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Recently I have gotten back into CNN Money’s Millionaires in the Making articles. A couple of years back I became irritated that they seemed to continually use people making $125,000+ and had property that appreciated 20%+ per year. Now they seem to have come back to earth to examine how the “average Joe” does it.

Their most recent entry from early July was a San Leandro, California couple making a combined $86,000 per year. The highlights from their journey to become millionaires:

• Contribute $10,000 per year into a 401(k) with a $3,000 match from the employer
• Put $230 per month into a bond fund for emergencies
• Pay extra towards their mortgage to accelerate its payoff
• Spend only $400 per month for food

All in all their expenses are approximately $1,600 per month. It’s amazing what a bit of frugality can do for wealth accumulation.

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In my previous post I talked about a few ways the U.S. government is looking to regulate the subprime mortgage market. While these regulations may cut down on foreclosures related to dishonest lending practices, it won’t help those that simply get in over their head. Before signing on the dotted line and buying a home, there are a few things that you absolutely must do:

Make a Budget

Budgets are at the core of most good financial decisions. It is easier than ever to keep track of your budget using any budget spreadsheet that fits your situation. Make sure you are honest about the numbers you use, and, if anything, be conservative.

Determine What You Can Afford

Using your newly created budget (or previously created for those of you ahead of the game), determine the amount you would be comfortable paying as a whole for your entire mortgage payment. This total mortgage payment will include the loan payment, home owner’s insurance, private mortgage insurance (PMI), and property taxes. You may not have PMI, but you will more than likely have the other three.

Next, subtract your estimated monthly property tax, home owner’s insurance, and PMI payments from your total mortgage payment. Plug the remainder along with your estimated down payment and interest rate into this calculator. The result will be the amount of the loan you can afford given your budget. This loan amount plus your down payment is the amount of house you can afford.

Shop Around

A lot of borrowers tend to skip this fundamental step in obtaining an optimal mortgage. They often rely on the recommendation of their realtor, a friend, or a family member. By shopping around you are looking to compare several factors:

• Rate: This is the obvious factor, but not necessarily the most important. All else being equal, you want this to be as low as possible. But since the rate can be lowered by various other factors that make you worse off, you can judge a deal by rate alone.
• Points/Up Front Fees: One of the ways lenders can reduce your rate is by asking you to pay points up front. One point is one percentage of the loan amount. Points are typically useful if you will be in the house for a long time (my rule of thumb is around four or five years.) Otherwise, get rid of the points and pay the slightly higher rate. Other up front fees can be compared across lenders and can often be negotiated to some extent.
• Prepayment Penalty: Lenders can also reduce your rate by including a prepayment penalty clause in your mortgage. The penalty can apply to selling your home, refinancing, or both. They are usually quoted as either a percentage of the outstanding principal balance or a specified number of months of interest. As with points, a prepayment penalty can be worth it if you will be staying in the house a long time. Many prepayment penalties expire in less than five years.
• Private Mortgage Insurance (PMI): PMI is paid when you have greater than an 80% loan to value. Many knowledgeable brokers can get you PMI for less if you meet certain criteria. Some can find lenders that will waive PMI altogether if your credit score and financial situation is good enough (this is rare, though.)
• Hire a Home Inspector: After my recent home-buying experience, I had to add this to the list. I was set to purchase a property that on the surface looked great. Internally, however, the home needed over $20,000 in urgent repairs. This would have been financially devastating and would cause many buyers to head toward foreclosure.

Following these basic tips will allow you to find a mortgage that fits you and your situation. In an upcoming post, I’ll compare the various loan types (fixed, ARM, interest only, etc) and describe situations where one may be better suited than the others.

Do you have any tips to add? If so, leave a comment.

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It is no secret that subprime mortgages have caused widespread heartache and financial distress to many people across the U.S. Borrowers were simply not able to handle the jump in mortgage payments once the rate lock was removed.

Now, because of the subprime mortgage market’s enormous potential impact on the U.S. economy (originations in 2006 were around $1 trillion), the government wants to step in and “help.” This worries me not because I believe there is no place for the government in the economy (a.k.a. a 100% free economy), but because they typically hurt more than they help.

Many ideas have been thrown around about how exactly the government should regulate the subprime market, but the following seem to be the most pervasive:

1. Require Better Disclosure

I agree with this type of regulation if it is implemented correctly. Lenders should be required to at the very least show the potential borrower the effect of the rising interest rate on their monthly payment. The average person will understand how a higher payment will effect them financially (or should anyway).

2. Rate Caps

I don’t agree this type of regulation since it will prohibit many individuals from purchasing a home. There are many reasons why a person can become a subprime borrower that are not necessarily related to their recklessness in acquiring large amounts of debt. These reasons include things like expensive medical treatment that insurance won’t cover and a death by the primary income earner. Perhaps the borrower can’t borrow as much, but they shouldn’t be denied if they don’t fit the risk profile for the rate cap.

3. Product Offering Restriction

Again, I don’t like this regulation. ARMs and interest only loans are great financing tools if used correctly. This regulation would throw the baby out with the bath water (so to speak.) Let the borrower decide which financing tool works for them by giving solid disclosure of the negatives for each type of loan.

One thing to remember in all this talk about consumers being the big victim in this ordeal - the lenders (and those who invested in the securitized assets made from the loans) lost too! The loss in itself will cause lenders to further scrutinize potential borrowers and improve their ability to convey the pros and cons of each type of loan product they offer.

Maybe there is no cause for any regulation at all. What do you think?

