House and Car Expected Features Creep

Buyers expect much more from their homes and automobiles than when my parents were purchasing these items. Part of the increased costs of cars and houses is due to the increase in expected in these products.

In my parents first purchased house, they had all the contemporary amenities: air conditioning, dishwasher, Formica countertops, intercom system, car port, and a 1/4 acre lot in a newly build subdivision.   The first car my dad bought was a stick shift and maybe a radio.  The second car he bought had automatic transmission and a radio, which was the first car that I drove.   The third car was the same, just automatic transmission and a radio.  Finally, in the fourth car, we got air conditioning.

The first house I bought was a 70 year old fixer upper, from which I learned I wasn't good at renovating houses.  I only had the basics refrigerator, stove over an oven, Formica countertop and steel sink without a garbage disposal.  The second house, which I bought 20 years later had still had a basic kitchen, but also had a laundry room, a whole house vacuum system, whole house stereo speakers,  a finished basement and a three car garage.  It also cost 8 times more. 

The first car I bought new was a manual shift, because I wanted one, with A/C and radio which were now standard.  The second car I bought used was still a manual shift, with A/C, radio and tape deck, electric windows/mirrors and was a convertible.  My third car, was used also, added air bags, ABS brakes and multi CD player.  For my fourth vehicle, which I bought new, I regressed and bought a manual pickup truck, with air bags, ABS brakes, A/C and radio/cassette player.

 Of course, no one wants to go back to only the base features that were only available many years ago.  And I realize that a portion the increased costs for houses and automobiles may be due to features that are now expected. 

For more on Crossing Generations, check back every Thursday for a new segment.

This is not financial, car buying, nor home buying advice. Please consult a professional advisor.

Copyright © 2026 Achievement Catalyst, LLC

Refinishing Our Wood Floors

After we bought our house, we replaced all the carpeting on the first and second floors with oak hardwood.  It's been over twenty years.  The oil based polyurethane has turned more orange and has been worn down in high traffic areas like the kitchen.   

It was a lot of effort on our part since we needed to move all the furnishings out of the rooms being refinished.  We managed to do the refinishing in sections, since there were "hard" dividers.  The kitchen was done first.   A year later, we did the dining room and living room.   We did the great room, master bedroom, and steps to the second floor six months later to complete the first floor.  For the kitchen, dining room and living room, we moved the furnishings ourselves to the great room.   For the great room and master bedroom, we hired a moving company to place the furnishings in the dining room, living room and master bathroom.

The refinishing makes us feel like we are in a new house.   In addition, we have purchased a new flat screen TV,  electronics console, and are getting a new couch.   We've move the current leather couch to the basement for use as a recreation area.

This continues our work in progress to make this house our forever home.

For more on New Beginnings, check back every Sunday for a new segment.

This is not financial nor renovation advice. Please consult a professional advisor.

Copyright © 2026 Achievement Catalyst, LLC

Replacing Carpeting on Basement Steps with Oak Stair Treads

The carpeting on the stairs to our finished basement is very worn and soiled.  We have tried cleaning it over the years without much improvement, due to the nap being very compressed.

We've hired a wood flooring company to replace the carpeted steps with oak stair treads.   We were offered two options from different companies.   One company quoted doing retro stair treads that are designed to cap the existing treads.  The treads would then be finished in place. The second company quoted putting actual stair treads over the exist treads and adding a scotia.   The treads would be finished before being attached to the exist treads.

In both cases, we would be responsible for painting the risers and stringers after the treads were installed.

Tearing out the current steps and rebuilding new staircase was considered and discussed with another company.  However, they explained they only work with contractors who would do demolition prior to installation.  Thus, much more complex and costly.

We decided to go with the putting actual stair treads, instead of retro stair tread caps for mainly one reason.  The polyurethane was applied offsite and would be cured before being brought into the house.  Thus, less odor from from the finish which would be less respiratory discomfort for the family.  

For more on Ideas You Can Use , check back every Tuesday  for a new segment.

This is not financial nor remodeling advice. Please consult a professional advisor.

Copyright © 2025 Achievement Catalyst, LLC

Financialization of Single Family Housing

Single family housing used to be an dwelling acquired by individuals to live in.  Owning a house was a goal of many people in the past.    Nowadays, single family housing has become a commodity and is being used to accumulate wealth versus being primarily a dwelling in which people live.

