get pre-qualified out of fear of not staying afloat. It’s also important to understand that homeownership and student debt aren't mutually-exclusive. Meaning you can buy a home, get approved for a mortgage loan, and still make good on your student loans. And despite the justified conservativism used by Millennials in deciding where to spend (given the high levels of student debt currently stifling post-graduates), it’s important that they consider homeownership as a safe and financially savvy investment option. 

Still, many young Americans are unaware of the benefits cultivated from homeownership, such as the ability to turn housing costs into an investment, rather than an expense. And in more ways than one. Think about it:  If you manage to buy a home in an up-and-coming neighborhood for $300,000, and its value quickly climbs to $350,000, you'll have a nice little profit on your hands (which is not something that renters can claim). Owning a home can also provide an alternative source of income, for example, when rented out to peers. And a rent payment is essentially all that a mortgage payment is– a rent payment, but instead of heading straight into someone else’s pocket, it heads towards owning a larger share of your home. And when enough equity is built up, homeowners can take out home equity lines of credit to pay for expenses such as home renovations or education costs.

The next step is choosing the right mortgage professional to can help post-college home buyers understand what they can afford and how buying a home versus renting one may greatly improve their financial situation in the years to come. And as someone, like each of us, who benefits from the innovations, improvement, and success of the great, young minds of this country, I’m happy to help.

First Impressions Count: How Airport Growth Runs Parallel with Nashville Real Estate Development

Have you ever left an airport with the feeling of unexplained curiosity for the city in which it sits? What about confidence in your decision to know that you’ll never, ever want to return? Have you ever formed a similar opinion despite never having left the airport you’d arrived in? Sometimes long-lasting opinions are formed during our time spent in-between exiting an aircraft and speed-walking to baggage claim. But how could our minds jump to such conclusions about anything in such a short amount of time?

I like to think of every airport as each locality’s front door. Whenever a leisure or business traveler exits a plane, an impression is made… even if said traveler’s only concern is locating the nearest Cinnabon (or if you’re me – the nearest restroom). Sure, such impressions may be positive. Some, negative. But studies clearly tell us that time spent in an airport helps shape an individual’s overall perception of a destination.

Like many Americans, I travel to a handful of airports each year, and by that I mean I spend a lot of time in long check-in lines, browsing overpriced food stands with subpar offerings, and desperately searching for an electrical wall outlet. In my experience, the first impression is generally less than great.

In 2016, Nashville International Airport officials announced a design expansion to the tune of $1.2 billion dollars; one which includes fund allocations for retail, entertainment, and both residential and office space funding. And that’s just the beginning. So why would an airport, one which happened to be named one of seven most entertaining airports in the world by CNN, need a “design expansion”?

According to the New York Times, Nashville’s entire skyline has been and continues to be reshaped by a building boom, one which includes a burst of hotels, office buildings, and residential high-rises to meet the demands of the men and women who make their way through the city as either tourists or new residents every single day. And as a city named “top housing market for 2017” by real estate listing company Zillow, Nashville’s relatively affordable housing market and, interestingly enough, growing healthcare community are huge driving factors in the growth of Middle Tennessee’s ever-changing city.

Sometimes in business, it really is true that you never (or seldom) get a second chance to make a good impression. When travelers pass through our airport and see good, strong images of both the leisurely and business climates of Nashville, it’s a return of investment. And when such impressions lead to additional growth and expansion, the general value of property and space increases… and with such an increase, the environment for investing becomes both strong and manageable.

While I’m unsure of what such growth means for the future of Nashville’s infrastructure, I can be sure of one thing: first impressions do count. Why else would a community invest billions into expanding its immediate impressionability upon new visitors? And as either a homebuyer, real estate agent, or investor, why wouldn’t you follow the lead of the Nashville International Airport and invest in something that can only grow along with the continuing development of the city itself.

Not only do first impressions bring in new tourists and residents, they bring an increase in property value and growth probability.

10 Timeless Personal Finance Tips

In honor of its 70th anniversary, Kiplinger’s Personal Finance magazine this month released their top 70 ways to build wealth.  Knight Kiplinger, the editor in chief, listed his “10 Timeless Tips” as part of the list of 70.  They are awesome, and I wanted to share them with you here (worth passing along to any young person you know who is starting out).

