Should I Refinance Now? Does A Bear Poop In The Woods?

You guys know that the one and only data point I track religiously is the 10-year yield right?  Well, after the 10 year yield dipped below 3%, I went to the bank with a buddy of mine to go see how much money we could borrow.  The wiry banker sat us down like a loving couple and asked us to go through our finances at which point I kindly stepped out of the room and let him go first.  Five minutes later, he came out with a grin on his face, so I curiously went in.

He proceeded to tell me some curious news.  “Look here Sam, you can borrow up to $1.5 million dollars at a 5 year fixed rate at 3.625%!”

Holy moly really?  You mean little old me, just like that can borrow that much money at that low of a rate?  “So what’s the catch?”, I ask.

“Zero points, and $2,500 in closing costs.  But don’t worry, we are giving you a $500 credit for being a preferred member, and frankly, if you guys both take out loans, I’ll throw in another $500 credit,” said the banker.

“Done!  Where do I sign?, I ask as I think about the new Audi R8 I plan to buy with just $150,000 of the $1.5 million.  Or maybe I should be more conservative and spend $100,000 on the new 2011 Porsche 911.  Or actually, I heard the 2011 BMW  335i coupe is coming out for only $55,000 this fall.  With all the money “saved”, time for a bachelor’s trip somewhere fun!  (I’m still thinking to myself here).

NOT SO FAST! REFINANCING SHOULD BE TO SAVE YOU MONEY

5 Money Habits I Learned That Will Never Make Me Rich

Here’s an insightful post from Allan from The Philippines.  He shares with us his story about growing up poor and working his way up.  It’s always great to read about international perspectives.  Hope you enjoy!

They say we are creatures of habit. This is especially true when it comes to money. When the going gets tough, it is easier to resort to what’s comfortable. When that happens, your own money habits take over. The only question is – will your money habits get you through and make you rich?

 

Money Habit # 1 – Playing with money

Learning my money habits started when I was still a young kid playing outside the house on a sunny afternoon. The first money habit I learned was playing with money. Yes, literally. But not with actual money. My friends and I would play games betting on carefully folded cigarette packs looking like play money. A red Marlboro is worth PhP 50 (US 1$). A green local brand “Champion” cigarette is PhP 5 (10 cents). A Philip Morris cigarette pack is worth PhP 100 (US $2).

It was all play money then. And it was easy to get. I only need to wait for my father to finish his cigarette pack and I’d be on my way to earning my (play) money for the day. Sometimes, we even played with coins, taking turns and rolling them on the floor like a dice. Playing with money was fun!

Somewhere between playing with other kids and being conscious on what’s cool, I learned that money can buy me things. But since we were poor, I had to make do with my worn out clothes. After some time I’ve already outgrown it so much, I already looked like Winnie the Pooh.

It’s not so much about other kids having better clothes. It was more because I was not able to play outside as much as the other kids. My mother would always remind me to do my house chores. Wanting to go out and play instead, I would reason out “how come the other kids are not doing any chores?” To which my mom lovingly responded,

“Because we are not like them. They can do whatever they want because they are rich. We are poor. ”

That was the first time I realized we were different from other people. We were poor. I began to notice how worn out my clothes and shoes are. I remember even going to school with no shoes on.

That’s one lesson I took to heart. If you don’t have money, you are poor. If you are poor, you need to work to have some money.

Money Habit # 2 – Working for money

The Good Times Are Back Again – The Indulgent List Of Things

Look around.  What do you see?  I see packed buses, traffic jams, busy open houses, expensive restaurants with only 9pm seatings, and friends finding new jobs again.  Double dip recession?  I don’t think so.  With the Dow over 10,500 and the S&P 500 over 1,020, it’s as if last year was just a bad dream.

Yet, it is exactly during good times, when we must be more diligent about our finances. It’s so easy to forget how bad things were and stray.  Rather than spend more money, save more money during upswings so that we can spend more money during downturns.

When times are good, it’s not necessary to spend more money to create any sort of additional fulfillment or pleasure.  We’re getting paid more, the opportunities for promotions are greater, and the demand for our services surpass our supply.

