Two months ago, my mother passed away, and well, I wasn’t really up to writing about money. On my birthday, a sweet friend, Valeh, thanked me for my blog. She inspired me to get back into it, probably without realizing it. My hope is that somehow my ideas, successes, and failures might help you along your journey.
If you’ve missed the first two posts, you can catch up with Part 1 and Part 2.
As promised, I’ll delve into how we ACTUALLY save money. Real life examples. Some may sound ridiculous or a bit crazy. I don’t know. It all seems to work for us. And to reassure those who are worried like a previous commenter, I don’t suggest wearing your pajamas everywhere you go. PJs are comfy, but that’s just not kosher these days. So how exactly do we do it? It’s the little things all put together! And when I say little things, I mean some of them only account for a few bucks. There are plenty of ways to cut costs and increase your income. Just be realistic when you’re planning. And you do have to plan. Most of us can’t drop one income without a little planning.
I know, you’re dying to see if I’m going to give you actual numbers. Will I post my budget and income? Nope! There are some great blogs that do, and I suggest you look at them if you’re serious about living on one income. They are inspiring and realistic. My personal favorite is The Peaceful Mom: Living on Less than $28,000 a Year. So, if I love this blog that gives real data, why won’t I divulge? There are two big ones. First of all, I am BIG into privacy. Frankly, it’s none of your business. People judge. And in American culture, you are judged by your money and possessions. And I don’t want to be judged! Not by people, at least. But even more importantly, if I include salaries and budget amounts, you’re likely to tune out or excuse yourself. Don’t look all innocent! My first thought when reading The Peaceful Mom’s Blog was “I can’t match her housing budget. I can’t do this. This won’t work for me.” Pathetic. I mean, seriously. I was willing to blow off an entire, EXCELLENT series because she pays less in rent than I do. It’s easy to say that the whole thing won’t work because my mortgage is higher or I refuse to buy mac and cheese. It is so much easier to say, “I can go on with my spending craziness because this lady is way different than me. She makes less (or more), eats differently, and has cheaper utility rates, blah blah blah.” My hope is that you take the ideas and concepts and apply them to your life and your situation. As you change, along with your family, your life, your needs, and the economy, so will your finances. But the concept of living on less can always be applied to most any situation if you choose to make the sacrifice.
And here we go!
Housing – Don’t overburden yourself. Repeat this over and over and over! DON’T OVERBURDEN YOURSELF!!! Rent or buy, be careful and be sensible!
Rent or Buy? Which is better? Well, it depends. Don’t assume that home values always go up. The housing market isn’t great right now. If you plan to move in just a few years, the closing costs and the cost of selling your home may make renting a better financial move. Remember that values aren’t going up at the rate they were 10 years ago. And they are still falling or stagnating in some areas.
Also, look at your credit seriously. If it’s bad, you’ll end up with a higher interest rate, thus a higher monthly payment. Avoid Adjustable Rate Mortgages. At the end of the fixed rate period, the rate WILL go up. Think about it. The bank has the option of making less money, making the same money, or making more money. Hmmmm, which would you choose? Before you bash them for corporate greed, remember that they wouldn’t offer these mortgages if their customers weren’t greedy too. People want to buy more than they can afford, so they go for the low introductory rates, ignoring the FACT that the rates will increase. So if you can’t get a decent mortgage, WAIT! Pay your bills on time, reduce your debt, increase your savings, and hold a steady job. These steps will help rebuild your credit, and likely qualify you for better mortgage terms.
If you rent, negotiate with the landlord. Listed rents are not set in stone. If you find a place that has been on the market for a few months, the owner is LOSING money. He’s still paying taxes, marketing, and upkeep while no rent is coming in. Explain why you are the perfect tenant that he should be begging for. We usually negotiated about $100-200 per month off our rent and got our security and pet deposits cut in half. How? We told the landlord that we were a family, so we wouldn’t be hosting wild parties and destroying the place. We wouldn’t call him for stupid things like the toilet overflowing or the smoke alarm needing batteries. We also told him we’d be there for several years. Make-readies and marketing are big expenses for landlords. We also did a few upgrades while renting. One time, we installed a better kitchen faucet. We gave the owner the old one (it was still working) so he could use it on another property. We always let him know the things we fixed. When it came time to renew our lease each year, he always kept us at the lower rent because we were never a hassle. While we lived there he spent extra on our replacement fence to make sure our child’s bedroom window was enclosed in the backyard. It pays to be good to your landlord. And remember, stay in the same place as long as feasible. Moving is expensive! Movers, trucks, packing supplies, pizza, time off work, and DEPOSITS. You really can endure that harvest gold wallpaper. One day, you’ll look back and laugh at it. Or so I’m told.
