What Can a Landlord Deduct From Your Deposit? A Primer for Current and Former Renters

Maybe you didn’t think twice when you put a big security deposit on that fancy apartment two summers ago. But now that you’re getting ready to move again, you might be wondering how much of that deposit you’ll actually get back.

Believe it or not, your deposit isn’t at the mercy of your landlord. Tenants have rights, and landlords have limitations on what they can deduct from your deposit.

In Florida, for example, “if the landlord fails to return the security deposit in a timely manner, or deducts for normal wear and tear, then the tenant can sue the landlord to get their deposit back and the landlord will have to pay the tenant’s attorney fee,” says Larry Tolchinsky, a real estate lawyer and partner at Sackrin & Tolchinsky in Hallandale Beach, FL.

But to avoid getting to that point, it’s important for tenants to understand the basics on deposits. In most states, the timely return of your deposit means there’s a deadline—such as 30 days—so be sure to leave a forwarding address.

When landlords deduct from your deposit, they will typically include an itemized statement explaining how the deposit was applied. In California, for example, if a landlord deducts any more than $126, they must provide receipts for their deductions.

Landlords can’t deduct from your deposit for any old reason; there has to be a legit circumstance. The rules may vary from city to city (or state to state), so read up on what your landlord can and can’t do in your area. But, in general, here are some things landlords can deduct from your deposit.

Nonpayment of rent

Unemployment as a result of the COVID-19 pandemic has hit many tenants hard, rendering them unable to pay rent. Some landlords and management companies have offered rent relief, but others have claimed that unpaid rent is unpaid rent. In this situation, landlords can collect unpaid rent—and late fees—from your deposit as necessary.

“Rent that is not paid is considered damages when a tenant vacates,” says Eric Drenckhahn, a real estate investor and property manager, who runs the blog NoNonsenseLandlord.com. “A tenant cannot use the damage deposit to pay their rent without the landlord’s approval, but a landlord can deduct it for nonpayment after a tenant has left.”

Unpaid utilities

Forgetting to pay your utility bill happens. But if you pay for things like trash and water through your property management company, be aware that your landlord could tap your security deposit to cover any bills you missed.

Tolchinsky says there is no black and white law on this, but it is possible. It all depends on the terms of your lease and local rules governing the jurisdiction that you reside in.

Abnormal cleaning costs

If you left the place trashed and filthy, expect your landlord to dig into your deposit. Landlords can deduct from your deposit for excessive dirtiness, beyond normal cleaning costs.

Drenckhahn says the place should be “broom clean,” or as clean as when you moved in.

“Dirt and grease left behind is not wear and tear,” says Drenckhahn. “Examples of excessive dirtiness includes removing stains from the carpet, replacing the carpet due to a cat using a closet for a litter box, or replacing door trim due to cat scratches.”

Doing a little cleaning before leaving isn’t a bad idea, but it doesn’t guarantee it’ll save your security deposit.

Tolchinksy says if a tenant hires a professional cleaner, rents a steam cleaner, or buys paint to paint the walls, he or she “should maintain all invoices and receipts” to provide proof to the landlord.

Damage to the property

Security deposit laws allow a landlord to deduct from a security deposit for any damage. This is different from normal wear and tear, such as faded paint or worn carpet that is naturally occurring and not due to the tenant. Examples of damage to the property include a broken bathroom vanity, cracked kitchen countertop, or broken doors.

Tolchinsky says it’s a good idea for a tenant to request a move-in and a move-out checklist and document by pictures and video the condition of the apartment.

Items left behind

Packing and moving everything you own is a huge undertaking. But regardless of how exhausted you are, don’t leave any items behind; it could be a costly mistake.

“Mattresses and box springs left behind are expensive to get rid of, and you will be charged accordingly,” says Drenckhahn. “It is not unusual to be charged $50 or more for each piece.”

If you do need to get rid of a bunch of large items, hire a junk hauling company, try to sell them online, or look into donating them to charity.

Breaking the lease

In some circumstances, breaking your lease is the only option. But breaking your lease early makes it less likely that you will reunite with your deposit.

A landlord can keep all, or part, of your deposit to cover costs if you break your lease early, per landlord-tenant state laws and what’s written in your lease contract. If you can, try to move when your lease is up.

“In my places, you are required to be out by 10 a.m. There is no late checkout, as I have tenants generally moving in the next day,” says Drenckhahn. “When you have the place clean, and even move out a few days early, it’s very easy to refund 100% of the damage deposit.”

Source: realtor.com

How to prepare for a natural disaster

My world is on fire.

As you may have heard, much of Oregon is burning right now. Thanks to a “once in a lifetime” combination of weather and climate variables — a long, dry summer leading to high temps and low humidity, then a freak windstorm from the east — much of the state turned to tinder earlier this week. And then the tinder ignited.

At this very moment, our neighborhood is cloaked in smoke.

I am sitting in my writing shed looking out at a beige veil clinging to the trees and nearby homes. The scent of the smoke is intense. My eyes are burning. After everything else that’s happened this year, this feels like yet one more step toward apocalypse. So crazy!

Fortunately, Kim and I (and the pets) are relatively safe. We’re worried, sure, but not too worried. Our lizard brains make us want to flee. (“Fight or flight” and all that.) But our rational brains know that unless a new fire starts somewhere nearby, we should be safe.

Here’s a current map of the fire situation in our county. (Click the image to open a larger version in a new window.)

Map of the wildfires in our county

The areas in red are under mandatory evacuation orders. (And the red dots are areas that have burned, I think. They added the dots to the map this morning.) Residents of areas shaded in yellow need to be prepped to leave at a moment’s notice. And the areas in green are simply on alert.

See that town called Molalla? That’s where my mother and one of my brothers live. My mother’s assisted-living facility was evacuated to a city twenty miles away. My brother and his family voluntarily moved from their home to our family’s box factory. But even that doesn’t feel 100% safe. (The box factory is located just to the left of that cluster of red dots at the top tip of the yellow area around Molalla.)

Kim and I live near the “e” in Wilsonville. We’re more than twenty miles from the nearest active fire. We should be safe. But, as a I say, we’re worried. So, I spent much of yesterday prepping for possible evacuation.

Update! As of Sunday afternoon (September 13th), things have calmed for us. The evacuation notice has been lifted for our area. The weather is changing. Rain is only a day or two away. So, we’re standing down. Now, having said that, there are still many people in our country who remain evacuated, and there are others who have lost their homes. (My brother’s town and home will probably emerge unscathed. Probably. For now, though, they’re still evacuated and living in an RV at the box factory.)

Natural Disasters

We Oregonians don’t have a protocol for emergency evacuations. It’s not something that really crosses our minds.

While the Pacific Northwest does have volcanoes, eruptions are rare enough that we never think about them. And yes, earthquakes happen. Eventually we’ll have “the Big One” that devastates the region, but again there’s no way to predict that and it’s not something we build our lives around. (Well, many people have been adding earthquake reinforcement to their homes, but that’s about it.)