For example, corporations own about 19,000 single family homes in Atlanta, Georgia, controlling as much as 11% of the housing in some neighborhoods.   In addition, AirBNB also has contributed to the financialization of housing, which people buying homes solely for the purpose of short term rentals.

Financialization is driving up the price of houses and making many single family homes unaffordable for young buyers.  In addition, it is driving up the real estate taxes of many long time homeowners, some of whom are retired and only have fixed income.

Instead of corporate ownership bringing down house prices through scale, it has increased prices by reducing competition and controlling supply.

For more on  Crossing Generations, check back every Thursday for a new segment.

This is not financial advice. Please consult a professional advisor.

Copyright © 2024 Achievement Catalyst, LLC

Housing Recovery Hindered by Student Loan Debt

Housing's Biggest Challenge: $1 Trillion in Student Loan Debt  reports one headwind for the housing market is that student loan debt is hindering young first time homebuyers.  Either they don't qualify for a large enough mortgage, nor can they save for a larger down payment.   So despite some of the lowest mortgage rates ever, there are actually less first time homebuyer purchases than normal.

While student loans generally are viewed as good, the delay of housing purchases shows student loans create economic tradeoffs and demonstrates that there are no economic free lunches, despite what some might have us believe.

For more on Crossing Generations, check back every Thursday for a new segment.

This is not financial of housing advice. Please consult a professional advisor.

Copyright © 2013 Achievement Catalyst, LLC

We Voted with our Feet

For most of my adult life, I lived in same city and paid city taxes. When I was temporarily transferred, we sold our house. When we returned, we purchased a home outside of the city limits. Here were our reasons:

Increasing taxes and declining services - During the the 18 years that we owned a house, our property taxes increased six fold without any improvements in city or education services. Despite school enrollment declining, school tax levies were a regular ballot item. (I never did figure out why more money was needed to educate fewer students.) In addition, basic city services such as snow removal were reduced. For example, my street went from being plowed on the first day of snow to two to four days later.

Increasing crime - When I first moved here, most of the city was relatively safe including the inner city. However, the frequency of crime has increased in all city neighborhoods. Just before we moved out, our home someone kicked in our back door and stole our cash and jewelry. Recently, break ins in our previous neighborhood have occurred while the occupants were home.

Declining schools - Both my spouse and I had public school educations. We always planned to send our children to public school. With the exception of one magnet school, the city public schools had a poor reputation.

Our choice to move outside the city has been a good one. For about the same amount of property tax, we have better services, much less crime, and significantly better schools. For example, our streets our plowed within hours of the first snow and our high school is regularly included among the top schools nationally. In addition, our current municipality does not tax wage earnings.

To me, me it's no surprise that the city population is declining, while the suburban population is growing. The city politicians just don't seem to get it. Like some others, the city is considering raising taxes to cover budget shortfalls and unfunded pension liabilities. I'm very glad we have already voted with our feet.

For more on Reflections and Musings, check back every Saturday for a new segment.

This is not financial, tax or policy advice. Please consult a professional advisor.

Copyright © 2011 Achievement Catalyst, LLC

Don't Count on Housing for Building Wealth

House Fades as Means to Build Wealth by David Streitfeld of The New York Times reports that housing should no longer be considered an investment. Housing has reverted to being a home, a place to live, as it has primarily been in the past. Only in the second half of the 20th century was housing used an investment, especially by inhabitants of both coasts. Since World War II, housing rose by 1.1% annually when adjusted for inflation. In the 1990's, housing rose by 4% a year over inflation.

According to the article, it is likely that housing will only keep up with inflation and that is a best case scenario. In the worst case, housing may actually depreciate but at a much slower rate than other goods, such as automobiles.

My parents and I benefited from the housing boom. My parents were able to sell their first two homes for a large gain. This contributed significantly to growing their wealth. On the other hand, their final home, which was purchased in 2000, will likely sell close the the price they paid. While we were able to sell our first house for 2.5 times what we paid, I expect we'll see little appreciation for the home that we've owned since 2003.

Overall, this is bad news for people who used their home as retirement savings. Many are probably close to or in retirement. The good news is for those just looking for a place to live; housing will be reasonably priced for quite a while. Housing may become very affordable again for those who are just graduating from college and younger.

For more on Crossing Generations, check back every Thursday for a new segment.

This is not financial or housing advice. Please consult a professional advisor.

