Saturday, July 9, 2016

Money Screw Ups: And the Frugal Living Lessons that Will Save You - 1



Personal Finance Wipe Out Avoided by Frugal Living Lessons


2015 was quite a money ride.  Some of the progress toward financial freedom made following my own frugal living tips (outlined in this post "Can I make it on $3k per month?"  got tossed overboard.  
  

Cushion the Body Blow with Frugal Living 


I can recover because my frugal living ways helped me saved.  That and the personal finance software addiction and fascination with minimalism and aggressive downsizing

But my pride and confidence hit the surf and it felt like I slammed into concrete.   Worse, it may have derailed complete financial freedom by a year or more.  

And some of it I could have avoided by listening to those much wiser than myself.     

Surfing Lessons From the Sages


1.  Retirement really is a psychological journey and you might want to prepare for that.

The first time I retired was about 15 months ago.  

As the retirement sages on www.earlyretirement.org said might happen,  I experienced a sudden depression. 

I wasn’t ready psychologically or emotionally, which affected how I dealt with the other surprises to come (i.e., not great). 

Just like every one said -- a great deal of your self ­perception can be tied to your work identity and title.  

In the past party talk - "So, what do you do?"  

My answer  - "Oh, I am a marketer and public relations professional."  

Notice - I didn't say what I do.  I said "this is who I am."   

It took about a year to adjust.  Therapy helped.  So did part-time work and volunteering for professional associations.  

There are plenty of resources on the web about transitioning to a new life phase, even AARP has a coaching service available.    

2.  Sound financial planning is not an exact science.  

I asked all the wise ones on the early retirement forums for advice as to "don't I have enough to pull the plug on this job?"  

The answer wasn't as positive as I expected.  As much as I had saved, they still said, "you need more of a safety cushion, nobody gets this stuff right on the money.  Hold on!  Give yourself a 5-10% margin of error." 


But I hated the idea of holding on another year.  
  • There was $350K in 401Ks plus $65K in cash,
  • Two guaranteed pensions starting in two years that would provide $24K per year. 
  • That was before social security.   
  • Monthly spending was down to $3500 (plus or minus 5%).   
  • The corporate situation was brutal. 

So I took the leap anyway.    

Looking back?  It was the right thing to do for my health.  But the sages were right too, I needed a 20% cushion and only had 5% planned.


3.  Don't Forget 20% Taxes on 401K withdrawals 


When I did my first trial run for 30 days into retirement, April 2015, I hadn’t figured out how to withdraw my savings in the most tax efficient way.   

401K withdrawals I made for that month almost triggered a big taxable event.   

I also learned that your 401K plan may very well be required to keep 20% of the withdrawal as tax withholding. 

No matter what your tax bracket was last year or might be that year.  

Check your 401K withdrawal required tax rate. Because of how little I had made in 2015, I figured there was no way I would owe the full 20%, so I hadn't figured that deduction into my cash flow equations.  I needed the cash (I only had a 5% margin of error, remember?  Not 20%.).

So TIAA­Cref help me rescind the withdrawal.  I immediately went back to the drawing board. I had a year of after tax savings, thanks to frugal living habits, so not all was lost.

4.  Renting Can be Great - Or a Budget Killer. 

My rent was cheaper than owning a home, right? It was. Then it wasn't. 

I had downsized and done the Marie Kondo Magic on my stuff down to 600 square feet. 

http://tinyurl.com/jbru7ps
The rent was reasonable, it was a great neighborhood, I could walk to the grocery store and had covered parking. I originally signed a 6 month lease and intended to keep rolling over the 6 months leases figuring a 1 or ­2% bump each lease increase. 

Big joke on me. Rent went up with a 10% penalty for my next "short ­term" renewal, i.e., 6 months. Which had been the original lease term and wasn't considered "short­ term" before. 

And the 1 year and 2 year renewal rates?  They were still higher than I had ever paid and more than fit into the budget. (WTF?)  

“We changed our policies,” management told me, when I pled my case.  

Someone else clued me in that it was a bait and switch played on most of the tenants.  The demand was high for this area and a one­ bedroom unit.  Management just assumed that people wouldn’t want to move, so they would pay to play. 