1.       Wealth creation isn’t a matter of what you earn.  It’s how much of it you save.

2.       Your biggest barrier to becoming rich is living like you’re rich before you are.

3.       Pay yourself first.  Arrange to have your retirement and other savings deducted from your pay-check before the money hits your bank account.  If there isn’t enough left over for your bills, cut your spending.

4.       No one ever got into trouble by borrowing too little.

5.       Conspicuous consumption will make you inconspicuously poor.

6.       The key to stock market success isn’t your timing of the market.  It’s your time in the market – the longer, the better.

7.       Diversify, because every asset has its day in the sun – and its day in the doghouse.

8.       Keep a cool head when others are losing theirs.  When others are selling investments, it’s usually a good time to buy.  The foundations of great fortunes are laid in bear markets, not bull markets

9.       Money can’t buy happiness, but it can make unhappiness easier to bear.

10.   Sharing your wealth with others is more fun than spending it on yourself.

Be a Fountain, Not a Drain

What a long month this has been!  I think this election has weighed more heavily on most of us than any other I can ever remember.  All the buildup, and certainly the fall-out over the past weeks, has left us feeling somewhat divided as a nation.  Whether we like who won the election or not, I hope that we all agree that we each want to do our part to make our country better. 

A couple weeks ago I heard probably the most profound commentary that I think anyone could have stated, fromthe last place I was expecting it, my beloved late night NBA action.  TNT’s Ernie Johnson, who moderates the pre and post-game shows with his cast of Shaquille O Neal, Charles Barkley and Kenny Smith, opened the show with quite an elegant commentary. (I’ll stay up and watch sometimes just to hear the rhetoric between Chuck and Shaq)  I’ve included a link to the short video if you are interested in watching it yourself https://www.youtube.com/watch?v=ayU5kw7Kf5U&sns=em. I was very appreciative of what all three of the former players had to say, but I was enthralled by Ernie’s sincerity, candor and boldness.

While Ernie was talking about how best to respond to the recent election and that our responsibility is to be better individuals by loving others and being a “better neighbor, citizen and American”, he said something that resonated with me: Be a fountain, not a drain.  As I tend to do, I relate almost everything back to real estate and finance.  So while his comments were made as a suggestion on how best to deal with the current state of happenings in our country,  it made me take an introspective look, and ultimately make a decision to try to give my clients exponentially more than I receive.  I am paid well for what I do, so this is no small challenge.  My desire is to have every single one of my clients feel that they have received more from me (communication level, wise counsel, and personal availability) than they ever imagined. 

So regardless of where you stand politically, or what your thoughts are about our new president-elect, I hope you will join me in getting better at what we do. Let's make the dream of home ownership become a reality for as many who desire it, and serve those people well.  Let’s be fountains in their lives!

If you are interested in the full (~10 min version) check it out here: https://www.youtube.com/watch?v=l-8bqfD69SA&sns=em

Something to Be Thankful for

I can tell that it is that time of year.  No, I’m not talking about the holidays.  I’m talking about the slower time of year in real estate (funny how quickly we forget, but this happens every year about this time) where deals are fewer and farther between AND they all seem to be complicated.  I talked with 4 different potential buyers last week that are nowhere close to qualifying for a mortgage at this point and three more that could qualify but aren’t looking to do anything for 4-5 months.  I talked with several different Realtors who all were bemoaning the fact that every client/deal they are working on right now has some type of problem.  It’s just that time of year.

On the bright side, especially when we take more of a higher level review of where we are each at individually, we have a tremendous amount to be thankful for.  With that in mind, I wanted to share a quick blog that I wrote for our Homes for Homes website about a trip I recently got to take where we were able to build a home for an impoverished family.  If nothing else, it helps put a lot of our current complications into proper perspective.

http://www.homes-for-homes.org/news/2015/11/19/a-home-for-patricia

What Does it Mean to be Debt Free?