Copyright © 2010 Achievement Catalyst, LLC

A New Paradigm for Home Ownership

As long as I can remember, the conventional wisdom for housing was: 1)a home is a good investment; and therefore, 2) own intead of rent. There have been articles about how a home is a "safe" investment that "always" appreciated on an inflation adjusted basis. Renting meant throwing away good money, while owning and paying a mortgage was financially "smart," due to tax deductions and saving through building equity.

The real estate crash of 2007-2009 has significantly revised the conventional wisdom for housing. A home is no longer a guaranteed appreciating investment. For now, I expect housing prices will be flat at best and probably declining for several more years. As more homeowners walk away from underwater mortgages, the growth in available housing supply will keep home prices from rising.

Renting now appears to be the smarter option, especially in markets where home prices have decline significantly. Homeowners can sometimes rent equivalent houses for much less their monthly mortgage payment.

Here's my new paradigm for home ownership:

A home is a place for me to live. I want a home that provides shelter and amenities that make our life comfortable, including good location, good schools and good neighbors.

It's not an investment. It's not retirement savings. It may or may not appreciate. It's probably a liability, since it consumes about 25% of our monthly expenses even though we've paid off the mortgage. Property taxes, untilities, and insurance are still pretty expensive :-)

Owning versus renting is a lifestyle decision. I choose owning because I prefer the lifestyle, even though it may be more cost effective to rent. Owning offers stability while renting provides flexibility. If I were much younger and without children, I would probably be renting.

It will probably be at least 5, and maybe 10, years before our house gets back to the purchase price of 2003. However, since we think of our house only as a place to live, we won't worry about its value until we sell, which is at least 15 years away.

For more on New Beginnings, check back every Sunday for a new segment.

This is not financial advice. Please consult a professional advisor.

Copyright © 2010 Achievement Catalyst, LLC

Our Approach to Buying a House

I've only purchased two homes and am definitely not an expert buyer. However, I believe our conservative approach has enabled us to pay a reasonable price, get some appreciation, and not lose too much during the housing crash. Here were the key elements to our approach:

Consider an appreciating neighborhood. Within every city, county or region, there are appreciating, stable and depreciating neighborhoods. In some cases, different types of neighborhoods exist close to each other, e.g. an appreciating neighborhood next to a stable or depreciating neighborhood.

After relocating for my first job, I rented for 2 1/2 years before purchasing a home. I eventually bought in a city neighborhood that was highly desirable among young professionals and had been for several decades. After living there for 16 years, we sold the home for about 2 1/2 times the price that I paid.

For our second home, we chose to live in the suburbs, in a highly rated school district. While we didn't have children at the time, we were planning to adopt and wanted the opportunity for a great public school education. Homes in the school district tended to appreciate more than ones in other school districts. Although affected by the housing crash, I think our home value decline was mitigated somewhat by the strength of the school system.

Consider prices at the lower end for that neighborhood. To me, it's better to buy the lowest priced house in a neighborhood versus the highest priced house. I believe the appreciation potential is better for a house at the lower end, as it will be pulled up by the other houses in the neighborhood. Also, I believe the lower priced house will have higher potential for faster resale.

In both cases, we purchased a house the was at or close to the lowest price in the neighborhood. Our current home is the smallest house in our neighborhood.

Take out a 30 year fixed mortgage, with a large down payment. In my younger days, I preferred a 15 year fixed mortgage, with a minimum down payment of 20%. However, for our latest purchase, we decided that a 30 year fixed mortgage, with no pre-payment was a better option, since it gave us more financial flexibility. In addition, we put 40% down, which kept our monthly payment much lower.

By choosing to make a larger down payment, we consciously focused on homes priced 20-30% less than what we could afford with a smaller down payment.

Even though our home value has probably declined about 20%, we are happy with our choice because of the neighborhood and the quality of the schools. We have lived in our current home for almost seven years and, for now, plan to stay for at least another ten. In the long term, as the housing market recovers, I expect a faster recovery for our neighborhood, which should allow us to recoup our losses.

For more on Strategies and Plans, check back every Monday for a new segment.

This is not financial or real estate advice. Please consult a professional advisor.

Copyright © 2010 Achievement Catalyst, LLC

Successfully Reduced Property Taxes

In December, 2008, we had received a notice that our property assessment had increased 3% from the 2005 assessment. Given the recent crash of the housing market, I decided to contest the assessed value of our home and lower our property tax. Based on my appraisal, I estimated our home had actually fallen 16.4% in value since 2005.

