Financial Crisis: First Foreclosure, Now Credit Cards?

The next big crisis?

The past year has been a tough one for our economy.  We have seen the companies suffer as the mortgage industry undergoes a huge crisis.  Thousands of foreclosures have happened to people who got into mortgages they couldn’t afford.  Adjustable rate mortgage and interest only loan rates started going up, and people found they couldn’t afford their mortgages anymore.  (One could argue that they never could afford them in the first pace, but that’s an argument for another post)

Yes, that's an axe

Yes, that's an axe
credit: danesparza

Now, according to ABC News there may be another crisis ready to explode. The credit card crisis:

With banks limiting home equity lines, gas and food bills on the rise, and homeowners struggling to make their mortgage payments, some Americans are turning to credit cards to make ends meet. Many, however, are finding their cards more expensive to use as credit card companies increasingly raise interest rates, lower credit limits and cancel inactive accounts.

It’s all happening, some industry watchers say, for a good reason: The companies are trying to avert a crisis.

In the first three months of the year, commercial banks in the U.S. took losses on 4.7 percent of their credit card loans, up from 3.9 percent the year before, according to the Federal Reserve.

In the last two weeks, major credit card players like American Express, Capital One, Citigroup and Bank of America have all reported larger losses from unpaid card bills. American Express saw second-quarter profits from its U.S. credit card business fall a stunning 96 percent from $580 million in the spring of 2007 to $21 million this year. (Overall, the company reported $655 million in second-quarter profits.)

So people are getting behind, they’re having a hard time paying their mortgages, their home equity lines and paying for everyday essentials.  It’s no surprise that they’re using their credit cards more, making balance transfers and then in turn getting behind on those payments as well.

Who is to blame for the looming credit card crisis?

The article argues that the credit card companies are to blame for much of the problem themselves because when the mortgage sector started tanking, they looked to their credit card divisions to bolster their meager earnings.  They upped the credit limits and offered more cards to higher risk buyers.  It only stands to reason that when they offer credit to people with a history of not paying (thus high risk), that they’ll show a higher number of people defaulting on their debts.

Credit card lending became “a bit too aggressive,” said John Ulzheimer, the president of consumer education for, a credit card information site. “People were getting credit vehicles maybe they should not have been getting. Those bad issuances of cards are, in many cases, coming home to roost right now.”

Can companies survive this credit crunch?

Now the question is this, will this looming credit crunch be enough to do in some of these struggling credit card and other financial companies?

Analysts agree that credit card troubles alone likely won’t be enough to topple any one bank in the same spectacular fashion that subprime mortgage losses led to the collapse of Bear Stearns.

But Ron Ianieri, the chief market strategist for the investor education company Options University, said that for banks already suffering from other financial woes, more trouble on the credit card front “could be enough to be the straw that breaks the camel’s bank.”

“I don’t think a credit card crisis would be strong enough to collapse a bank under normal conditions, but these aren’t normal conditions,” he said. “These banks are teetering right now as it is. One more push — it doesn’t have to be a big push — and it could knock them off the top.”

So it’s really up in the air. This credit crisis, along with the foreclosure problems that we’ve seen in the past months could be enough to do in some of these companies. It’s hard to feel sorry for really anybody involved in this fiasco.

Banks started lending and giving credit cards to people who had no business getting one. People taking advantage of these offers  really had no business getting into home loans they couldn’t afford, or using credit they couldn’t pay back.  Irresponsibility abounds and plenty of blame is assignable to all parties involved.

In the short term, the credit card companies will probably survive by bumping interest rates up, and lowering credit limits.  That means customers will be paying more in fees, and be even less likely in some cases to make their payments.

If you’re having problems with your debt, I suggest getting into a good financial program, much like Dave Ramsey’s Financial Peace University where you can set up a plan to repay your debts, get rid of your credit cards for good, and find freedom in living without debt.


Credit Cards: The Next Financial Crisis?


Introducing the Sunset Bungalow

Even though I’m continuing to put (never ending!) finishing touches on my house, I thought you might be tired of seeing my guest room for the tenth time so I have an exciting new project for you today! It’s also nice to switch up your design focus every once in awhile. And I love helping out a friend. So when the lovely Chloe Roth asked if I might help her pull together her newly purchased San Francisco bungalow, I gladly jumped in. And we thought we ought to take you along on our design journey!

sunset bungalow on apartment 34

Chloe snagged the cutest little two-bedroom house in San Francisco’s Outer Sunset neighborhood. Just blocks from the Pacific Ocean, the Sunset is well known for its rows upon rows of candy-colored houses built in the 1930s (check out a fascinating article about San Francisco architecture here). If you’re lucky, you can snag one of these houses with their charming period features still intact. While I’m thrilled we have some fun details like arched doorways and huge picture windows to play with, there is also plenty of late-90’s lighting, a builder-grade kitchen and really bad beige paint everywhere. It is definitely is feeling a bit drab.

As a creative director, Chloe has a very discerning eye and a clear aesthetic (her previous apartment was even featured in an interior design book), but it can be hard to look at the blank slate of an entire house and figure out where to begin. Thankfully, I’ve now had some major practice with that! We’ve been working to apply Chloe’s modern, minimalist style to this new beach setting and I love where we’re headed. With any project it’s always super helpful to create a mood board. It helps keep you focused and keep everyone on the same page. Below is our mood board for Chloe’s main living spaces (ie her living room, dining room, bedroom and office).
sunset bungalow on apartment 34
We’re going for a theme of soothing and serene. We’re playing with a color palette inspired by the beach: a combo of grays and natural wood tones that play homage to the color of sand and a few unexpected pops of deep saturated greens reminiscent of the cypress trees that dot the coastline. This will all sit against a bright white backdrop. There will be a mix of some yummy textures to offset minimal clean lines. Chloe is also a plant whisperer so we’re working on creative ways to incorporate living elements throughout the house. I cannot wait to share some of our best solutions!

