Friday, August 31, 2012

My Keys to Diversification

Diversification is one of those ideas and concepts that everyone in the financial world has an opinion on. While everyone agrees that is important to maintain a diversified portfolio, the definition of a well diversified portfolio is as wide as the world’s oceans. Most common though is one laid out by financial advisors that you pay for advice. These guys say that a well diversified investment portfolio consists of: stocks, bonds, real estate, commodities and cash.

In going from 0 to $1 million I have my own unique take and implementation of diversification. To me diversification is about spreading risk for increased opportunity growth. In my investing strategy I only invest in 4 types of mutual funds and hold those positions for at least 5 years. I do not consider cash an investment. I use cash for two instances: (1) emergencies and (2) less than 5 year planned purchases. Consequentially my cash held for emergencies allows me to raise deductibles on insurance and lower my monthly premiums, that’s called financial planningJ!

 But back to diversification. I stay away from bonds because they generate low rates of return in long term investments that barely keep pace with inflation, plus bond prices jump around just as much as single stocks and historically generate low rates of returns. On that note as well I avoid single stocks like they are the plague. Nothing screams “Undiversified” to me more than carrying more than 10% of your portfolio in a single stock, only to see that company go bankrupt, go through a scandal that plummets the stock price or the IPO fails (see facebook). None of my portfolio holds any commodities. The only gold I own is on my left ring finger. If the economy collapses and we go into a “Mad Max” world gold will be meaningless. A gun with ammunition and a bottle of water will get you anything you want in a post-apocalyptic world, not gold nuggets.

My practice in diversification boils down solely to what I have invested in the stock market. When investing I only invest for the long term with proven mutual funds that have been around for at least 10 years. So when investing I’m not trying to keep up with inflation or stay slightly ahead of it. My goal when it comes to inflation is to kick it in the teeth.

So I look to maximize my investing efforts with diversification across 4 types of mutual funds. The first of my four mutual fund categories is Aggressive Growth, otherwise known as Small-Cap mutual funds. In this category the mutual fund is spread across up and coming businesses that have the potential for dynamic long term growth. The next is Growth, aka Mid-Cap mutual funds. These provide a bit more stability than Aggressive Growth but still maintain sizeable earning and growth potential. The third slice of my diversification pie is Growth and Income, also known as Large-Cap mutual funds. These are large dinosaur companies that don’t move with great volatility during bull & bear markets but produce consistent long term growth and generate sizeable dividends. The fourth and final piece is International. In the previous three categories I am concentrated in the US market. With this one I get a bit of global flavor in the mix. With international mutual funds I can participate in the growth of the middle class in China, benefit from growth and development in Brazil from the coming World Cup and Olympics and even get to ride out Europe once the Euro-zone mess is figured out.

Don’t let financial goobers and the, “too sophisticated for their own damn good,” let you think that their way to diversify is the only path. To me diversification is about maximizing growth in long term investments. In my humble opinion if I am worried about money that I need to use within 5 years losing value, then I should not have it invested period.

Wednesday, August 29, 2012

My Book Review: “Preparing Heirs: Five Steps to a Successful Transition of Family Wealth and Values” by Roy Williams and Vic Preisser

Regardless if you have $1 to your name or if your last name is Kennedy, “Preparing Heirs” is a magnificent must read for anyone that has a family or plans to have a family. The book itself delves into two main categories.

The first is establishing the statistical and in your face fact that 70% of family wealth transfers from one generation to the next are unsuccessful. A successful wealth transfer is defined as, “When the heirs receive and manage assets in a manner to foster their development and lifetime goals.” So you can use your imagination as to what an unsuccessful wealth transfer would look like. Another statistic that I found startling was that on average family wealth does not extend beyond 3 generations. So piecing this together with Thomas Stanley’s timeless classic “The Millionaire Next Door,” which states that 80% of millionaires are self-made first generation wealthy gave me an interesting insight. The insight being that the first generation works their tail off to build wealth while the second and third generations live off this wealth, and possibly at best preserve the wealth, but never successfully build their own.

The second main category of this book I found to be universally appealing across all families. This explored why 70% of wealth transfers fail and what can be done to buck the trend. The book does an excellent job pointing to and exploring trust and communication issues within family dynamics as the major catalysts for successful and unsuccessful wealth transfers.