In the past fifty or sixty years, the Portland area has experienced four other natural disasters.

Now, in 2020, we’re experiencing the worst wildfires the state has ever seen. That’s roughly one disaster every ten or fifteen years, and it’s the first one during my 51 years on Earth that’s made me think about the need for evacuation preparedness.

Kim and I have been asking ourselves lots of questions.

If we were to evacuate, where would we go? What route would we take? What would we carry with us? How would we prep our home to increase the odds that it would survive potential fire?

Let me share what we’ve decided and what we’ve learned. (And please, share what you know about emergency preparedness, won’t you?)

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Evacuation Preparedness

The first thing we did was brainstorm a list of things that were important to us. Without reference to experts, what is it that we would want to do and/or take with us, if we were to evacuate.

  • Our animals (and animal supplies).
  • Phones, computers, and charging cords.
  • Important documents from our fire safe.
  • A bag for each of us containing clothes and toiletries.
  • Sleeping bags and pillows.
  • Sentimental items. (We have no “valuable”.)
  • Create a video tour of the house for insurance purposes (be sure to highlight valuable items).
  • Move combustible items away from the house.

After creating our own list, we consulted the experts.

In this case, we looked at websites for communities in California. California copes with wildfires constantly. (And, in fact, Kim’s brother and his family recently had to help evacuate their town due to wildfires!) For no particular reason, I chose to follow the guidelines put out by Marin County, California. I figured they know what they’re talking about!

The FIRESafe MARIN website has a bunch of great resources dedicated to wildfire planning and preparedness. I particularly like their evacuation checklist. While this form is wildfire specific, it could be easily adapted for other uses, such as hurricane preparedness or earthquake preparedness.

The ready.gov website is an excellent resource for disaster preparedness. It contains lots of info about prepping for problems of all sorts. You should check it out.

Creating a Go Kit

FIRESafe MARIN and other groups recommend putting together an emergency supply kit well in advance of possible problems. Each person should have her own Go Kit, and each should be stored in a backpack. (In our case, I have several cheap backpacks that I’ve purchased while traveling abroad. These are perfect for Go Kits.)

What should you keep in a Go Kit? It depends where you live, of course, and what sorts of disasters your area is susceptible to. But generally speaking, you might want your kits to contain:

  • A bandana and/or an N95 mask or respirator.
  • A change of clothing.
  • A flashlight or headlamp with spare batteries.
  • Extra car keys and some cash.
  • A map marked with evacuation routes and a designated meeting point.
  • Prescription medications.
  • A basic first aid kit.
  • Photocopies of important documents.
  • Digital backup of important files.
  • Pet supplies.
  • Water bottle and snacks.
  • Spare chargers for your electronic equipment.

That seems like a lot of stuff, but it’s not. These things should fit easily into a small pack. Each Go Kit should be stores somewhere easy to access. Kim and I don’t have Go Kits yet, but we’ll create them soon. We intend to store them in the front coat closet.

Writing this article reminds me of one of the first posts I shared after re-purchasing Get Rich Slowly. Almost three years ago, I wrote about how to get what you deserve when filing an insurance claim. This info from a former insurance employee is very helpful (and interesting).

Final Thoughts

I spent much of yesterday prepping for possible evacuation. This isn’t so much out of panic as it is out of trying to take sensible precautions. I gathered things and put them in the living room so that we can be ready to leave, if needed. If authorities were to upgrade us from level one to level two status, I’d move this stuff to my car.

Also as a precaution, I moved stuff away from the house and thoroughly watered the entire yard. (Not sure that’d make much difference, but hey, it can’t hurt.) I created a video tour of the house that highlights anything we have of value. And so on. This took most of the afternoon.

This morning, I can see that the neighbors are doing something similar. We’re all trying to exercise caution, I think.

Kim and I will almost surely be fine. Although the smoke is thick here at the moment — it’s like a brownish fog, and it’s even clouding my view of the neighbor’s house! — there aren’t any fires super close to us. And barring mistakes or stupidity, there won’t be any threat to our home.

Still, it’s good for us to take precautionary measures, both now and for the future. And it’s probably smart for you to take some small steps today in case disaster strikes tomorrow.

Here’s a terrific Reddit post about what one person wishes they’d known when evacuating for wildfire.

Source: getrichslowly.org

How much does it cost to drive? Driving cost calculators and tools

My girlfriend recently bought a new car. After 23 years, she sold her 1997 Honda Accord to a guy who’s more mechanically inclined than we are. Kim upgraded to a 2016 Toyota RAV4, and she loves it.

One of her primary considerations when searching for a new car was the cost to drive it. In her ideal world, she would have purchased a fully-electric vehicle but it just wasn’t in her budget. The RAV4 hybrid was a compromise. According to fueleconomy.gov, it gets an estimated 32 miles per gallon. (And actual users report 34.7 miles per gallon.)

Cost to drive a RAV4 hybrid

Kim’s quest for a fuel-efficient car prompted me to revisit apps and online tools that help users track their driving and fuel habits. I’ve written about these in the past — and, in fact, this is an updated article from 2008! — but haven’t looked into them recently.

Here’s a quick look at some of my favorite driving cost calculators, tools, and apps.

Cost to Drive

Cost to Drive (stylized Cost2Drive) is an easy-to-use web app that estimates how much you’ll spend to drive from point A to point B. Enter your starting point (address, city, state, or zip code) and your destination, enter your vehicle information, then click a button.

Cost to Drive input

That’s it. Cost to Drive calculates travel distance, approximate driving time, and an estimate of your fuel costs. Here, for instance, is how much it would cost to drive from Portland to visit Kim’s brother in Groveland, California.

Cost to Drive output

This tool is handy for road trips, of course, but it’s also useful for extended journeys. Before Kim and I set out on our R.V. trip across the U.S., I used Cost to Drive to estimate how much we’d spend on fuel. (I was way off, but that’s not the fault of the tool. I overestimated the fuel economy of our motorhome!)

This isn’t the sort of tool that you’ll use every day, but it’s certainly useful enough to bookmark for later use.

Folks in Europe — and possibly the rest of the world — might want to play with the Via Michelin app, which offers route planning and driving cost calculations.

Fuelly

While we only used the Cost to Drive once for our R.V. trip, we used the Fuelly app every single day. And I still use it today.

Fuelly is primarily a smartphone app with which you can track your vehicle’s fuel economy. Whenever you stop to pump gas, you enter mileage and pricing info into the app, and it computes how much it costs to drive.

Here, for instance, are two screencaps from Fuelly showing how it tracked info for our motorhome.

Fuelly cost to drive screenshot  Fuelly cost to drive info

To get more accurate estimates of the cost to drive your vehicle, you can also log maintenance info in Fuelly. And, as you can see, the free version of the app is ad supported. Ad-free premium versions are available, and they include added features.

