Chapter 18 – Variable Expenses

“Beware of little expenses. A small leak will sink a great ship.” ~Benjamin Franklin

In chapter 15, we discussed the difference between fixed and variable expenses.  We went through fixed expenses such as housing, food, and clothing.  Then we went through the fixed-variable expenses which should be fixed but can vary depending on lifestyle choices.  Examples include transportation and saving AT LEAST 10% of your income.  In this chapter, I’d like to discuss a variety of other expenses that are purely variable.  You have complete control over these types of expenses, and if your financial situation starts to get strained or you want to increase your savings rate, you can reduce or eliminate these.


“Bring the whole tithe into the storehouse, that there may be food in my house.  Test me in this,” says the LORD almighty, “and see if I will not throw open the floodgates of heaven and pour out so much blessing that there will not be room enough to store it.” (Malachi 3:10)  I feel it’s important to talk about this initially because if you’re a Christian, then tithing is fixed, and it’s 10% of your income BEFORE any other expenses.  The point of this chapter is not to get into a theological debate, and we will dissect religious finances in much later chapters.  Just a quick fact to whet the appetite, the Vatican Bank has about $8 billion in assets.[1]  Religious entities are major centers of gravity in the financial genome.


Entertainment may be the easiest place to reduce or eliminate expenses if you’re struggling with finances or looking to increase your savings rate.  I would caution eliminating all your entertainment.  Like we’ve discussed in previous chapters, budgeting can be like dieting, and it can be hard.  If you don’t allow yourself some entertainment, then you may find budgeting to be too difficult. Or worse, you may regress and spend more than you were originally.  Common examples are movies, video games, music, board games, and sporting events.  We’ll explore all of these in future chapters as each one of these is a billion-dollar industry.


Some would argue that living a normal, modern life requires internet and phone service.  This may be true, but you can certainly reduce your expenses for these variable expenses as well.  For many people, internet expenses have become akin to car or home insurance: they don’t understand what they’re paying for, and often end up spending too much for services they don’t use.  Sometimes cutting internet services to the basic package can save a lot of money.

The prices we pay are for the phone themselves (and sometimes the added insurance), data, text messaging, and on the seemingly rare occasion, actual cell phone service.  The phones and plans are incredibly expensive and mobile phone usage becomes ubiquitous for every human.

Not having the right plan can be costly.  If you exceed your data limits, the overage charges are punishing.  The type of plan needed is specific to each person and each family.  The author of Creating Commas blog saved $112 a month by reducing the plan.  The author also calculated that the total savings was $33,641 using a common “25 times your annual salary” calculation.  Most people save money by not upgrading to the newest phones and/or reducing data usage by maximizing free Wi-Fi or the Wi-Fi you already have at home.

Sometimes internet, phone, and television services can be duplicative, and we pay too much money for all of them.  It seems increasingly popular to reduce or eliminate the television or cable services first and just use streaming services like Netflix or Hulu.  The author of the Poorer Than You blog switched to streaming services back in 2009—probably saving quite a bit of money this last decade.  Television/cable providers are true oligopolies, where few companies control the majority of the market share and take advantage of rapid prices increases instead of pure competition which can reduce prices.  You basically only have the choice between DISH Network, DirectTV, or a cable provider.  These companies lure you in with small introductory rates then rapidly increase the prices and/or limit services.  It’s no wonder why so many people are ditching these companies and moving to streaming services.


Daycare expenses can be costly.  For 25 years, daycare prices have outpaced inflation.[2]  While it may seem facetious, each year you wait to have kids, the more expensive they will be.  Often times, couples find themselves “working just to work.”  This means that when the second person gets a job, his or her pay is equal to the incurred expenses one has because of the job – meaning, daycare, transportation costs, clothing, and meals out with coworkers.  This shouldn’t stop people from getting a job because you can still gain work experience and compete for promotions.  Day care becomes fixed if both people of a couple are working or a single parent works, but having kids is an option so I put it as one of the variable expenses.  Once you have kids, the related expenses become fixed.  Here’s a great article on why and how the author of the Chief Mom Officer blog chose to save money on daycare.


A reader suggested vacation spending.  Some may consider vacations as part of entertainment, but I feel it deserves its own section.  Vacations are important for mental health—especially when traveling to different countries is involved.  Traveling to foreign countries has been the favorite part of my military service.  The average vacation costs $1,145 ($4,580 for a family of 4).[3]  There are too many variables to specifically write about all the possibilities of saving money when vacationing.  Before you do travel though, do a quick Google search on saving money at your specific location (i.e., “Saving money on a Las Vegas vacation”).  There are hundreds, sometimes thousands, of articles on how to save money while traveling.


A reader suggested self care and/or beauty products.  As a male personal finance blogger, you may assume I would recommend eliminating self care or beauty products first, to save more money.  Full disclosure though, I spend nearly $50 on beauty products a month.  I take self care, healthy eating, and fitness seriously.  Just like investing, small investments when you’re young can pay huge dividends when you’re older.  Taking care of your skin when your young is easier than worrying about it when you’re older.  Our spending habits in America agree with that statement as well.  24% of those surveyed spend over $100 on beauty products when they are 18-29 years old; compared to 18% for 30-59 and only 8% for those 60 years and older.[4]  If you want to increase your savings rate, this is a good place to reduce expenses, but I don’t recommend eliminating it.


This list is not inclusive, and I’d like to keep it updated with suggestions from readers!  What expenses do you consider variable?  Tell me about your variable expenses, and what decisions you’ve made to cut back on them by contacting me through this blog by leaving comments, or through my Facebook or Twitter accounts.  If you’d like to be featured, be sure to leave your social media information!





Chapter 17 – Why Debt Is So Bad

Only when borrowers have access to efficient credit networks can they escape from the clutches of loan sharks, and only when savers can deposit their money in reliable banks can it be channeled from the idle rich to the industrious poor.”

~Niall Ferguson, The Ascent of Money

In the last several chapters, we discussed housing, food, clothing, and transportation expenses, as well as saving AT LEAST 10% of your income.  Based off the standard advice discussed in those chapters, you may/should have already spent 60 – 70% of your income on these expenses.  If you have debt (excluding your mortgage), you’ll have to add this as an expense as well.  So why is debt so bad?  Debt is so bad because it exposes you to many risks and can be like a noose around your neck.  As your debt increases, interest rates rise, your income reduces, or you experience an emergency, the minimum payments can increase and it will tighten the noose and may force you to reduce other expenses until possible bankruptcy.  Before we go too far, though, let’s look at what debt really is and how it started.