Last month, we received great news from the county accepting our estimate of our home value, without attending the usual hearing. Thus, the assessed value of our home will be lowered by 16.4% and the property tax will be lowered by the same percentage also.

Since I was expecting some debate on the value, I called the county administrator to confirm the news. They explained that the data I had submitted provided sufficient support for the revised value requested. Based on the large volume of appeals submitted, the county decided to quickly accept all appeals with adequate supporting data, and only have a formal hearing for those where little or no supporting evidence was offered.

For more details on the process I followed, see Lowering our Property Tax - Doing it myself. Based on subsequent conversations with the county appraisers, I did make one substantial change to the process outlined in February, 2008. Instead of doing one comparison to the average of several home sales, I did three different comparisons to sales of three individual homes that were most similar to our house.

For more on Ideas You Can Use, check back every Tuesday for a new segment.

This is not financial or real estate advice. Please consult a professional advisor.

Copyright © 2009 Achievement Catalyst, LLC

Article on Causes of Mortgage Foreclosure

Being an engineer, I love to read about data based conclusions and how they should affect decisions. New Evidence on the Foreclosure Crisis by Stan Liebowitz in The Wall Street Journal has analyzed foreclosures form the second half of 2008 to better understand the causes and determine whether government intervention will help reduce foreclosures.

Based on his analysis of the 30 million mortgages, Mr. Liebowitz concludes that the main reason for foreclosure is negative equity (285,305). According to the article, only 12% of mortgages have negative equity, but they account for 47% of foreclosures. The second and third reasons for foreclosure were unemployment increase (183,447), and a sub-prime credit rating (148,697), respectively. Fourth on the list was a down payment of less than 3% (130,014), Interestingly, a reset of the mortgage to a higher interest rate (60.492) was the fifth highest reason and significantly less in occurrence than the top four.

Thus, the zero down payment purchases during the housing bubble, the subsequent housing market crash and the increase in unemployment during the recession are likely the main causes of rising foreclosures. Based on Mr. Liebowitz's analysis, it's likely the percentage of mortgages in foreclosure will continue to grow, until housing prices stop declining and unemployment stops increasing.

Unfortunately, Mr. Liebowitz notes, the current government programs of reducing mortgage interest rates and creating stimulus packages do not appear to be helping with either solution, as they are not reducing negative home equity nor reducing unemployment at this time.

For more on The Practice of Personal Finance, check back every Wednesday for a new segment.

This is not financial advice. Please consult a professional advisor.

Copyright © 2009 Achievement Catalyst, LLC

Owning versus Renting a Home during Retirement

I've always planned on owning a home during retirement, with the mortgage paid off. Home ownership without a mortgage seemed to be a financially prudent plan in retirement. However, I am starting to reconsider home ownership in retirement, since it may significantly reduce our flexibility, e.g. ease of transferring to a new location.

Recently, I met a private boarding school teacher, whose housing is provided as part of employment. Besides the benefits of not paying for maintenance, and avoiding the crash of housing prices, his family has the flexibility to move without the burden of selling their current home. As a result, his family is already considering plans for future international residences after their youngest graduates from high school.

My conversation with the teacher inspired some thoughts on not owning a house in retirement. The main benefit is the flexibility to live where ever we would like, without having to sell our current home. Thus, we could easily choose to live close to our adult children, where ever they might go to school or work in the future.

Some might argue that renting would expose us to rising rent costs, especially if there is higher inflation. However, having our mortgage paid off does not eliminate housing costs. We still have property taxes, repairs, and maintenance costs which can be quite high, being 15 to 20% of our annual budget. And these costs also rise with time.

Since our daughter is still in pre-school, we'll keep the house at least until she graduates from high school. For now, we like the stability of living in the same neighborhood and same school district until she is ready for college.

However, once she is in college, there will be less reason for us stay in our current home. At that time, it may be beneficial to sell our home, both for financial and lifestyle reasons.

For more on Reaping the Rewards, check back every Friday for a new segment.

This is not financial, home ownership, or retirement advice. Please consult a professional advisor.

