Archive for the 'spirituality' Category

Why You Should Think Twice About Buying A Starter Home

This is my sixth article on personal finances, and the fourth one that deals directly with purchasing a home. It is only natural that I should spend a fair amount of time discussing home ownership since a home loan represents the largest amount of debt that most people will get into during their entire lives. In my previous articles I mentioned that wise young Christians will take the necessary time to calculate and consider the consequences of personal debt before they ever take out their first loan. Today I am continuing that theme by warning of the risks that come with buying a “starter home.” Many people buy starter homes thinking that they are a good investment that will make them automatically accrue equity and therefore have a larger down payment on the next home they buy, not realizing that they sometimes have the opposite effect. Purchasing a starter home can often result in the loss, not gain, of purchasing power.

First of all, I want to say that I am not opposed to buying a starter home in every situation. In some cases it is recommended. If you anticipate, for instance, that your career will require you to frequently move your family long distances, then you would be foolish to buy a house that is too much larger than what you currently need. Also, some people are more able than others to face the risks associated with buying a starter home. Small families, for instance, will not be inconvenienced as much as a larger family if their starter home becomes their permanent home. Likewise rich people may be more able to risk a loss of capital on their first home.

The primary target audience of this article is Christian young couples with modest incomes who want to have large families. These are the people that could be hurt the most by purchasing a starter home in the wrong place at the wrong time. Families with one parent at home may find it difficult to realize their dreams of having lots of children if their starter home backfires on them. These are the people whose long term needs cannot often be met by the first home they buy, so it is imperative that they are able to sell it later for a good price and buy another one. Unfortunately, since most of their savings are tied up in their first house, they will be unable to afford a second house if market conditions make it impossible for them to sell high.

Many people think that they can make a lot of money by buying a starter home and then “flipping it.” In some cases they can. However, in some cases they can’t. Home ownership is an expensive business. It often ends up costing more money to own a home than the buyer anticipates. In an earlier article I explained that young couples who buy houses early are usually throwing away more money on non-principal housing related costs than young couples who rent. That means that when you buy your starter house you might be paying off your loan slower than you could have grown your savings if you still lived in your previous apartment. In addition, you will presumably have to spend %6 of the starter house’s value on a realtor when you finally sell it, and then you will have to pay closing costs all over again when you buy your second house.

Therefore, in order for a starter house to “pay for itself” it will have to inflate in value by quite a bit between the time you buy it and the time you sell. This is obviously a gamble. While it is true that house prices generally do rise over time, their rate of increase is not usually predictable. At times they may even go significantly backwards (as they have done dramatically in the past few years). And even if house prices are going up in general that does not necessarily mean that your house specifically will increase in value. In the end it will depend upon finding the right buyer, which is something that cannot be taken for granted. Your house may be worth a lot on paper, but until someone decides to give you a good offer, the supposed value of your house will do you no good.

Even if you are finally successful in selling your house for a good price you still may face other hurdles that will make it difficult to buy the house you really want. The main one is that the sale of your first house will greatly affect the timing of purchasing the second one. The person you want to buy a house from may not be interested in waiting for you to get rid of the house that you currently own. They may decide to sell their house to someone else for less money who is able to close before you are. Or if they do accept your offer, failure to sell your house on schedule might make you unable to get funding from the bank, terminating your deal with them, which may result in the house being sold to the next person in line behind you. This happens all the time. It is common knowledge that it is a serious disadvantage for a home-buyer to be a home-owner.

The simple fact of the matter is that some young couples simply can’t afford to take the risk of buying a starter home. Why jeopardize your dreams by buying a starter home, if you know you can afford the house you really want by just living in your current apartment for a few more years and saving up a larger down-payment? Yes, you may be less comfortable in the short term, but you will be better off in the long term. Simply put, starter homes are a luxury that not everyone can afford to have.

Children are saved the same way as adults

I am writing to you, dear children,  because your sins have been forgiven on account of his name. (I John 2:12)

The only way to be saved is through the blood of Christ. God promises that this salvation is applied to anyone who believes in Jesus Christ and repents of their sins. This is so simple that children can (and must) do it to (Acts 16:31).