Over the coming weeks you’ll get to see more of our inspirations, our best DIY projects, the paint color selection process and of course, the final before and afters. Be sure to follow @thechloeroth’s #thesunsetbungalow on the Instagram for all the updates. We’re going to have some fun!

For more interior design inspiration, CLICK HERE.



How to Keep Your Apartment Safe This Holiday Season

While Santa would never face charges for breaking and entering while scurrying down the chimney, there are legit dangers lurking during the holiday season. And those dangers could very well be right where you live.

So that you can focus on holiday cheer and also remain protected and safe this holiday season, we’ve got some tips to help keep your apartment and belongings secure.

Prevent danger

Risky situations related to the holiday season aren’t limited to tempting criminals with packaged gifts left in front of doors. “Holiday mishaps that can cause issues for a renter and a rental property include fire hazards,” says Lynn Edmondson, Regional Manager of Wendover Management, a full-service property management company.

Edmondson recommends:

  • Avoid using more than three strings of lights on one extension cord because you don’t want to overload the circuits
  • Try flameless candles as an alternative to the real deal
  • Be sure to properly water natural decorations to proactively nix the chance of holiday lights sparking into a blaze

Prime time for crime

Planning on being out of town for Christmas? If you’ll be away for three days or more, then there’s a pretty good chance that anyone with intent to steal could realize that no one’s home and come knocking.

Do what you can to not be vulnerable to package theft, break-ins and loss. Make sure you keep windows and doors securely locked, and that gifts under your Christmas tree are out of view from anyone passing by who might be looking for an easy mark.

Scouting for loot

Gifts left at your door for back-to-back days in a row are a pretty obvious sign to a would-be-package snatcher that there’s no one home.

If you’re expecting deliveries from UPS, FedEx or Amazon, you might consider arranging for those packages to arrive elsewhere in your absence. If you’ve ordered online, you have the power to decide where the packages end up. Be strategic and have deliveries sent to a friend, the rental office of your apartment building or your workplace.

Here are a few ideas to help keep your packages safe:

  • Amazon has lockers around the country where you can have packages delivered. You get an email alert that your order is ready for pickup. You’ve got three days to retrieve the package before it gets returned to Amazon.
  • Make friends with your neighbors. Notify them that you’ll be away for the holidays. Ask if they could check for any deliveries and hold the packages for you.
  • Make sure all entryways and hallways are well lit so you can see if any intruders are lurking and to dissuade anyone with criminal intent from getting too close.

Keep your apartment safe

If your community has a visible security presence where you live, that’s a powerful antidote to holiday crime. A key fob to enter the gate of your rental community or to park in the garage is also a good deterrent from unwelcome intruders.

However, as a tenant, you can take additional steps to stay safe and keep your apartment protected. If you’re renting an individual townhouse, apartment unit or a single-family home, there are plenty of choices for security systems through third parties, according to Wendover Management. “Remember to always speak with your landlord prior to making any changes to the home you are renting,” says Edmondson.

Place a security sticker from a company such as ADT on the door or window of your apartment. This is helpful if you have an exterior apartment door that someone can easily walk up to without the hindrance of a security gate or entry code required.

Install a DIY system with a visible HD camera directed at a walkway, your front door or driveway. Since it’s connected directly to an app on your phone, you’ll be pinged if there’s someone approaching your door and you’ll be able to see in real time if someone is trying to swipe something.

Lynn Edmondson has one last piece of advice for apartment dwellers: Be aware that not everyone has the best intentions. Ensure that you take steps to protect yourself and your home. Enjoy the holidays!”




How to Keep Bugs Out of Your Apartment

Whether or not you’re afraid of tiny critters, nobody wants to find an unwelcome little guest in your apartment. And it can be difficult to keep bugs away, so we’ve found a few ways to prevent bugs from settling in your home.

Check entrances

This means all entrances that bugs can use, not just the door that humans walk through. Make sure that all of your doors, windows, walls and pipes that tiny bugs use to access your home are sealed and have no cracks.

This is especially important if you live in an older place. If the windows frames are old, they often start to separate, leaving cracks. You should also check the weather strip at the base of your door to make sure it fills in the whole space. Add screens to windows and doors – especially if you ever leave them open – as an extra precaution.

Choose plants wisely

While most plants are bound to attract bugs, some attract more than others. Make sure that when you choose a plant, either indoor or outdoor plants, research it to make sure it isn’t appealing to insects. Avoid any type of shrubbery (they attract loads of bugs) and use a safe garden insecticide for extra insurance.

Take out the trash

Don’t let your trash overflow. If anything lands on the floor and isn’t cleaned up regularly, bugs will find it. Try to keep your trash cans clean, as well—wash them out every few weeks to make sure there isn’t anything left that will attract all the pests.

Diatomaceous earth

Don’t be afraid of the name – this is one of the best solutions for most bug problems. It’s a natural product that comes in the form of a white powder and is made from the remains of marine phytoplankton. It has a unique particle structure that’s rough and spiked and harmful to tiny bugs.

There are two kinds of diatomaceous earth – food grade and non-food grade. For the purpose of keeping bugs out, they work just the same. The best part about using food grade diatomaceous earth is that it’s safe for mammals. In fact, you can eat it and be just fine. If you have children or pets around, this is the safest solution for preventing a bug invasion.


Although you may not want to deal with a bad smell and weird chemicals, bug spray is such a popular solution for a reason – it works. If you’ve tried everything and had no success, you may have to resort to the method that stands the test of time. There are safer organic insecticides if you don’t want a strong chemical-based one.