Debt truly started when banks started using fractional reserve banking concepts.  This is an important concept to understand because it impacts interest rates.  Fractional reserve banking is where a bank has (for example) deposits and uses those as a “reserve” to issue loans in excess of its deposits.  People don’t often need immediate access to their money, so banks can take on additional loans.  These banks of deposit started as early as the 1200s with Alexander the Great in Damascus and Barcelona in the 1400s.  The true start of banking as we know it today started in Venice in the late 1300s.[1]

The banks loan you this money so you can buy things you may not have cash for.  The two types of debt are installment loans and variable-rate loans.  Installment loans are normally your mortgages, student loans, and car loans.  Variable-rate loans are normally your credit cards, adjustable-rate mortgages, and student loans.  Installment loans have a fixed rate and the interest is “front-loaded” into the loan, so the bank gets its money sooner.  This process is called amortization.  The amount of interest you pay upfront can be shocking to first-time home buyers.  I’m well read on the banking process and personal finances, and the mortgage process still shocks me.  Before buying your first home, Google an amortization calculator and see how little your mortgage actually goes to paying down principal for the first 5-10 years.

Variable-rate loans are assessed a monthly interest rate based off the current interest rates, and a minimum payment is required.  Your authorized credit is based off your income and credit score.  Depending on the type of loan, your interest may be front loaded or evenly split through the life of the loan.

Valueless instruments are given to another person for an exchange of goods that are valueless themselves.  Instead of exchanging goods like food for leather, a patron can give a seller something that is inherently valueless that represents value.  There is a long history of these exchanges going back to the prehistoric days where Mesopotamians used clay tablets to conduct trade.  Then coins were produced in the Roman times. Credit coins and charge plats were used in the 1800s and then finally credit cards in the 1950s.[2]

This is a very quick overview on the origins of banking and issuing debt.  We’ll dedicate several chapters on the banking industry once we’re done discussing most of the major expenses people typically have.  The key takeaway is, in the current banking system, we use fractional banking which allows a bank to loan out money above and beyond what it has in deposit reserves.  To keep deposits, banks pay interest to keep your money in the bank so they can loan out more money.  There is typically a large spread between the low amount banks pay in interest for deposits and the high amount banks charge in interest for loans.  This is called the net interest rate spread—the spread is never in your favor and is always in the bank’s favor.


Like mentioned above, being in debt exposes you to many risks.  The most common risk, and the one I’m most concerned with in the immediate future, is interest rate risk.  This is where rising interest rates limit your access to housing, cars, and possibly student loans.  This is also a concern for the people spending 100% of their paycheck at current interest rates—barely making it to the next paycheck and only making minimum payments.  If the interest rates rise, the minimum payments will increase as well.

Higher interest rates can make the cost of homes and cars go up drastically.  The U.S.’ long-term interest rate hit an all-time high in 1981 and then went down to nearly zero from 2008-2015.  The U.S. was even remotely considering a Negative Interest Rate Policy (NIRP) where we’re charged to keep our money in the bank.[3]  This is because our entire U.S. economy is dependent on people getting loans and immediately consuming things.  For us to get out of a recession our only hope was excessive consumerism and debt.  In 2016, interest rates started to increase.  Banks immediately changed their loans and interest rates to continuously keep the net interest rate spread in their favor.  So, the first reason why debt is so bad is because you’re exposed to interest rate risk, mainly with variable-rate loans.  Depending on the interest-rate environment, fixed loans can protect you from the risk of rising interest rates.  In the picture below, we see how rising interest rates increase your payments and can reduce the money you have available for other expenses and savings.

Interest Rate Risk

Another reason why debt is so bad is because you become dependent to the “system” of debt.  Once we get into debt, we must work and/or earn an income.  It’s the same philosophy behind taxes.  Once you venture out on your own, you must work and/or earn an income and pay taxes.  To become financially independent, you must make the money you save and earn make money itself from retirement plans, interest, dividends, and side job.  So we get a job and our income becomes our means.  We then voluntarily decide how we live from there.

Some live below our means, where our expenses are lower than our income and we save the discretionary income.  We become financially independent earlier than the “system” recommends.  Some live within in our means where our expenses (to include AT LEAST 10% savings) is exactly our income.  We become part of the system and retire when it allows us to.  Unfortunately, many people live above their means and rely heavily on loans and credit cards.  For example, in the housing chapter we discussed that all housing expenses, to include your mortgage or rent, should not exceed 30% of your income.  Below your means is well below 30%, within your means is 30%, and above your means is above 30%.  If you’re living within or above your means and something happens to your job, then you’re at risk of financial ruin.

Your job is always at risk no matter what industry you’re in and being in debt exposes you to this risk greatly.  To reduce costs, many companies outsource or automate operations.  Industries are always at risk to new technologies that can make entire industries disappear.  The economy can change and we can experience high unemployment.  There are hundreds of risks to any job in any industry.  If you live exactly within your means or above your means, then you’ll continually need to maintain those means.

And this is exactly why debt is so bad.  If you use debt incorrectly, like many people do, you basically become a battery to the system and can’t unplug.  Many of us accept this fate—but what if you hate your current job or what if an emergency in your life happens?  To clarify, mortgages and student loans can be considered an investment.  Wealthy people use debt as a tool, and when used wisely, can magnify your returns.  Mortgages within your means, or rental properties, can give us equity, and passive income, as time goes on and higher education can yield higher paychecks, better benefits, and more stable employment.  Home buying and choosing which degree (and its resulting debt) are lifestyle choices we can choose to make.

People who become debt free often claim that a weight has been lifted off their shoulders.  People who are in debt often claim to feel a heavy burden or, as I mentioned above, like a noose is around their necks which is slowly tightening.  The entire system benefits creditors, and fractional-reserve banking can create massive corruption and disruptions.  Being debt free allows you to unplug from the system (except for taxes).  As we discuss other expenses, know that increased debt payments, whether by higher interest rates or disruption to your income, can eat into your voluntary expenses such as entertainment, travel, and short- and long-term goals.

Financial Genome Project – Chapter 17




Chapter 16 – Transportation Expenses

“Cars are lousy investments; they never rise in value. ~Suze Orman

In the last chapter, we discussed the difference between fixed and variable costs and how budgets can help you track those. We’ll use the next couple of chapters to discuss various expenses. The first variable expenses you have almost total control over are your transportation expenses. Your first opportunity to influence control over transportation is the necessity. You have control over how much and what type of vehicle you need, or if you need a vehicle at all. The farther and more frequent you drive, the more reliable of a car you’ll need, and vice versa. Some people don’t use a car at all in locations where public transportation is readily available.