11Even a child is known by his doings, whether his work be  pure, and whether it be right. (Proverbs 21:11)

Avoid having a car loan and a house loan at the same time

Another suggestion I have for young Christians seeking to have low-stress finances throughout their lives is that they make a very serious attempt to get through life with only one debt commitment at a time. This, like some of my other suggestions, may seem difficult to do, but is often possible if you plan ahead.  Before you take out a loan for anything you should consider whether or not you will be able to pay that loan off before you need to borrow more money for something else. If you are not able to do this, you might not be financially ready to go into debt just yet.

This means, for instance, that when you borrow money to buy a house you should make sure ahead of time that your current salary will allow you to save up enough to purchase your next vehicle with cash while simultaneously making all your loan payments. For instance, if you expect to need $6,000 to buy a new vehicle in three years, then you should have a plan in place to save an average of $2,000 a year for that purpose. Saving up money ahead of time for this expenditure will allow you to constantly keep reducing your debt, rather than having to go backwards. This is a good thing! but this will probably not be possible if you do not plan ahead.

The problem, of course, with plans like the one above, is that your car could break down at any time. You may have to replace it a year and a half before you anticipate, which will still leave you $3,000 in the hole. However, if you have a safety fund set aside as I mentioned in my previous article, then this is an acceptable risk. You can always “loan” yourself the money out of your safety fund and pay it back over the next year and a half. That’s what the safety fund is there for. It doesn’t cost you any interest.

Revenge is not a proper motivational tool for Christian service

Anyone who hates a brother or sister is in the darkness and walks around in the darkness. They do not know where they are going, because the darkness has blinded them. (I John 2:10)

The Bible tells us that hatred of our brothers and sisters will lead us into darkness, that means it will lead us away both from good morality and good doctrine. The difficulty is that as human beings, hate comes naturally to us. We must ask God to give us a spirit of love towards each other instead.

Plan For A Safety Fund When You Take Out A Home Loan

Today’s advice for young couples looking to buy a house is: don’t take out a significant loan until you have a safety fund built up. This is accessible cash that you will have left over after you make your down payment. This should be at least several thousand dollars. Some financial advisors suggest that you have enough money saved up to pay for six months of expenses at your current standard of living.

The reason for this, of course, is that you never know what troubles may find you after you are in debt. Your car may break down, your furnace may quit, etc, and you want to be prepared. The Bible has quite a few verses that talk about the wisdom of being financially prepared for tough economic times (Proverbs 21:5,20, 27:12, 30:24-25). It’s just common sense.

However, there is another point of view that is sometimes used to counter this argument. My Senior Pastor Paul Tautges’ mentions on his webpage some advice by John Temple that those who are experiencing serious credit card debt stop saving money. Actually, John has a point. Someone who is up to their necks in debt might be better off paying off their high-interest credit cards rather than saving money. But his policy clearly has some risk to it. That is why I advise young couples to take certain steps ahead of time to avoid getting into the situation that John describes in the first place. The advice given in my articles is not intended to show you how to get out of a bad situation as much as it is to show you how to never get into that kind of situation to start with. There is a lot of advice out there on how to get out of deep debt. But instead I am trying to give some practical advice on how to avoid deep debt in the first place. I don’t want to assume that everyone is going to make the wrong decisions to begin with. I want to give advice to young people so that they can be financially wise throughout their entire lives!

Owning A House Often Generates More Financial Waste Than Renting An Apartment

I think it is very important for young couples to save money for awhile before they buy their first house and take out a significant loan. For one thing this gives them time to decide what kind of home will make them happy. It typically takes a few years for a young person’s thoughts about home ownership to properly mature. It is normal for their opinions to change as they experience what it is like to live together independent of their parents. But also there are financial reasons for waiting. By not buying a house right away they will save money because they will be able to earn interest on what they have saved up, rather than pay interest to a bank. Also, this gives them an opportunity to learn to live below their paychecks while not being under the stress of having a large loan hanging over their heads. This will help their marriage because it will relieve some of the financial pressure that would otherwise confront them as newlyweds.

However, many young couples insist that they must buy a house right away, because every dollar they spend on renting an apartment is money that is being “thrown away.” I disagree with this argument for two reasons. One, breaking even is better, in my opinion, than taking out a loan for a house that you really can’t afford. And secondly, the statement usually is not true. Many couples are actually saving money in the long term by renting an apartment rather than buying. Many young homeowners spend more money on non-principal housing related costs than they would if they still living in their old  apartment.