A Complete Guide to Debt Payoff Strategies

  • Get Out of Debt

Debt payoff strategies are designed to help you clear your debts in a way that suits you. There are many different payment methods available, from debt snowball and debt management, right on through to more extreme measures like bankruptcy. 

There is no “one-size-fits-all” solution. The one that works for you will depend on how far into the red you are and how likely you are to claw your way back into the black. In this guide, we’ll cover everything you could ever want to know about debt payment strategies, helping you to find the right one and quickly clear student loan debt, credit card debt, and personal loan debt.

What you Should Consider When Choosing a Debt Repayment Strategy?

The ideal strategy for one person may be a complete disaster for another. As an example, think about the debt snowball method, which we’ll discuss in greater detail below. This contrives to clear the smallest debts first, giving you the motivation to work towards the bigger ones.

But what if you have multiple small loans and credit cards charging you between 5% and 16% and one massive credit card debt charging 26%? If all your attention and your extra cash go towards your smallest debts, this big one will be left untouched—allowed to run rampant, accumulate masses of interest and do endless damage.

It’s important to weigh up the pros and cons first, to calculate how much one method will save you over another. That’s why we’ve offered up some advantages and disadvantages and have split our proposed debt payment strategies into two options: Credit card debt and personal loan debt.

Credit Card Debt Repayment Strategies

These strategies can help if you have multiple credit card debts, with escalating monthly payments and high-interest rates. But they’re not specific to credit card debt and can help with other forms of debt as well. 

The Debt Snowball Method

We alluded briefly to the debt snowball method above. The idea is quite simple: You clear your smallest debt first and then move onto the next one. 

  • Step 1: Continue to meet your monthly payment obligations.
  • Step 2: Use any extra payments you have to clear the smallest debt.
  • Step 3: Once the smallest debt has cleared, put all those extra payments towards the next smallest one.

The debt snowball method is so-named because as a snowball rolls along the ground it gathers more momentum, picks up more snow, and gets bigger and stronger.

With the debt snowball method, it’s important that you don’t close credit card accounts after they’ve been paid off. Keep them active, but only use them in emergencies. This will ensure your credit utilization score stays high, which in turn will keep your credit score high.

The Pros and Cons of the Debt Snowball Method

The debt snowball method is not without its issues and won’t work for everyone. If you can’t pay down debt or increase payments, what hope do you have?


  • Your credit score will gradually improve as debts clear.
  • It can motivate you to keep going after you see multiple debts drop away.


  • High-interest rate debt can remain untouched, gathering momentum and doing damage as you focus on lower interest rate debts.
  • It can neglect other serious debts, such as student loan debt.
  • It may take some time for you to improve your financial situation.
  • Some borrowers will struggle to find the necessary budget to make larger payments.

The Debt Avalanche Method

The debt avalanche method is often mentioned in the same breath as the debt snowball method. There are similarities in the sense that both require increased payments, placing more of a demand on your budget and strain on your financial situation, while also helping you to chip away at your debt one step at a time.

While the snowball method focuses on the smallest debts, the avalanche method emphasizes the importance of clearing the ones with the highest interest rate. By prioritizing interest rate over balance, you’re potentially putting more money in your pocket at the end of the term.

The Pros and Cons of the Debt Avalanche Method 

The debt avalanche method has similar issues as the debt snowball method, but there are some notable benefits as well.


  • Eradicating debts with a high-interest rate can potential increasing your capacity to make greater monthly payments.
  • Clearing debts one at a time can motivate you going forward.
  • You should pay much less over the term of the loan.
  • It can improve your credit score and financial situation.


  • Not always easy to find the extra money required to clear high-interest debts quickly.
  • It may take a while to see the benefits.

Tips for Making Avalanche/Snowball Strategies Work

  1. List all of your debts, going from the highest to the lowest and including every credit card debt, student loan debt, and personal loan.
  2. Sell luxury items that you no longer need. The vast majority of American households contain designer clothes and accessories that no longer fit, jewelry that isn’t worn, video games that have been completed, books that have been read, and expensive tech that isn’t touched and becomes more obsolete with each passing day.
  3. Spend less money on restaurants and takeout. American families spend in excess of $3,000 a year just on eating out—this could be used to clear a debt! Sit down for family meals at home instead.
  4. Stop spending so much money on day-trips and vacations and look for cheaper ways to treat the family, from picnics in the park to visiting family in the next state.
  5. Use all of the money that you save to clear your smallest/highest interest debts and continue with your chosen payoff strategy.

Balance Transfer Repayment

A balance transfer moves all credit card debt onto a new card. Balance transfer cards provide 0% introductory interest rate periods, allowing you to focus on clearing the balance without the high-interest rate getting in the way.

As with other strategies, it’s important to leave cards active once you clear the balance, otherwise your utilization score will drop.

The Pros and Cons of Balance Transfer Repayment

Although a balance transfer credit card can provide a quick and easy solution, it’s not without its problems.


  • A fast way to clear high-interest rate credit card debt.
  • Pay less over the term of the loan.
  • No high-interest rate to cover every month.
  • Pay more of the balance with every repayment.


  • Balance transfer cards typically have very high-interest rates once the introductory period ends.
  • May be high penalties and other payments to cover.
  • Requires a new card, which means your credit score will take an initial hit.
  • May not be able to help with all credit cards.

Tips for Making Balance Transfer Cards Work

  1. Compare and contrast all cards and don’t simply settle for the first one you find or the first offer you receive.
  2. Calculate how long it will take you to clear the debt and look for a card with an introductory rate that affords you the time you need.
  3. Read the terms and conditions and make sure you know how high the APR will be when the introductory period ends and what additional charges will be levied.
  4. Remember that rate shopping, whereby all hard inquiries are merged into one, only applies to loans and not to credit cards. Read more about this in our guide to rate shopping periods.
  5. Avoid accumulating additional debt on the card. It’s there to help you clear what you have, not to accumulate more.

