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definition of moneyBeing motivated to start a budget plan is tough. Some people think that a budget will restrict them from having a great life. That is because budgeting will tell you just how much you can afford to spend. This is a difficult truth to face when you are used to spending extravagantly.

The American economy is a strong advocate of spending. After all, the economy is 70% reliant on consumer spending. That is why our culture is known for our love to spend. We love big homes, luxury cars and a high rolling way of life.

But that has got to change and budgeting is the reasonable first step towards that change.

Creating a budget plan is simple enough but it will take a lot of self analysis – especially in the financial aspect of your life. It is oftentimes a painful process – especially when budgeting came to you late in your life. When you realize just how excessively you were spending, the truth will really hurt. And when you realize that you have to change your lifestyle to correct your bad spending habits, you will feel the pain all the more.

But like anything else, you will get used to it in time. Just keep in mind how budgeting can help you avoid a lot of financial mistakes – and even pull you out of an existing dilemma.

5 important categories in your budget

You will find a lot of suggestions on how your budget plan should look like. It can admittedly be quite confusing. You have to know that there is no one formula in creating a budget. You can apply a strategy like envelope budgeting and then make revisions here and there to ensure that it can be something that perfectly suits your financial situation.

Whatever form your budget will take, make sure that it will have these 5 categories.

  • Housing. This is actually where a big percentage of our income goes to. This includes your mortgage or monthly rental payments, utilities, property taxes, home insurance, etc. Include your budget for home repairs, maintenance and improvements in this category too. You want to allot around 35% of your income on this. Assuming your income is $3,000, that means you only have $1,050 to spend on housing costs. If your expenses are beyond 35% of your income, that means you are living in a home that you cannot afford. You have to think about giving that up and moving to a smaller home. That is the only way that you can save. An article published on AmericaSaves.org reveal that Americans have relatively large home that we do not need. The article encourages readers not to pay for space they do not need. If you only have 2 kids, you do not need a spacious 5 bedroom home. Get a 3 bedroom apartment – not a mansion that is too big for you.
  • Transportation. The next category in your budget is your transportation. This should only be 15% of your income or $450 if you earn $3,000 a month. The expenses under this category includes the cost to commute to work (fare or gas, toll and parking fees). It also includes your car loan payments, car repair and maintenance, insurance and other car related costs. If your expenses are beyond 15%, think about how you can lower that amount.
  • Savings. The third category that should be included in your budget plan is your savings. There are so many reasons to start saving now that no excuse is valid in missing this category. In fact, you should shave this off the top of your income when you first get it. You want to put aside 10% of your income or $300 based on our assumed income. If you cannot meet this amount, you may want to work on your expenses to see where you can cut back to meet the 10% savings requirement. Include in this category your retirement savings.
  • Debt payments. This is the category where most people are usually spending a lot of money on. This should ideally be 15% of your income. If it is beyond that, you need to cut back on a lot of expenses so you can make bigger payments towards your debts to bring it down. Once you have put your debts under control, you need to keep it within 15% of what you earn. If you do not have any debts, then this 15% will be your basis in making credit card purchases. If you earn $3,000 a month, make sure your credit card purchase limit each month is $450. That way, you are assured that you can pay off your balance in full each month – thus avoiding finance charges from bloating your credit card debt.
  • Discretionary expenses. This category includes everything that is not mentioned here. It is 25% of your income – or $750. This includes food, groceries, clothing, and entertainment expenses. This is the part where you have the tendency to overspend if you are not careful. Decide which expense you can give up and which you cannot. An article from CNX.org revealed an effective way of choosing which expenses you will spend on – calculate the opportunity cost. For everything that you will spend on, think about what you are giving up on to make that expense. For instance, if you are earning $10 an hour, all your expenses can be based on that amount of time it will take you to work to afford that expense. For instance, buying a bag worth $100 means you have to work for that bag for 10 hours. Is that bag really worth 10 hours of your time? Using this way of thinking will help you prioritize expenses easily and meet the 25% limit on your discretionary expenses.

Tips to create a budget that you can follow

The dilemma for people who are implementing a budget plan for the first time is that they are having a hard time following it. When you are spending beyond your budget, you know that you need to change something.

Here are important characteristics of an effective budget.