I had a great conversation last week with a client.  We’ll call her “Jill”.  Jill was in her early 50’s and had just gotten divorced from her husband of 20+ years.  She had gotten about $400,000 in the divorce and kept her retirement account (another ~$250,000).  I knew her financial counselor and he had already advised me that her return on the retirement account that he had managed for her over the past 20 years had been 7.2% during that time period.  She had a great job and shared with me that she intended to work for at least 10-15 more years.  She was buying a house for $400,000 and asked for my advice on what made the most sense from a financing perspective.  Her main goal was to be debt free, so she had planned on paying cash for the house.  I told her that I loved the idea of being debt free, so I asked her what that meant to her.  As expected, she told me that to be debt free, “I don’t owe anyone any money.”  While I didn’t disagree with her, I asked her another question.  I asked her “If you have the ability to pay off any debt you may have, but choose to have debt anyway, are you any less debt free?”

She was well versed financially and I could see the wheels spinning in her mind – I could tell that she had never really thought about it from that perspective.  I showed her that she could put $80,000 down on the house (20% to avoid MI) and get a 15 year loan at 3% with a $2,209 monthly payment.  Even though she didn’t really want a mortgage payment, this payment fit well within her budget.  If she paid the loan for the full 15 years, her total payments would be $398,000 (so she paid back the principal + $78,000 in interest).  I showed her that she could invest the other $320,000 at 3.5% (which was less than half of what her average return had been – I wanted to be ultra conservative), and that investment would grow to over $536,000 by the end of 15 years.  At 7%, it would be $883,000.  And even at 2%, it would be over $430,000 (so the additional $110,000 is still way more than the interest paid over that time).

I also showed her that it is more than just the return.  If she paid cash, she would have liquidated pretty much all of her liquid savings.  Sure, she would have no mortgage.  But she would still have taxes, insurance and all of her other bills as well – with no solid safety net.  What happens if she lost her job or had a medical set back – or really any emergency that required immediate cash?  I asked her “which is the better place to be in – no debt and no money, or debt but plenty of cash to live on if things go bad?”  She was already convinced, just from the investment opportunity, that getting a mortgage was the more financially astute thing to do.  But when I reminded her of the importance of being liquid, it was an easy decision.  And the reality is that she will still have the ability to pay the loan off any time she wants to if her monthly budget changes and she no longer wants to make a mortgage payment.

When I hear people talk about the great feeling they will have when they go to bed knowing their mortgage is paid off, I understand and empathize with that feeling.  But in my opinion, it is much better to go to sleep knowing that there is money invested safely, earning a return, and ready/able to pay the mortgage off whenever I choose.

RIch Habits

I recently heard an interview with Tom Corley, author of “Rich Habits – The Daily Success Habits of Wealthy Individuals”, that I thought was fascinating.  And while his focus is on the difference between the habits of the wealthy (people with annual gross income north of $160,000 and net liquid assets of $3.2 million or more) versus the poor (those with gross income of $35,000 or less and no more than $5,000 in liquid assets), I think we can apply what he calls “habits of the rich” in reality to what I’d suggest are simply “habits of the successful”.
He points out that the difference between the two lie in our daily habits. He implies that these subconscious, second-nature activities make up 40 percent of our waking hours. That means that two out of every five minutes, all day and every day, we operate on autopilot.  So to be successful, we need to train our subconscious to operate in a productive manner.  The way to do that is to develop the habits of these successful people that he studied.  I found an article (the link is at the bottom) that details the habits.  Listed below are his top 16.  But I promise you it is worth the five minutes to read the article and see the statistics represented in several of the habits.

1. Live within your means.
2. Don’t gamble.
3. Read every day.
4. Forget the boob tube and spend less time surfing the Internet.
5. Control your emotions.
6. Network and volunteer regularly.
7. Go above and beyond in work and business.
8. Set goals, not wishes.
9. Avoid procrastination.
10. Talk less and listen more.
11. Avoid toxic people.
12. Don’t give up.
13. Set aside the self-limiting beliefs holding you back.
14. Get a mentor.
15. Eliminate “bad luck” from your vocabulary.
16. Know your main purpose.

http://www.success.com/article/16-rich-habits

Brand U - Branding Yourself for Success

The theme from this past week's GNAR convention was on branding and how important it is to establish your own personal brand.  Ultimately our clients work with us not only because of what we do for them, but because of who we are as individuals.  We want our own personal brand to be recognized and to tell a simple story that describes who we are and the experience a client should expect when they use our services.  The key note speaker was Chris Hogan who works for Dave Ramsey.  I thought he made some great points in his address to the luncheon crowd related to building a brand and wanted to share those with you.