And to a greater degree the book focuses on what it takes to create a family filled with respect and understanding while avoiding enabling. The whole thing from front to back cover got me thinking about the household I am creating. I was lead to ask whether the household that my wife and I are creating and plan to make with our children will facilitate our next of kin to foster their development and reach their lifetime goals on their own. “Preparing Heirs” really made me re-evaluate our family’s wealth transfer plan, which you can look forward to in a future post.  

Overall this book offered a ton of tangible and real life practices and suggestions that can immediately be implemented in the day to day life. It does a great job of laying out information on an easy to reach shelf and I was impressed with how William and Preisser translated their observations and recommendations from their professional practice without coming across as overly snooty.

Monday, August 27, 2012

My Debt Free Staycation

This past week I unplugged. My wife and I have spent the better part of this year paying off her student loan and the only vacation we had taken up to this point was a Memorial Day weekend scouting trip to Charlotte, North Carolina to see if it could be our future hometown.

So we approached this past week with a do-nothing and enjoy life attitude from the comfort of our current city, Chicago. With a budget of just under $100 a day (all paid for in cash!) we dined at some new (and old time favorite) restaurants, took in some great views of the skyline from rooftop patios, hit the beach, volunteered at a local food pantry and I took time to reconnect with my wife.

I’ve said it before here and I’ll say it again: The main driver of my total money makeover and pursuing wealth building is to get my time back. This past week was a great taste of what I’m striving for. Sure, the rooftop city views were dazzling and checking out the finer points of our favorite neighborhoods is fun, but for me the best part of the week was getting to spend as much time as I could with my wife and consequentially remembering why we work so hard and place a top priority for saving for our future.

It has been incredibly important for us to have taken reasonable vacations over the last few years. The time-outs, breathers and adventures have collectively gathered as one big “atta boy” for me. Staying motivated with written goals and clear timetables as well as brief glimpses into the future have helped me keep my sanity and discipline in wealth building.  

But to get away from being nerdy, here’s a quick rundown of some of my favorite places from the week, if you happen to find yourself in my fair city:

The Roof at The Wit
201 N. State Street
Drinks are pricey but the views and décor aren’t too shabby for a lounge in the loop. I went during the week right when doors opened at 4pm. You’ll get in ahead of time before the after-work crowd converges and have your pick of the place of which gorgeous view you want to take the city in from.

J.Parker at the Lincoln Hotel
1816 N Clark
Pricey as well and centered in yuppie-fied Lincoln Park. Pretentious…check! Overpriced…certainly! But stunning views overlooking North Avenue beach and the East end of the skyline is lovely on a cloudless afternoon. Oh, and if you prefer a sweet and sparkling drink to imbibe on, and it’s in the budget, go for the Bellini, you’re welcome.

Violet Hour
1520 N Damen
While I am more of a wine and beer fan and think that everything on this menu tastes like fire, the ambiance in this Wicker Park establishment is second to none. If you get there early enough to avoid the crowds and find the door (I didJ) you will love this gem.

Adriatic Restaurant
5553 N Clark
And it just wouldn’t be a trademarked review from me unless there was a bargain somewhere in the mix! This awesome place is near the north end of Andersonville and does everything right. Ambiance is amazing as my wife and I had drinks on the outside patio, and as lovely as the coy pond was I was even more in awe of the beautiful décor on the inside. Prices are unbelievably reasonable and their Sangria might just be the best in the city, you’re welcome again! J

Friday, August 17, 2012

My Biggest Fear

I’ve been sharing with my wife lately a lot of my worries and fears and I would like to share one of these with you today.

On our total money makeover path we are currently on Baby Step 6, which for us is the marathon goal of saving up to pay cash for a home. Over the past three years we have paid off all of our debt, built an emergency fund, save regularly for retirement and recently just started setting money aside for our future kids’ college tuition. But I will be the first to tell you that achieving financial peace did not erase all worries and concerns from my life. Yes my wife and I have little to zero money fights nowadays, but one concern definitely is the first to grab my attention when I think about it.

Next of Kin

I don’t have a concern about my next of kin receiving nothing from Social (In)Security or living within a government system that spends more than it takes from its citizens, mainly because I’m going to teach my kids how to be self-reliant. My concern is that the legacy I leave behind not be ruined or tormented by the fiscal wealth left behind or from what they build on their own. Thinking beyond the $1 million mark, my wife and I have sacrificed and prioritized saving and investing and when we leave this world we plan to leave a significant amount of wealth behind.

