6 Reasons to Try the FIRE Movement

The idea behind FIRE is if you can earn more money, live on less, and save and invest the rest, you can cut years — or even decades — off of your working career. Of course, the FIRE movement has its problems. 

Not everyone can save 50% or more of their income to work toward FIRE. And most who retire early continue working in some capacity to avoid running out of money early. Also, achieving FIRE is considerably easier during times of economic prosperity — no matter what anyone says, it would’ve been a lot harder to get excited about FIRE in 2008 when the Dow dropped by 33.84%!

Achieving FIRE and retiring early sounds good in theory, but it’s actually very hard to execute in a real-world sense. But here’s why you should try anyway.

6 Reasons FIRE Still Works

But, you know what? I would argue that anyone who can, should at least try to pursue FIRE anyway. As I’ve become more interested in financial independence, I’ve learned that there are side benefits to cutting expenses and learning to save money and invest more. Some advantages to FIRE don’t even have anything to do with money at all.

If you’re on the fence about FIRE, here are some of the reasons you might want to change your way of thinking and get on board.

1. Encourages Living With Intention

After reading Michael Hyatt’s book, Living Forward, its concept of “drifting” stuck with me. Drifting occurs any time you’re going through the motions in life, but living without any concrete plans or goals. 

Maybe you’re going to work every day, taking care of your kids, and keeping up with bills. But in these day-to-day tasks, you’re not actively achieving anything in particular. 

You’re just waking up and getting by.

With the FIRE movement though, you learn to live with intentionality because you’re forced to focus on your spending, and the specific goals necessary to reach financial independence. 

As you pursue FIRE, you can’t simply drift through life in hopes that the numbers work out in your favor. To have enough money to retire early, you need a plan. You have no choice but to set goals, and the act of doing so forces you to get real about how you’re living and what you really want in life. 

Are you saving to buy a house? Are you saving to pay for college? Are you saving to retire early? Whatever your goals are, FIRE forces you to reverse engineer your long-term plan so it’s actionable and intentional today.

2. Feels More Financially Secure

Here’s another potential side benefit of pursuing FIRE — you get the opportunity to feel more secure and sleep better at night. This is something I personally experienced when I started becoming FIRE-minded, but it’s also backed up by research. 

In fact, a 2019 survey from Schwab showed that 63% of people with a written financial plan said they felt financially stable, compared to only 28% of those without a financial plan. Further, 56% of people with a financial plan said they felt “very confident” about reaching their financial goals.

If you’ve ever felt helpless about your finances before, then this probably makes total sense. Having a plan provides some comfort — even if you are far away from your goal. At least you’re working toward something, and that provides peace of mind. 

3. Forces You to Take Control

I don’t always agree with everything Dave Ramsey says, but I do love some of his best quotes. One example is:

“You must gain control over your money or the lack of it will forever control you.” — Dave Ramsey

The point I’m making is that, if you don’t ask yourself important, uncomfortable questions, you might never get control of your finances — or your life. 

Think about it this way. If you’re drifting through life and spending money without really saving for a goal, you’re at the mercy of your job and outside factors that affect your income and savings. But if you learn to take control of your spending, you’ll also learn to take control of your future finances in ways you probably never realized before.

When most people start pursuing FIRE, they realize right away that the biggest part that’s in their control is their spending. The other side of that coin is, of course, how much you’re able to save.

A recent survey from the Federal Reserve Bank of St. Louis shows the average American set aside 5% to 8% of their income in savings. In contrast, those who pursue FIRE, frequently save 50% to 70% of their incomes toward their goals. 

When you find a way to save a large percentage of your income, this means you’ve taken control of the reins. You have goals and you have a purpose, and your money is no longer controlling your future. You are.

4. Empowers You with Information

According to a joint study from PwC US and the Global Financial Literacy Excellence Center (GFLEC) at the George Washington University, only 24% of millennials demonstrate basic financial literacy. And, even with minimal knowledge of their own, only 27% had sought out professional financial advice. 

This is one area where even studying FIRE can leave you dramatically ahead. After all, pursuing FIRE or even reading about it forces empowers you with information about saving and investing for the long haul. 

For example, through FIRE you’ll randomly learn personal finance lessons like the 4% rule for retirement and how to create a budget. These are cornerstone concepts of the FIRE movement. 

You’re also forced to think about your income and your financial situation in a brand new way. This includes questions, like “How much are you actually earning?” and “How much interest are you paying toward debt every month?”

