WHY BEING ORGANIZED SAVES YOU MONEY
By: Jennifer Nelson
If you’ve ever accrued a late fee after losing a bill, thrown away spoiled peaches you forgot to eat, or bought yet another pair of sunglasses because you couldn’t find yours, then you know being disorganized can cost you money.
At best, clutter in the home causes mistakes, late fees, overdue payments, and missed deadlines. At worst, a house in chaos can eat away at your finances, mar your credit, and reduce your productivity. That’s a whopping price to pay for being disorganized.
According to an Ikea “Life at Home” survey, 43% of Americans admit to being disorganized, and the average American wastes 55 minutes per day looking for stuff they’ve lost or misplaced.
“Do you think organizing is just for appearances?” asks Lisa Gessert, president of Organizing.buzz, a professional organizing service in Staten Island, N.Y. “Organizing your home is financially beneficial.” Gessert stresses to clients the need to sort, purge, assign things a home, and containerize. “This process saves people tons of money.”
Here’s why being organized saves you money, and how to get your home into shape:
Disorganization in the Home Office Costs You:
- Lost papers = time spent looking for them, money wasted on duplicates
- Misplaced bills = late fees, bad credit causes higher interest rates
- Missed tax deadlines = penalties
If any of these sound familiar, you’ll need a home office system for dealing with important papers, bills, and personal correspondence. The Ikea survey found 23% of people pay bills late because they lost them. Wall-mounted bill organizers can help you stay organized. Look for ones with two or more compartments to categorize by due date.
“Having your papers organized will save time, help you pay bills on time, and allow you to be more productive,” says Alison Kero, owner of ACK Organizing, based in New York City.
Mount shelving and create a file system for important papers, such as insurance policies and tax receipts. Look for under-utilized space, such as converting a standard closet into built-in storage with shelves and cabinets for your papers, files, and office equipment. If you need to use stackable bins, don’t stack them around equipment that needs air ventilation, such as scanners and Wi-Fi receivers, since they could overheat and malfunction — costing you money.
Disorganization in Your Closets Costs You:
- Missing clothes = money spent on duplicates
- Hidden items = wasted time since you can’t see what you own
- Accessory mess = wasted money on items you don’t wear, can’t find
“Organizing often reduces duplication of possessions,” says Lauren Williams, owner of Casual Uncluttering LLC, in Woodinville, Wash. “No more buying an item for a second, third, fourth time because someone can’t find it.”
If closets are crammed, paring down is a must. First, take everything out. Rid yourself of multiples, anything you no longer wear, and assess your shoe collection. Create piles: purge, throw out, or donate.
For what’s left, you’ll need a better closet system. You can choose a ready-made system that simply needs installation, or create your own. PVC pipe can be used to create additional hanging rods, and you may also want to add shelving to store folded clothes, hats, and bulky items. Look for wire mesh shelving, solid wood shelves, or an all-in-one closet shelving system depending on space. Large and small hooks can be wall-mounted to hold belts, accessories, and scarves.
Disorganization in the Kitchen Costs You:
- Expired food = wasted money
- Overflowing pantry = can’t see what ingredients you have and duplicate them
- Crammed cabinets = overspending on multiple dishes and gadgets
Since the kitchen is often the hub of the home, it has a tendency to clutter. No wonder the Ikea survey found 50% of the world’s kitchens have junk drawers. Categorize yours by adding small plastic or wooden drawer organizers for things like thumbtacks, rubber bands, scissors, and tape.
To avoid buying your third jar of oregano or second potato ricer, buy or build an organizational system for your pantry. Built-in lazy Susans work great. Use pull-out mini shelving to corral items like dressings, hot sauces, and vinegars. Tackle cabinets and counters by mounting behind-the-cabinet-door racks to hold items like pot lids or cutting boards.
Add pull-out drawers in your bottom cupboards to make everything easily accessible and easy to see. You’ll thank yourself when you get older, too.
Disorganization in Your Living Areas Costs You:
- Lost keys, missing wallet = late for work, lost productivity
- Not being able to fully enjoy your home = you spend money elsewhere for fun
- Blocked ventilation = utility costs rise
Your living space is where you want to get the most enjoyment out of your home. If you can’t relax and enjoy yourself there, you’ll constantly be seeking out other places to find solace and fun — and that can add up to a lot of money spent on entertainment and recreational venues.
And, meanwhile, you could be paying more than you should for the living space you’re not enjoying.
“I run into people whose homes are unorganized to the point of papers, boxes and ‘stuff’ blocking air vents that supply heat and air conditioning to their homes,” says Gessert. This costs a fortune in utility bills. Likewise, a jumble of electrical wires around TVs and home entertainment systems can be sucking energy from always being plugged in. Connect them all to smart power strips that can turn everything off with one switch.
Once you’re living with organization, you’ll start to see the benefits everywhere. No more dealing with late fees on bills, having to buy replacement earrings or bread knives when items go missing, and — perhaps best of all — no more having to leave your home in order to find relaxation and entertainment. After all, saving on bills can be a big boost to your monthly budget, but there’s no greater value than getting more enjoyment out of your home.
Yet every homeowner with a mortgage has the opportunity to earn a return equal to the interest rate on the mortgage, with no risk, simply by making extra payments. It is the best investment opportunity most homeowners have.