While the Fuelly website doesn’t offer a lot, there’s one feature that I think GRS readers will find interesting. If you select the browse vehicles option from the main menu, you, you can get a profile of driving info for all Fuelly users. Here, for instance, is what the app has tracked for other folks who own a 2004 Mini Cooper, like me.

Fuelly individual model info

Fuelly cost to drive info

GasBuddy

A decade ago, GasBuddy was a gas price aggregation tool. It collected fuel price info from across the United States, and served it up so that visitors could find the best prices in their area.

Today, GasBuddy is still that website, but it’s a whole lot more. For instance, you can look up a chart of gas price trends over the past couple of years.

Gas price trends

Or you can find local maps and national maps of current gas prices.

Local gas prices

National gas prices

And because it’s 2020 now, GasBuddy offers a smartphone app featuring all sorts of tools to help you calculate (and reduce) your fuel costs.

FuelEconomy.gov

FuelEconomy.gov is the official U.S. government source for fuel economy info. Like all U.S. government sites, it’s a treasure trove of data and resources.

The site includes a car finder (and comparison) tool (also available for iOS and Android devices), a vehicle power search, a fuel savings calculator, and more. There’s even a page exploring extreme MPG!

The site also provides some widgets for site owners (like me!) to share with their audience. Here’s

Find a Car Tool

This tool lets you look up official EPA fuel economy ratings for vehicles back to the 1984 model year.

   

Gas Mileage Tips

This tool displays a fuel-saving tips and provides links to additional tips on fueleconomy.gov.

Each year, the U.S. Department of Energy and the U.S. Environmental Protection Agency produce a Fuel Economy Guide to help buyers choose fuel-efficient vehicles. You can find guides from recent years in the Get Rich Slowly file vault, if you’re interested: 2020, 2019, 2018, 2017, 2016, 2015.

If you’re into alternative fuels and advanced technology vehicles, the U.S. Department of Energy has a bunch of different widgets to play with at their Alternative Fuels Data Center.

Sidenote: Many folks want a new Tesla or Prius in order to minimize their impact on the environment. This isn’t as straight-forward as it might seem. The calculations are complicated but the bottom line is this: In many cases, it makes more sense to keep (or buy) an older fuel-efficient vehicle than to buy a new one. That’s because the manufacturing process itself is the source of roughly 25% of a car’s environmental impact.

The Bottom Line

It’s important to note that even the best driving cost calculator has limitations. Most of these tools track only fuel costs, which are a small portion of the overall cost to drive your car.

Your true cost of car ownership includes the purchase price,insurance, maintenance, and more. According to the American Automobile Association, the average new vehicle costs 62 cents per mile to drive. AAA figures the average driver spends $9,282 per year on her automobile.

To truly determine how much you’re spending to get around, you need to take matters into your own hands. Find a cheap notebook or pad of paper. Grab a pen or pencil. Whenever you make a trip – even if it’s just down the street – log the time and the distance. Write down how much you spend on fuel and maintenance. Tally your car and insurance payments.

Do this long enough and you’ll begin to get a picture of your personal driving costs. At any point, you can simply divide the amount you’ve spent on your vehicle by the number of miles you’ve driven to learn how much it costs to drive.

What you do with this info is up to you!

Note: This is an updated article from the GRS archives. The original version from 03 December 2008 was woefully out of date. Some older comments have been retained.

Source: getrichslowly.org

Where More Young Residents Are Buying Homes – 2021 Study

Where More Young Residents Are Buying Homes – 2021 Study – SmartAsset

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The homeownership rate in America peaked at a little more than 69% in 2004 before falling to 63.7% in 2016, according to U.S. Census data. Despite the fact that it has rebounded to a little more than 65% in 2019 overall, only 36.4% of Americans younger than 35 own their homes. It may be easier in some places, though, for this young cohort to buy homes. To that end, SmartAsset crunched the numbers to find the cities where people younger than the age of 35 are most likely to own their own home – and to see where this number has gone up in recent years.

To find the cities where more under-35 residents are buying homes, we compared the homeownership rate for this demographic in 2009 with the homeownership rate in 2019 for 200 of the largest U.S. cities. For details on our data sources and how we put all the information together to create our final rankings, check out the Data and Methodology section below.

Key Findings

  • Young homeownership has decreased overall since 2009. While there are plenty of cities where homeownership among younger residents has increased, over the past decade the under-35 homeownership rate decreased by 3.71%, on average, across the 200 cities we analyzed.
  • Under-35 homeownership lags compared to that of older generations, particularly in large cities. Though some two-thirds of all Americans owned their homes in 2019, just one-fourth (26.15%) of residents younger than 35 did in the 200 cities we analyzed. Homeownership rates are particularly low for the under-35 set in America’s largest cities: of the 10 with the highest populations, nine are in the bottom half of the study for 2019 homeownership rate (only Phoenix cracks the top half at No. 67), and all 10 had decreasing homeownership rates from 2009 to 2019, with six out of 10 — Phoenix, San Jose, Philadelphia, Dallas, Houston, Chicago — ranking in the bottom half of the study for change in homeownership rate from 2009 to 2019.

1. Midland, TX

Midland, Texas has seen a 10-year increase of 17.11 percentage points in the homeownership rate among people younger than 35, the largest growth seen in this study. The total homeownership for that age cohort in 2019 was 52.42%, the fourth-highest rate we analyzed for that metric. Together, this makes Midland the top place where more young residents are buying homes.

2. Cape Coral, FL

The homeownership for younger Cape Coral, Florida residents in 2019 was 55.54%, the third-highest rate in the study for this metric. That’s an increase of 8.71 percentage points compared to 2009, the fourth-highest increase for this metric across all 200 cities we considered.

3. Joliet, IL

Joliet, Illinois, located about 30 miles southwest of Chicago, had a homeownership rate of 63.48% for under-35 residents in 2019, the highest rate of all the cities we studied. Joliet ranks ninth for the 10-year change in homeownership, increasing 5.48 percentage points from its 2009 rate of 58.00%.

4. Mesquite, TX

Mesquite, Texas is part of the Dallas metro area, and in 2019, the homeownership rate among residents younger than 35 was 45.46%. That ranks 11th in our study, but in 2009 the rate was just 35.47%, meaning the increase over 10 years was 9.99 percentage points, third place for this metric.

5. Bakersfield, CA

Bakersfield, in central California, ranks 20th for homeownership rate among younger people in 2019, at 39.75%. That’s a 10.01 percentage point increase over the 10-year period from 2009 to 2019, the second-highest jump for this metric in the study.

6. Aurora, CO (tied)

Aurora, Colorado ranks 15th for the 2019 homeownership rate among people younger than 35, at 42.28%. That is an increase of 5.29 percentage points from 2009, the 10th-largest jump we observed in the study.

6. Port St. Lucie, FL (tied)

Port St. Lucie, Florida has the fifth-highest homeownership rate among younger people in 2019, at 51.93%. It ranks 20th for its increase in that percentage from 2009, at 2.70 percentage points.