Though we have yet to draw up formal plans, I have an inkling that we will leave a large portion to a charitable trust and the rest to family trusts. Now while my wife and I plan to raise a household that lives below its means and takes value in time and relationships over stuff, I worry that my children and grandchildren will not have the work ethic and values that my wife and I have been working so hard to build within ourselves. Now without laying out the full estate plan, I plan to be (age-appropriately) honest with my kids about our family’s finances.

They will know that my wife and I worked our tails off to create financial peace. They will pay (in cash) for their own cars and will be under the assumption that they will be paying for their own college education. Obviously for the college part my wife and I will intervene when the kid looks at the true costs and proceeds to sink into despair/a mental breakdown, this will likely be a truly delicate timing balance but I think we can pull it off.

But eventually our kids will grow into adults who were raised in the ways of smart personal finance. Essentially it is out of my control once they become adults who they become and the choices that they make. I am absolutely ecstatic at the thought that my kids will graduate from college debt free and start their lives as adults, around 21, with a fully funded emergency fund and get that much more of a head start to invest and experience the power of compound interest. They will have the potential to build even more wealth than mom and dad.

My fear is that they put their happiness into the accumulation of stuff rather than the value of relationships. The absolute last thing that I want to leave on this Earth are scummy trust fund kids. I want to leave a legacy that produces and gives, both at unprecedented levels. I want a legacy that is not dependent on the government for their well being, only themselves. But above everything else, I want them to know that happiness and fulfillment can only come from within through a life of quality relationships, an open spirit and a strong work ethic.

Thursday, August 16, 2012

My Wife

My wife is without question the brightest beam of sunshine in my life. Without her I would not have approached fiscal fitness with as much intensity nor vigor. She has been with me through some incredible peaks and valleys that measured well below sea level and are reaching higher with every passing quarter. Through it all, I sincerely cannot picture my life without her. She is everything to me: my lover, my therapist, my best friend. We have known each other for seven years, but in many ways I feel like she’s known me since day one. With her, I relate, talk, express myself, share and open up differently than I have any other relationship.

We met in college and she has been on the journey with me long enough to see me transition from hyper consumer to super saver. Thinking about it now, she really is the only person that knows me before and after the most important changes made during my adult life. Only God knows me better. One of her qualities that draws me closer to her is that she’s better than me at just about everything. From budgeting, to being frugal, the books she reads, to general investing philosophies and implementations, she does it all better and more efficiently than me. Now she would argue that I work harder than her, but my rebuttal is that I have to exert that much work just to keep up with her, and I wouldn’t want it any other way.

Back to when we met though. I was entering my final year in my B.A. program and essentially was scrambling to find housing weeks (2 actually) before the semester began, thanks to my lack of planning. I ended up finding a room in a private off-campus housing apartment complex, I literally took the last bed they had in the entire building. She was on staff for the housing company. Now I credit my coaxing her to date me to my impeccable sales skills, but she would say that she was probably just trying something different. She, being from Michigan, and me hailing from goober land (L.A) in itself made us very different people, but through our relationship we have worked together to be a strong couple.

In terms of personal finance we have been each other’s supporter and biggest fan. Early on when we started our total money makeover my wife would actually go out to overspend just to bust my budget. Now she’s drags me to budget committee meetings and carefully examines every expense to ensure we get the best deal. But I think one of the biggest achievements we’ve made was lowering our standard of living. Without stuff, luxurious vacations or fancy cars we forced ourselves over the last three years to get to know one another. The result is that we enjoy our time together above and beyond anything in this world and our relationship is so much stronger than it was before we got our finances under control.

For me on an individual level, she restored my faith in other people. I grew up in a sheltered home, with the belief that people are bad and OK to be taken advantage of. My wife’s love, compassion, heart and goodwill convinced me over time that people are indeed good and genuine. She restored my faith in humanity. Once I accepted that into my soul, I began to change as well. While it is an ongoing process with worlds of improvement ahead of me, with my wife by my side, I know with confidence that I can accomplish anything in this lifetime and be the person that God meant for me to be.

Monday, August 13, 2012

My Trip Down Memory Lane

This past weekend we hit a rather fun milestone. I happily accompanied my wife to her first high school reunion. She is the first of us to have celebrated this occasion. The event itself was absolutely fantastic and we had a blast. But the lead up and aftermath of the event circled around one central concept made popular by Ferris Bueller: Life moves pretty fast.