Debt Settlement

Debt settlement requires outside intervention in the form of a debt specialist. This specialist will work on your behalf to clear your debts one by one. They do this by negotiating with creditors on your behalf, using the money you deposit into a secure third-party account.

There are multiple companies out there that provide this service and the industry is witnessing improved regulation and security, making it a safer place for Americans to eradicate their debts.

The Pros and Cons of Debt Settlement

Debt settlement is often considered to be a last resort solution, one that can cause multiple problems but will ultimately lead to a debt-free life.


  • Debts will be cleared completely.
  • You will pay much less than you would without debt settlement.
  • The debt settlement company only takes their share at the end of the settlement process and it’s always as a percentage of the money they save you.


  • It can be a lengthy process.
  • Your accounts may enter collections and you may be sued while undertaking the settlement process.
  • It can hurt your score in the short-term.
  • They may request that you stop making payments and use that money to fund the settlement process, leading to many complications.
  • There is no guarantee that they can settle all debts but they may still charge even if they do not.

Tips for Making Debt Settlement Work

  1. Always be on the lookout for scams. Scams are common in the debt relief sector and the majority of them can be found in the debt settlement industry. Look for certification, accreditations, reviews, complaints and BBB pages. 
  2. Ask the company how much they charge before going any further. Their fee will be a percentage of the total money they have saved you or a percentage of your total debt. Calculate it and use the figure you arrive at to compare with other settlement companies.
  3. Don’t persist with debt settlement companies that try to pressure you into signing up for their program. Look for good customer support and honest advice, as this suggests that they are there to help and not just to sell.
  4. Persevere with your questioning if you’re being given vague answers and move onto the next company if they still insist on ambiguity.
  5. Caution is advised with any company that makes a promise to settle all of your debts for a specific amount. Confidence is okay, but promises are not—there is no way of knowing whether a creditor will settle and how much they will settle for.
  6. Understand the process before you begin and learn exactly what is expected of you every month before you commit to anything.

Loan Debt Repayment Strategies

Personal loan repayment strategies work towards the same goal as credit card payoff strategies. The difference is that they cater more towards lower interest rates and allow for longer repayment periods and more forgiving lenders. 

This is because credit cards are unsecured, which means they are not backed by any collateral and the lender doesn’t have much recourse for action if anything goes wrong. A loan company, however, is often backed by an asset such as a house or car. 

Debt Management 

Debt management is a simple and low-risk way of improving your financial situation. It is designed to keep your budget strong and your finances stronger, and it’s often provided by a credit counseling service. 

Debt management programs follow short credit counseling sessions, during which an experienced counselor will ask questions about your budget and your financial situation, before recommending the best course of action. If they determine that debt management is what you need, they will guide you through the process.

They will then negotiate a plan with your creditors, getting them to agree to a reduced interest rate and a manageable monthly payment.

The Pros and Cons of Debt Management

One of the best things about debt management is that it’s conducted by companies who have your best interests at heart and will always advise as to whether or not this process is right for you. If not, they may recommend something else to help you clear your personal loan debt.


  • The process is much less demanding and does less damage to your credit score than other payoff strategies.
  • It can help you to manage all your debts.
  • It does not have a direct impact on your credit score but may hurt it in other ways.
  • It can reduce the rate of interest you pay in personal loans and credit card debt.


  • It’s not free and there is both a start-up fee and a monthly fee.
  • You will be required to close all but one credit card, which can damage your credit utilization rate.
  • If you miss a payment, the lender may cancel the agreement and you’ll return to paying your previously high-interest rate.

Tips for Making Debt Management Work

  1. Always deal with reputable credit unions and credit counseling services and don’t trust any company that doesn’t have accreditations.
  2. Use a free consultation in the first instance to make sure that this service is right for you.
  3. Hang-up on any so-called credit counselors that are only interested in trying to sell you resources or expensive plans. You need a counselor, not a salesperson.

Debt Consolidation Loan

A consolidation loan can be acquired by yourself or via a specialist company. In the first instance, you acquire a personal loan that is large enough to cover all your debts and earn and a lower interest rate, and you use this to turn multiple debts into one.

As for the latter option, this can come with numerous issues, as discussed in our pros and cons below.

The Pros and Cons of Debt Consolidation

These pros and cons refer to debt consolidation via a specialist company or provider, which is the most popular way to consolidate debts today. Read our guides to the best debt consolidation companies and avoiding debt consolidation scams to learn more about this deceptively complicated process.


  • You will pay less money every month.
  • You will have more money in your pocket to go towards other expenses or to clear more of the debt’s balance.


  • Your monthly payments will reduce at the expense of a longer loan term.
  • You will pay much more over the course of the loan.
  • The terms are not always as straightforward and beneficial as they first seem.

Tips for Making Debt Consolidation Work

  1. Look at the bigger picture as these companies rely on you focusing on the short-term. 
  2. Remember that debt consolidation companies are there to turn a profit, not to help you.
  3. Don’t assume that a lower interest rate is always better. APRs are calculated based on daily compound interest and greatly increase with age, so the term length is just as important as the interest rate.
  4. Prepare for your credit score to take a hit but don’t despair as it will improve in time.

Other Debt Repayment Options

The above options can help you to clear multiple high-interest rate debts, but they are not the only solutions afforded to you. There are two we didn’t mention and these sit either side of the scale: From the least extreme to the most; the first resort to the last.

Credit Counseling

As the name suggests, credit counseling is designed to help you manage your debts, guiding you through the chaos and providing solutions that help you attain financial freedom. This service is provided for free by credit unions and non-profit financial agencies and it’s also offered as by debt settlement and consolidation companies, who provide it during an initial consultation.