8. Gilbert, AZ

Gilbert, Arizona, located near Phoenix, has the eighth-highest homeownership rate among residents younger than 35, at 50.08%. That increased 2.69 percentage points since 2009, good enough for 21st place in that metric.

9. Fort Wayne, IN

Fort Wayne, Indiana ranked 17th in both of the metrics we measured for this study. The homeownership rate among those younger than 35 was 41.24% in 2019, a 3.32 percentage point increase over the previous 10 years.

10. Rancho Cucamonga, CA

The final city in the top 10 of this study is Rancho Cucamonga, California, which ranked 21st for under-35 homeownership in 2019, at 39.39%. That is a 3.77 percentage point jump since 2009, the 14th-biggest increase we observed across all 200 cities in the study.

Data and Methodology

To find the cities where more young Americans are buying homes, SmartAsset examined data for 200 of the largest cities in the U.S. We considered two metrics:

  • 2019 homeownership rate for those under 35. This is the homeownership rate among 18- to 34-year-olds. Data comes from the U.S. Census Bureau’s 2019 1-year American Community Survey.
  • 10-year change in homeownership rate for those under 35. This compares the homeownership rate among 18- to 34-year-olds in 2009 and 2019. Data comes from the U.S. Census Bureau’s 2009 and 2019 1-year American Community Surveys.

First, we ranked each city in both metrics. Then we found each city’s average ranking and used the average to determine a final score. The city with the highest average ranking received a score of 100. The city with the lowest average ranking received a score of 0.

Tips for Buying a Home

  • Never too old for some expert guidance. No matter what age you are, buying a home is a big step, and a financial advisor can help you get ready to take it. Finding the right financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with financial advisors in your area in five minutes. If you’re ready to be matched with local advisors that will help you achieve your financial goals, get started now.
  • Meticulous mortgage management. Chances are you’ll need a mortgage to facilitate buying your home. Use SmartAsset’s free mortgage calculator to see what your monthly payments might be based on your financing rate and down payment.
  • Taxes don’t always have to be taxing. If you’re moving to one of the cities on this list, your tax burden might change. Use SmartAsset’s free income tax calculator to see what you’d owe the government each year if you pick up stakes and move.

Questions about our study? Contact press@smartasset.com.

Photo Credit: © iStock/valentinrussanov

Ben Geier, CEPF® Ben Geier is an experienced financial writer currently serving as a retirement and investing expert at SmartAsset. His work has appeared on Fortune, Mic.com and CNNMoney. Ben is a graduate of Northwestern University and a part-time student at the City University of New York Graduate Center. He is a member of the Society for Advancing Business Editing and Writing and a Certified Educator in Personal Finance (CEPF®). When he isn’t helping people understand their finances, Ben likes watching hockey, listening to music and experimenting in the kitchen. Originally from Alexandria, VA, he now lives in Brooklyn with his wife.
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The Sweet Spot

“Success can get you to the top of a beautiful cliff,

but then propel you right over the edge of it.”

As a Mustachian, there’s a good chance that you are a bit of an overachiever. 

Maybe you fought hard to get exceptional grades in school, or perhaps you have always dominated in your career or your Ultramarathon habit or your hobbies – or maybe all of the above. 

In the big picture, this usually leads to having a “successful” life, because of this basic math:

Traditional Success
 =
How much work you do
x
How much society happens to value your work

The Nitty Gritty of Traditional Success

Now, lest the Internet Privilege Police head straight to Twitter to start writing out citations, Traditional Success is not a measure of your worthiness as a human being. We’re just talking about the old-fashioned, Smiling 1950s Man definition of success.

 And since we’re all scientists here, we could break the “Work” side of it down a bit further:

And thus, you could say that on average, doing more stuff produces more traditional success. 

But then what?

This is the point where a lot of  smart, driven, born-lucky people drive themselves up the Winding Road of Challenge and then right off the edge of the Cliff of Success. 

If you’re still on the way up, or stuck at the bottom, it is difficult to even imagine the idea of “too much success”. But it’s a real thing, and it happens much more quickly than the modern overachiever would like to admit. Observe the following cautionary tale:

Diana is the director of engineering in a Silicon Valley tech startup. The work is intense, but they are almost over the hump – the company went public last month, and she owns shares that are worth over $10 million at today’s share price. They will vest over the next five years, so she just needs to grind this out and then she will be set for life.

Sounds great, right?

Except this is Diana’s third smashing success. She was already set for life after the second company was acquired, and even before that, her first decade as a rising star at a large company had already left her with over $2 million of investments and a paid-off house in hella expensive Cupertino, California. She had more than enough to retire, twenty years ago!

To many people who are less fortunate, the present situation would still sound like great fortune, and in some ways, it is. Becoming a Director of Engineering is (usually) far better than a punch in the face.

But Diana is now 52 years old, with a collection of increasingly severe back and neck problems and a few medical prescriptions piling up. She has two grown children in their twenties, but wishes she had been able to spend more time with them as they grew up. She has all the money in the world, but still almost no free time, and this next five years is starting to look like an eternity.

What happened here?

Diana is in good company, because many of our hardest-working people fall into this same trap. They have the talent and the great work habits figured out, but they are still missing one last concept – the idea of the sweet spot.

Fig. 1: What is the ideal length of a high-end career?

Diana could have stopped after the first company, or the second, but her career success took on a momentum of its own, so she kept doubling down without stopping to consider why she was doing it – and what she was giving up in exchange.

Once you learn to see the phenomenon of the sweet spot, you will start noticing it everywhere. And it is an amazingly useful thing to start watching and fine-tuning to get the most out of your own life.

Fig.2: What is the ideal amount of Anything?

The Sweet Spot of Physical Training

When a non-runner starts running, they will see immediate benefits. In the process of going from being unable to jog across a parking lot, to being able to easily jog a brisk mile, your entire body will transform for the better. Muscles and bones get stronger, heart and lungs expand and reach out to give your body a healthy embrace, brain functioning and mood and hormones smooth out and normalize. 

Training your way up to become a two mile runner still brings great benefits – just slightly smaller. The fifth through twentieth mile turn you into a hyper efficient machine, but some people start seeing joint injuries as they rise through the ranks.

And by the time you reach the fringe world of 100-mile runners, serious injuries and surgeries are completely normal – as well as unexpected organ failures in otherwise young, healthy people. The sweet spot for daily running for maximum health is somewhere the middle.

All around us, seemingly unrelated things follow this same pattern, from career work to physical exertion to parenting strategy.

Fame and Fortune – be careful what you wish for

Fame definitely has a sweet spot. Building up a good reputation in your community can open the door to better friendships, jobs, relationships, and more fun in general.

But as that reputation expands outwards to become fame, you get the “reward” of constant coverage in gossip magazines and waking up to find photographers and news reporters on your front lawn. At the extreme end, you need to mobilize a team of armored vehicles and line your route with snipers every time you leave your well-guarded compound.

Even money, our humble and ever-willing servant is subject to this phenomenon. It certainly helps us meet our basic needs, but there is a certain point at which Mo Money can become Mo Problems. 

