Personal Finances – 7 Big Money Mistakes to Avoid

December 3, 2009

Personal Finances

Personal finances can be a tricky subject to advise on, especially without knowing someone’s specific financial situation.    I agree with all of the points listed in the attached article, except for bullet #3, where they are talking about putting a 20% home down payment on a house purchase.  Personally, I’d rather  put zero or 3-5% down, and stash the rest of the money in my bank account for a rainy day.   here’s why:

1) 20% down on a $100,ooo house is $20k

  • $430/mo payment ($80k loan)

2) 3% down would be $3,ooo, leaving $17,000 in the bank as an emergency fund.

  • $520/mo payment ($97k loan)
  • $60/mo – PMI
  • Total Payment $580/mo

This is obviously a matter of personal preference, but I would prefer to have an extra $17K in my bank account, for emergencies, and have a monthly payment that’s an extra $150/mo.    If, for some reason, I cannot afford the extra $150/mo, I can always draw it from the  $17k that did NOT go into the downpayment.   That means for the next 113 mos (11 years) I can take out the extra $150/mo to Personal Financessupplement the monthly payment.  In the meanwhile, if I lose a job or something happens, I have the emergency fund needed to survive, and I can even make my entire mortgage payment out of this emergency fund.  The alternative is to have all this money sitting in my house’s equity, but if I lose a job – I can’t even make on or two payments and I could end up losing the entire house to a foreclosure.

Another reason I’d rather not put all of my money into a house is what has happened in recently in the economy.   What if you put all of your savings into a home down payment and then the prices drop.  Or you lose a job, get injured, etc  – and can’t afford the mortgage payment any longer?   If you had to walk away from the house, at least you’ll have your savings intact, as opposed to walking away from the house with nothing to live on . Especially if you’ve lost all your equity in a bad market and HAVE to sell for whatever reason.

So take a look at the article below, and decide what works for you when it comes to managing your personal finances:

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