How much you should spend on your car? The vanilla, certified financial planning advice recommends the 20/4/10 rule.[1] This states that you should make a down payment of at least 20%, finance a car for no more than four years, and not let your total transportation expenses exceed 10% of your gross income. Another popular vanilla advice is the total value of your car should not exceed half your yearly income.[2] So if you make $50K a year, you should look for a $25K car or less. The most I’ve ever spent is 17% and my most recent car purchase was 8% of my gross annual income. It’s important to live within this framework or below, because making the wrong transportation decisions, like the majority of America does, can literally cost you millions. Check out this article in the blog, Modern Personal Finance, where the author shows you how continuously financing new cars can cost you millions.

The appetite for buying cars above our means is strong, and car dealerships and banks are more than happy to loan us the money to satisfy our appetites. The default rate is lower on auto loans than any other type of loans. As such, banks will even allow you to roll over loans above the value of a car by establishing negative equity. This is where you owe more than the car’s worth, and the dealer tacks more on top of the new car loan. For example, when he was 26, the author of the Chain of Wealth blog, bought a $30K car tacked with the $20K negative equity making him $50K in debt for a $30K car.[3] This seems like a high amount of negative equity to me, but the total authorized amount of negative equity for 2018 is $5,100.[4] States have various laws controlling how much can be rolled over each time you trade in a vehicle. This rolling over negative equity is a major contributor to the all-time record high for auto loan lending. Total American debt keeps reaching all-time, records highs at $1.22 TRILLION, at the end of the fourth quarter of 2017.[5]


A big decision for many of us is to decide between buying a car outright or financing a car. My focus is not to help you make that decision, but just provide useful information, because there are too many variables. Plus, like we’ve discussed in many chapters, there is a behavioral aspect to financial decisions. Some people really like cars and keep them as their life’s major focus. For a good article about buying a used car, check out this article on the Hungry Being blog. Additionally, here’s 5 tips on how to buy a car from a former salesman on the Get Rich Quick’ish blog. Most people recommend the following order: 1) Purchase a reasonable used car in cash. 2) Finance a reasonable used car using the 20/4/10 rule. 3) Purchase a nice car outright, not to exceed 50% of your gross income. 4) Finance a nice car using the 20/4/10 rule.

Buying a car outright isn’t always the best return on investment. As we’ve discussed many times, all financial decisions come with an opportunity cost. Check out this article on why the author of the Win at Life Finance blog loves his car payment.  In the current low-interest rate environment, he’s able to get a higher rate of return on the money he invests than he would’ve if he bought his cars outright. As long as the return on investment is greater than the interest on the loan and the car’s depreciation, then investing the money can be a better investment. Cars depreciate quickly, and it doesn’t make sense to spend money on maintenance costs while also paying down a car loan. Banks now offer a 7-year (84-month) loan. According to, the downside of these loans are a greater cost over time (more interest paid over a longer time), depreciation (9% percent immediately, 20% one-year later, 63% by 5 years), and paying for repair issues while still paying for the loan.[6] Like I said, there are too many variables for me to help you make a personal decision.


There are three ways people typically buy or finance a car. The most common method is to go to an auto dealership or its internet site. Auto dealerships are typically owned by franchisees. According to the National Automobile Dealers Association (NADA), the average franchise cost is $11.3 MILLION.[7] Most dealerships offer new cars directly from the manufacturer and used cars of all types. They buy the used cars when you trade them in or at special auctions. In this case, the dealership makes profit, and the manufacturer makes money.

The next most common way is to sell it yourself, known as a private purchase or peer-to-peer. Under normal conditions, sellers can get more money by privately selling a car versus a trade in at an auto dealership. You can see the price differences by going to Kelley Blue Book ( and compare the Private Party Value to the Trade-In Value. Selling cars on websites is also becoming popular. is the most commonly used website to sell cars privately. In this case, because of the rapid depreciation of cars, the seller doesn’t necessarily make a profit, but he or she receives money in exchange for the car.

These used to be the only two ways to purchase cars until Tesla Motors began selling luxury electric cars directly to consumers. This caused major controversy at the federal and state level, with many states banning the practice altogether. In 2015, the Federal Trade Commission supported Tesla, a new startup company called Elio Motors, and the direct sales model; however, also recommended regulating it closely. The FTC concluded, “Absent some legitimate public purpose, consumers would be better served if the choice of distribution method were left to motor vehicle manufacturers and the consumers to whom they sell their products.”[8] In this case, the manufacturer profits from the sale.

We’ll explore the auto industry in more detail in future chapters. The auto industry faced a crisis in 2008 at the same time as the housing market. Exactly like the banking industry, the auto industry consolidated as big companies bought smaller or struggling companies. We’ll explore the auto industry family in later chapters.

Automotive Family Tree

To implement the 20/4/10 rule, you need to track your expenses to ensure you’re not spending more than 10% of your annual gross income on transportation expenses. Some people confuse not having a car payment with saving money on transportation expenses, while they spend more than 10% of their gross income on repair costs. Here’s the current financial genome.

Chapter 16 – Financial Genome Project









Chapter 15 – Do You Need A Budget?

“Look everywhere you can to cut a little bit from your expenses. It will all add up to a meaningful sum. ~Suze Orman

To this point, we’ve discussed what I feel are the fixed costs: housing, food, and clothing. In the last chapter, we discussed saving at LEAST 10% of your paycheck. I consider the remaining expenses variable costs. You have control over these costs. You definitely need to track your remaining expenses, but do you need a budget? Let’s look at the difference between fixed and variable costs and then decide, if you personally, need a budget.


In terms of expenses, fixed costs are expenses that we must pay and have little influence over. We have influence of what kind of housing we choose, but shelter is a necessary fixed expense including your mortgage or rent, insurance, and the utilities that come with it. In the housing chapter, we discussed that all these costs should be 35% or less of your income. You also have a lot of control over your food and clothing expenses; however, you MUST eat and, at least in the American culture, you MUST wear clothes. Although I call those expenses fixed, people can find the most savings in these areas. I would also like to change our culture to believe that saving at least 10% of your income is a must too. The 10% can be considered fixed, but you can and should save more.