The first bit of monetary surplus can be fun as you can afford a nice house and good food. Then the next chunk seems fun but also causes distractions as you rack up second and third houses and ever-more elaborate possessions and vacations that take a lot of energy to keep track of.

And from there it goes downhill as tabloids start keeping track of your wealth and scrutinizing your choices, hundreds of people mail in pleas for your generosity, and you end up with a full-time job just making sure that the surplus goes to good use. This life arrangement can still be enjoyable for some people, but I would definitely not wish it upon myself.

On and on this pattern goes. A curve with a sweet spot in the middle. The optimal amount of calories to consume in a day. The volume at which you will enjoy your music most. The right brightness of light to illuminate a room. The number of friends with whom you can have a meaningful relationship.

 Why does it occur in so many places? I believe it is because this is how our brains are wired in the first place

Humans are a ridiculously adaptable creature, but we do still come with limits.

And when you respect those limits and fine-tune your life within the sweet spot for all of the main pillars for happy living, you end up with the best possible chance at living a happy, prosperous life.

The Curse Of the Overachievers – Revisited

So now you see the problem – overachievers like us tend to get really good at a few things like a career or an athletic pursuit, often specializing so much that we neglect other things like overall health or personal relationships.

And our society notices and rewards us for the success, which just reinforces the behavior, so we take things to even higher extremes, often without stopping to think about the reason behind it.

Okay, So What Now?

Once you see the pattern of the sweet spot,  it is impossible to un-see it. So it becomes pretty easy to float up and look at your entire life from above, like an outside observer.

And from up there, you can see the areas where you have enough, and places where you may have already gone overboard, and the corresponding things that you have left neglected as the price of that success. 

Over the past year I’ve been looking at my own life from this perspective, coming up with quite a few of my own diagnoses:

Money: enough. Additional windfalls don’t seem to bring me any lasting joy, but I also don’t have so much money that it makes me nervous. It’s enough to feel safe and empowered, and that’s all I need. Meanwhile, giving away money has brought me lasting happiness, without creating a feeling of shortage or regret.

Career Success (blog): It Varies. When I was really working on this MMM job in the mid-2010s, it started to take over too much of my life. Emails, opportunities, travel and public attention all reached levels where I actually started to have less fun. So I tried dialing it back, as any long-term readers will have noticed. And sure enough, life improved. But then I went too far and started feeling a loss from letting this valued hobby slip away. I’ve been trying to get back into the groove, which revealed another problem – detailed at the end of this list.

Friendships: Not Enough. I have found myself not being able to keep up with close friends, and had difficulty making or keeping plans, partly out of  feeling overwhelmed with life details in general. Still, the opportunities abound here in my local community, and the people are wonderful. So I have the opportunity to keep working at this.

Health and Fitness: Enough. Since I was about fourteen years old, eating well and getting a lot of varied exercise has always been a kind of non-negotiable pillar for me. Nothing extreme, but just very consistent. I think this has been paying off as I feel healthy every day and have never had any physical or health problems in these 30+ years since.

Parenting and Kids: Enough (an A+!) Since 2005 I made “being a Dad” my primary goal in life, quitting my career to do so. It’s the only thing I can truly say I have done the best I could at, and I’m really proud of that. But part of this success came from only having one kid – both of us parents knew we couldn’t handle any more, given the overall conditions of life back then. So for us, the sweet spot was One Child – and absolutely no regrets in that department.

Personal Projects and Daily Habits: Not Enough. I get great satisfaction from working on challenging things and making progress. But far too often, I just can’t get it together and I squander entire days on accidental distractions. Planning to go out for a day of work can lead to searching for lost sunglasses which can lead to finding a lost to-do list which can lead to opening the computer to look something up and several hours disappearing. On and on these tangents can go, often leading to me not getting my primary, happiness-creating goals for the day accomplished. 

I discovered that I have a pretty severe and textbook case of Adult Attention Deficit Disorder, which gets magnified if there are any sources of stress in my life. So I’m working on that (keeping stress down and also targeting habits, diet, exercise and even trying some medication), which will hopefully improve all other areas of life as well.

What am I missing? I’m still working on thinking it all through, so this list will surely grow.

Your Turn

Your life surely has a completely different array of surpluses, shortages and sweet spots than mine. Your assignment is therefore to write them all out tonight, and see where you stand in each area, and decide what to change. Many of the changes are quite easy to make, and yet the results are nothing short of life-changing.

In the comments: what are your own areas of surplus and shortage? And what’s your plan to help restore balance to your life?

Source: mrmoneymustache.com

Shaquille O’Neal Recruits a Buyer for a Luxury $1.85M Spread in SoCal>

Rumor had it that the NBA superstar Shaquille O’Neal was dabbling in the art of home flipping, when he put his luxurious home in a gated equestrian community in Bell Canyon, CA, on the market for $2.5 million in late 2019.

The big man purchased the place in February 2018 for $1,815,000, and owned the home for only a little more than a year before he decided to sell.

However, if Shaq harbors dreams of an HGTV spinoff show, he’ll have to improve his return on investment. He recently let the home go for $1.85 million.

The five-bedroom, 4.5-bathroom, traditional-style home is on a fenced and gated acre lot, ideal for an owner who craves privacy.

Shaquille O'Neal's SoCal spread
Shaquille O’Neal’s SoCal spread

realtor.com

Overhead view
Overhead view

realtor.com

O’Neal perked up the 5,217-square-foot home with new carpeting, fresh paint, customized closets, and improved landscaping. The home was originally built in 1990, and its HVAC system, garage door, and some of the plumbing were also updated.

Living room
Living room

realtor.com

There’s plenty of proof of the property’s provenance. O’Neal’s images, trophies, and mementos greet visitors the second they set foot in the grand black-and-white, two-story formal entry, with a large staircase and circular gallery.

Grand entry hall
Grand entry hall

realtor.com

The home has a number of highlights: a wide-open floor plan, beamed ceilings, and hillside views. The kitchen, however, is the true showstopper, according to the listing agent, Emil Hartoonian of The Agency.

“Buyers loved the kitchen and its brightness. They also loved the open living space, with no shortage of natural light and flow,” he says.

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Watch: NBA’s Blake Griffin Nets Another Home In Los Angeles

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The kitchen has marble counters, a large center island, built-in stainless steel appliances, and designer cabinetry.

Kitchen
Kitchen

Other luxe features in the residence include a wine closet and wet bar in the great room, a media room with a convenient kitchenette, a screening room, and a spacious office with splendid views.

Home office
Home office

realtor.com

Plush screening room
Plush screening room

realtor.com

The luxury spills into the outdoor spaces as well. Out back, there’s a rock-rimmed heated pool and spa, a fire pit, multiple seating areas, and manicured lawns.

Pool and spa
Pool and spa

“We presented this property in the light it deserved, and helped buyers see the true value of a premier updated property behind guard-gates,” Hartoonian says.

