Your Home - One of the Best Investments You'll Make!

After I published my last post I had a discussion with a friend. She said that she was now worried about buying a place to live since she always thought that purchasing a home was a good investment. My last post stated that Robert Kiyosaki author of Rich Dad Poor Dad did not consider a home as an "asset" since it does not generate cash flow. Because of this Kiyosaki believed a home is more of an expense than an asset. Without getting into details about how Kiyosaki defines an asset, I think that my friend is right and that your home is one of the best investments you will ever make.

First of all no matter what happens in life we all need a roof over our heads. When we rent a house or apartment money goes into the pockets of landlords. You can claim a bit of it on income tax but most of the money is loss. When you purchase a home however, whether it's a house or a condo, money is paid to the mortgage every month (given that you did not pay for it all upfront). With each mortgage payment a portion goes to the bank as interest and a portion goes to paying the principal of the loan. The interest portion is loss and is known as the cost of borrowing. The portion that gets paid toward the principal becomes yours and is known as home equity.

Now the reason Kiyosaki thinks that a home is not a good asset is that you only access your profits on the home when you sell it. Typically it is not a good idea to buy and sell your home over short periods of time since it doesn't have time to appreciate. With little time to appreciate your profits will be eaten up in real estate, lawyer, land transfer taxes, moving expenses etc... . So it's usually a good idea to own your place for a while before you decide to sell it again.

That being said there are other reasons why owning a home is good investment besides providing you with a place to live. Owning a home with multiple rooms can allow you to rent out some rooms to help pay for your mortgage which ends up as home equity. If you have a separate entrance to a separate basement apartment, even better! Another reason is that if you own a small home business you can expense part of your mortgage. Finally, owning property gives you incredible leverage. Leverage is the ability to take a home equity loan with your home as collateral. Banks will lend you money at a very low interest rate when it is backed by your property. If you default on payments however you can get your property repossed.

Why would you want to take a large loan out on your home? If you have any other debts that may be charging higher interest rates it would be best to pay them off using money from your home since the interest will likely be less. Also if an investments yields a higher rate of return than the interest you're paying on the home equity loan than you may as well be using money from that. Sometimes the bank will not loan money to finance a business idea or anything else you may want money for, if the bank thinks it's too risky. In this case a home equity loan is a no questions asked low interest loan. So with all those reasons to own what are you waiting for? Stop renting!

Rich Dad Poor Dad: What's an asset?

I hope that you've had a chance to look into some of the books about personal finance I've recommended in the past. Rich Dad Poor Dad is one that has been around for a while now. Robert Kiyosaki has created an entire brand around the title of this book which has its own line of instructional board games and personal finance seminars, not to mention a whole slew of other books. The ideas in his book can be a bit abstract sometimes but very insightful once you understand what he's getting at. There are many lessons in which he preaches in his book, I will try to go over a few of them briefly, but to get the full impact of the lessons it would be best to give it a read.

The story in which Kiyosaki tells is one of growing up with two dads. One is his biological father and the other is his best friend's father. Both have great influence over Kiyosaki as he grows up, but have very different outlooks on life and how to go about making a living. Kiyosaki's biological father is known as Poor Dad. He made a living as a teacher who eventually became the superintendent of the entire district school board. He always preached to Kiyosaki that he should get an education then get a secure well paying job. Kiyosaki's Rich Dad on the other hand made a living as an entrepeneur who owned several businesses. Rich Dad preached that the path to freedom and wealth was to own and operate businesses. Kiyosaki was always confused by the lessons taught by his Dads since they differed greatly from one another. Poor Dad's mentality on living life was very risk adverse while Rich Dad's mentality on living life was full of risk.

For now I'll leave that lesson about entrepeneurship since it can be very lengthy. I will be sure to post more on Kiyosaki's entrepeneurial lessons in the future. Another important lesson in his book is when Kiyosaki creates a definition for an "asset." He defines an asset as something that provides positive cash flow. He tries to explain how most people are confusing what an actual asset is, since a majority of people think there biggest asset is their home. Although you are building equity in home ownership, it does not provide a positive stream of income (unless it's a rental property). The important thing to note is that your home is more of an expense then it is an asset. Every month you have to pay property tax, utilities, a mortgage and maintenance fees. In the end you are working for your home, your home is not working for you. It does not actually put money in your pocket at the end of the day. Once you understand what Kiyosaki defines as an asset and can distinguish between what is an asset and what is an expense, than the path to true wealth is to gain as many assets as possible.

Rich Dad Poor Dad is filled with valuable lessons. I will have more posts in the future about the many different lessons from Rich Dad Poor Dad. The one thing that I really feel that this book lacks however is the concrete examples of how Kiyosaki would go about building wealth. He explains a lot of principles but does not go into to many details. He leaves it up to the reader to go out and get the information. The lessons are important and they are quite inspiring. I highly recommend starting with this book and reading some more of Kiyosaki's work in the Rich Dad series.

Learn a Few Basic Sewing Techniques for Great Savings!

We live in a throw away society these days. Instead of trying to make our belongings last as long as they can, we throw them out as soon as there is a minor defect. This leads to more consumption, since another item has to be purchased to replace the old one. All this shopping can be detrimental to your savings, not to mention the overcrowding of landfills with consumer junk. Clothing is one of the things that often gets replaced when there is a minor rip or tear. Learning a few simple sewing techniques can help make you clothes last a lot longer.