Branding You

• People trust you not your employer
• Keep your social media current
• Associate your brand with other well-known brands (it builds credibility)
• Leverage what makes you different from everyone else
• Keep it simple
• Share the good news
• Create a cultural connection through meeting an emotional need for your customers
• Cultivate trust
• Pull people in with the power of your story
• Know who your competition is and what makes you different
• Show your passion for what you do
• Don't be afraid to make a course correction if needed
• Intentionally network
• Don't be needy (serve don't sell)
• Become a trusted adviser in your area
• Be a giver
• Stay centered (not balanced, centered)
• Be effective (not popular)
• Your word is your character and your work is your reputation
• You are always getting better or getting worse - nothing ever stays the same

If you want more of Chris Hogan, check him out at http://www.Chrishogan360.com

From Africa to England, Home Ownership Matters

As is typical for me, upon my return from a significant trip, I like to take note of what I’ve learned and see what new perspective I might have as a result of my journey – and also typical for me, there is a tie to real estate. Here goes…

I’ve been helping start a new ministry (more on that later) and the first strategic step in organizing our efforts had me hiking through the village of Nasuuti (in central Uganda) looking for opportunities to provide housing to very deserving families who would never have the opportunity to own a home without our assistance. That’s not hard to find in Africa. The material poverty and desolation in most of Africa ceases to amaze me. But it’s more than just seeing 12 family members sleep on a dirt floor in a one room shack made of whatever rubble is available to scrap together, that fascinates me. It is the hope that I see come into their eyes when they realize that they will be the owners of a new home – one that has a concrete floor, with bricks and a metal roof. Owning a home like that is a game changer for them for the rest of their lives.

On the other end of the spectrum, I wrapped up my trip with a couple of days in London to celebrate my 25th wedding anniversary. Michelle and I stayed at the end of Oxmoor Road, not far from what is considered the “richest section of housing” in the world, boasting the largest number of billionaires on the planet (yeah, that’s billionaires with a “B”). Certainly the housing is different in every aspect that is imaginable for the folks that live there versus those that I encountered back in Nasuuti. In their scenario, it was more about how to one-up any and everyone else on the extravagancies their money afforded them. And not far from this area, new condos were going up on the Thames River. A 3 bedroom on the top floor would set you back about $24 million. That’s about $8,500 per square foot for those of you who like to compare that figure to determine your listing value.

It would have been easy for my observation to simply be on the vast difference between the “have’s” and the “have not’s”, or even look with disdain on the waste of the rich when the poor lack so much. Instead, what resonated with me is the importance of home ownership for anyone who is part of the human race. Like me, you fit somewhere in the middle of these two extremes. And no matter where we fit in the grand scheme of the hierarchy of net worth, owning a place of our own fulfils a God-given desire we all have in some form or fashion. The description of that “place” differs greatly for all of us. But the description does fit somewhere in the realm between safety and hope to fulfillment and accomplishment. It’s a great thing.

The Main Purpose of Living on 80%: to Give/Save the First 20%

If you remember a couple of weeks ago, the 6th lesson I learned from Stan was that to have a proper budget, I had to live on 80% of my net income.  While that serves as the function of the budgeting process, it is not the purpose.  The purpose comes in Lesson 7, which goes like this:  When I keep my expenses within 80% of my net income, there is 20% extra built in for giving and saving every month.  Notice that I said “extra”.  I did not say “left over”.  For us to be motivated to live within the 80%, there has to be a passion for what is being done with the 20%.  The 20% becomes the first line item of the budget every month.  I know before I spend the first penny that I’ve created an expense model that gives me the flexibility to prioritize what is most important.

When we realize that true meaning in life comes from what we give away, motivation will follow to execute a budget that allows this.  Who are you passionate about helping?  What do you want your legacy to be?  When those things start to become our driving force, executing a daily budget becomes easy.  Action will follow passion.  Think about any successful team you have been on.  The desire to experience victory is the driving force behind all the hours of practicing.  It’s no different with your money.  When you become passionate about making a difference with your resources, your daily actions and the decisions you make with your money will start to line up.

And while generosity is the overriding passion, savings is what will allow this lifestyle to be permanent.  Having adequate savings is what will allow someone to not only handle unexpected needs for immediate cash, it will also prevent the need for future borrowing for purchases that need to be made in cash versus taking out a loan (clothes, cars, furniture, home improvements, education for children, weddings, just to mention a few).  Having adequate savings is what allows us the freedom to give generously, knowing that our needs will be met.