He co-listed the property with Nicholas Siegfried, also of The Agency. Gary Keshishyan Pinnacle Properties represented the buyers.

But wait—there’s more. O’Neal’s sale in Southern California isn’t his only recent real estate success.

The famous “Shaq-apulco” in Windermere, FL, which has been on and off the market at varying prices over the past couple of years, appears to have found a buyer.

Shaquille O'Neal's Florida estate
Shaquille O’Neal’s Florida estate

realtor.com

O’Neal first put the massive estate on the market in 2018, for $28 million. It was most recently listed at $16.5 million, and a sale is now pending on the 4-acre waterfront property, with its 31,000-square-foot mansion.

O’Neal, 48, is reportedly spending more time in Atlanta with his NBA on TNT gig. The Hall of Famer won four NBA titles during his 19-year NBA career.

  • For more photos and details, check out the full listing.
  • Homes for sale in Bell Canyon, CA
  • Learn more about Bell Canyon, CA

Source: realtor.com

5 Considerations Before Becoming a Digital Nomad in the U.S.

Where would you live if you could work from anywhere? The idea of geographic independence had remained just that for many workers — an idea — until the pandemic offered an opportunity to try it in action. Many U.S. workers found themselves working from home in 2020, which actually turned out to be “work from anywhere,” giving them a firsthand taste of digital nomadism.

Now, as more companies promise ongoing flexible remote-working opportunities in 2021 and beyond, some employees are weighing the benefits, complexities and uncertainties of giving up a permanent home for good.

Yet there’s far more to becoming a digital nomad than packing your stuff into storage. From taxes to transportation, here are five factors to keep in mind before hitting the road as a U.S.-based nomad.

1. Taxes

While domestic nomads don’t have to worry about overseas tax rules, they must still navigate the complex web of state income taxes. Since each state has its own independent rules, this can get overwhelming in a hurry.

“The general idea for freelancers is that states want to tax people based on where their butt is, doing work,” explains Adam Nubern, the founder of Nuventure CPA, which specializes in digital nomad taxation. “So if your butt is in Arizona doing work, then Arizona is more often than not going to want to tax you.”

Freelancers and others who earn self-employment income must either navigate these rules on their own or hire a professional to do so for them. And full-time employees earning W-2 income face another challenge: Pitching nomadism to their employers.

“Set expectations that your employer will not want to do this,” Nubern says. “They may have to file in each state you will be in. The complexity, especially for a small employer, can be a massive knowledge and compliance hurdle.”

For example, if you spend a tax year in six different states, your employer could be expected to file returns in each, navigating the reciprocal tax agreements between them. Some states even lack these agreements, so “they will not give a dollar-for-dollar tax credit for the amount you pay to the other state,” according to Nubern. In other words: You could get taxed twice.

2. Quality of life

Geographic independence is about much more than byzantine tax codes, of course. The big appeal of becoming a digital nomad is that it allows you to work where you want rather than live where you work. What makes for a high quality of life differs from person to person, but it’s important to start thinking about what matters most to you.

“I personally love staying in places that have great hiking and nature, right outside of the major U.S. cities,” says Julia Lipton, founder of venture capital fund Awesome People Ventures, who is approaching her four-year mark as a nomad. She cites Sausalito and Encinitas in California; Beacon, New York; and the Oregon coast as examples of beautiful locales not far from urban cores.

Consider listing several locations and scoring each across several criteria, including (based on your preferences):

  • Public transit.

  • Walkability.

  • Arts and culture.

And keep in mind that the stakes are much lower as a digital nomad. If you don’t enjoy a particular destination, you can always move on.

3. Cost of living

Geographic independence can, in theory, significantly reduce your cost of living. That’s why the “Silicon Valley exodus” has seen tech workers fleeing the expensive Bay Area for greener, more affordable pastures.

Yet for digital nomads, estimating the real cost of living requires more than simply adding up the cost in a particular area and dividing it by the time spent there. That’s because nomadism incurs additional costs, including:

  • Transportation within and between destinations.

  • Higher short-term lodging costs.

  • Higher food costs (if you eat out more).

Plus, unlike internationally traveling digital nomads who can leverage extremely low costs in other countries, U.S.-based nomads confront bigger financial hurdles.

“When I first started doing this, I was living in places like Thailand where for $500, I could live in a hut on the beach,” Lipton says. “In the U.S., especially because I like to be near my friends in expensive cities, it’s harder to make the math work.”

Cost-of-living calculators are helpful for determining the relative priciness of potential destinations (Hawaii is really expensive, as it turns out), but don’t capture the cost of moving around. One way to mitigate these costs is to move less: Stay in each destination for several months or seasons, rather than several weeks.

Another factor to consider: Some employers offer salaries based on location. So if you decide to move from the Bay Area to, say, Detroit, you could get a pay cut that offsets cost-of-living savings. Make sure you understand these policies before packing up.

4. Lodging

Whether hopping between cities or between national parks, finding good, affordable housing poses one of the biggest challenges to domestic digital nomads. There’s no one solution to solving the housing riddle, but some potential strategies include:

  • Long-term vacation rentals.

  • Traditional sublets.

  • Housesitting and swapping.

  • RV or van life.

These approaches are not mutually exclusive, and many nomads cycle among housing opportunities. Getting creative, combining strategies and thinking outside the box is the best way to avoid overpaying.

“I try to keep my monthly rent below $2,000. This means I have to be crafty and try to sublet local markets or make deals with people off of Airbnb,” Lipton says.

5. Transportation

Getting around is obviously a big part of being a nomad, and it’s worth considering different strategies for how to handle it. Indeed, the means of transportation will determine where you can reasonably go.

For example, you could fly between cities, and then either rent a car or rely on public transportation at your destination. This maximizes flexibility in terms of where and when you travel, but limits the range of potential home bases to major cities. Or, you could drive between destinations, which solves the problem of getting around once you’re there, but will be difficult if you’re traveling far or trying to park in dense urban centers.

Again, it all comes down to preference.

“I travel by plane and pick places where I don’t need a car,” Lipton says. “Exploring by foot is one of my favorite activities, so I try to optimize for that.“

If you’re looking to escape into nature, you’ll want to have a vehicle (and find a way to get reliable internet service from the road). And keep in mind that you can mix and match these strategies as you go — there’s no need to lock yourself into a particular strategy until you find what works.

The bottom line

Location flexibility has suddenly become the new normal. Untethered to a specific office or city, many are considering uprooting themselves for good and traveling the country as digital nomads. This lifestyle affords many perks, as well as some potentially unforeseen financial consequences.

It’s all about finding the right balance of high quality of life with low cost of living while juggling tax rules and transportation options. It’s a challenge to get it all right, but part of the beauty of being a nomad is that you can take chances. If something doesn’t work: Move!

