Money Matters

These Money Matters opinions are those of Mark Pfeiffer and are meant to be a guide for your financial well-being. These steps will serve you whether you’re trying to buy a home, pay off debt, or create wealth.

People typically don’t plan to fail; they fail to plan. Use our personal budget to start tracking your expenses. Also, check out our allowance philosophy if you’re married (or co-mingle funds with someone).

Did you know that the Mortgage Mark Team hosts a monthly Money Matters Meeting? Sign up below to be reminded as soon as the speakers are announced.

Money Matters

The very first action in our Money Matters system is to track and control your spending. Stop any bleeding that may exist from frivolous spending.

You need to constantly analyse your expenses and be cognizant of how you spend your money. None of the steps below matter if you don’t stop the bleeding and get a plan.

Recommended Links

Money Matters Steps

These Money Matters steps need to be followed in order. You will need to revert back to Step 1 if there’s ever a setback and you fail to meet the criteria of all previous steps.

Create a personal budget

Save a monthly housing payment

Pay off credit cards via the snowball method

Save three months of liquid assets (in checking)

Get life and disability insurance

Get a Will and POAs

Fully fund 401k

Save six months semi-liquid

Start goal-oriented savings and donate to charity

Pay off auto loans

Pay down mortgage (if less than 20% equity)

Fund other retirement accounts

Save for college

Invest 20% and don’t touch it (see our investing principles)

Luxury savings

1. Create a Personal Budget

The very first step in financial planning is to assess your current situation. Our personal budget page provides a full breakdown of how to plan and budget. You can even download a copy of an Excel spreadsheet that the Mortgage Mark team uses for their personal finances.

2. Save a Monthly Housing Payment

Avoid adding any new debt to you credit cards if you carry a balance. Pay expenses with cash or checks and start building your savings.

Pay all the minimum payments on your credit cards until you have a monthly mortgage (or rent) payment saved. This will provide a small, temporary cushion to prevent increasing your credit card balances moving forward.

You can start paying your credit cards off aggressively once you have saved the equivalent of a monthly housing payment.

3. Credit Card Snowball

Moving forward, pay all credit cards off monthly. No exceptions. If you are unable to pay off all your credit cards at this time, start with the “snowball” pay off method.

The credit card “snowball” method means that you pay the minimum payment on all your debts in life. You then focus all your extra cash towards the credit card the smallest balance, regardless of the interest rate.

Once the smallest card is paid off you take the extra cash you have (which now includes the amount that was allotted to the now-paid credit card) and put those funds towards the credit card with the next lowest balance.

Continue this until all credit cards are paid in full.

Do not cancel or close your credit cards. Keep at least three to five. One for everyday expenses (like groceries, gas, etc.). One for “fun” items that need to be monitored (like dining out, movies, vacations, etc.). One for online purchases (like Amazon, Ebay, etc.).

Eliminate Other “Bad” Debt

Once all the credit cards are paid to zero, pay off other “bad” debt before advancing to the next section. Treat these debts like credit cards and pay them off in full before continuing to the next Money Matters step.

IRS tax liens and delinquent child support are two examples of other “bad” debts that would fall under this category.

Another example of “bad” debt is any automobile loan that has an interest rate above 6%. Look to refinance those types of auto loans to get below 6%. If that is not possible, then treat those auto loans like credit cards and pay them off completely before advancing.

Cash Out Refinance

A cash out refinance loan is a type of a mortgage refinance that can be a quick way to eliminate credit card and other bad debt. In Texas, cash out loans are known as “A6” Texas Home Equity Loans.

Please contact us before you move forward with a cash out home loan. Let’s discuss the pros and cons of refinancing before you spend the time, money, and effort and do a cash out loan. Too many people fall victim to a mortgage person looking to make an easy buck. Make sure the refinance is absolutely necessary.

We want to ensure that someone is committed to plan and prepared to change the habits that created the debt. We don’t want to enable irresponsible spending by freeing up credit card balances. Get a plan before refinancing.

4. Save Three Months of Expenses

Save three months of expenses in your checking account. Replenish the funds in this account if the amount drops below three months.

Caroline and I will keep three months liquid and wait until the amounts becomes six months of savings. At that point we’ll transfer the excess amount out of this account and into our savings or investment accounts.

Self Employed & Rental Property Owners

If you are self-employed, 100% commission, or have rental properties, then save an additional three months worth of business expenses. Truthfully, I recommend having six months of liquid savings to plan for the worst.

5. Get Life and Disability Insurance

Get a 20 year term for you and spouse. Revisit this every three to five years (depending on your family’s circumstance – i.e. kid’s ages).

Make sure you have enough life insurance to cover all expenses, estate taxes, and enough to take care of loved ones moving forward.

Get long-term disability insurance. I’m not a fan of Aflac; save enough and you can self-insure for short-term disability. Make sure the long-term disability coverage is enough to cover all of life’s events (including vacations and normal living).

I don’t have a strong opinion on permanent life insurance. I’ve heard that the costs of insurance is too high for those accounts. That said, I do have a VUL that I’ve had since I was 16 and it’s been a great savings vehicle. Consult a financial professional to determine if permanent life insurance is right for you.

6. Get a Will and POAs

Get a will and the appropriate power of attorneys. Don’t do Legal Zoom; hire a professional. Don’t let the state determine your estate’s fate.