In my opinion, all your other expenses in life are variable costs. You can choose to have these expenses and choose what percentage of your income they will be. The most common are transportation, gas, entertainment, internet, and TV service. I’m a firm believer in tracking all your expenses. Knowing where your money is going at all times is the key to financial success. The closer you track your expenses, the more control you’ll experience. In this blogpost from the Simplified Motherhood blog, the author gives us 58 of the most common budgeting categories that can help you better track your expenses. The further you breakdown your expenses, the deeper you’ll have control. But the real question here is, do you need a budget?


For most people, I highly recommend a budget. The more detailed the budget, the better. You simply track all your expenses for 30 days and then create a budget. We discussed all the apps and methods for tracking your expenses in this chapter. Once you’ve tracked your expenses, create your budget. This may involve spending less on some expenses, so you can spend more on others. After a couple of months, revisit your budget. After nearly two decades of helping people with their personal finances, I’ve found that some people do not do well with budgets. Building a budget is as simple as listing your income to the left, and then list out your expenses to the right. You can see how much money is allocated to each expense and make adjustments as needed.

For some, budgets become stressful and feel like dieting. To lose weight, many people seek the newest diets, suffer for a couple of weeks, and then go back to their old ways. This creates a negative Pavlovian response to dieting and makes it increasingly difficult to attempt dieting in the future. I have found that people respond the same to budgeting. If you want to properly control your finances without a budget, you have to keep good track of your expenses. On her blog, I’m Poorer Than You, the author states simply, “I just track and plan.” She just tracks what she spends, plans out future expenses, and then knows what’s normal and what’s not normal. I’d argue that this is still a budget, she just has enough expenses to track it all in her head. Same with the author of Reaching for FI, who admits to not having a budget but “meticulously” tracks spending via an app called Personal Capital.

Some people are also worried about apps and software having access to all their personal finance data. Apps and software that track your expenses are considered aggregators. They aggregate all the accounts you give them access to and then they track your expenses, investments, and savings for you. Capital One and Chase both warn that they aren’t liable if your information is hacked while using a third-party software.[1] That being said, many of these apps are secured using the same methods as the banks that warn you about using them. The risk may zero sum, while the risk for some people of having not having a budget may be great.

Like the blog The Simple Dollar writes, “When you don’t have a budget, getting into debt is a piece of cake.” This is because we lose track of small expenses that add up quickly. One I’ve noticed in the military is snack bar expenses. A fifty-cent soda for lunch and a dollar candy bar in the afternoon. Then the next day, something for breakfast, lunch, and the afternoon. At the end of the month you’ve spent $30-$45. Increasing interest rates on credit cards is another thing people lose track of.

My emergency savings account bank is generous and lets me know when my savings account interest rates have been increased. They send an e-mail like this.

Financial Genome Project

Unfortunately for credit card holders, you don’t get the same message when your credit card interest rates rise. As the Federal Reserve increases interest rates, so do credit cards. Credit card interest rates rise quicker than savings account interest rates. Three years ago, the national average for credit card interest rates were 14.89%, a year ago they were 15.44%, and now they’re at 16.41%.[2] If you’re not tracking them closely, your minimum payments can keep increasing and you could be going further in debt. Maintaining a budget can help you keep track of all the moving pieces. The only problem I have with budgets is how people interpret fixed and variable costs.

I once helped a person that had a tight budget and put actual cash into individual envelopes. She would put $20 in her entertainment envelope and $20 in her dining out envelope every two weeks, among all her other expenses. The entertainment and dining out expenses became fixed costs for her. If at the end of the week she didn’t spend $20 on entertainment, she would go somewhere and blow it on something not value added. She could’ve saved that money or used it to pay down debt. Her budget busted when she had some car problems that were greater than her emergency savings account. She came to me when she was struggling week to week, barely making it to the next paycheck. I was happy to see a budget, but surprised that she “couldn’t find savings anywhere in her budget.” She felt that since she had a budget, those expenses were all fixed and couldn’t be reduced.

So, do you need a budget? It’s a personal choice. For most people, I highly recommend a budget. You can let the free apps I discussed in the tracking expenses chapter create and maintain your budget or develop your own. There are many free budgeting tools on the internet. If you choose not to create an actual budget, then make sure you’re keeping a keen eye on all your expenses. We won’t go into each expense here, but I plan to give the rest of the expenses their own chapters. For example, I’d like to explore transportation in its own chapter.



Chapter 14 – Rewards and Referrals

The illusion of choice and our own feelings of complicity hide the fact that debt is embodied domination, that the purpose of consumer credit is to keep you in debt perpetuity.” ~Brett Williams[1]

In the previous chapters, we discussed tracking your expenses and making sure you save at least 10% of your income.  Except for your mortgage or rent payment, almost all other expenses can work for you if you take advantage of rewards and referrals.  In my opinion, this is one of the most overlooked aspect of finances for people.  Many companies offer reward and referral programs that many of us don’t take advantage of.  In the financial counseling world, I think we’ve gone too far with trying to convince people not to use credit cards that we’re missing out on millions of dollars’ worth of rewards.

Before we get into rewards and referrals, it’s important to first understand the study of behavioral economics.  This is the study of our psychological behavior and how it impacts our decision making.[2]  In an ideal world, all participants in the financial genome would make rational, mathematically-advantageous decisions; however, we know we don’t.  Behavioral economics studies why we make those irrational decisions.  When it comes to rewards and referrals, lower- and middle-net worth people don’t participate as greatly as higher-net worth people.  High net worth people use rewards and referrals to mutually benefit themselves and others.  For some reason, lower- and middle-net worth people do not and this is irrational behavior to me.  Rewards and referrals are an essential part of the financial genome and should be used more.


Companies offer rewards to entice people to use their credit cards.  Incorrectly using credit cards and building debt can lead to financial ruin.  America has a long history of not being able to use debt wisely.  At the end of 2017, credit card debt, as well as all other types of debt, hit record all-time highs at $5.1 BILLION—well exceeding 2007/2008 levels.[3]  This has led us to shy away from recommending people use credit cards.  If used properly, though, credit cards can provide rewards to our daily spending.

If you use your credit card for daily spending and pay it off in full every month, then you can maximize credit card rewards and not incur any debt.  This is important because one month of finance charges can negate several months’ worth of rewards.  I use USAA’s Unlimited 2.5% Cash Back credit card.  Credit card rewards can be confusing and there are many stipulations to cashing in on the rewards.  This specific USAA card is very simple and its reward interface is easy to use.  I’m a big fan of cash back rewards so I can use them to reduce my bill at the end of the month.  If I use my cash back credit card on as many purchases as possible, then I’m basically getting everything I buy for a 2.5% discount.  Other reward cards give extra rewards for dining-out purchases, gas, or travel.  For example, a card may offer 5% on dining out, 3% on gas, and 1% on all other purchases.