  • Simple. Make your budget plan simple. Do not over complicate things by putting in too much categories. Follow the 5 categories as mentioned above and you should be alright. It is okay to be detailed at first but once you have the categories in place, you can simplify it so your budget is not too tedious to maintain.
  • Realistic. An important quality of a budget is being realistic. Some people make exaggerated entries in their budget that are sometimes not reasonable. According to an article from GetRichSlowly.org, one reason why your budget may not be working is because you are underestimating your expenses. Rank your priorities and know which expenses you should be making. Some people might think that a certain expense is unnecessary but if it is something that you think you need to be productive, then spend on it. Just make sure you give up something to avoid going beyond your budget.
  • Specific. Your budget should also be specific. By specific, we do not mean that you have to be meticulously detailed. That can certainly help but it is not necessary. But you have to keep your budget from being vague. Identify the actual amount that you can spend on your home – and not base it on ranges (e.g. $300 to $400). This will be very difficult to monitor if you have vague amounts in your budget.
  • Flexible. Lastly, your budget plan should be flexible. Do not think that the budget you started with will be applicable for the next ten years. You have to change it every now and then to make sure that it is still aligned with your ever changing priorities. For instance, your budget when you were single is different when you get married and start having kids. Consider the changes in your life and revise your budget accordingly.

bankrupt definitionThe bankruptcy process is a scary experience. You are in a position wherein you are unable to pay off your debts and you need a bankruptcy court to help you with it. The court will help decide how you will pay off the debt based on your financial capabilities.

Of all the debt solutions, this process will be placed in the public records and will ruin your credit score like crazy. Your score will plummet by 200 points.

But if there is nothing that you can do about it because your finances are really in a tough spot, then you just have to go through the painful process of declaring yourself bankrupt.

How will you qualify for a Chapter 7 or Chapter 13 bankruptcy?

In a previous article, we discussed the Chapter 7 bankruptcy process. This is a type of bankruptcy that is preferred by a lot of Americans because it ends quickly and will discharge a lot of their debts. Of course, before the discharge will happen, consumers will have to watch as their properties and assets are all taken from them. These will be liquidated by the bankruptcy court and the proceeds will be distributed to the creditors. Any lender or creditor that is not paid will be forced to forgive all the balances because the court will discharge them all.

This is not the same case for a Chapter 13 bankruptcy process. Before you can file, you will have to go through a means test. While every case is different, you will usually qualify for a Chapter 7 bankruptcy when you do not have a job or you are earning below the median income in the state where you file your case. That means you have no way to pay off your debts. If your salary is above the median but your debts are just way too high for you to pay off, then the chances of your landing a Chapter 7 bankruptcy is still there. But if your income is above the average median in the state and you are deemed to be able to pay a portion of your debts, then you will be qualified to file a Chapter 13 bankruptcy case.

According to the statistics released by the USCourts.gov, the Chapter 13 bankruptcy filing fell from 355,081 to 329,256 from 2013 to 2014 (12 month period ending in March). While the decline may seem like good news, it is still a high number of consumers going through the bankruptcy process.

A Chapter 13 bankruptcy is when you will go through a repayment process. Unlike the Chapter 7 bankruptcy, you will have to pay a portion of what you owe. How much and what percentage will depend on the bankruptcy court. The good news is, your assets will not be touched and liquidated. You get to keep them. The bad news is, you have to spend the next few months or years still paying your debts. This time, it is hard to get out of it because it is backed by the court.

The repayment scheme is what makes other consumers confused between bankruptcy and debt settlement. Both involves paying a portion of the debt and whatever is not paid will be forgiven or discharged by the creditor or lender.

What is the Chapter 13 bankruptcy procedure

So if you will go through the Chapter 13 bankruptcy process, what are the things that you have to expect? If you will go through personal bankruptcy, you need to know the details before you proceed.