It’s free and if you work with a non-profit credit counseling company, it should also be honest. They will help you with budgeting and money management and if they deem that you need further assistance, they will recommend some of the strategies and the services that we have already discussed in this guide.


Bankruptcy is often seen as an easy way to escape the clutches of debt, but it can have a devastating impact on your credit score and leave a mark that remains for between 7 and 10 years. 

There are two forms of bankruptcy available to individuals: Chapter 7 and Chapter 13.  You can discuss which option is right for you with a bankruptcy expert or lawyer, but Chapter 7 is by far the most popular. This will liquidate all property and then distribute the money to creditors. Some property is exempt, but most will be liquidated by a trustee.

Chapter 13 can seem a little more manageable and less destructive as foreclosure is not a necessity. The focus is more on creating a repayment plan that allows the borrower to clear debts in a way that doesn’t destroy their finances.

Summary: Choosing a Debt Repayment Strategy

We’ve discussed all popular debt payoff strategies in this guide, giving you the information you need to make an informed decision based on the pros and cons and your own personal finances. If you’re still struggling to find the perfect strategy, contact a credit counselor and they will guide you through. 

It’s important to remember that there is always a solution, a way to escape debt and to usher in a brighter financial future, one where you don’t stress every day, struggle to fall asleep every night, and worry about every single expenditure. Millions of Americans die with substantial debts and for many, those debts are a direct cause of their death, but thanks to the industry’s improving regulations and increasing opportunities, it’s an issue that many are escaping from.


What is Disposable Income?

Disposable income is the amount of money that an individual or household has to spend or save after income taxes have been deducted.

Sometimes referred to as disposable personal income (or DPI) or disposable earnings, disposable income is closely monitored by government economists because it is a key indicator of the overall health of the economy.

Disposable income is also the foundation of your personal budget, as it is the starting point for how you decide to spend your money.

Understanding what disposable income is (and how it differs from discretionary income) is key to creating and living comfortably within your budget.

Read on to learn how to quickly calculate your disposable income, and then use this number to work towards your financial goals.

Why Disposable Income Is Important

Disposable income is usually defined as the amount of money you keep after federal, state, and local taxes and other mandatory deductions are subtracted from gross earnings.

401(k) contributions, deductions for other employer-sponsored benefits, as well as any assignments of support (such as child support) are excluded from the calculation. These costs are considered part of your disposable earnings.

Disposable income is an important number not just for consumers, but also the nation as a whole.

The average disposable income of the country is used by analysts to measure consumer spending, payment ability, probable future savings, and the overall health of a nation’s economy.

International economists use national measures of disposable income to compare economies of different countries.

On an individual level, your disposable income is also a key economic indicator because this is the actual amount of money you have to spend or save.

For example, if your salary is $60,000, you don’t actually have $60,000 to spend over the course of the year.

If you live in Connecticut, for example, you would pay $6,187.50 in federal income tax, $2,100 in state tax, $3,720 in social security tax, and $870 for medicare. Your disposable income could land at $47,317. This is what you would have to spend on everything else in your life, such as housing, transportation, food, health insurance and other necessities.

Of course, that doesn’t mean you should spend all of your disposable income. Another thing to consider is disposable vs. discretionary income. This will tell you actually how much money you have to play with.

Disposable Income vs. Discretionary Income

Although they’re often confused with one another, disposable income is completely different from discretionary income.

While disposable income is your income minus only taxes, discretionary income takes into account the costs of both taxes and other essential expenses. Essential expenses include rent or mortgage payments, utilities, groceries, insurance, clothing, and more.

Discretionary income is what you can have leftover after the essentials are subtracted. This is what you can spend on nonessential or discretionary items.

Some costs that fall under the discretionary category are dining out, vacations, recreation, and luxury items, like jewelry. Although internet service and your cell phone may seem like necessities, these expenses are considered discretionary expenses.

As you might expect, discretionary income is always less than disposable income. When you subtract discretionary income from disposable income, the amount you come up is how much you can put towards savings.

Calculating Disposable Income

Disposable earnings refers to the amount of earnings left over after mandatory federal, state and local deductions. But disposable income is not necessarily the same as your take-home pay.

Deductions from your paycheck may include additional items such as health insurance, retirement plan contributions, and health savings accounts. These deductions are voluntary, not mandatory.

To calculate your disposable earnings, you can simply subtract federal, state and local taxes, Medicare, and Social Security from your gross earnings. The resulting amount is your disposable income.

You may want to keep in mind, however, that taxes deducted from your paycheck are an estimate.

If you have a history of getting a large refund or having a large amount of taxes due, it may be worth reviewing your withholdings through your employer.

This could help you adjust the withholdings so it is closer to the actual expected tax that will be calculated when you file. You can then plan accordingly.

Even if you’re a contractor or freelancer, or if you made additional income from side gigs along with your salary, you can still calculate your disposable income.

This requires subtracting your quarterly tax payments and any additional taxes you will owe from your overall income. You can then determine your monthly after-tax income.

Setting aside money to pay taxes can also help you budget with your disposable income.

Disposable Income Budgeting

Calculating your disposable income is a key first step in preparing a budget. You need to know how much you have to spend in order to plan your monthly spending and saving.

A personal budget puts you in control of your disposable income and helps you make financial decisions. It forces you to take a closer look at how you’re spending your money.

Here are a few ideas that could be helpful when developing a budget based on disposable income.

Tracking Spending

Disposable income is what’s coming into your account every month. It’s a good idea to also determine what is going out each month.

To do this, you can gather up bank and credit card statements, as well as receipts, from the past three months or so, and then list all of your monthly spending (both essential and discretionary/nonessential).

track your spending for a month. You can do this with a phone app, by carrying a small notebook and jotting down everything you buy, or by saving all of your receipts and logging it later.