A popular type of credit card reward is airline miles.  A well-known military blogger posted an 8-part series on her adventure with credit card churning on his Military Dollar blog.  It’s important to read her cautions about executing this strategy and the impact to your credit score.  In her series, she opens up different credit cards, meets initial purchase requirements, and scores huge initial sign up bonuses.  She’s able to amass a sizeable amount of airline miles from normal, routine spending.  It’s an impressive way to take advantage of credit card reward programs.

Another blogger, Josh Overmyer, carefully selects which credit cards he uses to maximize his rewards.  You can read his article here.  He saves 7.5% to 15% by using different cards for different purposes.  This is exactly the narrative that I’d like for us to change.  For some people, credit cards are bad and can bring financial ruin.  But for those who understand how rewards work, credit cards become tools to earn money on money we would’ve spent anyway.

They key to successfully taking care of credit card rewards is to understand the system and ensure you pay off your credit card each month.  A minor mistake can cost you months of reward points.  Dave Ramsey warns people about the dangers of credit card rewards.  The basis of his argument relies on cardholders not understanding the details of their card’s rewards.  Read more at this link:


Referral programs are used to entice new customers to open accounts or start new services.  Buying my first house was my first exposure to how high-net worth individuals use referrals.  Nearly every step of the home buying process involved someone referring me to another person.  This was mutually beneficial to both parties and cost me nothing as the purchaser of the house.  This is similar to how most referral programs work.

Before opening any type of service or financial account, consider sending out a message on your social media or talk to your neighbors and ask for referral ideas.  Many military members move frequently and due to service availability are forced to open new accounts for services.  Before starting a new television service with DirectTV, a local company, or DISH Network, consider which company you’d like to go with and ask for a referral link.  I have DISH Network and if someone uses this referral code (VCD0018969651), we’d both get 100 points which is basically $50.

Financial companies are known to offer referral bonuses for opening new accounts.  I’ve posted my referral links all over the internet as much as possible.  I’ve had readers use my links and we both benefited from it.  Here are examples of referral links for services I use.

  • Capital One 360’s savings account offers $20 to me and someone who opens a savings account with $250 or more using this link.  This is an instant 8% return on your money.
  • Lending Club is a peer-to-peer lending website that lets investors loan directly to individuals.  There safest portfolios earn close to 7% while their more risky portfolios can earn over 10%.  By using this link and investing $10K or more, we both get $150.
  • Even the new cryptocurrency brokerages offer referrals bonuses.  By using this link, Coinbase gives both parties $10 worth of Bitcoin.
  • Some companies like Betterment, the algorithmic index investment system, waive fees or commissions as referral bonuses.  By using this link, Betterment waives the monthly management fee.

These are just a few of the examples from my personal accounts.  There are many other types of rewards and referrals.  At the time of this writing, I’m unable to figure how much is lost with people not taking advantage of reward and referral programs.  During my search though, I found this great site that lists many referral and new account bonuses,  We must re-engineer our minds to consider rewards and referrals before opening new accounts.  These rewards and referrals can be considered extra income or a reduction in expenses depending on the type of reward you get.  Here’s how the rewards and referrals impact the financial genome.

Rewards and Referrals




Chapter 13 – Personal Savings Rate

It’s now how much money you make, but how much money you keep, how hard it works for you, and how many generations you keep it for.”  ~Robert Kiyosaki, author of Rich Dad, Poor Dad

In the last chapter, we discussed the best budget tools to help you track your expenses.  If you’ve been using these tools, hopefully you’re only spending 40-50% of your income on living expenses.  Spending more than 50% means you’re living above your means, while spending less than 40% on living expenses is living below your means.  Either way, the next step is to identify how much disposable income you have to save.  Disposable income is how much you have left after all your expenses and helps determine your personal savings rate.

Some certified financial planners would’ve recommended I put this chapter in the beginning, but I believe it’s important to have your living expenses covered first, then discuss savings.  Everything else after basic living expenses can be reduced or eliminated to make sure you save at least 10% of your paycheck.

Have you heard this before?  Save at least 10% of your paycheck.  We’ve all almost heard this before.  But if it’s so widespread, then is everyone doing it?  Unfortunately, the answer is no.  In December 2017, the Household Savings Rate was only at 2.4%.  The U.S. has hit a high of 17% in 1975 and a low of 1.9% in 2005.[1]

U.S. Savings Rate

Personally, I think 2.4% is high since most of the people I know are not only not saving money, but they’re also accumulating debt.  At the end of 2017, U.S. consumer debt of all types hit record highs which includes credit card, student, auto, and home loans.[2]  How about you?  Are you saving at least 10% of your income, or are you incurring more debt?  Some people may be doing both.  What is your personal savings rate?

Even though, as a nation, we struggle to meet the 10% savings rate, many middle-class individuals actually do find a way to save 10% or more.  If you’re struggling to save 10% of your income then you may want to consider using David Bach’s tip from his famous book, The Automatic Millionaire..[3]  He recommends setting up automatic withdrawals to your 401(k), Thrift Savings Plan, or IRA to force you to save.

But is 10% of your income enough?  Some certified financial planners say no—10% is not enough.[4]  My son is 17, and has his first job. I’m teaching him to put 20% or more in savings every paycheck.  I actually started this practice when both my kids were young and earning allowance.  I forced them to save a part of their allowance.  The original 10% savings rule came from an assumption that you’d earn inflation-adjusted pay increases throughout your career.  As the work force and income habits change, this is not happening.  Also, the cost of nearly every commodity is increasing faster than most incomes.  When I’m asked if 10% is enough, I give the typical financial answer, “it depends.”

Your personal savings rate should depend on your overarching retirement and life goals.  Saving for retirement without developing retirement goals is like throwing a dart and then drawing the bullseye around it.  To illustrate this, the average 401(k) balance shows that only people currently 40-49 seems to be taking retirement seriously.  The average 401(k) balance for people 60-69 is less than those that are 50-59 as of the second quarter of 2017.[5]  When do you want to retire?  Try using this site to help you plan on when you can retire.  You simply put in your details and it will tell if your current savings rate is sufficient.