  1. Set a meeting with your lawyer. Just like in Chapter 7, you will have to start by consulting with a legal professional. There are a lot of bankruptcy lawyers out there – some more expensive than others. The most common place to go to for a list of bankruptcy lawyers is through the NACBA.org or the National Association of Consumer Bankruptcy Attorneys. Meet up with your chosen lawyer and bring along details about your debt and financial situation.
  2. Take the means test. Your lawyer will help determine if you will qualify for Chapter 7 or 13 bankruptcy. This way, you will both know if you are following the right bankruptcy process or not.
  3. Go through a credit counseling course. It is mandatory for anyone filing a bankruptcy case to enroll in a credit counseling course. This is to review if their only way out of debt is through bankruptcy. This should be done within 6 months prior to the filing.
  4. Prepare the documents for filing. The benefit of a bankruptcy attorney is they know the documents that needs to be prepared. They can give you a list and you can prepare them immediately to expedite the process. The documents include your income stubs, credit card debt list (billing statements, etc), bank statements, titles, loan documents etc. These documents are referred to as the schedules. Make sure they are both accurate and prepared on time.
  5. File the petition, schedules and payment plan. Since this is the “repayment bankruptcy,” you need to include the payment plan in your filing. This will be submitted by your lawyer to the court. The date of filing will be the reference of the court when describing actions and events as pre-petition or post petition.
  6. Make the first payment. This is typically due on the first 30 days since the case is filed. The payments will be due every 30 days after that.
  7. Prepare the most recent tax return. This should be provided to the Chapter 13 trustee 7 days before the 341 Meeting.
  8. 341 Meeting. This is more commonly known as the Meeting of Creditors. This usually happens a month after the filing of the case. This is attended by representatives of the creditors you owe money from. It usually lasts ten to fifteen minutes only.
  9. Wait for the deadline of exemptions. After the Meeting of Creditors, the trustee has 30 days to object to any of your claims of exemptions.
  10. Payment plan confirmation. This is a hearing wherein the Chapter 13 payment plan will be confirmed. This usually happens after the Meeting of Creditors.
  11. Deadline of claims from creditors. 90 days after the first date of the 341 Meeting, creditors that to file their respective proof of claims. For government creditors, this deadline is 180 days. The trustee and your lawyer will review these claims. Any claims that will be objected upon will be scheduled a hearing.
  12. Finish financial management course. This is separate from the credit counseling course. The certificate of completion will be submitted before any debt will be discharged by the court.
  13. Deadline of dischargeability. This is 60 days after the Meeting of Creditors. The creditors will have to file a complaint to object the debt discharge that you filed.
  14. Submit certificate of domestic support obligation. If applicable, you have to submit a certificate that proves you are current with any domestic support obligations that is due while the Chapter 13 bankruptcy process is happening. This includes child support, alimony, etc.
  15. Discharge of debtor. This happens fast when there is no challenge to file the discharge. It will be longer if there is.

The bankruptcy process that is discussed here is general in nature. You need to consult a bankruptcy lawyer to understand the specific laws and regulations in the state that you decided to file in.

bankruptcy definitionSearching for information about the bankruptcy process is a scary prospect. When this is what you are trying to research on, it simply means your situation is dire enough that you need the courts to step in and make a decision on your debts. Some financial experts will tell you to do your best to avoid bankruptcy at all cost. But there are cases when it is the only way out.

Some people make the mistake of removing bankruptcy from their list of debt relief options – only to end up in further debt. When you are really in a financial crisis, do not try to use debt settlement or any other debt solution if you know that you cannot afford to make any payments.

A case in point are people who are too sick to work and are still accumulating medical debt. According to an article published in CNBC.com back in 2013, health care is the number 1 cause of consumers going through the bankruptcy process. It has outpaced credit card debt and mortgages. This is true even for those who have health insurance. They are going under because of the out of pockets costs and the ridiculously high professional fees.

If you are struggling with your debts and you want to start anew, then go ahead and file for bankruptcy. It may be the break that you need to get your finances back on track.

Individual bankruptcy filings can come in two ways: Chapter 7 or Chapter 13. Let us discuss the procedure you will go through for Chapter 7. we will discuss in another article the process for Chapter 13.

What is the Chapter 7 bankruptcy procedure

The Chapter 7 bankruptcy is the preferred type of bankruptcy by a lot of consumers. This is because a successful Chapter 7 filing will discharge the debt of the consumer. That means they do not have to pay anything towards their creditors. Their assets (or those outside of the exemption list) will be liquidated. Whatever profit it will gain will be distributed to all the lenders and creditors in order of importance.

According to the reports from the American Bankruptcy Institute and published onABI.org, the Chapter 7 filing in 2013 averaged at more than 60% of all the bankruptcy filings. That signifies that a lot of people were considered to be in severe financial conditions to be qualified for this type of bankruptcy.

So what is the bankruptcy process of Chapter 7?