This can be an eye-opening exercise. Many of us have no idea how much we’re spending on the little things, like morning coffees, and how much they can add up to at the end of the month.

Once you see your spending laid out in black and white, you may find some easy ways to cut back, such as getting rid of subscriptions and streaming services that you rarely use, brewing coffee at home, cooking more and getting less take-out, or getting rid of a pricy gym membership and working out at home.

Setting Goals And Spending Targets

Tracking income and spending can provide a great starting point for setting financial goals and spending targets.

Goals are things that a person aims for in the short- or long-term—like paying off student loans or buying a new car.
Spending targets are how much you want to spend each month in general categories in order to have money left over to put towards your savings goals.

Since essential spending often can’t be adjusted, spending targets are typically for discretionary income.

One option for budgeting disposable income is the 50/30/20 plan. This suggests spending about 50% on necessities, 30% on discretionary items, and then putting aside 20% for savings and other long-term goals.

These percentages are general guidelines, however, and can be adjusted as needed based on individual circumstances.
For example, if you live in a competitive housing area, rent may take up a larger portion of your expenses, and you may have to bump up necessity spending to 55% or 60% and decrease fun money to 25% or 20% instead.

Or, if you are saving for something in the near term, like a car or a wedding, you may want to temporarily bump up the savings category, and pull back unnecessary spending for a few months.

The Takeaway

Disposable income is a key concept in budgeting, as it refers to the income that’s leftover after you pay taxes.
Disposable income is distinctly different from discretionary income, which is what remains after you subtract other necessary costs from your disposable income. You might think of discretionary income as your “fun money.”

Knowing how much disposable income you have is the foundation for putting together a simple budget that allows for necessary expenses, having fun, while also saving for the future.

Want to get started budgeting, but not sure where to begin? Consider signing up for a SoFi Money® cash management account.

With SoFi Money, you can easily track your weekly spending right in your dashboard in the app.

SoFi Money also offers savings features like “vaults” that make it easy to put money aside for your short- and long-term financial goals.

Save, spend, and earn all in one place with SoFi Money.

SoFi Money®
SoFi Money is a cash management account, which is a brokerage product, offered by SoFi Securities LLC, member FINRA / SIPC .
Neither SoFi nor its affiliates is a bank.
SoFi has partnered with Allpoint to provide consumers with ATM access at any of the 55,000+ ATMs within the Allpoint network. Consumers will not be charged a fee when using an in-network ATM, however, third party fees incurred when using out-of-network ATMs are not subject to reimbursement. SoFi’s ATM policies are subject to change at our discretion at any time.
Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.


Hovnanian: Higher Mortgage Rates Will Just Lead to Smaller Homes

Posted on July 2nd, 2013

During an interview with CNBC this morning, Ara Hovnanian of K. Hovnanian Homes expressed that he’s not worried about higher mortgage rates hurting the housing market.

In fact, the mega home builder’s CEO actually thinks we’re in the “early innings” of the housing recovery, noting that housing starts are still way below the expected average for this decade.

He said we’re currently at a pace of around 900,000 annual starts, up from 500,000 just two years ago, but nowhere close to the 1.5-1.6 million expected.

At the same time, mortgage rates are still insanely cheap, as I pointed out yesterday.

Hovnanian recalled conditions back in 1983, when mortgage rates averaged 13.4% and housing starts were at a staggering 1.7 million.

So if you look at things from a mortgage rate point of view, there’s not enough supply to keep up with demand.

That would explain some of the recent home price gains, which are slated to keep increasing at a steady clip.

All in all, he didn’t seem too concerned about mortgage rates rising, so long as they don’t rise by some obscene amount in a short period of time.

Funnily enough, he actually called for 3% mortgage rates back in 2008 to solve the problem of supply and demand. Looks like he got his wish…

Customers Want Bigger Homes While Rates Are Cheap

At the moment, Hovnanian says customers have been buying the largest of their offerings, perhaps because housing is so affordable.

In fact, they’ve had to design larger homes to add to their lineup to keep up with that trend.

In Houston, customers can buy a 4,000 square foot home for $250,000, which is pretty darn huge (and cheap).

Seeing that rates on the 30-year fixed are averaging close to 4.5%, you’d be looking at a monthly mortgage payment of just over $1,000 if you put 20% down.

So it’s no wonder people will go bigger if they can. But if rates rise to say 5.5%, Hovnanian said the same customer might go with a 3,000 square feet house. If rates really shoot up, he said customers could even settle for a townhouse instead.

In other words, he doesn’t think higher mortgage rates will cool the housing market per se, they will just dictate what prospective buyers can afford.

[Check out my mortgage payment graphs to assess affordability.]

People Need Shelter…

Hovnanian seems to believe that the need for shelter is what’s driving the market recovery, though you have to wonder if it’s just that pesky bubble mentality creeping back in, what with home prices still “on sale” and rates so attractive.

Of course, inventory constraints seem to be the real issue, and Hovnanian is clearly pleased that the private equity funds are buying up scores of single-family homes throughout the United States.

Thanks to the likes of Blackstone and Colony American Homes, demand for his company’s homes is probably that much higher.

And he doesn’t think they’ll flip the homes they buy – conversely, he sees them holding and renting for years to come, and slowly unloading as prices rise.

However, he does think managing such a large number of homes will be challenging.

Finally, Hovnanian weighed in on potential winning real estate markets throughout the country, naming both Northern and Southern California, along with Phoenix and “many of the land-constrained Florida markets.”

Other winners in his eyes included Washington D.C., New Jersey, and suburban New York.

Of course, this should all be taken with a grain of salt, seeing that he’s the head of a major home building company. But he does have some decent points about rates and supply.

