You Asked, We Answered: Paying Off a Mountain of Bills, Budgeting Wisely and More

Monica from Frankenmuth, Mich., asked: "I would love advice on buying a home. We lived in Ohio and my husband lost his $60/year job and when he finally found another one, we had to move out of state and he now only makes $40/year. We are renting now and need to know if we should keep renting or try to buy a home. We have one in mind and have made a very low offer but it was rejected, the house is now on the auction block and no bids yet. We will not bid on it b/c we have no reserves to fix if something is significantly wrong with it. I feel like we have gone from the proverbial frying pan into the fire by moving from Ohio to Michigan where the economy is just as bad if not worse. We are struggling with finances. I work only part-time at my children's school and make $7.52/hr. This barely helps fill the gas tank. We really need some sound advice. Worst of all we have had to let our life insurance policies lapse due to us not being able to pay the premiums. I am really afraid for my children now. Please help."

McPherson answered: Monica, it sounds to me like you're leaning in the right direction by focusing on the need for a reserve fund. I would hold off on the home purchase until you accumulate funds for a healthy down payment and other home ownership costs. You want to avoid the type of situation in which Sarah and Travis, mentioned above, find themselves.

As you try to build up that reserve, keep an eye on the local real estate market and mortgage rates. Also, learn as much as possible about the financial aspects of buying a home. Knowledge can keep you from making an expensive mistake.

Given I'm based in Massachusetts, I know nothing about the Michigan real estate market, but I think time is on your side in terms of price trends. Even if prices begin to inch upward, you'll be in much better shape the larger your reserves.

Let me also suggest you revisit the issue of life insurance. It's critical for your family's financial security. Term life insurance is relatively cheap. I'd suggest you do some online shopping for term insurance. I think you'll find it's more affordable than you realize. You can save money on premiums by opting for a shorter term, say 10 or 15 years rather than 20 years. Some coverage is better than none. Think about it.

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