July 28th, 2008, by

Q: Can you remind me please how much money should be in my emergency fund? I can’t remember if it’s two or three months of expenses. And are the expenses just bills?

A: Typically I advise people to aim to save at least three months worth of living expenses. However, if you are a highly paid individual or you think it will take you a long time to find employment should you be laid off, shoot for six months to a year worth of living expenses for your emergency fund.

And by living expenses, I mean save up what it takes you to run your house for three months. That would include not just rent or your mortgage payment, but utility costs. Include your cable cost, cell phone expenses, food, entertainment, insurance—everything.

For example, if your monthly expenses run about $3,000 a month, you should aim at a minimum to save $9,000.

You should keep this money liquid. This isn’t cash you should worry about investing. You don’t want to put this money at risk. Instead, look for the highest yielding savings account you can find. For some of the best savings rates, check out bankrate.com. Also consider federally-insured Internet-only banks, which often have better savings rates because they don’t have brick and mortar costs.

And if you’re wondering why include cable and entertainment expenses in your emergency build-up fund, here’s why. It often takes people a few months before they make drastic cuts in their budget following a disruption in their income.

February 17th, 2008, by

Q: My spouse and I are retired senior citizens. We have as income a civil service pension and Social Security. My spouse served in the military 10 years. We purchased a home in 2005. It turned out to be a fixer-upper. Serious problems were camouflaged by wood paneling and other means. The most expensive is the supposedly new windows that were incorrectly installed and must be replaced. One window is so badly installed that, when it rains, water is coming in. The wall is so bad that it must be replaced, prior to installing new windows. We also discovered that windows do not lock, as they do not meet.

We trusted our real estate agent, who advised that a home inspection was not necessary. We had a home inspection after the fact, and many problems, which are major, were discovered. We purchased home via the Internet, as we lived in another state and could not afford to travel back and forth to view homes. The walk-thru was done one hour prior to closing.

As seniors, we were taken advantage of. We ignored the golden rule—that a real estate agent is not your friend.

A: When Ronald Reagan was negotiating with the Soviets, he famously said: “Trust, but verify.”

I know you’re angry, and you indeed had a very bad real estate agent, but the bottom line here is, you—the borrower and homeowner—are responsible to do your due diligence.

The golden rule that you ignored was “let the buyer beware.”

We expect professionals to act responsibly, but the truth is, some do not. So, you have to act on your own behalf. Something as important and as expensive as buying a home should be not done in a rush.

I would never, ever buy a home without an inspection. This is true even if you are willing to buy it “as is.” You should still get an inspection to determine how much the “as is” property will cost to fix up.

When people are moving from one area to another, I typically advise them to live in the area at least 6 months before buying a home if they are unfamiliar with the community. This rule would have served you well.

Having said that, if you feel you were not properly advised by your real estate agent, file a complaint. You should file it with the agency that regulates the licensing of real estate agents in your state.

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