How to Maximize Your Rewards

You want a travel credit card that prioritizes what’s important to you. Here are our picks for the best travel credit cards of 2021, including those best for:

Source: nerdwallet.com

Daniel LaRusso’s House on Cobra Kai: A Real-Life Tuscan-Style Villa

In Netflix’s popular series inspired by the iconic ’80s movie the original Karate Kid, Daniel LaRusso, has moved up in the world — and traded the rundown apartment complex he lived in with his mother for a downright gorgeous Tuscan villa in a posh Los Angeles neighborhood.

In the 30 years or so since Daniel (played by Ralph Macchio) famously defeated the Cobra Kai star student and two-time winner of the All Valley Karate Championship, Johnny Lawrence (William Zabka), LaRusso becomes the owner of a successful car dealership chain in Southern California. He lives happily with his wife, Amanda, and their two children, Samantha and Anthony, in a large home with a swimming pool in Encino — an upscale neighborhood in the San Fernando Valley region of Los Angeles. At least that’s what the storyline of Cobra Kai claims.

Daniel LaRusso’s house in Cobra Kai. Image credit: Netflix

With countless scenes in the series taking place at the LaRusso residence, we couldn’t help ourselves and had to track down the house featured in the Netflix show. Especially since the Tuscan style house is so damn beautiful (and I’m willing to bet I wasn’t the only one reduced to tears to see members of the Cobra Kai dojo make a complete mess out of it at the end of the third season).

Where is Daniel LaRusso’s house in Cobra Kai?

Carefully picked to reflect Daniel San’s new status in the world, his luxurious-yet-homey Spanish-inspired villa is said to be located in Encino, a quiet, affluent neighborhood in San Fernando Valley. While still geographically close to Reseda, where Daniel lived with his mother after moving to Los Angeles, Encino is worlds apart in terms of affordability and home prices — which also signals the divide between Daniel and Johnny, and which worlds they belong to as grown-ups. Boasting impressive architecture and verdant green spaces, Encino has housed a number of notable residents, from Richard Pryor to Johnny Cash, and even got a shot-out from Frank Zappa in his 1982 hit song “Valley Girl”.

Daniel and Johnny next to the pool of the LaRusso house in Cobra Kai. Image credit: Netflix

Where to find it in real life

With its Tuscan-style architecture, Mediterranean-inspired décor, lush landscaping, and generous pool area, the house looks like it was taken straight out of a rich Los Angeles neighborhood. So much so, that many people have pointed out the striking similarities between Daniel Larusso’s house and that of the Walsh family from Beverly Hills 90210. While the two TV homes do share some architectural features, two very different locations were used for filming.

In real life, the LaRusso house isn’t even in California. The house is actually in Marietta, Georgia, a beautiful community located just northwest of Atlanta. While we won’t provide the exact address of the home (out of privacy concerns, as this is an actual single-family house that a lucky family calls home), we did manage to track it down on Zillow.com, and find out quite a few things about it.

With an estimated worth of $1.7 million, the charming Tuscan villa has 6 bedrooms and 7 baths spread across roughly 9,000 square feet of living space. As seen on the Netflix show, the house comes with tons of outdoor space, including a resort-like pool and al fresco dining, and there’s also a greenhouse and an indoor atrium. Other nice features include cork floors, clay walls, and many expansive, rounded windows that add to the appeal of the house.

Cobra Kai – Season 2 – Episode 205. Scene filmed inside the LaRusso house. Image credit: BOB MAHONEY/NETFLIX
Daniel and Amanda LaRusso in their fictional home in Cobra Kai. Image credit: BOB MAHONEY/NETFLIX

Other Cobra Kai filming locations are split between Georgia and California

Despite the action of the show taking place in California, many of the locations seen on screen are actually in Georgia. Just like the LaRusso family home, their dealership and the country club they belong to are both in Georgia, as is the fictional West Valley High School (scenes take place C.T. Martin Natatorium and Recreation Center in Adamsville, Atlanta).

In fact, the only prominent location from the series that’s actually based in California is Johnny Lawrence’s apartment building, said to be in Reseda. In reality, it’s located about a 10-minute drive away, on Burbank Blvd in Tarzana.

Outside Johnny Lawrence’s apartment building on Cobra Kai. Image credit: Mark Hill/NETFLIX

This isn’t the first time Georgia serves as filming grounds for shows said to be based in different cities. Due to its great tax incentives, the Peach State has been attracting film crews in droves, with many popular shows being filmed here including Ozark, The Walking Dead, Stranger Things, The Haunting of Hill House, Sweet Magnolias, and many more.

More homes from popular TV shows

The ‘Fresh Prince of Bel-Air’ House Isn’t Even in Bel-Air
Is it Real? Lucifer’s Den of Sin & Luxury Penthouse at Lux
Where to Find the Real Carrington Manor from ‘Dynasty’
Are They Real? The Opulent Homes in ‘Bridgerton’

Source: fancypantshomes.com

Which Debts Should You Prepay First? A 6-Step Plan

Hooray, you have some extra money each month to pay down debt! This 6-step process will help you decide how to use that money wisely to reach your financial goals.

By

Laura Adams, MBA
May 13, 2020

10 Things Student Loan Borrowers Should Know About Coronavirus Relief

6 Steps to Decide Whether to Pay Off Student Loans or a Mortgage First

Let’s take a look at how to prioritize your finances and use your resources wisely during the pandemic. This six-step plan will help you make smart decisions and reach your financial goals as quickly as possible.

1. Check your emergency savings

While many people begin by asking which debt to pay off first, that’s not necessarily the right question. Instead, zoom out and consider your financial life’s big picture. An excellent place to start is to review your emergency savings.

If you’ve suffered the loss of a job or business income during the pandemic, you’re probably very familiar with how much or how little savings you have. But if you haven’t thought about your cash reserve lately, it’s time to reevaluate it.

Having emergency money is so important because it keeps you from going into debt in the first place. It keeps you safe during a rough financial patch or if you have a significant unexpected expense, such as a car repair or a medical bill.

How much emergency savings you need is different for everyone. If you’re the sole breadwinner for a large family, you may need a bigger financial cushion than a single person with no dependents and plenty of job opportunities.

If you’re the sole breadwinner for a large family, you may need a bigger financial cushion than a single person with no dependents and plenty of job opportunities.

A good rule of thumb is to accumulate at least 10% of your annual gross income as a cash reserve. For instance, if you earn $50,000, make a goal to maintain at least $5,000 in your emergency fund.

You might use another standard formula based on average monthly living expenses: Add up your essential costs, such as food, housing, insurance, and transportation, and multiply the total by a reasonable period, such as three to six months. For example, if your living expenses are $3,000 a month and you want a three-month reserve, you need a cash cushion of $9,000.

If you have zero savings, start with a small goal, such as saving 1 to 2% of your income each year. Or you could start with a tiny target like $500 or $1,000 and increase it each year until you have a healthy amount of emergency money. In other words, it might take years to build up enough savings, and that’s okay—just get started!

Your financial well-being depends on having cash to meet your living expenses comfortably, not on paying a lender ahead of schedule.