Copyright © 2009 Achievement Catalyst, LLC

How We Think About Our House Financially

We really like our house. We live in a middle class neighborhood with a good school district. We hope to live here until our daughter graduates from high school. As a result, we do not take any financial risks with our house. Here's our financial do's and don'ts for our house:

Our Do's:

1. Think of a house only as our home. It's a place to live, enjoy and raise a family. Although it does have a value, we don't think of it as an investment, an appreciating asset or savings. We don't worry if our house is going up or down in value since we aren't planning to sell in the near future.



2. Know a house is a big expense. If we were barely meeting our expenses while renting, we would not buy a house. To me, the cost of owning is much higher than renting. There is the mortgage, taxes and upkeep. Not to mention the additional time and effort one needs to spend on maintenance.
   
   We try to set aside 1-2% of our house value each year for eventual major repairs, e.g. new roof, new furnace, that do not occur every year. For example, this year we have replaced a furnace and a/c unit and will replace our roof, at a cost of 6% of our home value.



3. Get a mortgage that is easy to pay now and in the future. When we bought our house, we could have easily qualified for a 15 year mortgage for 80% of the home value. We chose a 30 year fixed rate mortgage for 60% of the home value to keep our payments lower. When possible, we do send in extra principal payments and are on track to payoff the mortgage in 15 years.
   
   I have never seriously considered an adjustable rate mortgage. I prefer knowing that my monthly payment will be constant for the entire time that I have the mortgage.

Our Don'ts

1. Think of house as savings or an investment. We don't count our home equity in our retirement savings analysis. That's because, unlike stocks, we do not expect to sell our house to raise cash for yearly living expenses.



2. Borrow against the increased equity. We don't think of our house as a ATM to get cash. If our house increases in value, we don't borrow against that part. However, I consider OK to refinance the loan for the original amount and time, but at a lower interest rate. This reduces the monthly payment and allows some cash to be taken out.

We prefer to take minimum financial risk when it comes to our home. It's something that we definitely don't want to lose because of a short term financial set back.

For more on The Practice of Personal Finance , check back every Wednesday for a new segment.

This is not financial or real estate advice. Please consult a professional advisor.

Copyright © 2008 Achievement Catalyst, LLC

Will 2008 Be A Good Time To Buy Real Estate?

For me, the answer is "it depends." If I were previously considering buying real estate, e.g. a personal residence or a rental property, the answer for me would be "yes." If I wasn't in the market, the answer is "no."

Since we already own a home, don't need a vacation home, and am not financially able to consider investment property, our answer is "no." Just because something goes on sale doesn't mean I should buy it to save money:-) However, here are situations in which I would consider this year a great time to buy a home:

1. Bargains: The sunny side of the real estate slump by Judi Hasson at MSN Real Estate shares some yes situations I would consider if I were in that situation:


2. Renters - When mortgage, taxes and insurance are less then current rent. In the article, a renter reduced her monthly "rent" payment by $200 a month. This is a great deal if one can avoid moving for a few years.


3. Craftsmen - If one has skills to rehab, can get a great price, and live in it while doing the work. Being able to do it oneself and live it in provides a good margin of safety.


4. Investors - An experienced and successful real estate investor and have cash available. Having one's cost of goods decline is a great way to increase profits.


5. Playing the Housing Slump - Time to Make Your Move? by Jonathan Clements in The Wall Street Journal offers another situation I would consider, i.e. helping one's children buy their first home.



6. Finally, The Brighter Side of Housing by James R. Hagerty of The Wall Street Journal shares how people previously priced out of the housing market are now able to purchase homes that were previously "unaffordable."

While it's tempting, I am not looking at the housing crisis as an opportunity to become a real estate investor, landlord or vacation home owner. At this time, I don't have the experience, time, or available money to do any of the three.

For more on Ideas You Can Use, check back every Tuesday for a new segment.

This is not financial or real estate advice. Please consult a professional advisor.

Why We're Keeping Our Mortgage In Retirement - For Now

One of our retirement goals was to be debt free, including not having a mortgage. However, when I retired in my forties in October, 2007, we were still about 12 years away from paying off our mortgage. For now, we have decided to keep paying on our mortgage for at least the next few years. Here are our reasons for keeping the mortgage:

1. Payoff size. Although our loan principal is about 45% of our home value, it would still require about 138 times our monthly payment to pay off the mortgage. In other words, we can pay our mortgage for 11.5 years with the money needed to payoff the loan. From a different perspective, the money required was 7.7% of our total savings. Overall, I thought it was less risky to continuing paying the mortgage than to reduce our savings by 7.7%



2. Ability to use the deductions. Since our investments and converstions to Roth IRAs will create income, I can still use the mortgage deductions to reduce taxable income. If we didn't expect to have taxable income, the deductions would not be as useful.