Read more: CNN Money

Photo source

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Looks like the impenetrable wall of the IRS has been pierced - at least a tiny bit. Tommy Cryer, an attorney from Shreveport, Louisiana, was unanimously found not guilty on two counts of failure to file. I’m not sure I fully understand his argument, but I believe he is claiming that the paycheck he receives is not profit and therefore can not be taxed. Cryer said, “What I earned was my own personal labor. I am giving something in exchange. I’m giving my property and I don’t belong to anyone else.”

Although I have no leanings one way or the other on income tax and its legality, the government needs taxes to sustain itself. If these taxes don’t come from income taxes, they’ll come from some other method of taxation.

Found at Consumerist.com

Originally from Shreveport Times

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John Chow over at JohnChow.com is giving away a fantastic book called the 4 Hour Workweek. This book throws out the traditional “save 10% every day until you retire” mindset and explains how to achieve both financial AND time freedom. To enter the contest, all you have to do is leave a comment.

I recommend this book to anyone looking for ideas on finding their way out of the rat race and into a life of doing what you want when you want.

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Today

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Today I participated in a fraud risk assessment for the company I work for. This assessment is essentially a brainstorming session where people discuss the various ways employees could rip off the company. I was amazed at the expansive list of fraud scenarios we came up with. I was even MORE amazed at the detail in which certain people in the room described their “hypothetical” scenario. But that’s a whole different topic entirely…

In any case, the exercise caused me to start thinking about the various ways individuals are ripped off. Although this is certainly not an extensive list, it’s not bad for a mini-brainstorming session.

1. Shred all documents containing personal information before discarding

This was a tough habit for me to start. For one thing, I bought a shredder that only cut up to 5 pages at one time and overheated after a few minutes of shredding. I recommend not buying the lesser quality versions if possible. That being said, I don’t recommend going without a shredder just because you can’t afford a good one.

2. Look Closely at the Links in Emails Requesting Personal Information

This protects you agains the type of fraud referred to as phishing. One way to check for false links it to hover over the link and read where it will take you. My wife often receives phishing emails from EBay and Paypal with the link addresses pointing to a much different website. The best way to combat phishing in my opinion is to use another method of making the required change. For instance, if you receive an email from Paypal telling you to update your credit card information, go to their website and make the change there.

3. Make a Copy of Everything Cancellable in Your Wallet or Purse

This is straightforward. Make a copy of the front and back of any credit card and other identity documents you carry. Also, if you don’t need a particular credit card or identity document, don’t carry it.

One piece of advice that may help: don’t be like my college buddy who kept the copies IN HIS WALLET. His wallet was stolen along with the copies leaving him to struggle through the credit card cancellation process.

4. Never Give Personal Information Over the Phone Unless You Made the Call

This protects you agains the type of fraud typically referred to as pretexting. Ask the caller who they are associated with and if you can have their phone number to call back. If they mention a company, look them up online and call them on a number you know is correct. If you don’t recognize the company name and they give you a phone number, do a White Pages lookup to confirm their story. Although in this instance it’s very unlikely I would give them any personal information at all.

5. Monitor Your Credit Report Regularly

Thanks to the Fair Credit Reporting Act (FCRA), you can now download free copies of your credit report from the three major credit bureaus once a year. This is a good way to stay on top of unauthorized credit lines. Keep in mind that the information is typically 30, 60, or even 90+ days old depending on how often your creditors update the bureaus.

You can request your free credit reports at AnnualCreditReport.com.

6. Remove Your Name from the Credit Bureau Marketing Lists

Removing your name from these lists will reduce the amount of unsolicited credit card offers you receive. Unscrupulous people can use your preapproval offers to open credit lines in your name.

To opt out of the lists for all three credit bureaus, visit OptOutPrescreen.com or call 1-888-5OPTOUT (1-888-567-8688.)

7. Don’t Put Your Social Security Number on Your Checks

This sounds obvious, but you would be amazed at the number of people who still have their social security number printed on their checks. Some banks don’t even allow social security numbers on their checks anymore because of the large liability associated with it.

8. Look for the Lock Symbol on Your Browser When Entering Personal Information on the Internet

Most Internet veterans know to look for this lock symbol, but people like my grandfather may not. Depending on your browser, it can be on the bottom status bar, next to the address bar, or some other place in between. Even though I know to look for this symbol, I am often guilty of making a quick purchase without taking a second to stop and look for it.

As I mentioned earlier, this is certainly not a complete list. If you have additional suggestions for protecting yourself from identity theft and fraud, please leave a comment.

If you are interested in a more in-depth look at fighting identity theft, I recommend FightIdentityTheft.com which really goes into detail on this topic.

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I was shopping at my local Best Buy this weekend when I came across this beauty. The image was so crisp, clear, and bright that I almost mistook it for a window. It would certainly be an improvement over the 27 inch CRT television that I currently had in my living room.

But then, in a moment of wisdom, I started to think about what a purchase like this would mean financially in the long term. Now, the quick answer would simply take the $4,000 up front payment and calculate the return at a certain rate over a certain period. Let

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Welcome to FinancialDominance.com. This blog is dedicated to helping others take control of their financial situation. Topics dealing with personal finance such as credit cards, retirement planning, college funding, etc will be the main focus of the posts. My goal is to not weigh you down with numbers and formulas, but instead give a unique perspective in dealing with everyday financial situations.

Along with the typical personal finance topics which deal mostly with efficiently allocating the money you have, I will also review several money-making opportunities. My goal is not to sell you on these opportunities, but to present them in a fair, unbiased manner.

Again, welcome to FinancialDominance.com. I hope you enjoy the site as much as I enjoy creating it.

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