So the two go hand in hand.  Passionate generosity serves as the driving force.  Savings allows the generosity to become a lifestyle.  And focusing on these things allow the execution of a disciplined budget, which permits them to happen.

Great Reminders from the GNAR

I attended a panel discussion this past week at GNAR where several of the area’s top Realtors gave recommendations and examples of how they do business, and gave some tips on some of the things they do that are successful.  The overriding theme that I heard was that each of these individuals are organized, have a plan, and are very deliberate in following the plan.  Here are some of the notes I took and wanted to pass along:

Daily Routine:

• "I try to have a successful day by noon every day."
• Say ‘no’ to just about everything that is not relevant to growing your business when determining your schedule.
• Block time for specific activities (particularly those that are sales related).
• Be proactive with your schedule and not reactive to the events of the day.
• Have a checklist for the important tasks that must be accomplished (a “to do” list).
• Remember that clients must still be cared for, so flexibility has to be built into each day.

Tracking Leads and Follow up:

• “I’m old school – I have a paper file for every lead with all the appropriate info on the client”
• Some suggestions on systems: boomtown, wiseagent, top producer, excel, or a simple note card system

Past Clients:

• Monthly newsletter
• Mailing birthday cards
• “Client Appreciation” events (happy hours, movie nights, ice cream socials, etc….)
• “I use several methods (email, social media, regular mail, phone calls) to reach every past client at least once a month – I want to stay ‘top of mind’

Marketing:

• Social media – use videos when possible, pictures at a minimum;  Hootsuite is a great site that allows you to supercharge your various social media outlets.
• Get help with any phase of marketing that you don’t do well.
• Whatever you do, be consistent with it.  One and done will never work (this isn’t NCAA basketball).

Technology suggestions:

• MileIQ – to track mileage
• Pdfexpert – for contracts
• Expensetracker – for managing expenses (receipts)
• Dropbox – for managing files (essential for teams)
• Other suggestions – dotloop, odesk, outdesk, googledrive, easilydo and fullcontract
•  

I think the other thing that I re-learned listening to the panelists is that there is no reason to ‘re-invent the wheel’.  Creating new ideas and processes can be fun, but can also be very time consuming.  There are so many ways to do our business well.  If we will simply learn from others, we’ll have the best ideas.  And these ideas are already proven to work.

Do I Really Need a Budget?

Throughout the year, I’m reviewing the top 20 lessons learned from Stan in my book “Your Mortgage Matters” (see last chapter for the list). This week we are on lesson #5. If you don’t have a copy of the book, email me and I’ll send you one.

Lesson #5: Budgeting May be Boring, But it is the Difference Maker

One of John Maxwell’s best quotes ever is “A budget is telling your money where to go instead of wondering where it went.” How many times do you get to the end of the month or year and wonder “where the heck did all the money I made go?” A lack of a budget may be the number one mistake I see my mortgage borrowers make. It is particularly true for the younger crowd, but you’d be shocked at how many middle aged clients I come across that really don’t have a clue how to make their money obey them. It is why people don’t save money, why they run up credit card debt, and too many times, why they wind up behind on payments. And the sad thing is that it is soooo easy! But guess what – it’s also very boring. It’s boring to take time to put pencil to paper to design a budget and it is even more boring living within the constraints of a budget. But for our home buying clients, it is critical.

Surveys have shown that the number one reason that prevents first time homebuyers from being able to buy a home is a lack of money for the down payment. Unless a first time buyer has a nice friend or family member to help them out with a gift, the only way to come up with the down payment is to save. And the only way to save is to get a grip on spending so that saving can take place. How do we do that? We set a budget for every penny we make and we make sure that we only spend money on the things we allocate the money to be spent on – and we make the allocation ahead of time. Getting into that kind of habit before buying can carry over into homeownership. Using the same mindset, we save for things that need to be purchased for the home by budgeting ahead of time versus borrowing to buy.