3. Low interest rate. We currently have a 5-3/8% fixed interest rate. By investing in the stock market, we hope to achieve 8-10% gains with the funds. Hopefully, the next couple years of stock market returns will be better than January, 2008:-)

Originally, we wanted to pay off our mortgage by retirement. Doing so would reduce our monthly expenses by 21%, which made the pay off option attractive. However, after doing the above analysis, we determined it would be advantageous to delay paying off the mortgage for at least a couple years. Keeping the mortgage will help us have more liquid savings, which can be a buffer against stock market fluctuations.

For more on The Practice of Personal Finance , check back every Wednesday for a new segment.

This is not financial advice. Please consult a professional advisor.

Copyright © 2008 Achievement Catalyst, LLC

Pondering Financial Risks In Our Retirement

I have been thinking about scenarios that could have a negative on our retirement savings and contemplating possible solutions. Here are the major potential issues that I have identified so far:

Stock market crash or a long recession. With the recent stock market volatility and credit crisis, this appears to be the biggest risk to our retirement savings. Based on analyses by our financial advisor, our highest risk is below average market returns during the first few years of our retirement (i.e. right now). Interestingly, low returns in later years have less of a negative effect since the portfolio had an opportunity to grow initially.

While I have no solutions for a 10 year crash or recession, I believe we can weather a short term (one to three year) correction by putting a portion of my retirement savings in short term CDs, bonds and money market funds. Thus, if there is a market correction, we won't need to sell stocks at a loss to fund living expenses. Another option I am considering is to take on part-time work to slightly reduce the withdrawal amounts during the initial years of retirement.

Health issues. Thus far, we have been fortunate to have good health in our family. However, I recognize that a catastrophic health event can cause significant financial challenges. While future health issues are not predictable, we are taking the following precautions:

1. Lifestyle and food. We are consciously increasing our physical exercise and I am improving my eating habits. My spouse and I are doing weekly yoga classes, in addition to my weekly tennis matches. Over the next few months, I plan to add some running and weight training back into my regimen. While my wife has always been a very healthy eater, I have been a relatively poor eater. Since retiring, I have adopted some of my wife's food preference, resulting in me feeling better and losing about 10 pounds.



2. Medical insurance. As a retiree, I will be able to maintain my company's medical insurance, although at a much higher cost. However, I am glad to pay this insurance premium since it will provide some protection for our retirement savings from major health issues.



3. Long term care insurance. Both my wife and I have long term care insurance, which provides for the cost of nursing home, assisted living or home care if we should need it in the future. With the cost of nursing home care at $5,000 to $9,000 per month, we wanted make sure it can be covered in the future. Fortunately, since we are in our forties, the premiums are still relatively low and worth the peace mind we get.

Longer life. Recently, I have heard some scientific reports that the human body could make it to 150 years or more. However, disease and other factors keep people from reaching those ages. What if there are medical advances that enable 150 years of age during our lifetime? While I think our retirement savings will last 40 to 50 years, I'm not as confident it will last over 100 years :-) On one hand, I want to make sure we enjoy the next 5o years, but it could be devastating if we run out of funds in the final decades of our lives.

At this point, I don't have any firm solutions developed. One option I have considered is to use our home to fund the later stages of retirement. Since we will likely need a smaller home as we get older, the equity in our home could be monetized via a sale or reverse mortgage. Another option I will investigate is buying a variable lifetime annuity which will provide an income stream for the rest of one's life. While I don't think this a good option for us now, it may be something worth considering in our eighties or nineties.

For more on Reflections and Musings , check back every Saturday for a new segment.

Photo Credit: Wikimedia Commons, CJ

This is not financial or insurance advice. Please consult a professional advisor.

Copyright © 2007 Achievement Catalyst, LLC

Reduce 2007 Taxes: Accelerate Deductions or Delay Income

To reduce one's 2007 taxes, a good strategy may be to accelerate deductions or delay income. This can be an especially good strategy when one's expected income is significantly higher in the current year than in the upcoming year. Also, it's a great benefit when the actions result in a moving one to a lower tax bracket. Here are some ideas that one can use.

