On Thursday, my coworker and I returned to the personal finance workshop. We, along with our 55-year-old classmate, shared our goals with Teacher. Our goals varied as we’re all in different stages of our lives. There’s something special about putting your goals down on paper and out in the universe. When you share them, you feel more responsible and others can hold you more accountable.
Teacher encouraged me to dig deeper – to put target dates and monthly savings amounts next to each goal. My goodness! That’s going to be tough. I don’t know what car I’d like to buy in the next two years, let alone how much it costs.
In big letters above our goals, Teacher told us to write: “Am I willing to do what it takes?”
Next, we jumped into credit.
Teacher said the recommended debt-to-income (DTI) ratio should be 15 percent or less. Right now, I’m at 20 percent. Then, I learned that I had been using APR (Annual Percentage Rate) and interest rate interchangeably. Of course, they’re not the same. The APR determines the amount of interest you accrue while keeping a balance on a credit card.
She blew our minds when we reviewed the formula credit card companies use to calculate your balance. Most companies use the average daily balance method, meaning that interest is compounded based on your daily balance.
Here’s what I gathered: Credit card companies will find a way to increase your balance every month. That, in turn, increases your interest. And if you continue to pay the minimum balance, then you’ll end up paying interest on interest and never really pay down the original balance. It’s the dreaded snowball effect. That’s why it seems to take so long to make a dent in the debt.
We all started to get mad at credit card companies and ourselves for not knowing this. You gotta pay attention to the fine print. And you gotta get mad enough and know the right information in order to make changes. Teacher continues to empower us with knowledge, and I’m so grateful.
I sat with seven or eight other black women – some younger than me, but most a bit older. I could tell that most of us didn’t know where to start. The realtor didn’t know where to start either when she bought her home.
She earned her real estate license and closed on her own home at the encouragement of a relative who wanted to flip houses. That plan fell through, but the realtor now shares her experience with women with similar backgrounds. The realtor’s a young, black female who grew up in the projects, didn’t have role models who owned homes and didn’t have a high-paying job. But she had good credit and prayed to God that if she was going to be in a position to lose her home in the near future, then not to let her have it at all. Interesting, right? I, also, love the fact that she bought her home before meeting her husband.
The realtor spoke candidly and let the conversation flow freely. There was no PowerPoint (although she provided a handout in the goodie bag). We just asked whatever questions were on my mind. I asked about 20.
- What’s this acronym? What’s that acronym?
- How do you get started? (Check your credit score, and call her.)
- How much money should you have in the bank in order to qualify for a loan? (3.5 percent of the mortgage)
- Which credit score do lenders consider during pre-qualification? (The middle score of the three from Experian, TransUnion and Equifax. The seminar instructors recommended using IdentityGuard.com instead of sites like CreditKarma.com.)
- What makes up a mortgage payment? (Principle, Interest, Taxes and Insurance = PITI).
- Why should anyone even own a home? How does it appreciate in value, especially in this current climate? (You do it for security, to own your little piece of Earth.)
- What are all of the costs involved in owning a home? (For starters, think about your monthly mortgage payment, insurance, maintenance and landscaping.)
- What should you housing-to-income ratio be? (No more than 30-35%.)
Many of the other ladies had similar questions. The realtor answered them all with a straightforward, Southern sensibility to which could all relate.
My parents have never talked to me about home ownership, and I always lived in an apartment, so I didn’t know the first thing about it. But I left the seminar feeling enlightened and empowered. I’m going to continue to increase the knowledge and interest I have in owning a home. Maybe it won’t happen within a year, but it’s best to start planning now.
(Great resource: Wells Fargo My FirstHome interactive learning experience)