Screw them.  

So I went back to the drawing board, again, looking for a cheaper housing alternative.  I had savings thanks to my frugal lifestyle so, again,  all was not all was lost.
   
I decided to stop playing the rental shell game and buy a condo in the neighborhood instead.  No more worrying about rent going up.  

And mortgages are smart financial vehicles for building wealth right?  They are if you qualify for one...

5.  You Might Need to Keep your Job just to Get a Mortgage

It's almost impossible to get a mortgage without employment income.  No matter how much cash you have in the bank.    A mortgage is based on your future W­2 income ability to pay.  

You also can’t get a great mortgage when a hospital has sent you to a collections agency for a $75 bill from ago that you never received, so of course, you never paid.  

How can you pay something you didn't even know existed? 

And you only find out about it when the mortgage company mentions it, like "hey, what's this??" 

So... Could I buy a condo outright with cash?  Yes, but with 401K money.   No issue with the credit reporting mistake that the hospital made.    

Would it trigger a 45% tax bill to pull out the $100K chunk all at once?  Yes.  Which would drown me financially.
  
Can you get billing mistakes like this reversed from your credit report?  Yes, you can. I had the credit mistake completely removed from my credit report.  (Let me help you do it ­­ I love to kick some bull sh*t creditor ass).  

But it took months and months to complete.  

If you plan on buying a home anytime soon, follow that advice about checking your credit scores with all three companies.  If I had done that earlier, I might have had enough time to straighten out the hospital’s mistake before I was stuck in a situation that forced my interest rate up to 4.65% in a 3.35% market.

By the way, a year later?   I still have too many "hard credit pulls" on my credit report to get a perfect score, even though everything else is 100% perfect.  Even though all the pulls are due to mortgage loan requests. Here are the resources I found to help me and you recover:  
  • Your US Congressman's office.
  • Your state’s attorney general’s office ­ consumer affairs department.
  • Repeated calls to the hospital's billing department.  


6.  And the scams in the mortgage industry now are beyond criminal.  Even some of the good guys are really bad guys.  

Even mortage lenders you would think are perfectly legit, like Capitol One 360.  

Ask your title company if they've had any issues with local lenders.  

If I had done that first, I would have heard the horror stories about Capitol One's "centralized" mortgage loan processing "bait and switch." 

Supposedly it protects local branches from making bad loans.  That's the crap line that they spin. Really, it's corporate america's way to stay arms length distance from a customers they are going to screw over.  

In my personal situation, after a month of working through all the paperwork, approvals, appraisals, etc., Capitol One bank was set to close on the loan on a Monday in August.  

Then I got the email on Friday afternoon, "um, never mind.  No money for you.  We decided that this condo development isn't worth investing in."   

Even though my real estate agent closed on a Capitol One condo refinance in the same development the same day.  

I went to the Fair Housing Authority to complain about this one ­­ and claimed sex discrimination. Capitol One had loaned money to a couple, but not to a single woman.   

A local mortgage broker saved me from losing my condo purchase  They found money for me within two weeks.  One of the brokers had worked for Capitol One mortgage division. My mortgage business wasn't the first he had gotten because of his old employer's bad policies.

I get no commission for this, but readers please bless David Allello at Assurance Financial -- the mortgage broker who pulled me out of the water on this one. 

7.  And then there are the real estate appraisals that are total scams.  

I paid for an appraisal from AmeriSave Mortgage Company and it seems that I got screwed over by them as well.    

So many people got screwed on this one that the federal Consumer Financial Protection Bureau stepped in and sued them.  I had no idea.   What a dumb bunny!  The information is all over the internet.  

The CFPR sent me a refund check.  Love them, sending them many kisses and good karma. 

So -- Don't Give Up, Just Avoid My Mistakes and Get Schooled.   


I went back to work in a minimal stress job and bought a condo.  I also began cultivating a few side clients. No stress, working from home.    

I shored up my resources, learned more about 401K withdrawal strategies and taxes, licked my wounds, and began preparing for a new financial freedom date ­­  January 2017.    

A year or so delayed, but hey, I was getting there.   And then?  

May 2016 happened.