  1. Set a meeting with your lawyer. Since this is a bankruptcy case, this should be your first order of business. While you can file only by yourself, you might have a hard time with the documents and the terms used in a typical court procedure. So better look for a competent lawyer to represent you case. They will help explain and guide you through the whole bankruptcy process.
  2. Calculate the means test. This is to determine if you will qualify for a Chapter 13 bankruptcy or not. If you do, then you need to stop the Chapter 7 process and learn about this other type of bankruptcy.
  3. Prepare the documents to file. Your attorney will help you with the worksheets and the list of documents that you need to file. The list will include your income, expenses, debts and other financial transactions. These documents will all be referred to as “Schedules.”
  4. File the petition and schedules. This is called the petition date. The lawyer you hired will take care of this. This date will be the reference point to address events as pre-petition or post-petition.
  5. File the Statement of Intention. This will contain all your intentions about your credit payments. Will you be selling off a property or will you file all of them for discharge? This should be filed together with the case filing or no later than 30 days after.
  6. 341 Meeting. This is more commonly known as the meeting of creditors. It is set a month after the filing of the case that will take only 10 to 15 minutes. It will be presided by the trustee that is assigned by the bankruptcy court for your case. The creditors or their legal representatives will all attend to ask you a couple of questions about your finances. You or your lawyer will have to answer them.
  7. Deadline of exemption. This simply means the trustee has 30 days from the 341 meeting to object to any of your exemption claims.
  8. Deadline of personal finance management course. This is a requirement in any bankruptcy process. You need to enroll in a course that will teach you how to manage your money. This is separate from the credit counseling course that is needed before filing the case.
  9. Perform under Statement of Intention. 45 days after the 341 meeting, you have another deadline to reaffirm or surrender your collateral under the statement of intention.
  10. Deadline of dischargeability. This is 60 days after the 341 meetings wherein the creditors will have to submit their objections about any debt balance for discharge.
  11. Discharge of debtor. This is shortly after the deadline of dischargeability is past. When there is no challenge, the debts will be discharged by the bankruptcy court. When there is a challenge but the court decides to discharge the debt anyway,, the creditors will have to accept.

What to do after going through Chapter 7 bankruptcy

After the bankruptcy process discharged your debts, you should not think that you can now sit back and relax. You still have a lot of things to do if you want to improve your financial situation. Filing for bankruptcy does not mean you have solved the dilemma. You just got rid of your debts. To complete the debt relief program, you have to solve the reason why you got in debt in the first place.

According to the USCourts.gov, the number of bankruptcy filings went down during the period between March 2013 to March 2014. Chapter 7, in particular, went down from 804,885 to 699,982. This is a huge difference that hopefully indicates that consumers are more smart when it comes to their credit.

While you are not really encouraged to eliminate debt from your life, you are encouraged to keep it under control. Debt free living has its benefits but it does not include a high credit score. You may want to think about that.

So what can you do to keep on living with credit but avoid another bankruptcy process in the future? Here are some tips.

  • Have a budget. Always have a budget plan in place and make sure you will revise it every now and then to suit the changes in your finances and your evolving priorities.
  • Build up your emergency fund. Sometimes, it is the emergencies that cripple households that have been responsible with their money. Prepare for the unexpected so that when tragedy happens, you do not have to borrow money to get yourself out of it.
  • Spend less than what you earn. This is the secret to wealth. This is how you can save to invest for your future. This is how you pay for your debts. This is how you build up your emergency fund. Make it a habit not to overspend because that will lead to your financial demise.
  • Diversify your income. When you have income coming in from other sources, you will have financial security despite a job loss. That should be a reliable buffer in case something happens to your job.

The bankruptcy process is scary and intimidating to go through but if you react the right way, you can protect yourself from ever having to experience it again. So build up your credit score and practice the right financial management skills. That should keep you from making the same mistakes again.

stethoscope and cashMedical debt is a serious problem for many households. A lot of Americans are trying to get debt relief from medical bills and unfortunately, not everyone is succeeding. The high cost of health care is crippling a lot of us – even those with health insurance. Imagine how the uninsured are coping with the expensive cost of health care. If any of them will get sick, they will either skip the medical treatment or will put themselves in debt just to get healthy.

According to the Association of Credit and Collection Professionals, 41% of adults between the ages 19 to 64 are reported to having medical debt. The statistics compiled in ACAInternational.org revealed that those who are having difficulties, 42% of them or 32 million have a lower credit rating because of all their unpaid medical expenses. This can bring down their financial opportunities and keep them from the low interest rate that comes with having a good credit score.

How do people get into health related debt?

We all know that health is wealth and it is funny that once you get sick, the former cannot exist without the latter. Although there are free services, you should know that money is an important aspect of our health. You need it to get better. If you do not have it, you will either be in debt or you will have to forego getting professional help to get better.