And it doesn’t have to be boring. Make a game of it. Have contests with friends and family – see who can save more or spend less. Set specific goals of saving for certain things you want to purchase or certain debts you want to pay off. Use Dave Ramsey’s envelope system. Use an on-line tool – especially the ones that you can use on your phone. Or you could even do what I’ve always done, use an Excel spreadsheet. It can be elaborate or simple. Bottom line is that if we want to be successful financially we have to budget. And if we want our home buying clients to be successful as well, we have to encourage them to do the same.

Let Compound Interest Work for You

Throughout the year, I’m reviewing the top 20 lessons learned from Stan in my book “Your Mortgage Matters” (see last chapter for the list). This week we are on lesson #4. If you don’t have a copy, email me and I’ll send you one.

Lesson #4: Why Compound Interest is so Vital

Stan used the old “double a penny a day” routine when talking to the group of kids in the classroom when he was talking about how compound interest is so valuable. It goes something like this: Which would you rather have, $1,000,000 given to you right now or get a penny right now, but get the benefit of it doubling every day for a month? On the surface, you’d try to quickly do the math and get 14-15 days into it realizing that you were still under $500, give up and just respond that you’d take the $1 million now. But that is where the beauty of compounding becomes relative – the bigger the number that doubles, the bigger the number is that will double again. Granted, it is an unrealistic argument to have an investment doubling every day, but the point gets made. After 30 days, you’d have close to $11 million if you had taken the penny doubling every day.

Albert Einstein said, “Compound interest is the eighth wonder of the world. He who understands it, earns it; he who doesn’t, pays it.” It’s a lesson that I wish more of us understood at an early age – and certainly one we should be teaching our younger generation. Because the sooner we get it and start saving, the more beneficial it will be to us in the long run. I visited with a young man this past week who was buying his first house. He was really sharp and had his financial house in order. He wanted to do a 15 year fixed rate loan. When I asked him why he wanted the 15 year loan, he responded that he wanted his house paid off by the time he was 45 (he was 30). I told him that I completely respected his wishes and would certainly help him with the 15 year loan if that is what he wanted – I’m all for helping clients get out of debt. But I asked him if he would be willing to let me show him a quick financial analysis. He said I could so I asked him what rate he thought he would earn on the money he currently had invested. He said he expected no less than 7% long term. He was buying a $250,000 house and borrowing $200,000. His principal and interest payment on the 15 year loan was $1,393 per month at 3.125%. A 30 year payment would have been $912 at 3.625%, or a difference of $481 per month. I then showed him that his balance on the 30 year fixed deal would be at $127,000 at the end of 15 years versus 0 if he went with the 15 year deal and had the loan paid off at that point. So he was immediately seeing the benefit of the 15 year loan. But then I showed him that if he invested the $481 every month, earning 7% (that he told me he expected), he would amass over $152,000 by the end of the 15 years – enough to pay the loan off and have $35,000 extra.

My point was not to convince him that doing a 30 year loan was better than the 15. Because of the lower rate, I could always argue that the 15 year loan is a better option – particularly if the payment fits well within a budget. I simply wanted him to understand the power of the money compounding if he chose to continue to be a wise saver. I then showed him that if he went another 15 years on the same route with the 30 year loan (saving $481 per month), his investment would grow to $585,000. If he started saving $1,393 per month in year 16 (the equivalent of the 15 year payment he had been making) and saved that amount every month for the next 15 years, he’d have $441,500 (over $140,000 less than the strategy using the 30 year loan). Obviously it takes a lot of discipline to save the extra money every month and not spend it. But hopefully you see the advantage of making your money work for you and taking advantage of compound interest.

I Wish Someone Had Told Me This When I Was Twenty

Throughout the next year, I’m going to review the top 20 lessons learned from Stan in my book “Your Mortgage Matters” (see last chapter for the list). This week we are on lesson #2.

Lesson #2: Spending is Fun, but saving is the key to long term financial success.

Here is a simple fact: The geometric average return of the S&P 500 from 1928 – 2014 was 9.6%. If someone coming out of college saves $500 per month for retirement from the time he is 22 until he is 40, then never pays another penny into his retirement account, while still earning 8%, he will have amassed $1.6 million by the time he is 65. If his friend doesn’t start saving for retirement until she is 40, she will have to save $1,735 per month from the time she is 40 until she turns 65 to amass the same $1.6 million. He put in $108,000 while she put in $520,500. As Albert Einstein quoted, “The eighth wonder of the world is compound interest” – or something like that. The earlier in life we grasp this concept the more rewarding it will be for us.

