I am kind of disappointed this morning since I found out yesterday that the refinance on the rental homes would not work. Apparently, my credit score is not good enough. Ever since 2008, it has been incredibly difficult to get credit so I will be focusing on getting out of debt instead.
Ultimately, it turns out that the net impact on the monthly cash flow won’t be all that different without the refinance. That is because I had to have 2 appraisals and one came in below the expected amount. As a result, I had set aside $10,000 to bring to closing in order to save about $650-$700 per month through decreased payments.
Now that the refinance won’t be going through, I will using that money to pay down a credit card balance in order to save over $2300 per year in interest. Once I get this card paid off which should be in the next few months, I will save almost $800 per month in cash flow which can be added back into the budget. So all is not lost with plan B.
Then once that card is paid off and I get a little more credit card debt eliminated, my credit score may very well be in a better place that I could refi the rental houses, decrease my interest rate and my term. I don’t anticipate rates moving up any time soon. I would think that I have a year or more to get a better interest rate.
If not and rates start to increase, that would mean that the economy is heating up which will only help my retirement account investments in the stock market. So I look at it as a win-win.
With this behind me for the time being, I can now focus on getting the business transaction complete and meeting my 2 goals for this year which are losing weight and paying off debt. In fact, I am about to launch a blog solely devoted to working my way out of debt which should bring some increased accountability and motivation to the equation.
I will let you know when it is up and running.
Here are the recent carnivals that have included articles from my blogs:
As you can surmise from the title, last week was atypical and unique. Early in the morning hours on the Saturday following Thanksgiving, my father passed away. He had been suffering from Alzheimer’s disease with some serious memory impairment for the past 2 years, but eventually got bad enough that my mom could no longer care for him at home. Physical decline accompanied his mental decline such that the last six weeks of his life, things went downhill fairly quickly. At least it wasn’t all drawn out.
If you have been reading the blog, you know that we went out and pre-paid for the funeral in order to spend down assets to help my dad qualify for medicaid while allowing my mom some money to live out the rest of her life. Her mother lived to 94, so she could have another 25 years left and is still in good health currently. Ultimately, he died before the application was even ready so it really didn’t matter, but it did open up the door for financial discussions.
Do I Have Enough Life Insurance?
Of course during these times, we always reflect and confront our own mortality so I have been looking at some of the financial aspects of my life and other aspects as well. I am pretty well convinced that I have enough life insurance. If something were to happen to me today, the amount of life insurance that I would receive would pay for the funeral, would pay off every liability (including my portion of a commercial building) plus leave enough left over that my wife could easily live for the rest of her life without working.
Passive income from the rental properties should be enough to live off without even touching the extra cash left over from life insurance. Of course assuming I survive today, my plan is to get some of that debt paid off which would make the numbers look even better. Which brings me to the next point.
I will give my parents kudos for not having any debt at all. My mom lives in a paid for condo, has two vehicles and has some cash set aside along with a death benefit that she will receive. Unfortunately, it is not all that much, but will help out. Her biggest issue is that she operated on the belief that retirement means saving what you can and living off the savings.
When we looked at her budget, it worked as long as my dad was alive. Now that he is gone and looses his pension and social security, her budget will be somewhere between $500-$1000 short per month. Looking at that kind of burn rate, she could probably make it for 15-17 years. I suppose we will need to reassess her budget at the beginning of the year after everything has settled down a bit.
But it still gets me to thinking that savings are not enough. I want some passive income.
Finding Passive Income
I am clearly not at the point where I can retire, but I also don’t want to spend the next 25 years working full-time either, especially if I might be in line for getting Alzheimer’s. I would like to be in a much better position in the next decade. That is going to involve eliminating a lot of debt. Once that is done, then I will be looking into purchasing assets that will throw off cash so I can meet expenses without having to work as hard.
Real estate and dividend stocks will be my main focus, but the first step will be to free up the cash by eliminating debt payments. I look at all the money I spend on mortgages, student loans, auto loans, credit lines, and credit cards and figure that I could be in such great shape if I wasn’t working so hard for others.
I will probably put together a little blog on debt so I can record my thoughts and keep myself accountable. Once I get it together, I will let you know, but I really want to get this debt thing under control in the next 5 years so I can start looking at slowing down. I am putting together a plan and will execute it accordingly.
Obviously, I have had plenty of other thoughts over the past week. I am glad that my dad didn’t have to suffer any longer than he did. It could have been worse. The service was nice. It was good to see all the people. And getting back to work was difficult. At least, it is a slower time of year.
Anyway, thanks for reading. Hope your December is not too crazy with the holidays. I am looking forward to another year coming up counting on the Mayans being totally wrong.
Here are the carnivals that included articles from my blogs in the past week or so:
I just paid my least favorite bill yesterday. It is a bill that arrives quarterly and without fail. It is almost as much as my house payment, and would be more if I didn’t escrow real estate taxes and insurance. I am talking about my quarterly payments for life and disability insurance.
Now I do realize that I have to have the insurance since I am young enough with 5 kids still living at home. And the good news is that I do have adequate insurance should I die. It would be a struggle if I become disabled, but I am working on trimming down my monthly expenses so that I might be able to get by on less.
Nevertheless, I hate having to pay that much money every 3 months for something I hope to never actually use. This provides me with another good reason to get out of debt and be able to achieve financial freedom so that I don’t have to spend so much money on life insurance and disability insurance.
Three Year Plan
In July, I took the time to segregate my debts and pull out all of the consumer debts that I would like to get paid off in 3 years. I did this because it seemed rather convenient to look at the credit card statements for some useful information. You know those boxes that tell you if you pay the minimum it will take you 47 years to pay off the balance, but by paying a little bit more, you can pay it off in 36 months. That is the information that I put together in a spread sheet.
Well, now it is time to start doing something about it. Why? Because a third of my budget is going to these credit card, auto loan, and tax debts. Imagine the extra money that I would have each month if I could simply pay this crap off. Plus, the interest rate is high on some of this debt also. The auto loans are at zero percent, so I won’t be paying those off early, but getting the credit cards taken care of is becoming a very high priority. At the end of the three years, I would still have mortgages and student loans to pay off, but the low interest rate is not near as painful.
In fact, I have even thought about starting another blog solely for the purpose of keeping me motivated and on track. A little online accountability can go a long way. Not sure if I will be doing that, but the thought did cross my mind.
The Ultimate Goal
Ultimately, I would like to be able to get rid of my life insurance and disability policy because I am financially free and making some passive income. If you have no debts and income producing assets, then you really wouldn’t need to have those types of policies. Then I could get rid of my least favorite bill.
Readers, what would you do if you had all your debt paid off?