Another report published on the Kaiser Family Foundation website revealed that one third of Americans have admitted that they are having a lot of difficulty paying off their medical debt. It is either they have troubles paying medical bills in the past year or they are painstakingly paying it in installments. Some of them reported that they cannot afford to make any kind of payment – at all! The same report said that getting into debt may be higher for the uninsured but that does not mean the insured is spared from this type of debt. In fact, the study revealed that the people who have reported having difficulties paying their health related debt are those who are insured.

The problem lies with the out of pocket expenses that are oftentimes still too expensive – despite the coverage of the health insurance. Not only that, a lot of insured individuals have to deal with the additional cost of paying a monthly premium to keep their family covered by the insurance.

The report mentioned that the people who have medical debt are usually those who have other financial obligations like credit card debt, mortgage loans and other credit obligations. These add up to put them in a compromising financial position.

Keep your health care expenses from turning into uncontrollable debt

So what can you do to keep your health care expenses from becoming uncontrollable debt? Here are some tips that we have for you.

  • Shop for options. If it is not an emergency and you have time to spare before you need the actual treatment, then look for the best deal in terms of low cost and high quality care. Take the time to check the prices. If you have a long time illness, do your research now so in case your illness will strike, you know your options and you can act on it quickly. Such planning and preparation will really go a long way and help you keep your costs to a minimum without compromising the treatment that you will need.
  • Stay away from the ER. If you can avoid it, stay away from going to the Emergency Room. The co-payment is usually at its highest and you do not want to have that as a burden. If you did not know, there are urgent care centers that act like ERs but does not cost as much. Try to search for the nearest facility in your city so you can head out there in times of emergencies.
  • Know the network of your insurance company. Study the network of health facilities and professionals that your insurance provider has. That way, you will not make the mistake of going for help in a facility or professional that will not be reimbursed by your insurance. There might be arrangements that you can get so you can benefit from packages that will lower your cost even further.
  • Go to medical schools. These schools have their own clinics where students get to have hands on practice with actual sick people. While it may seem like you are putting your health on the line, these are quite competent individuals. They will give you the best care for a fraction of the cost that you would have spent in a hospital. These interns need the training and you need low cost and high quality medical care. That is a great trade off to stay away from medical debt.
  • Check and recheck your bills. Not that we want to think that the medical industry cannot be trusted but some people can make mistakes too. If you are staying in a big hospital, some records are bound to mix with the others. So be vigilant and always check that everything in your bill lists services and medications that were given to you. Question anything that you do not understand. Sometimes, there are details that are billed separately when it should have been part of the package.
  • Do coupons. Yes there are coupons for your medical expenses too. These can help you save money and keep you out of medical debt. Drug companies and manufacturers want your loyalty so be on the lookout for great coupons that will help you save on prescribed medicines.
  • Ask for medicine samples from your physician. A lot of doctors are given free medicines by drug companies and you may want to benefit from that as well. If your doctor prescribes a medicine, as them if they have samples that they can possibly give you to save on costs. They usually do not use this so they may be inclined to hand it over to you.
  • Buy the generic. Another way to save on prescription drugs is to buy the generic brands. If you cannot get a coupon or a sample from your doctor, but the generic. They cost less and still work in the same way as the name brands.

Probably the best way that you can save money on your health insurance and related costs is to simply keep yourself healthy. Prevention is always better than the cure and in the end, that is the most inexpensive way that you can stay away from medical debt.

Tips to pay off your medical credit problem

The National Patient Advocate Foundation published on NPAF.org revealed that medical expenses is a main factor in individual bankruptcy filings in the country. The percentage is at 62% and the report mentioned that it is increasing. Of those who blamed medical related debt to their bankruptcy filing, 54.9% blamed the high medical and drug cost while 37.8% blamed job loss because of an illness.

In case you have a lot of medical debt to pay off, here two options that you have to make your payments possible.

  • Live a frugal life. You want to make sure that your debt will not hinder you from getting a needed medical attention in the future. That is why you need to pay it off as soon as you can. You can do this by living a frugal lifestyle so your expenses will drastically be lower. That should give you enough room to pay more towards your debts.
  • Get medical debt reduction. Research your options to reduce what you owe towards your medical debt. It can be through debt settlement or debt management. There are various debt relief programs that will allow you to pay off what you owe based on your financial capabilities.

Although the high cost of medical care makes medical debt a higher possibility, make sure that you build up your emergency fund so you can avoid this type of credit. That way, you can concentrate on getting your good health back instead of stressing about where you will get the money to pay back the high cost of health care.

cartoon house with documentsWe’ve always been told that buying a house is a good investment. Well, that is true, but that is not the whole picture. This is just our way of justifying the fact that we are borrowing money to pay for the house.