I realize that the older most people get, the more money we make, and therefore it should be easier to save as we get older. But I would argue that the older someone gets, the more expensive life becomes. Anyone with children would agree with me on that. I also understand the argument exists for someone getting started in life that they have many purchases in front of them (car, clothes, furniture, appliances, etc...) and it is easy to burn through income “getting established”. These arguments are valid. After all, for someone in his early twenties, retirement is so far down the road, it seems irrelevant.

But there is more to think about than just retirement. That is not the only big ticket item that will consume cash. Car purchases, weddings, college and vacations are just a few of the things that “surprise” us when the time comes to pay for them. The only away to avoid going into debt for these things is to save for them ahead of time. I don’t have enough room in this update to mathematically show the damage borrowing for these types of purchases does for someone’s savings efforts. Saving for things ahead of time may mean making some difficult decisions and take some “fun” out of our routine. It may mean something simple like taking the family for a picnic versus taking them to Chili’s. Heck, it might mean taking your lunch to work. And heaven forbid, it might mean driving a car past 100,000 miles. I think I make my point, well, the numbers make the point for me, that having an attitude that puts savings ahead of spending, painful as it can be at times, will allow us to come out ahead financially in the long run.

20 Lessons in 2015

hroughout the next year, I’m going to review the top 20 lessons learned from Stan in my book “Your Mortgage Matters” (see last chapter for the list). As relevant news comes up, like Fannie’s new policy on appraisals going into effect on January 26, I’ll make sure to cover those and push the lessons from Stan back a week. Just wanted to give you a little heads up as to what is coming throughout the first half of 2015.

Lesson #1: You Must Have a Plan for Your Money

We’ve all heard the old adage “if you fail to plan, you plan to fail”. Well, I’m not trying to beat a dead horse here, but that statement could not be more true as it relates to personal finance. Starting off a new year, there is probably no better time for us to help our home buying clients get their finances in order. It's also a great time for us to do that individually as well. Whether we are talking about big ticket items that need to be purchased or saved for (house, car, college, wedding, retirement, etc...), or simply breaking down a monthly budget to align our priorities, unless we become the boss of our money, it will always tell us what to do.

I had a great conversation this past week with a group of college kids. I love their enthusiasm for life in general, but I’m concerned about how naïve they are as it relates to the financial world. I’m not going to go down the “student loan debacle” rabbit hole that I’ve gone down before. I believe that is a looming crisis and I’ll leave it at that. But that crisis is symptomatic of our young people today – those that will soon be our first time-homebuyers. Most don’t even have a clue what a budget is, let alone how to create one. They are graduating from college and immediately becoming a servant to money. I’m amazed at the potential first-time homebuyers that I talk to whose lives are spent on the month to month merry-go-round of bringing just enough money in so that it can go right back out to cover their life’s expenses – with nothing left over. They never had a plan for their money and never made savings a priority. So their expenses dictate their behavior.

The key to financial success can be found by simply mapping out an exact plan for every penny earned – before it is earned and certainly before it is spent. Call it a state of mind from a big picture perspective or call it budgeting from a rubber meets the road standpoint. The bottom line is that we need to lead by example by having our own plan for our money and help our clients do the same. They’ll be better homebuyers as a result – now and in the future.

Planning for Success

If you want a great way to get a little traction for your plans for 2015, I’ve attached a form (click here to open in a new window) that you could use that will help you not only formulate a solid plan of attack, it will also give you a living and breathing document that you can use to monitor your progress throughout the year. For those of you that were able to attend Doug Smith’s sales event that F&M sponsored a couple of weeks ago, you already have a copy of this document. If you attended, you already had the opportunity to fill one out. If you were unable to attend, this document is pretty simple to follow and will allow you to get your goals in writing. Once you have put this information in writing, it becomes a binding agreement that you make with yourself to perform the necessary activities to make your goal a reality. Feel free to call me if you have any questions.

I appreciate everything you have done to help me have such tremendous success in 2014. I’m more excited about 2015 than I can remember being about any upcoming year. My passion for helping clients buy homes and coaching them on how to structure their financing to meet their life’s goals has really been rekindled this year and I’m excited about the opportunities ahead. I hope you share that same enthusiasm and are ready to make next year your best ever!