When you buy a home, you may be STUCK there for a long time. Plenty of factors can keep you from easily selling your house. Sales and prices drop, neighborhoods become less desirable, new construction creates selling hotspots. You may need to stay close to your job or not have the funds for realtors and closing costs. Interest rates may be too high when you need to sell. So when you buy, expect to be in it for the long haul. When it came to buying our home, we were blessed that my dad is a real estate investor. I grew up learning how to calculate repairs and ARV (After Repair Value) and how to determine a safe offer price (so you don’t sink yourself). After 6 months of making offers on houses, we decided to build instead. We weren’t going to pay full price on a house that had a broken garage door, nasty carpet, or dead trees that had to be removed. But sellers are emotionally attached to their homes and think everyone should love the flaws that give it “character.” We found a house we liked, but it wasn’t in the area we wanted. We found a subdivision that was starting out and had discounted lots. So we called the builder of the home we liked and asked him to build it on a lot we picked. This builder was not a custom builder (savings!). Since the housing market was starting to slow, he agreed. He didn’t normally build on lots, rather, he developed entire neighborhoods. The builder we chose builds a solid house with few frills. We were able to get more square footage by giving up custom paint and cabinets, granite counters, and plush carpet (with kids and pets, no carpet can survive anyway). We also did some work ourselves. The builder left bare concrete and we stained it ourselves. We skipped the sprinkler system and only had sod laid in the front yard (required by deed restrictions). Sprinkler systems can be a huge hassle over time. We seeded grass in the back, a much cheaper option than sod. With that savings, we were able to get a lower sales price, a more efficient A/C system, and upgrade a few appliances. Because of this, we paid 30% less for our home per square foot than all the other homes in our neighborhood. When the housing bubble burst and home values dropped, we weren’t upside down. In fact, we could probably still sell it for a little more than we paid for it. Not an easy feat in this market. Saving on these things allowed us a larger house and lot without busting the budget. We won’t be tempted to upgrade for a bigger house because we were able to buy bigger for less.
If you buy an existing home, try to do the repairs yourself. Remember the “We Buy Ugly Houses” billboards? Ugly houses are cheap houses. A solid house that has nasty carpet, ugly paint, and a terrible yard can be diamond in the rough. A little patience and a lot of elbow grease could save you thousands! Do your research and don’t get in over your head. Educate yourself!
Property Taxes – There is a myth that you need to let the property tax appraiser keep your home appraisal high to keep your value high. It’s the opposite. Your tax appraisal should reflect the market value of your home. As in, what could you sell it for today? Just the way it is? Likely, your appraisal is much higher than what you could sell it for as is. Do your homework and fight your appraisal every year. Some years you’ll lose. But sometimes you’ll win a lower tax bill. In fact, most people who protest their values, will see a reduction of a few thousand dollars. What can lower your appraisal for tax purposes? List out what’s wrong with your house and provide a repair estimate. Give details as to why your house isn’t as good as the rest in the neighborhood. Provide a list of nearby homes for sale that have a lower price per square foot. Provide a list of rentals and foreclosures in your neighborhood. Train tracks or apartments nearby? That lowers your value. Provide photos of overgrown yards and ugly houses in your neighborhood. If you do sell your home, advertise that your tax appraisal is below market thus saving the new owner on their taxes!
This year we had our appraisal lowered nearly $25,000! We finally noticed a discrepancy in the rating of the structure (the house). This rating is supposed to represent the quality of construction. The first odd thing we found out was that our rating was raised. Our home was 5 years old and mysteriously improved in quality….with no renovations! We also learned that the original rating was higher than all the other homes built by our builder. We made an appointment for the county tax appraisers to come out to our home. We pointed out all the ways our home was either standard for our builder or how it was less (no sprinklers, no sod in the back yard, etc). We also pointed out how our home was less than those in our neighborhood (lower ceilings, no granite counters, no recessed lighting, etc.). The Appraisal District agreed with us, lowered our rating, and lowered our appraisal. We’re now much closer to a fair market value than ever. It also means our tax bill will be lower. And for those of you who just think we’re awful for lowering our taxes. Just remember that the American Revolution was sparked by a protest of unfair taxation. Appraising your home above market value to collect more taxes is unfair. Plain and simple.
Be sure to check the details of your appraisal every year. One year, we got our appraisal dropped by $60,000 because they added an extra 1,000 sq. ft to our house. A simple mistake in the size of our home would have cost us a fortune in taxes.
Other ways to prove your case: mortgage documents, sales contract, appraisal and home inspections, suggested selling price from a local realtor, builder plans, flyers from similar houses for sale, tax appraisals from identical homes. Be creative. Be courageous. It’s your money.
A final thing we’ve discovered in tax protesting is that the further you go, the better your results. A phone call to the appraisal office may result in a $2,000 reduction. A meeting with an appraiser might drop it $8,000. Filing a formal protest and having appraisers out to your property may bring you a $25K markdown. We’ve noticed our appraisal district makes great efforts to prevent you from going before the Appraisal Review Board. This Board holds formal hearings. My hunch is people see bigger reductions here since they try so hard to keep you from that final step. We may get there one day. If we do, I’ll be sure to tell you how it works out!
That’s all for this installment. How do you save on housing costs? I’d love to hear your ideas!