A home loan is always advertised as a good debt because it allows you to increase your assets. In fact, an article from About.com places it as the definition of a good debt. A home purchase usually appreciate in value so the mortgage loan used to pay for it can be considered as an investment.

While home buying through a home loan is the common practice, it does not always mean that it is the best way to acquire a property. This is especially true when your finances are not ready for a mortgage payment plan.

It is true that buying your own home will increase your personal net worth. But that depends on how you will buy it. If you will buy it through a home loan, that house is not yet yours. The bank or mortgage lender owns it. As you pay off the home loan in instalment, that is the only way that you start to build up the equity of your home. Even if the title is under your name, you only own as much as the amount that you paid for the house. At the beginning, if you paid 20% of the selling price as the down payment, it indicates that you only own 20% of your home. If you paid less on your down payment, then you own even less.

Signs that a house is not a good investment

There are certain signs that will tell you if buying a house is even less of an investment that it should. According to an article published by FoxBusiness.com, there is never really the right season to buy a home. It will depend primarily on your own financial situation. But if you have to pinpoint a season, the article mentioned that spring and fall are the best times for home buyers. This is the time when the home inventory increases and that means more options for you.

It may be true that you will be saving more as a homeowner because what you should have been paying on rent will instead be sent towards the equity of your home. But before you make the actual purchase on the house, take note of these signs that indicates your home buying plans will not be a good investment.

When it is worth less than what it is selling for

Some homebuyers purchase a home at a price that is just right for the value of the property. But in the midst of it, the housing market crashed and you are now paying a lot more than it is actually worth. That just made your home a bad investment. Even if you try to sell it off, it will not be enough to pay for your overall investment that includes the down payment, home loan, interest, closing costs and other expenses like the insurance, appraisal and professional inspections. When this happens and you are in the verge of giving up your home and selling it, hold on to it first. You might lose a lot more if you proceed to sell off the property.

When the mortgage rate is higher than the usual

Buying a house when the mortgage rates are high is a bad idea. This is especially true when you are getting a fixed price mortgage. That means the interest in your home will not go down in case the mortgage index rate does. This is why it is important for you to buy your home at the right time. The high interest rate can be caused by the housing market or it can be caused by your own bad credit score. A low credit score will deem you to be un-creditworthy and that will force the lender to protect their interest by raising your interest rate.

When you do not have enough cash for the 20% down payment

Another factor that will make buying a house less of a good investment is when you do not have enough down payment to meet the required 20%. When you pay less on your down payment, it means you still have to pay for a PMI (private mortgage insurance) to compensate for that deficit. That is another cost that you have to pay on top of your mortgage. If you can wait to save up for this down payment, then you should decide not to buy a house yet so you can save money and own more on the equity of your home from the beginning.

When a housing market crash looms ahead

The last sign that indicates your home will not be a good investment is when the market is gearing up for a housing crash. Although it is tough to really predict this, if the experts are saying that the value of homes will decline in certain months, then hold your purchase for now. In most cases, buying a home during the housing market crash is a better idea because home values will be at an all time low. You can get a really good deal when you wait for this to happen.

How to turn your home into a money making machine

Of course, there are ways for buying a house to be a really good investment and that is to turn it into a rental. This is really how you can make it into a cash cow so it can earn you some money.

An article published on USNews.com, said that the days of flipping real estate is over. This is when you buy a property, fix it up a bit to increase its value and sell it for profit. Now, earning from real estate means buying a house and having it rented. This can provide a steady income that is oftentimes a great option for retirement investing.

But here’s the thing, how can you invest in a rental real estate property if you still do not have a home of your own?

Well here’s one option: ask a mortgage lender how much you are qualified to borrow based on your credit standing and your income. You can do this by getting a pre-approved mortgage. It will tell you the amount that you are qualified to borrow.

Once you have the amount, look for a property that will allow you to convert it into two units. One part of the house will be where you and your family will reside, and the other will be a unit that you can rent out. For instance, you can look for a home with a spacious basement or a garage that you can convert into a studio unit or a small one bedroom apartment. Make sure that the zoning laws in the community will allow this too.

If you can be approved for a $500,000 mortgage, you may want to use this wisely. Do not spend it on a home that only you can live on. Make sure it will also help you pay for the mortgage through the additional rental income that it will give you. With the average mortgage payment of $800 to $1,000 a month, renting out a portion of your house may be enough to cover and even give you some extra income.

That is how you make sure that buying a house is a good investment.