Fitting Real Estate into Your Financial Plans

For most people who are not wealthy, purchasing investment real estate has a major impact on their overall personal financial situation. So, before you go out to buy property, you should inventory your money life and be sure your fiscal house is in order. Find out here how you can do just that.

Ensure your best personal financial health
If you're trying to improve your physical fitness by exercising, you may find that eating lots of junk food and smoking are barriers to your goal. Likewise, investing in real estate or other growth investments such as stocks while you're carrying high-cost consumer debt (credit cards, auto loans, and so on) and spending more than you earn impedes your financial goals.

Before you set out to invest in real estate, pay off all your consumer debt. Not only will you be financially healthier for doing so, but you will also enhance your future mortgage applications.


Eliminate wasteful and unnecessary spending (analyze your monthly spending to identify target areas for reduction). This will enable you to save more and better afford making investments including real estate. Live below your means. As Charles Dickens said, "Annual income twenty pounds; annual expenditures nineteen pounds; result, happiness. Annual income twenty pounds; annual expenditure twenty pounds; result, misery."

Protect yourself with insurance
Regardless of your real estate investment desires and decisions, you absolutely must have comprehensive insurance for yourself and your major assets including:

Health insurance: Major medical coverage protects you from financial ruin if you have a big accident or illness that requires significant hospital and other medical care.
Disability insurance: For most working people, their biggest asset is their future income earning ability. Disability insurance replaces a portion of your employment earnings if you're unable to work for an extended period of time due to an incapacitating illness or injuries.
Life insurance: If loved ones are financially dependent upon you, term life insurance, which provides a lump sum death benefit, can help to replace your employment earnings if you pass away.
Homeowners insurance: Not only do you want homeowners insurance to protect you against the financial cost due to a fire or other home-damaging catastrophe, but such coverage also provides you with liability protection.
Auto insurance: This coverage is similar to homeowners coverage in that it insures a valuable asset and also provides liability insurance should you be involved in an accident.
Excess liability (umbrella) insurance: This relatively inexpensive coverage, available in million dollar increments, adds on to the modest liability protection offered on your home and autos, which is inadequate for more affluent people.
None of us enjoy spending our hard-earned money on insurance. However, having proper protection gives you peace of mind and financial security, so don't put off reviewing and securing needed policies.

Consider retirement account funding
If you're not taking advantage of your retirement accounts such as 401(k)s, 403(b)s, SEP-IRAs, and Keoghs, you may be missing out on some terrific tax benefits. Funding retirement accounts gives you an immediate tax deduction when you contribute to them. And some employer accounts offer "free" matching money — but you've got to contribute to earn the matching money.

In comparison, you derive no tax benefits while you accumulate your down payment for an investment real estate purchase (or other investment such as for a small business). Furthermore, the operating profit or income from your real estate investment is subject to ordinary income taxes as you earn it.

Think about asset allocation
With money that you invest for the longer-term, you should have an overall game plan in mind. Fancy-talking financial advisors like to use buzzwords such as asset allocation. This indicates what portion of your money you have invested in different types of investments, such as stocks and real estate for growth or lending vehicles such as bonds and CDs, which produce current income.

Here's a simple way to calculate asset allocation: Take your age and subtract it from 110. You get a number that you convert into a percentage. Invest that portion of your long-term money in ownership investments for appreciation. So, for example, a 40-year-old would take 110 minus 40 equals 70 percent in growth investments, such as stocks and real estate. If you wish to be more aggressive, you can take your age and subtract it from 120 so that a 40-year-old would have 80 percent in growth investments.

These are simply guidelines, not hard-and-fast rules or mandates. If you wish to be more aggressive and are comfortable taking on greater risk, you can invest higher portions in ownership investments.


When tallying your investments, determine and use your equity in your real estate holdings, which is the market value of property less outstanding mortgages. For example, suppose that prior to buying an investment property, your long-term investments consist of the following:

Stocks — $150,000

Bonds — $50,000

CDs — $50,000

Total — $250,000

So, you have 60 percent in ownership investments ($150,000) and 40 percent in lending investments ($50,000 + $50,000). Now, suppose you plan to purchase a $300,000 income property making a $75,000 down payment. Because you've decided to bump up your ownership investment portion to make your money grow more over the years, you plan to use your maturing CD balance and sell some of your bonds for the down payment. After your real estate purchase, here's how your investment portfolio looks:

Stocks — $150,000

Real estate — $75,000 ($300,000 property – $225,000 mortgage)

Bonds — $25,000

Total — $250,000

Thus, after the real estate purchase, you've got 90 percent in ownership investments ($150,000 + $75,000) and just 10 percent in lending investments ($25,000). Such a mix may be appropriate for someone under the age of 50 who desires an aggressive investment portfolio positioned for long-term growth potential.

Routing Your Online Purchase Complaints to the Right People

You made your purchase from a Web site. The treasure arrives at your door. You open it up and — there's a problem. It may not be what you ordered — it's the wrong size, color, or item. Or worse yet, you purchase an item and it never arrives!

Fear not. Resources exist for resolving blunders with online buying. Check out the following tried and true sounding boards for your concerns and complaints.