Average 401(k) Balance by Age

This aimless path towards saving for retirement seems to be what many people are doing.  Many people are saving aimlessly and hoping they have enough for retirement, or even scarier, hoping that Social Security will provide a sufficient retirement.  People suffering from depression often express that they feel like they are living life “aimlessly.”  To help with this, psychologists often recommend people write their own obituary.[6]  What do you want written in your obituary when you pass away?  These ideas become your goals in life.  Then you simply work backwards and complete the necessary steps to achieve the obituary you wrote.  You can do this exercise to develop your retirement goals.  What would you like your retirement to look like?  Work backwards from there, and it will help you determine your savings rate.

As the Financially Independent Retired Early (FIRE) community grows, many people realize they must have an aggressive personal savings rate—sometimes as high as 50%.  With an aggressive savings rate and keeping expenses to a minimum, they are able to retire early.  What are your retirement goals?  How much do you need to start saving after your living expenses are covered?  For the financial genome, we’ll use 10% as our benchmark, but we need to understand that our retirement goals should determine our savings rate.

Financial Genome Project Chapter 13







Chapter 12 – Best Budget Tools to Help Track Expenses

A budget is telling your money where to go instead of wondering where it went.”  ~Dave Ramsey[1]

Up to this point, we’ve discussed what are arguably the most basic of necessities.  If you’re living within your means, you should be spending 50% or less on basic necessities.  As discussed in previous chapters, you should spend no more than 35% on Housing Expenses, 5-15% on Food Expenses, and 5% on Clothing Expenses.  Many people spend their money without knowing where it goes.  It is imperative that you track your expenses.  I’ve helped people over the last two decades with their personal finances and over half find ways to help themselves simply by tracking their expenses.  I’ve compiled a list of the best budget tools to help track expenses.  Before reading future chapters I highly recommend you start tracking your expenses now using these budget tools.

Best Budget Tools to Help Track Your Expenses

Create your own.  Many people create their own budget tools to help track their expenses.  I created my own using Microsoft Excel.  The main reasons why people choose to create their own is 1) to have maximum flexibility and 2) for online security purposes.  Many apps have great categories for tracking your expenses, but may not have all that you’d like.  For example, when we discussed Food Expenses, I mentioned that in 2016 we spent more in dining out expenses than groceries.  Most apps let you differentiate dining out and groceries, but maybe you also to track what kind of dining out you’re doing.  Maybe you want to track fast food, lunch, and dinners to see where you could possibly cut.  People also create their own budgeting tool because they’re concerned with a mobile phone app having access to all their financial accounts.  If you’re making your own in Excel then you’re most likely having to manually input all the data yourself.  The benefit of an app is having all your accounts automatically linked, categorized, and reported without manually having to do it yourself.

Mint Budgeting App.  The most popular (measured by downloads) budget tool people use to help track expenses is the Mint budgeting app.[2]  The main bulk of the apps’ services are free; however, they have premium pricing as well.  The premium package offers enhanced services like advice and TurboTax integration.  I’ve personally heard nothing but good things about Mint.  The only negative feedback I’ve heard is that it requires a little bit of financial knowledge and some people with no financial knowledge have a hard time navigating around.  Again, I’ve only heard this from very few people.

You Need A Budget (YNAB) App.  The second most popular budget tool people use to help track expenses is the YNAB app.  It has a monthly fee, and like Mint, those fees help provide premium services.  If you’re struggling with your budget, and you don’t want to make your own tracker, then paying a small monthly fee could save you quite a bit of money.  The national Overdraft Fee is $35.[3]  YNAB only costs $6.99 a month.  If you’re experiencing overdraft fees, then the small fee could save you 80% a month from escaping those overdraft fees.  If you’re interested in YNAB, please use this referral link to benefit you and a contributor to this website.

Dave Ramsey’s EveryDollar app.  This may not be one of the most downloaded apps, but Dave Ramsey is probably one of the most ubiquitous financial planners in the US.  He’s created a whole empire helping people with their finances and his EveryDollar app is a free part of his toolbox, while also providing a premium service as well.  I don’t necessarily 100% agree with Dave Ramsey, but his advice probably helps most low- to middle-income people.

There are many more apps that can help you track your expenses.  Up until now, our spending chapters focused mainly on “fixed” basic necessities.  You need shelter, food, and clothes.  Your goal should be try to minimize these expenses.  Most other expenses are variable, and there is a growing movement to disconnect from many of these other expenses like TV service, internet, cell phones, and cars.  An even more important reason to track your expenses is to know how much discretionary money you have to save from each paycheck.  Once you have shelter, food, and clothes, saving money should be your next “expense.”




Chapter 11 – Clothing Expenses

Chapter 11 – Clothing Expenses

The Master said, ‘A true gentleman is one who has set his heart upon the Way.  A fellow who is ashamed merely of shabby clothing or modest meals is not even worth conversing with.”  ~Confucius [Analects 4.9][1]

Just like the previous chapter, please make sure you’re well aware of how much you’re spending on clothing expenses.  If you don’t know, you should start a 30-day Spend Plan challenge, so you can see how much you’re spending on clothing expenses in a typical month.

Most vanilla certified financial planning budgets recommend spending no more than 5% of your monthly budget on clothing.[2]  I’d caution considering clothing a recurring monthly expense requiring 5% of your monthly paycheck.  Clothing is essential and requires replacement, so some months may require more than 5% and some less.  In 2016, the Bureau of Labor and Statistics shows that we spent about 3.4% of our annual income on apparel.[3]  Keeping track of your spending using apps will help you stay at or below 5% for clothing expenses.

Clothing is a necessary expense and a controllable luxury.  Keeping your clothing expenses at or below 5% should allow you to live within your means.  However, you can quickly exceed your means by chasing brand names.  The cost of clothing is rarely dependent on the cost of materials.  The cost is often associated with the brand name and the demand.  One pair of Air Jordan shoes sold for $104K.[4]  Though there’s no available data, after nearly two decades of helping people with their finances, I’ve noticed that reducing clothing expenses is one of the best way to save money—second only to reducing dining out expenses.

