Ask The Millionaire Mommy Next Door a question (Women of Personal Finance Spotlight)

[mommy2point0]

Unlike most young children, our daughter doesn't have a set bedtime. Instead, we choose to go with the flow – sleep when we're tired, play when we're playful, and work when we want to. So there is no need for alarm clocks or schedules!

It must be great fun growing up in your family, Jen.

Do you have any specific tips for raising young entrepreneurs? What's the best way to get kids to start thinking outside the box at a young age and not get stuck in a 9-to-5 job when they grow up?

Yours truly }} big fan and long term lurker of your blog.

[MillionaireMommyND]

Originally Posted by Amy

Dear Jen,
Thank you so much for taking the time to answer questions. We bought a house at the peak of the housing market. At that time, it seemed like a wise thing to do as prices were going up by the week. We were afraid who wouldn't be able to afford any houses if we waited too long. The value of the house is now down 20% from what we paid for 3 years ago (according to Zillow) and the price is steadily decreasing about $3K per month (again according to Zillow). We are going to move cross country in a few months and now the house is becoming a huge liability.

Few questions..

How reliable is Zillow in determining real estate value?
Should we rent the house while waiting for a better market?
Should we sell the house at a loss now because prices are likely to go down even further?

Many Thanks!!!
Amy

So sorry to hear you got caught up in the housing hype and trauma, Amy. You are definitely not alone, unfortunately.

(As my regular blog readers know, in 2003/2004 I became convinced there was a real estate bubble – and an inevitable housing market crash in the making. I sold our home, rented, and invested the monthly savings instead. Friends used to think I was batty! Not so much anymore... )

Anyway, you asked:
How reliable is Zillow in determining real estate value?

I've heard mixed reviews. A real estate appraisal or a comparative market analysis is probably your best bet. A CMA is a real estate agent's evaluation, based on current local listings and sales data, on the probable sales price of a property in the current market. (But with rapidly changing prices, this can end up being a moving target.)

Should we rent the house while waiting for a better market?

The best answer “depends”, and requires more info than you've provided here. Details to consider include:
1) Can you afford this option?
2) Would renting your home create a negative or a positive cash flow? Consider not only the mortgage payment, but also insurance, repairs, maintenance, and a vacancy allowance. If negative, I'd be hesitant.
3) Can you wait long enough? The market might not recover to previous levels for several years.
4) Are you a suitable landlord? Acting as landlord takes work, skill and patience. Furthermore, you'll be living far from this home – so you might require property management. This costs money.

Should we sell the house at a loss now because prices are likely to go down even further?

No one holds the magic crystal ball. But published data seems to suggest that there will be downward pressure on real estate markets and prices well into 2009 at least.

If you are having difficulty making your mortgage payments, contact your mortgage lender. Perhaps a short sale negotiation is a viable option. I've written quite a bit about the real estate market bubble, subsequent crash, and possible solutions to consider. Please check my real estate post archives for more ideas and details.

Best wishes, Amy, for your move and in arriving at the best solution for your situation.

[lynnor]

Hi there! Just "found" you via WiseBread (and so haven't read everything you've written yet ).

So, my question/situation:

Family of 4 w/ 2 young children, DH and I (mid 30s) work full time and contribute max amounts to 401k and Roth each year and make use of our flex plans. We've started some 529 plans for the kids (though not much in them), and have just a few stock investments (rest are funds).

How do *you* invest? We have $ in large/mid/small-cap funds, healthcare fund, some int'l funds and our stock investments are just small amounts that we "played" with trying to figure out how to gauge stocks a few years ago after I joined Better Investing for a while. (And we try to do no or low load funds). We are long-term investors in general (only check on our investments maybe 3-4x/year) Can you think of any improvements we can make to our investment strategy given that info, or perhaps a recommended diversification of a portfolio?

Thanks!

[ourdivinemissm]

I have been an avid reader of your blog for sometime and am grateful for your tips and advice. I was wondering about the best way to save while I am still paying off debt. I constantly fight with whether I should stick money in savings or put that cash towards a credit cards bill. What is my best bet??