Consider the following fictional scenario: Jack and Jill are a newly-wed couple who rent a two-bedroom apartment for $600 a month including utilities in a decent neighborhood in Sheboygan County. They have their eye on a house that will cost them $120,000 if they choose to buy it. They can afford to make a down-payment of $30,000 so they will have to borrow the remaining $90,000. They will have to pay an interest rate of 4.0 percent, which will come out to roughly $3,600 their first year. Their yearly property taxes will be $2,500, their utilities will be $1200 and their home insurance $500.

If you do the math you will see that Jack and Jill are currently “throwing away” $7,200 a year in rent, but if they buy a house they will spend $7,800. Actually, it will cost them even more than this to live in their new house, because they will be financially responsible for their own repairs. Carpets will need to be replaced, Refrigerators fixed, walls repainted, etc, from now until they day they sell the house. A very modest estimate is that it will cost them another $1,000 a year to maintain their house. That means they are spending $1,600 more each year for non-principal housing related costs than they were when they were renters. And it gets worse. They were previously collecting 2 percent interest on the $30,000 that they used for their down-payment. So they have just lost $600 of annual income. Therefore they are actually losing $2,200 a year by owning a house rather than renting.

Now all of this is not to say, of course, that Jack and Jill should not buy the house. They already have 25 percent down, which is nothing to be ashamed of. If they do all the calculations and decide that they can handle $90,000 of debt on their incomes, then I have no objection to them going ahead with it. However, if their plans for a future family are going to make it difficult to pay off the $90,000 loan, then I suggest that they keep on saving until they can safely afford the kind of house that they want. They are actually saving more money by renting than they would be if they went ahead and bought the house.

Do Not Go Into Credit Card Debt, Ever

This post is a continuation of yesterday’s theme about how to go through life with minimal debt. The advice that I am giving in this series is not meant to give a standard by which to judge someone else’s life, but it is simply meant as practical advice on to how to live a less stressful life by spending most of your life debt-free. It is not wrong or immoral to disobey this advice; it does not mean that you are a bad Christian if you cannot follow it in your specific situation. However, I would encourage young people to at least carefully consider the things I have to say in these posts and come up with good reasons if you decide that they are not for you. Hopefully this advice will help some young people lead a mostly debt-free life that will allow them to contribute more to the Lord’s work and the needs of others.

Today’s piece of advice is don’t go into credit card debt. Ever. I am not saying that you should never own a credit card, but that you should pay off the balance every month so that you are never charged interest. Credit card debt is one of the most dangerous kinds of debt you can get into because the interest on it is so high, and because it is so easy and convenient to use. Many people get deeply into credit card debt without even realizing how much money they owe.

My advice to teenagers is that they do not even own a credit card at all. At some point in your life you will probably need to get one (perhaps to build your credit rating so you can buy a house), but the longer you can go without one, the better. Spending money that you have not yet earned can be an addiction, and if you get started on it early it will be a lot harder to break the habit later.

I understand, of course, that circumstances out of your control could force you into debt at any time. It could be medical bills, house repairs, or any number of things. However, if you must go into debt, don’t do it with a credit card. Try to find some other way to borrow money at a lower interest rate.If you are a responsible home owner, for instance, you might be able to take out a second mortgage on your house. Although not ideal, this is better than using a credit car for a large purchase because it will cost less. The problem with having credit regularly available on a credit card is that you can easily get into a large amount of debt on small purchases. You should train yourself to resort to debt only in a serious situation. Don’t get used to going into debt to buy a pair of shoes! Instead, wear the pair that you have for another month and try to save up the money for them by cutting back on next week’s grocery bill. If you learn to save more money a little bit at a time, it will save you from getting into a whole lot of debt.

I know not everyone’s going to agree with this advice. A common response might be: “I don’t really owe that much on my cards anyway.” But my response is: Why owe anything at all? You know you’re getting killed on the interest. If you spend a little more or get a second job you might not have to go into debt at all. If you do have to go into debt, try to find some cheaper way to do it.