How much life insurance do you need?

Ok...so I decided to find a "how much life insurance do I need" application and tried the one here on smartmoney.com.

I was absolutely amazed that it didn't come up with 3 million or something outrageous. I guess it was written for people and not to help insurance agents. I found out that I was over insured and I was very happy that was the case. :-) Check it out...it seems fairly legit.

Dyson vacuums and how I will not buy from Sears again

The excitement of the night was the new Dyson DC-14 animal vacuum cleaner we bought. More on it in a second.

Basically, this past weekend most of the floors were vacuumed by our Kenmore Progressive cannister vacuum and cleaned with a fairly new Rug Doctor rented at the local grocery store. The Kenmore bit the dust in a mild way, one of the prongs in the power cord pulled off. To fix it either meaned a "big daddy job" splicing the wires together with another plug or paying Sears "at least $50" to put on a new power cord. So, we choose to have it fixed and after talking to the people on the phone to see how much it would be, I looked on the site to locate my friendly sears repair shop Sunday. Monday I drove the vacuum over the the local Sears store where the website said to go, the store said they don't take the things anymore and I had to drive about 20 mins away and that repair shop was only open til 6 PM. It was about 8 PM...so I knew I would have to wait til another day. This evening, we went out of our way..8 miles and 23 stoplights each way...we counted...and we get to the store at 5:25 PM. They close at 5:30 PM. We just made it in time and walk in and the guy says, LAUGHING, you need the hoses with the base. Its a stinking power cord...they wanted every piece of the vacuum to just replace the power cord which should have never broken to begin with. Then he tells us it will take at least a week to fix! Its a power cord!! I was fuming mad...I told Heather on the way home we weren't going back...so it was a new vacuum.

When we got home we got a 20% off Bed Bath and Beyond coupon (perfect timing) and after some post-dinner research on vacuum reviews/ratings at target.com and some reading the Dyson website...we were ready to buy a Dyson. So, I told Heather the best seems to be either the DC-15 or DC-14 animal for our lifestyle. At BB&B, only the DC-14 and DC-07 animal units were available, so we bought the DC-14 and brought it home. Within fixe minutes and without any tools (including no knives/scissors needed to open the box), we had that thing cleaning carpets like the carpets hadn't ever been cleaned. I was absolutely shocked that not even a week after the rugs had been vacuumed and steam cleaned, that Dyson sucked up enough dog hair, dust, filth and grime to fill up 3 of the old vacuum bags...those inferior vacuum bags. I started to use Dyson as a verb, "Let's Dyson the stairs!" and it was one of the coolest cleaning experiences of my life. I mean, I haven't cleaned too much as my wife can contest...but that Dyson cleaned everything better.

Bottom line on this somewhat amusing article is that Sears stinks and the Dyson DC-14 is better than a Kenmore vacuum + a rug doctor. :-)

Interest only mortgages

I would love to see some statistics on interest only mortgages. I believe there are three types of people who get interest only mortgages. One type is like myself, who was looking to put down more money early in the mortgage and when the payments ammortized to have that be lower. Although we have a plan to still pay off our house at the 16 yr mark of our mortgage, I thought that locking myself into the higher interest rate was a higher risk.

I am afraid that the more popular type to use interest only mortgages are those who want to live beyond their means completely. The lower payment attraction of the interest only mortgage catches many eyes...but when someone isn't making ground on their mortgage many of them will have no choice but to refinance when the payment schedule is ammortized and they would have to pay their principal in 15 or 20 years but are only used to paying interest.

I believe there is a third type which is the type to speculate on property values and try to take advantage of a large growth area. Most places, someone could purchase a house in a potentially booming area, rent it out and pocket the piece above the interest, then cash in after 10 yrs from the property increase. However, this assumes property will continue to go up...but I know some people who have thought about this and some who are doing it. So, maybe it is also a popular model?

I would love to see some data about which ways the interest only mortgages are being used. I worry that it is another way that Americans are spending their money without accumulated assets and therefore hurting the economy in the long run. I hope that instead the property values continue to climb and the people making the decision to do the second piece there actually are making money on property values in the end.

Emergency Fund savings...

So, in order to ensure that we have cash should something bad happened, we have an emergency fund as a backup. Most things we read suggested 3-6 mos of your salary as the emergency fund. I think for me it should be 3 mos of bills. Giving, Saving, and Taxes won't be an issue if it is an emergency like loss of job...and you shouldn't be spending it on frivalous things at those points either...so its really just bills.