As a financial advisor, I can tell you for sure that a lot of people don’t know the answer to any of these questions because they’ve never thought about it before. You wind up learning so much that can help you along the way toward your goal.

5. Learn How to Budget and Question Yourself

I remember back in the day when my wife and I first started getting serious about budgeting. We’d sit down to look over our bills, and were shocked by some of our ongoing expenses and subscriptions. 

These budgeting “meetings” made a big difference in how we worked together to achieve our financial goals. When we sat down to look over our expenses, our income, and where we were headed, we found ways to spend less without affecting our quality of life.

Now, I hate budgeting, but I do think it’s an important part of pursuing FIRE — especially at first. After all, you can’t really work toward major financial goals if you have no idea where your money is going every month. 

And, the thing is, you can’t really argue anything when you start budgeting and tracking your expenses. You get the chance to see where your money went, in black and white, and you get the opportunity to act accordingly. This may sound like a huge buzzkill, but I’ve found that taking control and budgeting is actually really empowering. 

Crazily enough, not enough people have any idea how they spend the income they work so hard to earn. In fact, a recent survey from the budgeting app Mint found that 65% of respondents had no idea how much they spent last month. 

When you ask someone pursuing FIRE how much they save each month, these people know. In fact, they often know their savings amount down to the penny. 

6. FIRE Helps You Be Grateful

Finally, there’s one more major benefit of FIRE that goes largely ignored. I’m going to call it the “contentment factor”. It’s the ability to be content with what you have. 

Everything involved with FIRE — tracking your spending, cutting things you don’t care about, creating long-term goals — can really put your life in perspective for you. It also makes you realize you might have more power over your life than you realized. That’s a pretty amazing lesson. 

And of course, learning contentment leads to learning how to feel grateful. How amazing is it that, in this broken world we live in, you can earn a living, care for your family, and set aside something for the future? How amazing is it that you have the chance to work hard and retire early, and then spend decades doing whatever it is you love?

This brings me to a quote I love from Oprah:

“Be thankful for what you have; you’ll end up having more. If you concentrate on what you don’t have, you will never, ever have enough.” ―

Oprah Winfrey

This is what I love about FIRE; it really encourages you to be grateful and teaches you to be content with what you have. After all, there is no way you could ever save 50% or even 30% of your income without these lessons. 

Pursuing FIRE teaches you that you don’t need the hottest pair of sneakers, and that you might not need that cable television package you pay for each month. It teaches you that a huge car payment isn’t worth it, and that any “friend” who judges your car probably isn’t a good one. 

Learning about FIRE makes you ask yourself all of these questions, and sometimes, that’s all it takes to realize how good you have it.

Garth Brooks once said that “you aren’t wealthy until you have something money can’t buy.” 

And perhaps that’s the greatest benefit of pursuing FIRE. You learn that happiness and true contentment comes from within. And that, my friends, is priceless.

The post 6 Reasons to Try the FIRE Movement appeared first on Good Financial Cents®.

Source: goodfinancialcents.com

Current Mortgage Rates Hold Higher to Start the Week

It’s another week and mortgage rates are holding steady at the levels they moved up to on Friday. It’s a moderate economic calendar this week with some reports in the latter half that could cause rates to adjust. Read on for more details.

Where are mortgage rates going?                                              

Mortgage rates hold higher after strong jobs report

Here we go with yet another week. It’s a slow start for the markets as there’s little significant economic data scheduled for release; however, Friday’s events are still looming large.

Of course, I’m talking about the monthly jobs report for August, which showed that a very solid 201,000 jobs were added to the U.S. economy for that month. More importantly, average hourly earnings ticked up 0.4%, bringing the yearly growth rate to 2.9%–the highest rate since 2009.

The consensus was for an increase of 0.2%, so the strong uptick caught investors by surprise.

The good news caused financial market participants to increase their appetite for risk and move out of bonds and into stocks, pushing long-term treasury yields higher. The yield on the 10-year Treasury note (the best market indicator of where mortgage rates are going) ticked up about seven basis points to 2.94%.

Mortgage rates typically move in the same direction as the 10-year yield and similarly edged higher as we headed into the weekend. Today, mortgage rates are staying close to those levels as there’s little happening in the markets to make them adjust in either direction.

[contentbox id=”10″]

Rate/Float Recommendation                                    

Lock now before rates move even higher         

Strong economic data pushed mortgage rates up higher on Friday. We’re expecting rates to continue to shift higher as the Federal Reserve gets ready to increase the nation’s benchmark interest rate later this month.