The total costs is about $400 for an individual and $700 for a married couple. A more complicated estate (i.e. trusts, etc.) may cost a few thousand dollars but it’s worth it. Without a plan the costs will significant.

7. Fully Fund Your 401k

Maximize your 401k investments, especially if there’s a company match.

An awesome feature of a 401k is that you can borrow funds from the account if it’s an emergency. Ideally, we don’t recommend you don’t access the funds unless it’s absolutely necessary.

Note: there is a significant difference between borrowing from your 401k and withdrawing. In my opinion, borrowing is acceptable (if it’s absolutely necessary) but withdrawing is not recommended.

8. Save Six Month of Expenses

Save up six months of living expenses in savings. Put this money in a money market or high-yield savings account. This will make you nearly invincible under normal circumstances.

This money can be used for emergency expenses – i.e. unexpected costs – that are mandatory (like automobile repairs, house maintenance, etc.). This money is not for luxury expenses (like vacation, home improvements, etc.).

9. Start Goal-Oriented Savings

A goal-oriented saving account is for luxury items like vacations and big purchases. Determine your goals (like buying a house, car, vacation home, etc.) and determine your timeline. Then start putting money away to accomplish those goals.

Make this it’s own separate account. Most people commingle checking, savings, and investing. We want to identify the differences and track everything.

Examples include home improvements, new cars, down payment on new home, vacations and travel, etc.

For example, if your car is five years old then you may want to start putting money away for another car purchase in a few years. Save like you already have a car payment.

Charitable Donations

Giving to charity is incredible noble and extremely important. You’re welcome to (and encouraged) to donate your time and energy at any time. That said, we believe all aforementioned items need to be accomplished before monetary donations should be made to charitable organizations. If you’re not financially sound, then you may become a charity for someone else.

10. Pay Off Auto Loans

Own, don’t lease. Buy cars when they’re three to four years old. Buy nice, reliable cars. Sell the cars at 100,000 miles before costly issues start to happen.

Paying off automobiles is a lower priority because they are typically three to seven year pay offs with reasonable interest rates. They are typically bigger loan amounts and take longer to eliminate. They’ll eventually get paid off so we first focus on building stability.

11. Mortgage LTV to 80%

Don’t pay mortgages off aggressively. It’s cheap money that is tax deductible (in most cases). The exception to pay aggressively is if you don’t have 20% equity in your own.

If you have 20% equity in the home and you currently pay MI, call us to help you either cancel MI or explore refinancing to remove the MI. We’ll help you determine which is the best option.

We want you to have the equity for a few reasons. First, you eliminate any potential mortgage insurance. Second, with 20% equity you can now sell the home – even in a down market – and walk away with some money in your pocket.

Mortgage financing is optimal once 20% equity is achieved. Stop paying a mortgage aggressively once you have 20% equity. Invest in your future and grow wealth.

12. Fund Other Retirement Accounts

We already recommended that you contribute to your 401k. Now we recommend fully funding any additional retirement accounts (like an IRA, Roth IRA, SEP, etc.). Consult a financial professional to determine which option is right for you.

There is a reason why we don’t recommend funding these other types of retirement account until now. Most 401k accounts allow the owner to borrow funds from them. This allows the 401k to serve as an emergency fund to access some cash. These other retirement accounts typically don’t offer as much flexibility for accessing the cash.

13. College Savings

College savings is down on the list because kids can get their own student loans. It would be nice to help your kiddos but take care of yourself first. The greatest financial gift you can give your kids is to become wealthy so that they don’t have to financially support you later in life.

Side note, Caroline and I use our VUL plan (Variable Universal Life Insurance) to save for our kids’ college. There are other ways to save, like a 529 plan, so consult a financial professional to determine what’s best for you.

14. Invest 20% & Don’t Touch

Once that you have completed all the previous steps, you now need to save 20% of every paycheck. No exceptions.

Invest 20% of every paycheck, regardless of what the market is doing. There’s no bad time to invest. I’ve started compiling my personal investment ideas here.

This is your wealth creation. You are not to touch this money unless there is an absolute emergency. Be really strict on your definition of an emergency.

50. Long-Term Care Insurance

I personally don’t have much knowledge on this subject matter. All I know is that when I’m 50 years old I will exploring this more. I’m told that at age 55 it starts to make sense to purchase this type of insurance. As always, consult with a financial professional to determine if this is right for you.

Annual Review

Homeowners Insurance: check the coverage amount. Your house may have appreciated. Make sure you’re properly insured.

Beneficiaries: review all your account’s beneficiaries. Are they still what you want them to be? Examples: bank accounts, life insurance, 401ks, etc..

Wills and Trusts: ensure these documents are up-to-date and accurate.

Teach money matters.

Invest every month.

Buy when something dips 5%

Layer big checks in over 4 month period.

70% goes to plan:

50% of that goes to spy

25% to QQQ

25% to VOO

30% goes to 10 stocks.

You must use / consume their products

You must think 5 years from now

Must do some research – must be profitable.

Must be popular (Ie rocket Mtg is not popular in our business).

Watch Fast Money & Mad Money

I know a financial planner who had ten, $50M clients do this strategy when they learned of it.

Monthly call with CFP. Have them tell you balance, percentage balance, and discuss new stuff.

Hope is not a strategy.