I believe one of the reasons Americans are spending less than 5% on clothing expenses is due to the changing ways that we shop.  People are buying more and more off the internet, chasing deep discounts to the prices of stores.  Amazon (AMZN) may become the biggest apparel retailer in 2017 with sales climbing 30% to $28B.[5]  Shopping usually required going to department store at a mall and paying the store price, but Amazon and Ebay have changed that paradigm.  Since 2002, 25% of malls have declined.[6]   This may not be as gloomy for stores as it may sound.  Many stores populated too fast and are just correcting based off the demand.  For example, in 2017, 60% of Macy’s stores planned to close are within 10 miles of another Macy’s.[7]

Fashion is fickle and consumer habits change frequently.  In 2017, H&M saw its first quarterly loss due to changing consumer spending habits—specifically, independent entrepreneurs selling clothing lines on Instagram and Pinterest.[8]  Celebrities, athletes, body builders, and models create their own clothing lines and are successfully putting pressure on major companies.  When you spend a dollar in the Financial Genome, it multiplies as it travels up from you, to a vendor, to shareholders, then gets invested, etc.  In economics, we measure this as the economic multiplier.[9]  Spending money through small businesses has a greater multiplier than when shopping with major corporations.

Choosing to purchase brand names and clothing expenses are personal choices but keeping expenses below 5% is good advice.  It will be interesting to watch the future of clothing and see the changing environment around the industry.  Unlike the food industry, which seems to be consolidating, the clothing industry seems to be becoming more independent.  Using the internet to find discounts on clothing will save you a lot of money.  Additionally, shopping at second-hand stores like Goodwill, Ross, or local second-hand stores can save you money while giving you access to brand name clothing.

Clothing Expenses
Added 5% for Clothing Expenses










Chapter 10 – Food Expenses

The latte factor is the unconscious spending on the little everyday things that do not add any value to our lives.” ~David Bach

* Personal Finance Tip: Reducing the amount we spend on snacks and dining out are usually the first places Certified Financial Planners will help you cut food expenses to save more money.

Before reading this chapter, please make sure you’re well aware of how much you’re spending on food costs. If you don’t know, you should start a 30-day Spend Plan challenge mentioned here ( so you can see how much you’re spending on food in a typical month. Most Certified Financial Planners (CFP) or professional budgeteers recommend spending only 5 – 15% on food expenses. Food includes groceries, dining out, and even the $0.50 at the snack bar.[1] 5% is on the fiscally-conservative side, while 15% is at the top range of sound financial planning. People typically spend more than 15% on food based off my own experience with helping people with their personal finances. Unfortunately, 15% seems to be closer to the average instead of the upper bound.[2] Food costs, specifically dining out expenses, are a prime target for cutting spending.

Financial Genome Project Food Expenses

While doing a 30-day spend challenge or while reviewing your expenses, it’s important to separate out your food expenses as much as possible. For example, you should separate groceries, dining out, and random snacks. This helps you really focus on the areas you could possibly cut to save more money. Here are some tips to reduce food costs:

  • Snacks – This is probably the quickest kill to save money on food expenses. Impulse spending on random snacks can add up quickly. David Back, the author of The Automatic Millionaire, famously coined the phrase, The Latte Factor ™. His website allows you to see the cost of an expense at a specific interest rate. For example, a $5 weekly Latte at a 3% interest rate would cost you $20K in 40 years. This may not seem like a lot, but many people buy more than $5 worth of random snacks DAILY. $5 a day at a 3% interest rate is $142K in 40 years. Spend time playing with the calculator based off your current spending here:
  • Dining Out – This is another place where most people can find easy ways to cut food expenses. For the first time, from 2015 to 2016, Americans spent more at restaurants and take out ($54B) than groceries ($52B).[3] This is concerning because there is up to a 300% markup on food you eat at a restaurant. An increase in dining out makes sense as we become busier and have less time to cook our own meals. In my own household, I started preparing food on the weekends to save time and prevent me from getting fast food. It seems counterintuitive, but income levels don’t impact whether we dine out. The poorest, or bottom quintile, dine out approximately the same amount as all other quintiles. The bottom quintile spends about 16.6% at restaurants compared to the 17.8% for the top quintile—and all other quintiles are in between.[4]
  • Groceries – For my household, choosing to eat healthier actually made groceries more expensive. A frozen burrito cost me $0.33, a small frozen pizza cost me approximately $1, and a packaged meal only cost me $3. The prices haven’t really changed. Once I switched to a serving of chicken and vegetables, the price-per-meal increased to $5 a meal—still less than a fast-food meal. If cutting out grocery expenses is necessary for you, I don’t recommend choosing an unhealthy lifestyle. You can focus on the “unit price” and make sure you’re buying the most affordable product. Also, there are thousands of articles and websites about eating healthy on a budget. Using coupons, taking advantage of sales, and buying bulk are ways to lower the unit prices of your groceries.

The Bureau of Labor Statistics (BLS) does a good job of tracking consumer expenditures. You can read a detailed 2016 report here: In Table A., you can see “Food away from home” costs increased 7.9% from 2014-2015 and another 4.9% from 2015-2016. After doing a 30-day spending challenge, or if you use automated budgeting apps/software, compare your month-to-month expenses and see if you’re food costs are creeping up.

In this chapter we focused on food purely as an expense of your salary. As we get further into the financial genome, we’ll explore where our money on food goes to. Over the past 50 years of company consolidation, 10 companies own nearly all food production in the whole world (pictured below).

The 10 companies where your food expenses go.





Chapter 9 – Home Ownership

Chapter 9 – Home Ownership

“Real estate cannot be lost or stolen, nor can it be carried away. Purchased with common sense, paid for in full, and managed with reasonable care, it is about the safest investment in the world.” ~Franklin D. Roosevelt, U.S. president

* Personal Finance Tip:  When buying a house, make sure you contact recent buyers about escrow increases.  In order to lure buyers into focusing on the affordability of the home, banks often focus their attention on the first year’s mortgage payments, which can be much lower than subsequent years.

Home ownership is widely known as a  cornerstone of the American dream.  Similar to first-world-countries’ healthcare, the real estate market is greatly complex with multiple genome connections transparent to the basic home owner.  Simply understanding the way home values and financing work escapes most of us.  We’ll discuss that more later, but understanding the entire process can help you maneuver through the complex system smartly.  Just like how we started exploring the entire genome, we’ll start with you, the home buyer.  We’ll explore how you purchasing a home, primarily by financing, creates this massive market in the financial genome.