Accelerate Deductions

1. Charitable donations. Donations to churches, universities or charities (e.g. Salvation Army or Goodwill) can easily be accelerated into the current tax year. In some cases, the organization can give one credit against a future pledge.



2. Property taxes. In my county, one can choose to pay next year's property tax in the current tax year. When one does this, two times the property tax can be used for itemized deductions. However, if one has triggered the AMT tax, additional property tax deductions will reduce one's tax liability.



3. Supplies. For the self-employed, one can purchase additional supplies or pay other legitimate expenses. Purchases should be done within reason. Three extra months of stationery supplies may be reasonable. 10 years of supplies would not.

Delay Income

1. Retirement account. Contributing to a tax exempt retirement account is the easiest way for a wage earner or a self-employed person to defer income. If one is not already maxed out, increase 401K or deductible IRA contributions.



2. Bonuses. While one cannot delay taking wage income, sometimes a bonus can be taken in the following tax year. Check with your employer.



3. Billing. If one operates on a cash basis, one can sometimes delay billing to the following tax year for services provided this year. This makes sense to do if the following year is not expected to generate as much business as this year.

Since I have been employed by a company for all of my working career, I have only used #1 and #2 for accelerating deductions and #1 and #2 for delaying income. If I should create self-employment income in the future, I will consider using #3 for each approach.

For more on Ideas You Can Use , check back every Tuesday for a new segment.

This is not financial or tax advice. Please consult a professional advisor.

Copyright © 2007 Achievement Catalyst, LLC

Bracing For A Possible Housing Crash or Recession

Recently, the talk in media is becoming more doomsday about the housing market and the potential of recession. Executives are coming forth with comments on a housing led recession, including Angelo Mozilo , Countrywide CEO, Bill Gross, PIMCO CIO, and Alan Mulally, Ford CEO. Interestingly, these commenters are those with a large vested interest in a Fed intervention. Countrywide originates 17% of mortgages in the U.S., Mr. Gross has been betting (incorrectly) on interest rate declines for the past two years, and Mr. Mullaly is concerned about the mortgage mess spilling over to auto financing. It's not enough talk for me to be worried, yet. However, it's enough talk for me to think about what I might do if there is a further housing downturn that is accompanied by recession.

Here is my current plan:

Avoid selling in short term. We consider our house a place to live, not an investment. Our house was purchased in 2003, with plans of staying for a decade or more. I don't expect any more job relocation with my company. We like our neighbors, proximity to shopping and the general area. Our house is a great match for our lifestyle and potential family growth. The school system is excellent.

Count on our margin of safety. We made a 40% down payment on our house and borrowed 60%. Also, we did a 30 year mortgage, even though we planned to pay it off in 15 years. By doing this, we kept our mortgage payment less than 13% of our monthly income. Also, we have an emergency fund that can cover at least a year of expenses, including our mortgage payment.

Reduce real estate tax. In the event our house value declines significantly, I will petition for a reassessment of our property. If accepted, our real estate tax would be lowered significantly.

Identify investment opportunities. When there is crisis, there is also opportunity. I am still contemplating how I could have profited from the housing and subprime collapse. I have seen a significant increase in foreclosures in my area. One of my wife's cousins has found a reasonable approach for foreclosure purchases. He rents his properties with option to buy, providing income and giving the buyer the opportunity to build equity before the final purchase.

Finally, I will maintain a large cash reserve to invest, should a good option be found.

For more on Reflections and Musings , check back every Saturday for a new segment.

Photo Credit: morgueFile.com, Clara Natoli

This is not financial, real estate or investing advice. Please consult a professional advisor.

Copyright © 2007 Achievement Catalyst, LLC

Do-It-Yourself - Do The Basics and Save Money

This has be the year of "home maintenance" projects. We have lived in our home four years and it will turned 20 this year. Until now the home has been relative maintenance free. However, this year, we have had to do a number of projects, including hiring professionals to do the work. Even so, there are still a number of projects that I will do each year, perhaps saving $1000 to $2000 per year.

Here's a list of projects that I will do (basic) and need to hire (advanced). For some of the basic items, the first time usually takes longer due to learning how to do it. However, the cost saved and the future reduction of effort is worth it.