To battle inflation, we started an HSBC Online Savings account which is offering a 5.05% online only savings account with an ATM or Debit card. Our credit union, Coastal Federal, only offers 1% or 1.25% interest on savings accounts...essentially meaning you lose 2-3% per year due to inflation. I found the HSBC through the comparisons at Bankrate.com...check it out for yourself if you are looking for an account.

Switching to flickr

I am switching to flickr since photobucket has a cap on the size of images they will store which is annoying if you want to re-download them and save them one day.

Why save before spend?

Americans are in debt. No big news. But how bad is it? For the first time in my life time the average savings rate from Americans is a negative number.

Here is an article about the American savings rate. And here is the chart of interest showing the bank rate over the past 10 years:



So, for the first time in 10 years the negative savings rate, in others words I believe this means that people either got in more debt or ate up some of their savings last year on average instead of saving! If we, as a culture do not reverse this trend you can expect very bad things. Why? Let me expand on my theory..

Debt is funded by the savings of the masses. If the masses save less, there is less funding the debt. So, to encourage saving, interest rates will have to go up. If the savings rate goes up, the debt interest rate will also have to go up. Causing people's credit card and home rates to go up means that less people will be able to spend on other goods and/or go bankrupt which will hurt the economy. The downward spiral will cause a recession until the government has to step in and stop the madness driving the government into larger debt.

Ok...that might be a "the sky is falling" kind of attitude...but its only meant to say that we need to reverse this trend. Its vital to our economy and our future in terms of the younger generation. So check out my last blog and think about transforming your approach to spending your net income.

Savings before spending...

At our Sunday school class I heard something thought provoking. It was a concept which had never been made this clear to me. Here is the idea..

The typical American lifestyle goes like this:
Spend->Pay Bills->Save->Give

This leaves little money for saving or giving. I would say the disciplined and well instructed Christian has moved Giving to #1 and maybe Pay Bills to #2 to something like this:
Give->Pay Bills->Spend->Save.

But, the idea was to move the Saving up, especially while you are young and have time on your side. So, it would look like this:
Give->Save->Pay Bills->Spend.

That is absolutely logical when you think about the importance of most of those things...but do we actually do that? I know this is something I have struggled with...but it has me rethinking and relooking at our budget. Can we not have a catch all leftover savings and spend on things even like cable TV at the end? How can we transform our lifestyle and spending to accomodate that? Its an interesting challenge we should all aim to become. More on this soon...

To my Haifa colleagues

I have a lot of Haifa colleagues, and my prayers go out to them especially this morning. I read this:
"Rockets fired from Lebanon rained down on the northern Israeli city of Haifa"

:-(

Mortgage Debt craziness

I heard yesterday a couple facts. To me, these are scary:

1. 90% of mortgages are 30 years.
2. Most 30 year mortgages don't have half their principal paid off until about 21-23 years into the mortgage. The rest of the first ~22 years is all interest!!
   
3. The new trend in interest only mortgages has people not paying off half their mortgage principal until 24-26 years into their 30 year mortgage.
4. 95% of Americans consider themselves not in debt if they have a mortgage.

To me, these facts being close to true are extremely scary. Mortgage is a more binding debt than most of our debts...and the fact that most american's don't view themselves as in debt shows that the mortgage industry is getting what it wants, people locked into mortgages for life.

One thing I firmly believe, everyone should establish a goal when to pay off their mortgage. Of course, that goal shouldnt be in 30 years either. As Heather and I plan for college savings, one thing is evident. If our money wasn't tied up in our mortgage, we could more easily pay for our child's education. We could also save more for retirement and possibly retire earlier. We could go on more family trips and do all sorts of things.

Two weeks ago we didn't have a goal to pay off our mortgage. We are far from perfect. But, now our goal is to pay off our mortgage in 15 years. Since we have been in the house 1 year, this would be 14 years earlier than our mortgage. I hope we can do it..and we will try hard. If we are able to do it, our daughter will be 15 and we will have a few years of being abble to save a lot of money for her to go to college. We aren't throwing away other savings to get their either...we are still going to be saving aggressively for her college. But, as we do so we will also be trying to pay off our house to free up that cash.

To start...who am I

So, I thought I would start at the logical beginning of this blog. Who am I? My name is Erik, I have a beautiful wife named Heather, a fun dog names Cassie, and a baby on the way. We live in Raleigh, NC in the USA. I am a Christian and attend Crossroads Fellowship church in Raleigh. This blog is intended to be my personal blog. I also have a work blog here and a blog about my travels here.