It doesn’t feel like my high school days were all that long ago. I mean in a heartbeat it feels like I jumped straight from high school and into adulthood. But my wife’s reunion did make me reflect on the years that have passed since my high school days and where my life has taken me.

After high school I traveled over 2,500 miles to go to college. There I made strides in learning independence, but was still light years away from being a responsible adult. I earned mediocre grades in my general classes. But when I reached my upper division courses for my major I was on the Dean’s List with a 4.0 GPA just about every semester. I went to school year round: fall, winter, spring and summer while working part-time jobs that included retail, bartending and real estate management. When I hit the home stretch for the final semesters before graduation, I met my beautiful wife who would go on to change my life forever.

We completed our degrees in the same semester, my wife her graduate and I had completed my 4 year degree in 3. She had her sights set on living and working post-school in Chicago. Career wise all I “knew” was that I wanted to work for the Federal Government (I know, a complete 180 from now). My first offer came from the US State Department’s Mission to the United Nations in the big apple, New York.

My experience working in my “dream” career boiled down to this: I was disgusted with the inefficiencies, waste and bureaucracy within the Federal Government. I learned a lot about myself during that time. Included was the fact that New York, though fun and fast, was not the city for me. I also missed the love of my life and knew for certain that I wanted to live my life with her.

So I moved to Chicago. I job hunted for what felt like an eternity until I found my current employer through a temp. agency. After a few months of temping my current employer picked me up full time. I also began to take strides in healing wounds within my own life. I began to see a therapist to unravel baggage that I had been carrying my entire life, and eventually I was able to open up and share my life entirely with my wife, holding nothing back. But that was just the beginning.

In 2009 I took the first steps towards becoming a responsible adult. I remember my breaking point like it was this morning. I wanted to marry my girlfriend. I wanted us to buy a home together. I wanted to retire with dignity. I looked at the costs of each and “understood” why people use extreme forms of financing such as 0% down. From that feeling of despair I set out to find sound personal financial practices that I could put into motion that would leave me with a stronger footing. What I found was Dave Ramsey, and his Total Money Makeover program revolutionized my life, the way I handle money and gave me financial peace.

Since 2009 my wife and I have built an emergency fund, paid cash for our wedding and honeymoon, have paid off all of our debts and are debt free and steadily contribute close to 15% of our incomes every month towards retirement. We’ve just been able to start giving (albeit slowly) in bigger and better ways that make our hearts burst with love and peace.

That’s where I’ve been since high school.

Thursday, August 9, 2012

My 1st Debt Free Month of Marriage

One month into a debt free marriage and I have to be honest and say that I feel a lot more at peace in my day to day life than when we carried debt. Although I’ve personally been debt free for three years, being in a debt free marriage is just as thrilling and even rejuvenated my drive for financial security.

We still budget monthly and use the envelope system for certain spending categories. In fact, with a high school reunion on the horizon my wife was free to pluck off some new attire just for the occasion using the clothing envelope. The biggest change has obviously been the opening of disposable income. But my favorite aspect of this is that even after clearing this latest hurdle we have not changed who we are.

My wife did not clean out the clothing envelope when getting her new ensemble, in fact she bought everything (1 dress and 2 pairs of shoes) at discount and well below retail price. When using the date night envelope (a newer line item) I am more conscious of spending time with my wife than spending down to $0. And even with the freedom to expand our entertainment budget we still prefer to connect at home with a home cooked meal and talk about what’s on our mind, rather than hyper-consume and pile up, “stuff.”

I absolutely love connecting with my wife through conversation and sharing my thoughts and ideas with her, and of course dreaming and planning the future. A debt free marriage is wonderful and I highly recommend it. We definitely have our share of problems as well as nothing is perfect. But living in the moment and planning for the future is so much easier and with limited stress when you are doing it from this kind of a position. I knew I was working towards financial peace, but I didn’t think it would find me this fast.

Tuesday, August 7, 2012

My Budget Planning Tips

Mastering the monthly budget is the easiest thing to do in concept and yet one of the most difficult to do in application. We are all aware of the concept of the budget but it is very easy to get frustrated when trying to put one together and stay on it. So here are a few guidelines that have helped me out through the years that have kept me from ripping my hair out.