If you’re planning on buying a home or refinancing your current mortgage, we strongly recommend that you do so sooner rather than later. The longer you wait, the more likely it is that you’ll be locking in a higher interest rate and paying more over the life of your loan.

Learn what you can do to get the best interest rate possible.  

Today’s economic data:               

Fedspeak 

  • Atlanta Fed President Raphael Bostic at 11:30am

Notable events this week:       

Monday:   

  • Fedspeak

Tuesday:   

  • NFIB Small Business Optimism Index
  • JOLTS

Wednesday:         

  • PPI-FD
  • EIA Petroleum Status Report
  • 10-Yr Note Auction
  • Beige Book

Thursday:     

  • CPI
  • Jobless Claims
  • Fedspeak

Friday:          

  • Retail Sales
  • Import and Export Prices
  • Fedspeak
  • Industrial Production
  • Consumer Sentiment

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*Terms and conditions apply.

Source: totalmortgage.com

Mortgage rates remain at record-low levels

After falling to the lowest rate in Freddie Mac’s Primary Mortgage Market Survey’s near 50-year-history last week, the average U.S. mortgage rate for a 30-year fixed loan remained at a survey-low 2.67% this week.

Last week’s announcement of a 2.67% rate broke the previous record set on Dec. 3, and was the first time the survey reported rates below 2.7%.

The average fixed rate for a 15-year mortgage also fell this week to 2.17% from 2.19%. One year ago, 15-year average fixed rates were reported at 3.16%.

“All eyes have been on mortgage rates this year, especially the 30-year fixed-rate, which has dropped more than one percentage point over the last twelve months, driving housing market activity in 2020,” said Sam Khater, Freddie Mac’s chief economist. “Heading into 2021 we expect rates to remain flat, potentially rising modestly off their record low, but solid purchase demand and tight inventory will continue to put pressure on housing markets as well as house price growth.”

Freddie Mac has reported survey-low rates 16 times in 2020, proving beneficial to borrowers looking to buy or refinance a home amid economic turmoil outside of the industry.

Mortgage spreads continue to compress, per Freddie Mac officials, with the 10-year Treasury yield remaining at or above 90 basis points through the beginning of December.

This week’s 5-year Treasury-indexed hybrid adjustable-rate mortgage averaged 2.71%, down from last week when it averaged 2.79%. That’s another sharp drop-off from this time last year, when the 5-year ARM averaged 3.46%.

The Federal Open Market Committee revealed earlier this month that the Federal Reserve plans to keep interest rates low until labor market conditions and inflation meet the committee’s standards. Overall, Fed purchases have helped to drive mortgage rates and other loan interest rates to the lowest level on record by boosting competition for bonds.

Higher rates may be around the corner, as the calendar flips to 2021 and the promise of a second COVID-19 stimulus check along with a vaccine reaches consumers. The Mortgage Bankers Association has forecasted rates for 30-year fixed-rate loans rising to an average of 3.2% by the end of 2021.

But if the virus is not controlled in the new year, investors may remain cautious and consumer confidence could wane – keeping rates low, according to the MBA.

The post Mortgage rates remain at record-low levels appeared first on HousingWire.

Source: housingwire.com

Current Mortgage Rates Rise to Start the Week

Here we go with another week. Current mortgage rates have been rising steadily over the past month, a trend that we expect to persist for the foreseeable future.

Inflation data, overseas trade negotiations, and speaking engagements from the Federal Reserve should be the main market movers this week. Read on for more details.

Where are mortgage rates going?  

The market continues to fear rising interest rates

Financial market participants are continuing to grapple with the fear that interest rates will surge in the coming weeks and months, putting stocks in a position to fall for the third consecutive day.

All of the major market indexes are in the red right now with the Dow Jones Industrial Average notably falling 106 points to start the week.

The bond market is closed today so we’ll have to wait until tomorrow to see where yields go, but in the past month we’ve already seen the yield on the 10-year Treasury note (the best market indicator of where mortgage rates are going) continue to hit levels that haven’t been reached in well over five years.

Mortgage rates tend to move in the same direction as the 10-year yield, so we’ve seen rates move higher, albeit at a slower pace, over the past month. The general consensus is that mortgage rates will continue to move higher as we approach the end of the year.

Of course, the economic data still has to match up and we’ll get a couple key inflation readings this week which investors will be closely watching.

If those reports (consumer and producer prices) come in showing inflation rising at a steady pace, we’ll likely see bond yields and mortgage rates rise steadily as they’ve been doing.

