Income for Life : A Little-Known Way to Cut Your Mortgage Payment

Tuesday, January 4, 2010

Market Update: Congrats - You Got a 2% Raise for 2011!
Feature Article: How to Be a Miserable Investor
Critical Reads: A little-known strategy to cut your Mortgage Payment
The Funnies: Are Helmets Really Necessary?

Congrats - You Got a 2% Raise in 2011!

Did you know the recently passed tax law may have given you a raise for 2011? Believe it or not, your payroll tax withholdings will decrease in 2011 to 4.2% from 6.2%. This is a 2% savings and will translate into more take home pay for your family throughout the year.

Most experts suggest using this tax cut to increase your 401k contributions. Why not turn this tax savings into additional retirement income? Talk to your employee benefits administrator and simply raise your 401k contribution amount for 2011 by 2%. You can read more about this idea on Fidelity's website at this link. Scroll down to the section titled "How It Affects Your Take-Home Pay" for steps you might take with this 2% raise!

How to Be a Miserable Investor

The late Johnny Carson (Tonight Show) once gave a commencement speech to a group of students graduating from Harvard. His speech was titled, "Prescriptions for Guaranteed Misery in Life" and he said that he couldn't tell the graduating class how to be happy, but he could tell them from personal experience how to guarantee misery. Carson went on to list three ways to guarantee misery based on his own experiences in life. These three ways were: 1) ingesting chemicals in an effort to alter mood or perception, 2) Envy, and 3) Resentment.

Well, in this article, I'll try and share how you can be a miserable investor.

1. Go All In - When many investors see a good investment opportunity, they quickly decide to "go all in" and invest the majority of their capital. This is because they hope to make more on the investment. "Going all in" is a recipe for disaster for two reasons. The first is quite obvious - which is you stand to lose a great deal if the investment tanks. If you stand to make a lot more, you also set yourself up to lose a lot more, too! The other reason "going all in" is not the best strategy is because you won't have funds available to investing into other opportunities. Always try to keep a certain portion of your capital in cash so you can move quickly, if you see a great investment opportunity.

2. Believing Greed is Good - Gordon Gecko was wrong when he said, "Greed is Good" in the movie Wall Street. Greed is definitely not good and has caused many investors to get crushed. Greed pulls you into wanting more and this desire causes you to take additional risk. Risk is your enemy as an investor. In fact, your main objective as an investor is to preserve capital, not increase your investment returns.

3. Borrow Money to Increase Your Investment Returns - Some investors borrow to invest hoping to increase their returns. (Good ole greed!) This would include buying stocks on margin or any other investment where money is borrowed to buy the investment. Borrowing works wonders in a rising market. However, in a falling market, debt or leverage will take you down quickly. Since we cannot forecast with accuracy rising and falling markets, debt should be avoided or minimized.

4. Thinking You Can Make Huge Returns as a Passive Investor - It's virtually impossible to have huge investment returns as a passive investor. Warren Buffett who is arguably one of the best investors in the world averages over 20% a year. On the surface, it seems as if he is a passive investor. Nothing could be further from the truth. Buffett is a very active investor and devotes a significant portion of his time into studying various investment opportunities. In addition, he typically participates in the management of the business for many of the stocks he owns. To increase your investment returns, you've got to become an active investor. This includes learning everything you can about the specific investment. It also means investing in a way where you can control the actual returns on the investment.

5. Not Protecting Your Assets - It's not fun to plan for rainy days when the sun is shinning, but it's critically important. As noted above, the main goal is to protect capital, not increase investment returns. Protecting capital includes all of your assets, not just your investments. In fact, the most risky asset you have is your car. You've probably read about car accidents and multi-million dollar law suits. Most people think that something like that could never happen to them. But it can. It's always better to be safe than sorry!

Tiny Apartment Transforms into 24 Rooms

Do you sometimes feel as if you're home is too small? Well, check out this 4-minute YouTube video highlighting how a tiny apartment transforms into 24 rooms. Is it possible to do more with less?

A Little-Known Strategy for Cutting Mortgage Payments

Lynnely Browning recently wrote an article for the New York Times highlighting the strategy of "recasting" or "re-amortizing" to cut your mortgage payments. According to her article...

"It involves paying off a lump sum of the principal amount and asking to have the monthly payments reset according to the original interest rate and loan terms. The lump sum reduces the principal, so your new monthly payments decrease slightly and you save on interest paid over the life of the loan.

Lenders typically charge an administrative fee of $150 or more for this service, though borrowers are not required to pay closing costs or submit to another credit check, because they are not asking for a new loan.

Recasting works well for those unable to qualify for refinancing amid the ever-toughening credit guidelines perhaps because they are self-employed or have less-than-stellar credit as well as for those with extra cash, like a year-end bonus."

Paying down debt is one of the best investments you can make and this strategy might help cut your mortgage payment. You can read the full New York Times article by clicking here.

Former US Treasury Chief Loses ONE Million on His Home

Former Treasury Chief Henry Paulson recently sold his three bedroom home for $3.25 million. Paulson purchased this 2,260 square foot home in 2006 for $4.3 million. The home sat on the market for 8 months before it's sale on December 21, 2010. You can read the full Bloomberg article at this link.