[Just In Case]

As an Entrepreneur and Mommy, I love the insight on your blogs!! My mom and I have started a company called Just In Case, and we are funding it ourselves. It's a bit controversial because we are marketing an intimacy compact to women.
Advertising in mainstream magazines is not an option right now because of how expensive it is... do you have any fun, "out of the box" suggestions?

BTW the abundance exercise on your blog was a blast!!!
It inspired a VERY clean garage at my house too!

Rachael

[Madisonp]

Hi MMND,

I have been following your blog for quite a while now. I have to say that I enjoy seeing the email in my inbox alerting me to a new post from you. Also, I am an avid reader and I saw that you recommeded 'Wishcraft' by Barbara Sher. Well the library did not have that one but I am nearly finished with 'Live the Life you Love' by the same author and it is truly one of the best life guides/self help books I have read (and I have read loads!) so thanks for the recommendation.
About 14 months ago, both myself and my husband were made unemployed by the same company, financially we were wiped out. Since then we have used all our 401K and every last bit of savings (including the kids) that we had. Previous to our unemployment we racked up nearly $100,000 in legal fees on credit cards. Both my husband and I have been consumed by the job search but to no avail. We have been given financial support from our families but that is running out too. We have learnt many lessons and although we have the impending doom of being unable to pay our debts, we have been living frugally and trying to enjoy each day regardless of the situation. We now have no health insurance and for the first time, have been unable to pay our credit cards. The next test is going to be if we can pay our mortgage. Yesterday I was turned down for a position that I truly thought I was going to get so that was a disapointment. I just wondered if you have any advice for us or for others going through similar problems. Thanks and I look forward to reading more of your blog.

[Linda Leighton]

Hi MMND

I get all your email's and I really like how you think- especially your thoughts on your sweet daughter. I am a grammie who has had to take on raising my 2 granddaughters - age 8 and 5 - at a time in my life I was supposed to be out there free to do what I want. It is what it is and I know if it wasn't for my husband and me they would be lost in the 'system' and I hold my head high for that. I want to create some financial future for them in case we aren't around to do so and have saved $4000. to date. I want to invest that for them- its such a small amount but better than 'a poke in the eye'. Any thoughts??

[MillionaireMommyND]

Originally Posted by mommy2point0

It must be great fun growing up in your family, Jen.

Do you have any specific tips for raising young entrepreneurs? What's the best way to get kids to start thinking outside the box at a young age and not get stuck in a 9-to-5 job when they grow up?

Yours truly }} big fan and long term lurker of your blog.

Great questions, fascinating topic, and an experience I'm living though with our young daughter day by day. I really should write more on this topic, but for now, I'll briefly outline a few thoughts:

1) Never say “Because I said so”.
I dislike this authoritarian statement because it squashes kids' curiosity, problem-solving abilities and teaches them to blindly follow orders. I'd rather hear a parent say, “I don't know why”, and then seek an appropriate response in cooperation with their child.
See Parenting With Purpose: This I Believe... and Want Your Kids to Grow Up Smarter, Happier and Richer? for more of my ideas.

2) Expose children to a wide variety of cultures, people, and ways of life.
Provide opportunities to witness unlimited possibilities. Model an open mind for them.

3) Foster creativity through art, writing, play and conversation.

4) Be selective with the school your child attends.
My husband and I have decided that if we can't find a school that fits our entrepreneurship values, we'll homeschool our daughter – at least part time.
See Don't Tell Me What To Do!

5) Avoid the standard kid question, “What do you want to be when you grow up?”
Instead, ask questions like, “what are your favorite hobbies?”, “what are you really good at?”, and “what can you do that might help other people?”. Allow your child to change their mind as often as necessary.
Read my post, What Do You Want To Do When You Grow Up? for more ideas.

6) Be a role model.
Start a part-time family side business and have your children participate. Involve your entire family in money management.
See: How to Make Money Management a Family Affair for additional ideas, book and educational game suggestions.

7) Help your children find appropriate mentors.
And help them arrange apprenticeship programs in areas of interest.

8) Take your child to work with you on occasion to “shadow” you.
Now help them arrange “shadow” days with people who are doing work that your child finds interesting – especially with passionate, out-of-the-box entrepreneur types.
See my post, Shadow, Apprentice, Find a Mentor

9) Don't assume that a college education is absolutely necessary.
I'm a college drop-out. After two years of doing as I was told, learning what others told me to learn, being bored out of my mind and feeling creatively squashed, I quit. I've been a life-long learner ever since. There are ample opportunities for education beyond the classroom walls. (Note: This isn't to say that college level classes are useless. In fact, I return to our local university to take specific classes of interest on a regular basis.)