As we discussed in Chapter 8, renting is a good option while you’re saving up for a down payment or when rent prices are a better return on investment than buying.  Once you have a 10-20% down payment, you can start looking for a home to buy.  Let’s be clear, though, you may own your home after paying off the mortgage, but the government still owns the land and property, plus there will always be maintenance costs.  Real estate owners will always owe property taxes to the government, and there is always the threat of the government using Eminent Domain to seize your property.  For more about Eminent Domain check out this site (

You usually start the process of buying a house by getting pre-approved for a loan at a bank of your choice.  This is where your credit score becomes incredibly important.  Your annual income and credit score determine the amount of financing you can get and your credit score determines your interest rate.  To make home ownership more affordable, Americans have created 30-year home loans.  Due to the amazing power of compounded interest, a home owner can end up paying close to 2-3 times the total value of the house in interest alone.  We’ll discuss credit scores in a future chapter.  It’s also important to note that banks are very “gracious” in loaning us money and will usually offer a pre-approval amount way above your means.  For example, I was pre-approved for $485,000 on my first house.  I found a house for $242,000—which was still above the price range I was looking for.  People who find confidence in having an expensive house, relative to their income, are referred to as being “House Poor.”

Let’s say you found a house selling for $200,000, and let’s also say you’re going to buy a house using a realtor.  In most cases, the seller of a house pays closing costs, yet there are plenty of other costs (e.g., title fees) the buyer will face.  The national average for realtor commissions is 6%[1].  If you, the buyer, use your own realtor, you’ll pay half, or 3% of the commission.  So, if the seller pays the commission costs, it will cost the seller $12,000 (6% of the $200,000 house).  Additionally, the seller will have to pay closing costs, which on average are $2,500 to $5,000 and are used to pay for the administrative costs for the banks and governments.[2]  The seller must keep in mind that the profit will be $200,000 less the $12,000 commissions (if paying both), less the closing costs (if seller pays for those), less the remaining balance on the loan.

Sell Price

less Commissions – $12,000
less Closing Costs – $2,500
less Remaining Loan Balance – $125,000
Total Profit


A recent trend, leveraging the internet, is the For Sale By Owner (FSBO, pronounced FIS-BOW) process.  Some states make the process easy, and this saves buyers and sellers quite a bit of money.  Some states make the process difficult, primarily to protect realtors.  I personally believe that realtors will be replaced with automation over the internet and the FSBO movement.  FSBO is also called “self-directed”, and is up 20% since the 80s.[3]

Once you and the seller agree on the price, you’ll need to secure the loan that you were pre-approved for.  After approval, you’ll enter the closing process.  The national average for closing on a house is 30 days[4]  and varies by state and the type of loan.  Your bank transfers the full amount of the loan to the seller’s bank.  The seller keeps the difference between the selling price and the amount owed on the original loan.  It’s important to note that if you’re a seller, you’ll have to pay capital gain taxes if you made a profit or you get to claim a capital loss if you lost money.  If you’re tracking, we pay property taxes every year and then capital gain taxes on profit when we sell.  Once escrow is completed, meaning, once a neutral party collects the funds (loan and fees) and ensures all the paperwork is completed accurately, the house is yours and you begin paying your mortgage.

Based on how much down payment you applied to the house, your mortgage payment is split it in many directions.  First, your payment goes to interest.  A 15- to 30-year loan is amortized with the total cost split into equal monthly payments.  Conveniently for banks, you pay the majority of the interest up front.  The interest is how banks make money immediately, so they can make more loans and earn more interest.  As many homeowners frequently experience, banks will often sell the mortgage immediately to another bank.  Banks will often sell the loan early and at a lower amount, to utilize the money now, than wait until the entire value of the loan is paid off.  For the first five years of a mortgage, barely any of your mortgage payment goes to the principal, and you’ll see your mortgage change banks  at least once, and sometimes several times.

The second direction your mortgage payment goes to is principal.  Most banks are required to allow extra principal payments.  Even small amounts of extra principal can reduce the life of your loan by several months or years.  Some certified financial planners often recommend paying one extra mortgage payment a year (13 payments instead of 12), to take off several years, and savings thousands of dollars in interest, on the life of the loan.  In the current low interest rate environment, you may find a better return on investment by investing your money instead of paying additional principal payments.  For example, if you have 3.5% interest on your mortgage, but your investments are yielding you 13% returns, you’ll get a better return on investment if you add additional money to your investments, versus paying additional principal payments.  Remember, you must completely pay off the principal to actually own your home.

Premium Mortgage Insurance (PMI) was described a little in Chapter 8 and is another portion of your mortgage payment.   Banks are allowed to use PMI to offset potential losses when buyers default.  It’s a massive drain for buyers since banks have many more protections against buyer defaults.  PMI is an outdated practice that started in 1930s by the federal government.[5]  Since PMI is pure profit for banks, there’s no systemic move to get rid of it.  Once buyers reach 78% Loan-to-Value (LTV), banks must automatically cancel the payment.  LTV is the ratio between the balance of your mortgage to the appraised value of your house.  Automatically cancelling PMI wasn’t always automatic.  Banks made it incredibly difficult to cancel PMI, so consumers made Congress pass the Homeowners Protection Act of 1998.[6]  To avoid PMI altogether, it’s best to save a 20% down payment, or if you’re eligible, using a government loan like a Veteran’s Affairs (VA) loan.

The next portion of your mortgage payment is the escrow payment.  Escrow ensures that you pay your property taxes.  Until you make your last mortgage payment, the bank actually owns your house and is ultimately responsible for the property taxes.  They prefer taking that money from you in an escrow payment and lump it into your mortgage payment.  Remember the finance tip I mentioned at the beginning of the article?  The majority of first-time home buyers receive a nice surprise the second year of their mortgage.  For some undocumented reason, your escrow never fully pays for property taxes, so the second year your mortgage payment increases significantly for the first year’s shortfall and for future tax payments.  This technique is to lure buyers into focusing on the affordability of the first year’s mortgage payments, and then Surprise! you get hit with a sudden, and sometimes significant, increase in your monthly payment.

Lastly, your mortgage pays for homeowner’s insurance.  Unlike car insurance, you can legally own a home without homeowner’s insurance.  That being said, nearly all lenders require homeowner’s insurance when granting loans to buyers.  This, plus PMI, protects banks against defaults and damage to the house while the bank still owns the property.  Homeowner’s insurance prices depend on potential damage to the house.  For example, along the Gulf Coast, homeowners can safely assume the insurance will be high due to the threat of hurricanes and floods.  But remember, flood insurance may not be automatically covered by your homeowner’s insurance.  We’ll go over insurance in much more detail in later chapters.

So, these costs  make up your monthly mortgage payment.  As in previous chapters, this was just a cursory look at your monthly mortgage payment.  This is not an inclusive list of all the financial genome connections that the housing market makes up.  In chapter 8 (LINK) we discussed renting and this chapter we discussed buying a home as two of the primary ways of paying for housing expenses.  After we get through all the normal expenses, we’ll circle back and really focus on the entire real estate market.