	Type of Project
Category	Basic	Advanced
Lawn	Mow, edge, fertilize, seed	Resodding
Sprinkler	Adjustment	Add new sprinkler head
Landscaping	Design, planting, trimming, mulching	Remove tree
Driveway	Sealing	Repaving
Painting	Touch up, minor trim, single room	Entire house exterior or several rooms
Plumbing	Drip leaks, caulking, new sink or toilet	Requires soldering
Gas	Piping and fittings in open area	Piping behind walls
Car	Oil change, light change, flat tire	Tune up, brakes, body work
Electric	Change fixture or switch	Rewire
Masonry	Minor patching of mortar or concrete	Relaying brick or pouring concrete

For reference, the blue items I used to do myself. However, I now have others do it since the cost has become very reasonable. For example, changing oil at the dealer is about $25, only $2 more than the materials (oil filter and oil) I would need to purchase. Also, for some reason, grass cutting prices are very competitive in my area, $35 for 1/2 acre, including edging. Normally, this would be a three to four hour job for me, with a push mower.

To note, many of the basic do-it-yourself projects require additional tools. Since I previously owned a 80 year old house, I have every tool imaginable :-)

Reference Materials
With projects that I do infrequently, I like to have a "how to"reference to use. Here are several that I like to use:

Instruction manuals. Often, the manual for cars and appliances can be found on the Internet. About 80% of the time, it will have the information I need, including diagrams, part numbers, specific tools and troubleshooting guide. The other 20% of the time, it gives about half the needed information, requiring further search.

Do It Yourself or other reference websites. There are a number of websites that give generic instructions, guidance and tips. One that I have used is How Stuff Works.

Lowe's. The staff at Lowe's is typically knowledgeable on most do-it-yourself projects. Often they will have a plumber, carpenter or other craftsman on staff. They can usually help me with about half to three quarters of the projects without an instruction manual.

Local repair or manufacturer customer service. My final resource is a local repair shop or the manufacturer. About 90% of the time, someone is able to talk me through the repair steps or explain the additional parts needed.

Savings

Recent projects have included fixing a toilet leak and a car A/C condensate leak. I estimate these projects saved me about $150 to $200, which was a pretty good return on my time.

For more on Reflections and Musings , check back every Saturday for a new segment.

Photo Credit: morgueFile.com, Michael Connors

This is not financial or home maintenance advice. Please consult a professional advisor.

Copyright © 2007 Achievement Catalyst, LLC

Home Maintenance Costs AND Planning For Them

Our house had been relatively maintenance free until 2007. In early 2007, we started needing repairs which I could do myself. However, as the year has continued we have needed professionals to do some of the maintenance work. Here are the costs of the major work.

New appliances. We have been making more than needed frequent adjustments to our refrigerator over the last few months. Since it was the refrigerator that came with the house, we decided to purchase an upgraded one versus repairing it. The cost the appliance was 0.3% of our house.

Exterior painting. The paint on our house was beginning to chip. We hired painters to do all the work, plus some carpentry work. Cost was 1.4% of our house. (For reference, I am not a particularly good painter of windows nor on the second story.)

Roofing. This past winter we had a freeze-thaw that caused an ice dam and created several roof leaks. I was able to make temporary repairs with silicone caulk. However, we wanted a more permanent solution since I don't particularly like climbing up on the roof every year:-) Cost of repair was 0.4% of our house.

Masonry. Our home sidewalk and patio is lined with brick that matches the house. Unfortunately, the mortar in the brick is breaking up. Estimated cost of repair is 1.2% of our home price.

Miscellaneous other small maintenance items include the garage door adjustments, yard sprinkler replacements (DIY on the easy ones) and mulching (DIY since I own a truck:-)

Overall, the cost of major maintenance and repairs for the 2007 will come to 3.2% of the price of our house. Fortunately, we have been putting aside 1.5% of our house price each year in the 4 years we have lived here. As a result we have saved 6.0% of our house price for maintenance and will spend half of it this year.

By doing these maintenance activities this year, I expect that we won't need to major repairs for several years. The major ones that will come in the next 5 -10 years are furnace and A/C replacement (estimate at 2% our house price) and roof replacement (about 5-7% of house price). We will continue to save 1.5% our house price in anticipation of these future major costs.

For more on The Practice of Personal Finance, check back every Wednesday for a new segment.

Photo Credit: morgueFile.com, Nitpix

This is not financial advice. Please consult a professional advisor.

Copyright © 2007 Achievement Catalyst, LLC