In essence, we feel good because we feel wanted again.  It’s when a downturn hits when money can help balance the mood out a little with some retail or food therapy, or maybe even a vacation.  In essence, spend money counter-cyclically for better returns.

DAY DREAMING TO RELIEVE DESIRE

Sometimes Saving Money Is About Principle

For the past two years I’ve taken the bus to work after driving for 7 years prior.  The company removed our free parking benefits and I wasn’t about to pay $350/month to park in a garage just 5 miles away.

I have a love hate relationship with the bus.  When it’s raining, and I have to stand outside shivering, I hate it.  When the bus skips my stop every so often, I hate it.  When the bus driver slams on the brakes a couple feet away from the stop light and we all go flying, I hate it.  When the bus is packed like sardines, but there are some very attractive riders I need to squeeze next to, well, I guess it’s OK.

My VIP Pass aka monthly bus pass costs $60, while taking a cab to and from work costs $30.  Hence, the cost breakdown is simply $60 for a bus, $350 for parking, and $600 for a cab every month.  Out of principle, I wasn’t going to spend 5-10X more on transportation if I could just ride the bus.

WHAT A DUMMY

Home Mortgage Refinancing Tips For A Smarter You

Mega MansionThe beauty of an economic downturn is cheap credit.  It’s ironic, because cheap credit is one of the main causes of this collapse in the first place!  That said, for those of you with mortgage debt, now is a great time to call your local bank and check up on rates.  Refinancing can be a daunting process, but it shouldn’t be with the right representative and proper frame of mind.

I recently refinanced one of my rental properties and now is a good time to share with you some key things to think about and assess.  Hopefully by the end of this article you will be able to make an informed decision and save lots of money as a result!

INFLATION

Knowing when to refinance is like being a bond trader.  Bond traders obsess over inflation assumptions, and you should have at least a basic assumption as well.  Clearly, there has been tremendous monetary expansion recently, which should ultimately lead to higher inflation.  Basic economic theory says that for every new $1 dollar bill printed, there will be a $1 increase in prices in the overall basket of goods eventually.  The key word is eventually, which could be decades away.

People have been waiting for higher inflation, and therefore higher rates for the past decade.  Ironically, those with short-term fixed mortgages (ARMs) are this century’s winners, because rates are resetting at equal to lower levels than when they were originally fixed!

Inflation has been coming down now for over 25 years, and I see little reason to expect inflation to suddenly jump higher given the tremendous output gap in the economy.  If inflation does start rising, at least you know that your assets are by definition also rising in nominal value.

The figure to watch is the 10-year US treasury yield.  Currently at 3.4% 2% 1.6% (as of 6/22/12) the yield is hovering close to the lows of the past decade.  Meanwhile spreads between treasury yields and bank mortgage rates have narrowed since the crisis.  Most long term duration mortgages are related to the 10-yr bond yield, hence whenever you see the stock market crashing,watch bond prices rise, and yields fall.  This is the exact time to call your mortgage broker.

DURATION

Book Review & Giveaway: “Your Money Ratios”

your-money-ratiosPublisher: The Penguin Group.  Hard cover. 257-pages. Price: $26.

Author: Charles Farrell, JD., LL.M., investment adviser with Northstar Investment Advisors, in Denver.  He writes the “Retirement Roadmap” column for CBS Moneywatch.

Review: “Your Money Ratios” sings to me!  For someone who loves using ratios such as the 1/10th rule for car buying, and 30/30/3 rule for home buying, I absolutely adore this book.  Charles’ writing style is very balanced and easy to understand.  When it comes to math, many people, including myself fall asleep.  But, if you can just do simple division and multiplcation, this book will keep you on the right path towards financial security.

Charles’ “Unifying Theory of Personal Finance” is his core philosophy that all decisions you make should help move you from being a laborer to being a capitalist.  In other words, make money work for you, and not the other way around.  It’s important that with every single monetary decision you make, you ask yourself will this help you become a capitalist or not.

Capital To Income Ratio