Help Yourself by Helping Others

Maybe you've heard this before, but Zig Ziglar once said:
"You can have everything in life that you want if you will just help enough other people get what they want."
-- Zig Ziglar

As we embark on the Thanksgiving holiday and begin our annual run through Christmas and New Year’s, I believe this thought process needs to come alive in our spirits. Let me ask you this, when was the last time you did somethingcompletely out of the norm and completely for the good of someone else? When there was nothing to be gained personally other than the blessing of helping someone? I believe that in business and in life, our ultimate success is not about what we get.

It is about what we give - our time, our money, our talents and our love.

I want this to be my slogan for next year and beyond. I’ve always believed it, but I’m going to make a concentrated effort to live it out every day. Want to join me?

In the month of December, I’m going to be sharing a personal goal for 2015. But it is not just for me. I’m going to invite you to be a part of it. And I have a little gift coming your way too. Stay tuned...

Are You Ready

This week I asked a Realtor friend of mine how things were going.  She said her business had definitely slowed down and that the lack of inventory was certainly limiting her potential buyers from engaging in contracts right now.  But she also said that she was being very productive in mapping out a plan for next year and beyond.  She is being coached by another Realtor, who is a top national producer in another state, on ways to improve her daily activities to produce better results.

What about you?  What are you doing between now and the end of this year to prepare for next year – so that it will be your best year ever?  Here are some thoughts:

• Hire a coach of your own to make recommendations of things you need to get better at or stop doing
• Attend a seminar or workshop on selling fundamentals
• Commit to reading books or other material relevant to your occupation
• Get in shape
• Call everyone in your database to wish them happy holidays or provide something of value to them
• Analyze your daily routine to see where you can spend more time devoted to the things that make you money versus those that don’t.

These are just a few items of a much larger list of things you can be doing right now to get better. The projections from NAR indicate that next year should be very similar to this year from a number of sales standpoint (projecting 5.1-5.3 million in total sales; this year’s number should be right at 5.1 million). So there is likely not going to be more houses to sell than what we had this year. That means to have a better year in 2015 than you had in 2014, you are going to have to be better than you were – and better than those that do what you do. Don’t just ease into the new year casually because "it’s the slow time of year." Take it by storm!  Now is the time to get ready to make 2015 the best year ever!!!

Suzie Agrees with Me

I mentioned in an update several months ago how crippling student loans are becoming for first time home buyers. Suzie Orman stated in an article on CNBC this past week “If one were to ask me what I think is the most dangerous threat to our economy, the answer is very simple: student loans.” Here are some statistics to consider (according to Transunion):

• Current amount of student loan debt in the United States: $1,200,000,000,000 (that’s $1.2 trillion)
• Total student loan debt has grown more than 150% since 2005
• Costs have “only” grown 22% in that same time period – so inflation is not the culprit to the loan epidemic
• In 2005, student loans accounted for less than 13% of the total debt load for adults age 20-29. Today, student loans account for nearly 37% of that group’s outstanding debt.
• The average loan balance for that group has risen from $15,900 in 2005 to $25,500 in 2014.
• Mortgage debt represented 63% of total debt for this group in 2005 and now is less than 43%

It’s pretty easy for me to see what is happening. I’ve felt it for several years, but when I see these statistics, it confirms what I’ve been thinking. Student loan debt is a significant detriment to a young person’s ability to buy a home. What I’m recognizing as a huge obstacle for homebuyers, Suzie sees as an even bigger threat – to our economy as a whole. She added, “When students of the greatest nation on Earth are buried with student loans, their ability to buy a home, to have disposable income, to be a vital participant of the economy, is greatly reduced.”

We have to encourage our kids, our grandkids, and even our neighbor’s kids, that there is a better way. Postponing college, going to junior college for a couple of years (a great option in Tennessee now), working a job or two through college, living at home if necessary, and seeking out every grant and scholarship possible are just the ones that come to mind. We also need to encourage parents to help as much as possible – and plan for it! Believe me, with five kids, this is something that is regularly discussed at my house. Sending the future homebuyers of America into the world with an average of $25,000+ in student loan debt is not the way they should begin adulthood. If this trend continues, we will continue to see the age of our first time homebuyers get older and older.