[contentbox id=”10″]

Rate/Float Recommendation                                     

Lock now before rates move even higher          

Mortgage rates have been rising and are expected to continue doing so in the coming weeks and months. If you’re thinking about buying a home or refinancing your current mortgage, we strongly recommend that you do so sooner rather than later in order to lock in the lowest rate possible.

Learn what you can do to get the best interest rate possible.  

Today’s economic data:                   

  • Nothing

Notable events this week:       

Monday:   

  • Nothing

Tuesday:   

  • Fedspeak
  • NFIB Small Business Optimism Index

Wednesday:         

  • PPI-FD
  • Atlanta Fed Business Inflation Expectations
  • 10-Yr Note Auction

Thursday:     

  • CPI
  • Jobless Claims
  • EIA Petroleum Status Report

Friday:          

  • Import and Export Prices
  • Fedspeak
  • Consumer Sentiment

[contentbox id=”3″]

*Terms and conditions apply.

Source: totalmortgage.com

What Happens to Mortgage Rates When the Fed Cuts Rates?

Just about everybody with a wallet is impacted by the Federal Reserve. That means you—homeowners and prospective buyers. Whether you’re already nestled in to the house of your dreams or still looking to find it, you’ll probably want to track what happens to mortgage rates when the Fed cuts rates. When the Fed (as it’s commonly referred to) cuts its federal funds rate—the rate banks charge each other to lend funds overnight—the move could impact your mortgage costs.

The Fed’s overall goal when it cuts the federal funds rate is to stimulate the economy by spurring consumers to spend and borrow. This is good news if you are carrying debt because borrowing tends to become less expensive following a Fed rate cut (think: lower credit card APRs). But in the case of homeownership, what happens to mortgage rates when the Fed cuts rates can be a double-edged sword.

What happens to mortgage rates when the Fed cuts rates depends on many factors.

The connection between a Fed rate cut and mortgage rates isn’t so crystal clear because the federal funds rate doesn’t directly influence the rate on every type of home loan.

“Mortgage rates are formed by global market forces, and the Federal Reserve participates in those market forces but isn’t always the most important factor,” says Holden Lewis, who’s been covering the mortgage industry for nearly 20 years and is also a regular contributor to NerdWallet.

To understand which side of the sword you’re on, you’ll need an answer to the question, “How does a Fed rate cut affect mortgage rates?” Read on to find out if you stand to potentially gain on your mortgage in a low-rate environment:

How a fixed-rate mortgage moves—or doesn’t

A fixed-rate mortgage has an interest rate that remains the same for the entire length of the loan. If the Fed cuts rates, what happens to mortgage rates if you are an existing homeowner with a fixed-rate mortgage? Nothing should happen to your monthly payments following a Fed rate cut because your rate has already been locked in.

“For current homeowners with a fixed-rate mortgage set at a previous higher level, the existing mortgage rate stays put,” Lewis says.

If you’re a prospective homebuyer shopping around for a fixed-rate mortgage, the news of what happens to mortgage rates when the Fed cuts rates may be different.

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For prospective homebuyers: If the Fed cuts its interest rate and the 10-year Treasury yield is similarly tracking, the rates on fixed-rate mortgages could drop, “and you could lock in interest at a lower fixed rate than before.”

– Holden Lewis, mortgage expert and NerdWallet contributor

The federal funds rate does not directly impact the rates on this type of home loan, so a Fed rate cut doesn’t guarantee that lenders will start offering lower mortgage rates. However, the 10-year Treasury yield does tend to influence fixed-rate mortgages, and this yield often moves in the same direction as the federal funds rate.

If the Fed cuts its interest rate and the 10-year Treasury yield is similarly tracking, the rates on fixed-rate mortgages could drop, “and you could lock in interest at a lower fixed rate than before,” Lewis says. It’s also possible that rates on fixed mortgages will not fall following a Fed rate cut.

How an adjustable-rate mortgage follows the Fed

An adjustable-rate mortgage (commonly referred to as an ARM) is a home loan with an interest rate that can fluctuate periodically—also known as variable rate. There is often a fixed period of time during which the initial rate stays the same, and then it adjusts on a regular interval. (For instance, with a 5/1 ARM, the initial rate stays locked in for five years and then adjusts each year thereafter.)

So back to the burning question: If the Fed cuts rates, what happens to mortgage rates? The rates on an ARM typically track with the index that the loan uses, e.g., the prime rate, which is in turn influenced by the federal funds rate.