The only downside to using mortgage repayment as an investment is that it has no liquidity -- once you make the payment you can't take it back if you have an unexpected need for funds.
However, most homeowners with mortgages who place their savings in bank deposits or money market funds paying less than 1 percent, rather than earning 3-6 percent by paying down their mortgage, do it for reasons other than a need for liquidity. The main reason is confusion about one or another feature of loan repayment.
Confusion about loan repayment as an investment: Some borrowers have trouble viewing mortgage repayment as equivalent to buying a bond or a CD. Yet in both cases, you pay out money now and receive a stream of income in the future based on the contracted interest rate.
The only difference is that the income received from a mortgage repayment is cancellation of interest that you would have had to pay otherwise. The difference between receiving $1,000 of interest and eliminating the payment of $1,000 of interest is one of form but not of substance.
Those with a mortgage can actually earn a little more than the interest rate on their mortgage by taking advantage of the 10- to 15-day payment grace period that is found in all mortgage contracts. By adding the extra payment to the scheduled payment, the borrower will save interest for the entire month, even though he does not provide the funds until 10 or 15 days into the month.
Note: If the borrower makes a separate payment after the grace period, his loan balance may not be reduced until the following month, which would reduce his return on investment.
Confusion over deductibility: Some borrowers who itemize their tax deductions don't want to repay their mortgage because it entails loss of a deduction. But the loss is exactly the same as that on a taxable investment. For example, a borrower in the 33 percent tax bracket who repays a 3 percent mortgage earns 2 percent after tax. If instead the borrower purchased a CD paying 1 percent, the after-tax return is 0.5 percent. If the before-tax rate on the repaid mortgage is above the before-tax rate on the alternative investment, the same will be the case after taxes.
Confusion over mortgage life cycle: Some borrowers believe that they missed the boat on loan repayment because they didn't do it in the early years of their mortgage when the regular payment went largely to interest, whereas now most of it goes to principal. But the rate of return on mortgage investment is not affected by where the mortgage is in its life cycle. While the allocation of scheduled payments between principal and interest changes over the life of the mortgage, extra payments go entirely to principal, no matter what stage of its life cycle the mortgage is in.
Confusion over imminent sale or retirement: Some borrowers are immobilized by plans to sell the home, as if somehow this would prevent their obtaining the expected benefit from making extra payments. But it wouldn't -- in fact, the benefit would become glaringly evident in the smaller loan balance they have to pay off out of the sale proceeds.
A similar point applies to those planning to retire with reduced income. If and when they need a reverse mortgage in the future, they will have to pay off their existing mortgage in the process, and the lower the balance, the more they will be able to draw on the reverse mortgage.
Confusion over whether the lender will properly credit their account: Numerous versions have crossed my desk, including a concern that the lender won't credit their account until the end of the term. This is not true -- the account is credited immediately or even a few days early, as noted above.
A variant is that the lender will use the extra payments for some purpose other than reducing the loan balance. The only substance to this concern is that the lender will indeed apply extra payments to any unpaid obligations, of which the most likely is an underfunded tax/insurance escrow account. Aside from that, the only thing the lender can do with extra payments, other than credit them to the loan balance, is to steal them, which they never do.
With one exception, borrowers making extra payments need not provide special instructions as to how the payments should be applied. The exception applies when the extra payment is an exact multiple of the scheduled payment – the payment the borrower is obliged to make each month.
If the scheduled payment is $600 and the borrower sends in a check for $1,200, the lender does not know whether the borrower wants to apply the extra $600 to principal, or is paying for two months. To avoid this problem, do not make extra payments an exact multiple of the scheduled payment.
Jack Guttentag is professor of finance emeritus at the Wharton School of the University of Pennsylvania.
State home sales and prices continue rising
LOS ANGELES -- California home sales and prices both posted strong gains in July, with the sales pace showing positive year-over-year growth for the fourth straight month and the median price reaching a near-four-year high, the California Association of Realtors reported this week.
"It's hard to generalize the state of California's housing market because the markets are so diverse and are performing so differently," said CAR President LeFrancis Arnold. "REO-dominated areas such as those in the Inland Empire and Central Valley are experiencing sales constraints due to an extreme shortage of available homes. On the other hand, a robust economy in the San Francisco Bay area and a relatively larger inventory at higher price levels is helping to fuel sales and prices."
Closed escrow sales of existing, single-family detached homes reached a seasonally adjusted, annualized rate of 529,230 in July, up 2 percent from June's revised 518,680 rate, according to information collected by CAR from more than 90 local Realtor associations and MLSs statewide. July's sales pace was up 15.3 percent from July 2011's revised pace of 459,140 sales.
The statewide sales figure represents what would be the total number of homes sold during 2012 if sales maintained the July pace throughout the year and is adjusted to account for seasonal factors that typically influence home sales.
July marked the fifth consecutive month that California's median home price was up from both the previous month and year. The statewide median price of an existing, single-family detached home was $333,860 in July, up 4.2 percent from $320,540 in June and up 12.7 percent from a revised $296,160 in July 2011.
The July 2012 median price was the highest since August 2008, when the median price reached $352,730. July also marked the fourth straight month that the median price has posted above the $300,000 level.
California's housing inventory was essentially flat in July, with the Unsold Inventory Index for existing, single-family detached homes at 3.4 months in July compared with 3.5 months in June.