I recommend practicing first on clothes that are worn underneath other clothes so that others can't see you handy work. Clothes such as under shirts and underwear are a good place to start getting some practice. Once you have developed you sewing skills you can move on to making minor repairs on clothes that can be seen. Jeans are something that can be patched up many times while still looking cool. Once you've reached the advanced stages of sewing you can also make slight alterations to garments such as hemming pants and sleeves. Also, repairing zippers on pants and jackets can be done quite easily once you get some practice in.

Learning a few basic sewing techniques will help get the most mileage out of your clothes. It will also open up a lot of opportunities for your creative side to make use of old garments. Such as altering old t-shirts into pillow cases or turning old jeans into garage clothes to wipe up spills. I have attached three videos below that cover: 1) How to secure a knot and tie off a thread, 2) How to do a basic running stitch and 3) How to sew a back stitch. Pick up a needle and thread today and patch up something!

Government Rebates for Efficient Homes

Saving money is all about living efficiently. Living efficiently starts at home by trying to make your home as efficient as possible. This comes in the form of improving heating and cooling, water usage, and electricity usage. Improving in these three areas will have a definite impact on your monthly utility bills. Proper insulation and sealing of drafts will make it so your furnace or air conditioning unit will not have to work as hard at sustaining a comfortable temperature. I have a recent post about the benefits of programmable thermostats, I think they are the cat's "meow" so be sure to check that article out.

As with water usage a lot of people don't see the connection between environmental protection and water usage. It takes a tremendous amount of energy to treat water so that it is acceptable as drinking water. According to the US Environmental Protection Agency the country spends $4 billion US annually for the energy to run drinking water and waste water utilities. Having water efficient appliances would have a dramatic effect on reducing the amount of money and energy required to treat water. Reducing your water usage should will result in a lower monthly bill, which is a good financial reason to reduce water usage. Clean water is precious, don't waste it!

Wasting electricity can also be costly. Beyond the usual reminders of turning off lights in rooms we are not in and turning off appliances when they are not in use there is something call "phantom energy" which you may not have heard of. When appliances are plugged into the wall socket and aren't in use they are still sucking up power. Appliances like TV, computer monitors, cell phone chargers, DVD players, printers, etc... when not in use still suck up electricity. Phantom energy can account for about 10% of an individual home's electricity use. So unplug appliances that aren't in use or are used rarely. Another way to solve this problem is to plug appliances that are used occasionally into a power bar and turn the power bar off when not using the appliances, this will cut off the electrical current to the devices and potentially cut 10% off your electricity bill each month.

Now you may be asking, "having efficient appliances is all good and well but I can't afford to change my furnace, fridge or toilet." Well you're in luck because there are lots of incentives from local governments that will reimburse part of the cost of replacing old appliances. For example in the Region of Waterloo there is an ongoing $60 rebate to replace your old toilet with a more water efficient unit. I know that's not going to make you want to rush out and get a new toilet, but if you are already considering replacing it you should look into these incentive programs. If you live in the Waterloo region check out this website for more information: http://www.reepwaterlooregion.ca/index.php. Moving toward a more environmentally sustainable home will make the world greener and your wallet!

Top 5 Exercises to Keep Fit and Save

I hope you had a great Canada long weekend! Some of you may have gone to the beach or lake this holiday and when it is time to break out the swimsuits we all get a little self-conscious about our body image. Toning up is always a lot of work and in some ways it can be costly if you purchase a gym membership.

Gym memberships can be expensive but your health is worth it, unfortunately a lot of people who do get memberships end up not using them. Usually gyms charge initiation fees from $100-120 and continuous monthly fees anywhere from $30 and up. Some better gyms will let you pay for only the months you plan to go while others make you sign contracts. I recommend signing up for a gym that gives you the month to month pay as you go flexibility. This is because when the weather is nice out you can do a lot of your exercising outdoors. There are tons of great exercises that you can do without a gym membership. The only weight you'll put on is from all that cash you save in your wallet!

Top 5 exercises that don't require a gym membership:

1. Cardiovascular - jogging

All you need is a good pair of running shoes. I recommend planning a route that is close to home and that you can extend or shorten depending on how you feel along the run. The trick is to make it a habit so you're going at least 3 to 4 times a week. Having a jogging partner usually helps that way even if you don't feel like going you have someone who pushes you.

2. Cardiovascular - bicycling

This may be a little more expensive since it requires a bike. It would be a good idea to try to look for a used bike. They same rules apply to cycling as they do to jogging.

3. Upper Body - push-ups & pull-ups

Push-ups are a great upper body workout that targets your triceps, chest and abdominal muscles. We've all done them before in gym class but probably haven't done them since. There are tons of variations on this classic exercise for example propping up your feet or changing the position of your hands. Pull-ups is another great upper body exercise that targets your biceps and back muscles. You may need a chin-up bar for this if you don't have something very sturdy around the house that can support your weight.

4. Core - sit-ups and crunches

This is a great core exercise that will give you a stomach you can grate cheese on. There are tons of infomercials hocking products that will give you a wash board stomach. Essentially you can get the same results by just lying on the ground and doing crunches. The trick to having your ab muscles show is not by doing crunches until you pass out but by lowering your body fat percentage. Your body fat has to be below 10% or so for these muscles to show so it may come down to good dieting than just exercise alone.

5. Lower Body - squats & lunges

It is not enough just to jog or cycle to build your leg muscles. Although those exercises do require the use of your legs, they are primarily exercises for your heart and lungs. Squats and lunges are leg exercises that target all the main leg muscles. You can use your own body weight or for extra challenge you can hold hand weights.