If the Fed cuts rates, what happens to mortgage rates? If you have an adjustable-rate mortgage, you may see your rate change.

“If the Fed drops its rate during the adjustment period, you could see your interest rate go down and, in turn, see lower monthly payments,” says Emily Stroud, financial advisor and founder of Stroud Financial Management.

Since ARMs are often adjusted annually after the fixed period, you may not feel the impact of the Fed rate cut until your ARM’s next annual loan adjustment. For instance, if there is one (or more) rate cuts during the course of a year, the savings from the rate reduction(s) would hit all at once at the time of your reset.

If the Fed cuts rates, what happens to mortgage rates for prospective homebuyers considering an ARM? An even lower rate could be in your future—at least for a specific period of time.

“If you’re looking for a shorter-term mortgage, say a 5/1 ARM, you could save considerably on interest,” Stroud says. That’s because the introductory rate of an ARM is usually lower than the rate of a fixed-rate mortgage, Stroud explains. Add that benefit to lower rates fueled by a Fed rate cut and an ARM could be enticing if it supports your financial goals and plans.

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“If the Fed drops its rate during the adjustment period, you could see your interest rate go down and, in turn, see lower monthly payments.” 

– Emily Stroud, financial advisor and founder of Stroud Financial Management

Benefits of other variable-rate loans following a rate cut

If you have a Fed rate cut and mortgage rates on your mind and are a borrower with other types of variable-rate loans, you could be impacted following a Fed rate cut. Borrowers with variable-rate home equity lines of credit (HELOCs) and adjustable-rate Federal Housing Administration loans (FHA ARMs), for example, may end up ahead of the curve when the Fed cuts its rate, according to Lewis:

  • A HELOC is typically a “second mortgage” that provides you access to cash for goals like debt consolidation or home improvement and is a revolving line of credit, using your home as collateral. A Fed rate cut could result in lower rates for variable-rate HELOCs that track with the prime rate. If you are an existing homeowner with a HELOC, you could see your monthly payments drop following a Fed rate cut.
  • An FHA ARM is an ARM insured by the federal government. If you’re wondering about a Fed rate cut and mortgage rates, know that this type of mortgage behaves much like a conventional variable-rate loan when the Fed cuts it rate, Lewis says. Existing homeowners with an FHA ARM could see a rate drop, and prospective homebuyers could also benefit from lower rates following a Fed rate cut.

When it comes to a Fed rate cut and mortgage rates, refinancing to a lower rate could be an option for existing homeowners.

Refinancing: A silver lining for fixed rates

When it comes to a Fed rate cut and mortgage rates, refinancing to a lower rate could be an option if you have an existing fixed-rate loan. The process of refinancing replaces an existing loan with a new one that pays off your old loan’s debt. You then make payments on your new loan, so the goal is to refinance at a time when you can get better terms.

“If someone buys a home one year and a Fed rate cut results in a mortgage rate reduction, for example, it presents a real refinance opportunity for homeowners,” Lewis says. “Just a small percentage point reduction could possibly trim a few hundred bucks from your monthly payments.”

Before a refinancing decision is made based on a Fed rate cut and mortgage rates, you should consider any upfront costs and fees associated with refinancing to ensure they don’t offset any potential savings.

Managing your finances as a homeowner

You might be expecting some savings in your future now that you’re armed with information on what happens to mortgage rates when the Fed cuts rates. Whether you’re a homebuyer and financing your new home is going to cost you less with a lower interest rate, or you’re an existing homeowner with an ARM that may come with lower monthly payments, Stroud suggests to use any uncovered savings wisely.

“Invest that cash back into your property, pay down your home equity debt or borrow with it,” she says.

Understanding the connection between the Fed rate cut and mortgage rates can help you better manage your finances as a homeowner.

While news of a Fed rate cut may entice you to analyze how your mortgage will be impacted, remember there are many factors that help to determine your mortgage rate, including your credit score, home price, loan amount and down payment. The Fed’s actions are only one piece of a larger equation.

Even though the Fed’s rate decisions may dominate headlines immediately following a rate cut, your home is a long-term investment and one you’ll likely maintain for years. To best prepare for what happens to mortgage rates when the Fed cuts rates is to always manage your home finances responsibly and be sure to make choices that will lead you down the right path based on your financial goals.

*This should not be considered tax or investment advice. Please consult a financial planner or tax advisor if you have questions.

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The post What Happens to Mortgage Rates When the Fed Cuts Rates? appeared first on Discover Bank – Banking Topics Blog.

Source: discover.com