Give yourself grace and time

The first few months you try it the budget is not going to work and it will be at least three until you get used to it, six for it to start working and a year for you to master it. Giving myself the freedom to make mistakes and mid-month adjustments because I budgeted too high/low for certain items encouraged me to keep going and not fall off the wagon. Developing and living on a budget takes effort, intention and most importantly time. Living on a budget is a wonderful habit to form, but again it takes time and lots of practice as I recommend you make a new budget for every month, forever. To this day my wife and I live on a monthly budget that is redone every month, but it has taken 3 years to be where we are today, being able to draft and finish the monthly budget in less than 15 minutes.

Plan every dollar before the start of every month

I know the dates when I get paid and having a pre-planned list of what to do with every dollar earned helps me tell my money where to go rather than wonder where it went. The best tool I can advise for this is using a formula table on an Excel spreadsheet, full of line items that subtract from your net pay. With a formula table you have wiggle room to play with and shift your expenses to see where you can focus extra money. Whether you are paying off debt, saving for your 6 month emergency fund or planning a big vacation, giving ever dollar on name a purpose before you earn it will help you move along in your goals.

Be  realistic

Yes you can pay off your student loans or mortgage payments faster if you only had to spend $50 a month on groceries and entertainment. But being realistic helped me find grace in those early months. My recommendation early on when you are learning to live on a budget, is to get the best ball park figure you can come up with based on previous months, and if need be – err on the side of budgeting too much on line items that might give you fits (groceries, clothing, entertainment, etc.). Once you are about 6 months into living on a budget you will have a better gauge at what you realistically spend month to month on living expenses and you will be able to assess where and how to cut expenses. For us this was especially true in budgeting for groceries. We started out with a ball park figure of $500 a month, and over time we cut our grocery monthly budget down to $350 by choosing to become flexatarians. If we had tried to heavily cut meat from our diet in month 2 of learning to budget we surely would have killed one another.

Be thorough

Renter’s insurance, term life insurance premiums, Christmas and the need for gifts for events (weddings, funerals, newborns, graduates) will happen every year. What you can control is minimizing the “gotcha” moments by putting each of these line items on your monthly budget. Our term life insurance premium is due annually and we use a sinking fund to cover the cost. We know what the annual premium is and when it is due, we divide by 12 and viola, we have a budget line item for every month so when the premium is due we simply pay it with the money saved for that specific purpose. The same goes for all of the aforementioned things that occur throughout our lives. Month to month this also helped me realize my priorities. When I was climbing out of debt Christmas cards were my “go to” gifts to family at Christmas time, and now that I am on the other side of the debt mountain, I can raise my Christmas giving up a tad more than when I started J.

Know your weaknesses

This last bit kind of gets to the heart of the budget: being honest with yourself. Before I budgeted I overspent regularly on entertainment, groceries and clothes. To combat this, the line items that had caused me the most trouble I shifted to the envelope system. With entertainment as an example we budget $300 a month for outings. $300 is all that goes in the envelope marked entertainment. When the money in that envelope runs out, I don’t go out anymore until the new month begins. Embracing and learning from my weaknesses has been more than helpful in wealth building.

Budget planning is about common sense, planning for the expected (your emergency fund handles the unexpected) and taking actionable steps to living below your means.

Friday, August 3, 2012

My Grocery Shopping Tips

I don’t clip coupons, shop wholesale nor belong to any special clubs. When it comes to groceries I take the approach of having no tricks up my sleeves, just common sense and some planning.

Make a Meal Plan

My first approach is meal planning. At the onset of every week my wife and I have a prepared list of meals that we plan to make and consume throughout the week for breakfast and dinner at home and lunches at work. This helps us get some variety on a planned basis so we don’t get bored out of our minds eating the same thing all of time. Meal planning also helps us get into a routine of “necessities” that are on just about every grocery shopping trip. Which leads me to:

Make a Grocery List

Apart from the “must haves” from meal planning, we avoid budget busting overspending and impulse purchases by having a prepared grocery list made before we head out. Our grocery list is pretty thorough as the list is compiled throughout the week and is posted on the fridge, and covered with line items filled in as we: (1) meal plan, (2) come across a shortage of any items during the week and (3) conduct a final check in our fridge, pantry and bathroom for items we’ll need on our grocery trip. Sure, from time to time we will deviate from the grocery list and make a few impulse purchases, so long as we never go over our weekly budget, which transitions me to:

Set a Budget…and Stick To It!