Unless Maya’s brother has enough cash in the bank to sustain him and any dependent family members through a financial crisis that lasts for several months, I wouldn’t recommend paying off student loans or a mortgage early. Your financial well-being depends on having cash to meet your living expenses comfortably, not on paying a lender ahead of schedule.

If you have enough emergency savings to feel secure for your situation, keep reading. Working through the next four steps will help you decide whether to pay down your student loans or mortgage first.

2. Reach your retirement goals

In addition to saving for potential emergencies, it’s critical to save regularly for your retirement before paying down a student loan or mortgage early. So, if Maya’s brother isn’t contributing regularly to meet a retirement goal, that’s the next priority I’d recommend for him.

Consider this: If you invest $500 a month for 35 years and have an average 8% return, you’ll end up with an impressive retirement nest egg of more than $1.2 million! But if you wait until 10 years before retirement to start saving, you’d have to invest over $5,000 a month to have $1 million in the bank. When it comes to your retirement savings, procrastinating can make the difference between scraping by or have a comfortable lifestyle down the road.

When it comes to your retirement savings, procrastinating can make the difference between scraping by or have a comfortable lifestyle down the road.

A good rule of thumb is to invest at least 10% to 15% of your gross income for retirement. For instance, if you earn $50,000, make a goal to contribute at least $5,000 per year to a tax-advantaged retirement account, such as an IRA or a retirement plan at work, such as a 401(k) or 403(b).

For 2020, you can contribute up to $19,500, or $26,000 if you’re over age 50, to a workplace retirement account. Anyone with earned income (even the self-employed) can contribute up to $6,000 (or $7,000 if you’re over 50) to an IRA.

The earlier you make retirement savings a habit, the better. Not only does starting sooner give you more time to contribute money, but it leverages the power of compounding, which allows the growth in your account to earn additional interest. That’s when you’ll see your retirement account value mushroom!

3. Have the right insurance

In addition to building an emergency fund and saving for retirement, an essential part of taking control of your finances is having adequate insurance. Many people get into debt in the first place because they don’t have enough of the right kinds of coverage—or they don’t have any insurance at all.

Without enough insurance, a catastrophic event could wipe out everything you’ve worked so hard to earn.

As your career progresses and your net worth increases, you’ll have more income and assets to protect from unexpected events. Without enough insurance, a catastrophic event could wipe out everything you’ve worked so hard to earn.

Make sure you have enough health insurance to protect yourself and those you love from an illness or accident jeopardizing your financial security. Also, review your auto and home or renters insurance coverage. And by the way, if you rent and don’t have renters insurance, you need it. It’s a bargain for the protection you get; it only costs $185 per year on average. 

And if you have family who would be hurt financially if you died, you need life insurance to protect them. If you’re in relatively good health, a term life insurance policy for $500,000 might only cost a couple of hundred dollars per year. You can get free quotes for many different types of insurance using sites like Bankrate.com or Policygenius.com.

If Maya’s brother is missing critical types of insurance for his lifestyle and family situation, getting it should come before paying off a student loan or mortgage early. It’s always a good idea to review your insurance needs with a reputable agent or a financial advisor who can make sure you aren’t exposed to too much financial risk.

4. Set other financial goals

But what about other goals you might have, such as saving for a child’s education, starting a business, or buying a home? These are wonderful if you can afford them once you’ve accounted for your emergency savings, retirement, and insurance needs.

Make a list of your financial dreams, what they cost, and how much you can afford to spend on them each month. If they’re more important to you than paying off student loans or a mortgage early, then you should fund them. But if you’re more determined to become completely debt-free, go for it!

5. Consider your opportunity costs

Once you’ve hit the financial targets we’ve covered so far, and you have money left over, it’s time to consider the opportunity costs of using it to pay off your student loans or mortgage. Your opportunity cost is the potential gain you’d miss if you used your money for another purpose, such as investing it.

A couple of benefits of both student loans and mortgages is that they come with low interest rates and tax deductions, making them relatively inexpensive. That’s why other high-interest debts, such as credit cards, personal loans, and auto loans, should always be paid off first. Those debts cost more in interest and don’t come with any money-saving tax deductions.

Especially in today’s low interest rate environment, it’s possible to get a significantly higher return even with a reasonably conservative investment portfolio.

But many people overlook the ability to invest extra money and get a higher return. For instance, if you pay off the mortgage, you’d receive a 4% guaranteed return. But if you can get 6% on an investment portfolio, you may come out ahead.

Especially in today’s low-interest-rate environment, it’s possible to get a significantly higher return even with a reasonably conservative investment portfolio. The downside of investing extra money, instead of using it to pay down a student loan or mortgage, is that investment returns are not guaranteed.

If you decide an early payoff is right for you, keep reading. We’ll review several factors to help you know which type of loan to focus on first.

 

6. Compare your student loans and mortgage

Once you have only student loans and a mortgage and you’ve decided to prepay one of them, consider these factors.

The interest rates of your loans. As I mentioned, you may be eligible to claim a mortgage interest tax deduction and a student loan interest deduction. How much savings these deductions give you depends on your income and whether you use Schedule A to itemize deductions on your tax return. If you claim either type of deduction, it could reduce your after-tax interest rate by about 1%. The debt with the highest after-tax interest rate is typically the best one to pay off first.

The amounts you owe. If you owe significantly less on your student loans than your mortgage, eliminating the smaller debt first might feel great. Then you’d only have one debt left to pay off instead of two.

You have an interest-only adjustable-rate mortgage (ARM). With this type of mortgage, you’re only required to pay interest for a period (such as several months or up to several years). Then your monthly payments increase significantly based on market conditions. Even if your ARM interest rate is lower than your student loans, it could go up in the future. You may want to pay it down enough to refinance to a fixed-rate mortgage.

You have a loan cosigner. If you have a family member who cosigned your student loans or a spouse who cosigned your mortgage, they may influence which loan you tackle first. For instance, if eliminating a student loan cosigned by your parents would help improve their credit or overall financial situation, you might prioritize that debt.

You qualify for student loan forgiveness. If you have a federal loan that can be forgiven after a certain period (such as 10 or 20 years), prepaying it means you’ll have less forgiven. Paying more toward your mortgage would save you more.

Being completely debt-free is a terrific goal, but keeping inexpensive debt and investing your excess cash for higher returns can make you wealthier in the end.

As you can see, the decision to eliminate debt and in what order, isn’t clear-cut. Mortgages and student loans are some of the best types of debt to have—they allow you to build wealth by accumulating equity in a home, getting higher-paying jobs, and freeing up income you can save and invest.

In other words, if Maya’s brother uses his excess cash to prepay a low-rate mortgage or a student loan, it may do more harm than good. So, before you rush to prepay these types of debts, make sure there isn’t a better use for your money.

Being completely debt-free is a terrific goal, but keeping inexpensive debt and investing your excess cash for higher returns can make you wealthier in the end. Only you can decide whether paying off a mortgage or student loan is the right financial move for you.