Maybe there is a lot more upside ahead, so long as the distressed inventory doesn’t rear its ugly head.

About the Author: Colin Robertson

Before creating this blog, Colin worked as an account executive for a wholesale mortgage lender in Los Angeles. He has been writing passionately about mortgages for 15 years.


Redfin Compete Score: How Hard Is It to Win That Home?

Redfin just launched its so-called “Compete Score,” a tool designed to help prospective home buyers determine how hard it’ll be to “win a home” in a particular city or neighborhood.

Is this the beginning of the end? The late stages of a housing market rally that began nearly six years ago depending on the region of the country?

It feels a little ominous, but let’s learn more about this new tool for home buyers and sellers that complements their existing Redfin Estimate.

What Is Redfin Compete Score?

Compete Score

  • A new housing market competition tool from Redfin
  • That measures now competitive a city or neighborhood is
  • Based on things like average number of offers received
  • Along with sale-to-list price ratio and days on market

At the moment, Compete Score is available in some 8,200 cities and 13,000 neighborhoods across the United States.

In short, it measures how many offers a home typically receives in a certain region, along with what price a home tends to sell for relative to its list price.

Additionally, days on market and number of waived contingencies is calculated.

This results in a Compete Score ranging from 0 to 100, with the higher numbers representing more competition and the lower numbers signifying less interest.

When you browse a specific listing on Redfin’s website or app, you’ll see a section about market competition under the neighborhood tab.

You can also see a Compete Score for an entire city or neighborhood on the new “Home Values” tab when searching in a particular zip code.

How You Can Use Compete Score to Your Advantage

Santa Monica competition

  • Quickly find out how hot or cold a certain market is
  • To better align your expectations with reality
  • Use data to guide the listing of your property or the bidding process
  • But remember no two homes are completely alike so don’t solely rely on it

Now let’s discuss how you can use Redfin Compete Score to perhaps make a better offer, or to list your home for an appropriate price.

The red-hot Santa Monica, California housing market is currently listed as a 91 out of 100, giving it the distinction of “most competitive.”

Homes there typically receive five offers, go pending in just 20 days, and sell for roughly 2% above list price. That probably doesn’t come as a great shock to anyone familiar with the area.

If it happens to be a Hot Home in an equally hot hood like Santa Monica, the property might go under contract in just 12 days and sell for 8% above asking.

On an individual property listing page, this section includes “what it takes to win an offer” with comments from Redfin real estate agents in the immediate area sharing their thoughts on local competition.

For example, you might see a bunch of comments from Redfin agents that made winning bids under ask, or a bunch that were rejected for going under ask.

If the neighborhood is particularly hot, you might see a bunch of over ask offers that failed to win.

Assuming there’s enough data, you could see a trend over time, where offers went from over asking to under and turned from losing bids to winning bids.

This could help you put together a winning bid with your real estate agent, though I should point out that every home is different, and just because properties are nearby one another they aren’t necessarily the same. Or even close to the same.

In an effort to ensure the Compete Score is accurate, it’s limited to areas where at least 25 homes have sold in the past 12 months.

Each month, the Compete Score is updated for a given area to reflect the most recent home sales data.

So it’s possible for an area to become hotter or colder depending on what transpired the month before.

Desirability vs. Competitiveness

  • Desirability and competition don’t necessarily go hand in hand
  • If a highly desirable market gets too expensive
  • Competition may decline as a result of affordability issues
  • This could signal a topping out and potential trouble ahead for that specific market

Redfin points out that desirability and competitiveness are two different things.

For example, an extremely desirable area may actually see competition wane as home prices climb further and further out of reach.

This could be a sign that a particular housing market is beginning to top out, despite being immensely popular.

We keep hearing about the possibility of that happening in places like Seattle and the Bay Area, but the buyers keep on coming, for now.

The Redfin Compete Score may also lead to fewer surprises for home buyers vying for a certain property, who might be disappointed, even when bidding well above asking.

It could also save a home buyer some bucks if the listing agent is making the property/area out to be hotter than it actually is.

Or as I pointed out, quantifiable trends may develop that can aid in making a more conservative winning offer.

Does This All Portend Another Bubble?

  • While it’s understandable that more data will yield more tools like this
  • It seems to have a bubbly nature about it
  • And reflects the current lack of inventory affecting many regions across the U.S.
  • But at a certain point the supply and demand imbalance will shift

At first glance, the new Redfin Compete Score felt like another bubbleworthy addition to the current housing market we’re experiencing.

After all, you’re trying to “win a home” as opposed to making a thoughtful financial decision.

No longer is simply making an offer on a property good enough. One must be ready to make a bid above asking, and/or waive important contingencies to get the deal done.

Or perhaps you have to pen a letter to the sellers, effectively begging for their property, while promising to keep it in its original state.

Because after all, it is perfect, and it should be maintained as such for generations to come, regardless of your own taste and preferences.

For me, it signals a little more craziness in a housing market that has been crazy for some time now.

Sure, it’s also just a sign that there’s more data available than ever before, but its mere existence might give a discerning home buyer pause.

Not that I think this housing market is going to crash just yet.


Working With a Design-Build Team to Create Your Dream Home

What do the experts say you need to do and know for a smooth build out?

Building your dream home from scratch is a daunting task, especially if you’ve never worked with an architect, builder, and design team before.

To make the project a little easier to wrap your head around, here’s some advice from construction professionals.

Do your research

The building process isn’t short, so make sure you are happy with your team — you’re stuck with them for a long time.

This requires doing a little homework.

To start the building process right, you’ll want to do the following:

  • Conduct extensive online research to make sure you’re using a reputable builder
  • Get referrals from friends and family
  • Look at examples of the builder’s current work

Nikki James, studio manager at Ashton Woods, a builder and design studio constructing homes in the South and Southwest, recommends visiting a builder’s model homes and those under construction.