[MillionaireMommyND]

Originally Posted by lynnor

Hi there! Just "found" you via WiseBread (and so haven't read everything you've written yet ).

So, my question/situation:

Family of 4 w/ 2 young children, DH and I (mid 30s) work full time and contribute max amounts to 401k and Roth each year and make use of our flex plans. We've started some 529 plans for the kids (though not much in them), and have just a few stock investments (rest are funds).

How do *you* invest? We have $ in large/mid/small-cap funds, healthcare fund, some int'l funds and our stock investments are just small amounts that we "played" with trying to figure out how to gauge stocks a few years ago after I joined Better Investing for a while. (And we try to do no or low load funds). We are long-term investors in general (only check on our investments maybe 3-4x/year) Can you think of any improvements we can make to our investment strategy given that info, or perhaps a recommended diversification of a portfolio?

Thanks!

Are you also debt-free? It sounds like you are solidly on the right path towards financial freedom. Congratulations!!!

There are many ways to slice and dice (allocate) your investment portfolio. In my post, Which Model Portfolio Is Best for the Busy (or lazy!) Long-Term Investor? I compared seven commonly recommended, balanced, buy & hold portfolios for the long-term "lazy" investor. These model portfolios are called "lazy" because they don't require much time (or brain-power) to implement or manage. Rebalance once a year if needed and you're good to go. Four of the model portfolios use Vanguard® Index Funds, and three use the NoLoad FundX Upgrading strategy that I personally prefer.

I've experimented with MANY investment strategies over the years. Currently, I've settled upon a combination of diversified long-term-buy-and-hold-index funds (currently about 30% of total holdings), with the majority (about 70%) using the momentum “Upgrading” strategy. I use a systematic upgrading methodology that involves buying no-load mutual funds that rank highly in a mathematical scoring system.

I use the Upgrader's mathematical model to move my holdings incrementally to the new market leaders as they emerge. For instance, for the past few years my portfolio consisted of about 60-75% foreign stocks, because foreign stocks led the market.

Conventional wisdom suggests that because you can’t predict leadership changes, you have to ride through market swings with a diversified portfolio -- including holdings that underperform for a long period of time with the hope that they will add value later. Instead, I hold the positions that do well and upgrade the others. I use the scores to tell me when to enter and exit each position.

I've discussed how I use the Upgrading system in detail here:

How Do I Select My Investments? Why Are They Performing So Well?

My Investment Portfolio Revealed

I Make Thousands of Dollars Working Two Hours (or less) a Month: Demystifying the Investing Experience

How I Make Money Following the Herd: The Trend is My Friend

For more discussion on investing, may I suggest my investing post archives.

[MillionaireMommyND]

Originally Posted by ourdivinemissm

I have been an avid reader of your blog for sometime and am grateful for your tips and advice. I was wondering about the best way to save while I am still paying off debt. I constantly fight with whether I should stick money in savings or put that cash towards a credit cards bill. What is my best bet??

Great question. If debt was an issue for me, here's the financial steps I would take, in this order:

1. Separate my basic needs from my wants
2. Identify my priorities and visualize a debt-free life
3. Involve my family in the plan
4. Make a list of my debts
5. Remove temptation. Cut up my credit cards (but don't close the accounts)
6. Minimize my spending
7. Maximize my income
8. Pay off "toxic debt" first (highest interest rates; balances that are closest to credit limits).
9. Once I'd paid off all debt balances with interest rates over 10%, I'd save at least 15% of every penny I earn to build an emergency fund equal to 6-9 months of my take home income.
10. Once my emergency fund was complete, I'd start investing at least 10% of my gross income in mutual funds held within retirement account(s)...
11. ...and I'd get cracking on my remaining low-interest rate (<10%) debt balances.
12. If I had a mortgage, this would be the last debt on my list. Actually, if I had a home with a mortgage and I was seriously in debt, I'd sell my home to pay off my debt with the equity.

Hope this helps!