Before every month begins my wife and I agree on paper how much money we are going to spend during the month ahead on groceries. This is then broken down into a weekly allotment. To ensure we never go over our agreed upon amount, we withdraw our monthly grocery budget in cash and place it into an envelope, labeled “GROCERIES.” When we are about to head out to the grocery store I pull out our weekly allotment in cash and we proceed on our merry way.

Keeping Track at the Grocery Store

This was huge for me in my frugal fury fighting training. While shopping with my grocery list in hand, my wife and I keep track of the amount spent as we grocery shop. My wife usually scans the grocery items to make sure we get the best value and I tally it. It’s not an exact science because of taxes but I’ll tell you what, we have never been over our weekly allotment in 3 ½ years of doing this!

Final Tips to Cut the Bill

To help keep costs down with rising food costs we’ve discovered a few things that have helped us keep a low monthly grocery budget. Roughly 85% of our meals are vegetarian. Basically my line of thinking says that a pound of lettuce will always cost less than a pound of meat. Also when shopping for fruit we only buy what is in season, and as a rule, only buy fruit if the item is under $1 a pound. We are not afraid of generic brands. If you were to raid our fridge and pantry you would find an assortment of items labeled Great Value and Centrella.

So there you have it, if you plan ahead, seek the best value for your dollar and are not afraid to shop where goobers turn their noses at, then believe me, you will be on the road to financial peace!

Wednesday, August 1, 2012

My Philosophy on Renting vs. Owning

First and foremost I would like to start by saying that I believe in real estate. Held over many decades, real estate is a great investment. It stays ahead of inflation (when you buy and hold for at least a 15 year period) and ultimately allows you to utilize your biggest wealth building tool (your income) in unbelievable ways once the home attains 100% equity (i.e. you own it and kill the mortgage).

But so far in my adult life I have rented an apartment as opposed to buying a home. This has been monumental in terms of the total money makeover that I started in 2009. In renting during this time period I have avoided the plethora of “gotcha’s” that typically come with home ownership: appliance replacement, home repairs, tax bills, home maintenance and the like. Not to mention that as a home owner I would be including sinking funds for each and every nook and cranny expense I can think of to avoid, “gotcha” moments.

The point being that in bypassing the aforementioned costs, I have had and used the extra room in my budget to prioritize saving and paying off all debt. But I do not plan to make renting a long term lifestyle as my wife and I are planning to pay cash for our first home. There are a few things I would personally like to see happen before we buy our first home. Beyond “where?” which is a biggie, I would like to see us amass $200,000 in our brokerage account before plucking off our first real estate property, the strategy being that we have a strong balance of assets between: mutual funds, cash and paid for real estate, and not overtly lopsided towards real estate.

Our renting strategy has not been without its own intricate plan. In retrospect we are renting the way we plan to buy a home: at the bottom of the market range in a neighborhood that we love. Currently rent on our apartment takes up 15% of our take home pay, which isn’t too shabby given that we live in an area known for multimillion dollar homes and 1 BR condos starting in the two-hundred thousands. We also carry renter’s insurance that runs close to $10 a month.

My philosophy can be boiled down to this: Rent with a purpose. Over the last 3 years my wife and I have rented the cheapest thing we could find (in a neighborhood we love) and paid off debt and built savings. Now with 0 debt and ample savings, we are continuing to save for our home purchase so that one day rent will be 0% of our take home pay J!

I do get sick occasionally when financial goobers preach on their soapboxes that renting is wasting your money as opposed to home ownership. Well guess what goobers? When you put 0 – 5% down on a home mortgage, regardless of whether it is variable or fixed, you are wasting your money paying interest. Over time you will end up paying much more than the home is worth because of little to nothing down payments as a result of compound interest working against you. Yes the interest is deductible from your taxable income, but I would rather be in a paid for home writing a check to my local church for the tax deduction than paying interest to a bank.

So rent with a purpose, and if you go for a mortgage plan to put at least 20% down on a 15 year fixed rate with a monthly minimum payment that is no more than 25% of your take home pay and 3-6 months worth of expenses set aside in a liquid emergency fund. Don’t rush into a home purchase, plan and build slowly and keep the American dream from becoming a nightmare.