It’s fine to even be a little sneaky, says Jesse Fowler, president of Southern California-based Tellus Design + Build. Pop in at a construction site unannounced to see what the job site looks like. Workers not wearing hard hats or lots of garbage on the ground are red flags.

Ask questions (and more questions)

You need to understand the parameters of what the builder is doing for you, advises Roger Kane of Kane Built Homes in Massachusetts. And you get that information by asking questions. Make sure the builder can execute what you want, because not all builders can accommodate custom designs.

One of the first things you should do before meeting with your team for the first time is to identify what you don’t know, and then eliminate that doubt.

If this is your first time building, there are probably going to be a lot of things you don’t know, and that’s fine, Fowler says. There are no dumb questions.

Here are a few starter questions:

  • What exactly are you paying for?
  • Do you need full architecture/design/build services, or do you just want a blueprint?
  • How much time should you allow?

Know what you want

“Design inspiration can come from anywhere,” says James. She asks her clients to bring in plenty of pictures, scraps of fabric, or anything that speaks to their aesthetic.

The first thing to do, Fowler says, is to figure out the look and feel that a customer likes, and weed out what they don’t like.

It’s also important to know your limitations, though. James warns that you must make the structural selections for your floor plan before picking design elements so you know what you can and can’t have. For example, if you want a freestanding tub, you will first need to know if you have the right plumbing for it.

An architect wants to know how you’re going to use your home, advises Kim Nigro, the architect at Chicago-based Studio Nigro Architecture. Tell your architect what you don’t like about your current home, and what your day-to-day needs are.

This can be as simple as letting them know you shop at Costco a lot, so you want a big pantry, James says.

The details matter

You probably never thought about what kind of grout you want between your tiles. But these are the kinds of decisions you will be making.

Ashton Woods gives its customers a checklist for details like this, and there are a lot of specific items on it, from what kind of edge you want on your counters to how many outlets and phone jacks you’ll need.

This sounds overwhelming, but Kane’s advice is to just take it room by room. Start out with the basics. Determine how many bedrooms and bathrooms you need, then go inside each room and think about what should be in it.

“Make a list,” he says. “’We want hardwood flooring; we need his-and-her closets.’ Make your own little notebook and just address every room. That’s a great way to start.“

Know your budget

The harsh reality is that you can’t buy something you can’t afford. So, do your math and be upfront about your budget.

“Not communicating a clear budget to a designer is a mistake,” Fowler advises. “Designers need something tangible. If you let them go wild, 99 times out of 100 they are going to do something you can’t afford.”

There are good reasons not to pinch too many pennies, though.

As the saying goes, “If it seems too good to be true, it probably is.” You probably shouldn’t go with the cheapest guy out there, Fowler suggests. A lot of builders, he says, cut corners by doing things illegally.

Don’t get roped into a mess like that. Saving a few bucks now might end up costing you more later.

James recommends doing things exactly the way you want them from the beginning, because remodeling later will cost you more money and more stress.

“We see a lot of buyers getting nervous about spending too much. As people get closer [to finishing], they wish they had spent that extra money,” she reports.

Spending more for quality products is another big consideration. Kane uses sustainable products for the exterior of his houses that last “pretty much a family’s life in a home — 30 to 40 years.”

That’s good for the environment and your wallet, because regular maintenance like repainting the outside of a house can cost $15,000.

Be decisive

The biggest mistake Kane, a veteran homebuilder, has seen homeowners make is being wishy-washy with their decisions.

Once a home is under construction, it’s important to have made all your major design selections.

“Paint color’s not a big deal,” Kane says. “But you should have things like all your tile and granite picked out.”

Why? Because at this point in the process, your selections could be backordered, and waiting on them is costly to the builder and to you.

If you do tend to change your mind a lot, make sure you pick a builder with a good warranty program.

Communication is key

One core piece of advice from construction professionals: Keep the lines of communication open. The biggest mistake you can make, says Fowler, is leaving gray areas in your building and design plan.

“I’ve heard horror stories, and most are because one party’s expectations were different from the other’s,” Nigro states. “The more developed drawings can be, the fewer assumptions the contractor will have to make.”

And it’s not only important for you to communicate to your design team. The members of your team need to be on the same page with each other as well.

“They need to really create a collaborative team,” Nigro says. “There are a lot of decisions to be made.”

Fowler recommends getting the whole team together to meet each other and start working collaboratively from the start. Most times, he says, architects, designers, and builders who work in a community have met and done projects with each other before.

Consider the trends

More homes across the country are being built “healthy” or “green.” These are homes built with non-toxic, natural products and materials.

Nigro says she used to recommend healthy building to her clients, and now people are coming to her asking for it.

Another trend sweeping the nation is “mother-in-law suites” or homes that accommodate multi-generational families.

Over the past five years, a lot of Nigro’s clients have started looking down the road to when older relatives might move in with them, or maybe their adult children will move back home after college.

This could mean a separate apartment over a garage, or maybe a guest bedroom on the main floor.

Why are trends an important factor to consider? It could help you sell your home in the future.

Have fun

“It’s important for us to personalize your home and make it yours and something that you’re proud of,” James remarks.

If this means having a full basketball court right on the main floor next to the dining room, like one of Nigro’s customers wanted, then that’s what you should have!

Custom features can range from practical to fantastical: Fowler has had clients ask for water pipes over their nightstand so they wouldn’t have to get up for water in the middle of the night; “living walls” (walls with plants or grass growing right on them); hidden cameras; and even an unexplained hole in the closet floor.

Hey, it’s your dream house, after all.

Wondering if new construction is right for you? Search new construction listings, and get more home-buying tips and resources to help you decide.


Originally published October 21, 2016.