Better Business Bureau
The Better Business Bureau is the granddad of all business complaint organizations. If you think that a company has treated you unfairly, you can file a complaint online with the BBB. This organization contacts the merchant to help resolve the issue.

U.S. Postal Inspection Service
If you bought the product online and it was delivered by mail, you can complain to the U.S. Postal Service. You can post a complaint, but keep in mind that although the Inspection Service can't resolve routine business disputes between companies and their customers, it can act against a company or individual if a pattern of activity suggests an attempt to defraud consumers.

Square Trade
If the merchant you did business with is a member of Square Trade, and you have dispute with this merchant, Square Trade will intercede between the buyer and seller to settle disputes, whether the seller is an online merchant or an individual seller on eBay or another auction site.

Web Assured
A merchant subscribing to WebAssured promises a high standard of conduct in dealing with customers. Web sites carrying the WebAssured seal promise that you get exactly what you order. Better yet, even if the merchant isn't a member of WebAssured, consumers can still sound off via the Automated Dispute Resolution System.

Netcheck Commerce Bureau
NetCheck has assisted the public in receiving refunds totaling an estimated $2 million. This company handles complaints on any Web site worldwide concerning fraud, refunds, copyright infringement, false advertising, spam, or unsolicited bulk e-mail.

Planet Feedback
At Planet Feedback, you can sound off on a public bulletin board about a transaction you had with a merchant, and the whole world can see it. Other online shoppers may chime in with their own opinions as well.

David Horowitz's Fight Back
At well-known journalist David Horowitz's Web site, you can get consumer support and resolution of your problem for a small fee. David has much experience in educating consumers to stand up for themselves against merchants. He has been instrumental in getting consumer protection laws on the books.

National Consumer Complaint Center
The National Consumer Complaint Center provides a method for promptly communicating consumer complaints to United States government agencies that are interested in investigating and taking action for consumers.

Internet Fraud Complaint Center
The Internet Fraud Complaint Center, the IFCC, is a partnership between the Federal Bureau of Investigations and the National White Collar Crime Center. The IFCC provides a convenient and easy-to-use reporting mechanism that alerts authorities of a suspected criminal or civil violation.

National Fraud Information Center
The National Fraud Information Center provides a handy online form for you to fill out for reporting Internet or telemarketing fraud. You can also call in the suspected fraud via a toll-free number found on the site.

Six Steps to Treadmill Safety

Treadmills are among the easiest aerobic machines to use. Still, you do need to know a few things about safe treadmill use.


Use those safety features. If your treadmill has an automatic stop, the option to code out nonauthorized users, or some other safety feature, take advantage of it.


Place your treadmill in a safe place. If you have children, put your treadmill in a separate room that you can lock so they don't think it's a toy. When the treadmill is in use, watch for children, pets, or clumsy spouses walking into the moving belt. When you're not on the treadmill, make sure that the belt is stopped. Don't leaving it running unattended — even for bathroom or phone breaks.


Straddle the belt when you start out. Always place one foot on either side of the belt as you turn on the machine. Then step on the belt only after you determine that it's moving at the slow set-up speed. Most treadmills have safety features that prevent them from starting out at breakneck speeds, but don't take any chances.


Use the handrails sparingly. Holding on for balance is okay when you're finding out how to use the machine, but let go as soon as you feel comfortable. You move more naturally if you swing your arms freely. If you must hold on to the front rails to charge up a hill or maintain a speed, you have the treadmill set at too high an intensity. Over-reliance on the handrails can overstrain your elbows and shoulders and reduces the amount of calories you burn during a workout.


Keep your eyes forward. Your feet tend to follow your eyes, so if you focus on what's in front of you, you usually walk straight ahead instead of veering off to the side. Also, try to stay in the center of the belt rather than all the way toward the back or front. If you stay too close to the front, your foot can catch on the motor cover and trip you up; if you walk too close to the back, you may slide right off.


Expect to feel disoriented. The first few times you use a treadmill, you may feel dizzy when you get off. Your body is just wondering why the ground suddenly stopped moving. Most people experience this vertigo only once or twice, but be prepared to hold on to something for a few moments when you hop off so that you don't fall over.

Adding Firepower with the Invention of Gunpowder

Between the twelfth and the eighteenth centuries, guns spread from China to western Asia, to Europe, and then around the world. They advanced from primitive experiments to precision technology. Warriors were forced to revise their strategies, sometimes adapting ancient battle formations to the new weaponry, while defenders had to find new ways to fortify outposts and cities.

Lighting the fire of discovery
Light a fire on a patch of dirt that has sulfur in it and you get a sizzling, popping reaction. Somebody whose name is lost to history noticed this a long time ago in China, an observation that led other Chinese to experiment with putting concentrated sulfur together with charcoal. By the ninth century AD, another genius added potassium nitrate crystals (saltpeter). Burn that mixture and you get sparkly effects that made a nice backdrop to formal ceremonies. Taoist monks played with these chemicals until they had fireworks.

Over time, pyrotechnicians (fireworks makers) also realized that their mixture, gunpowder, could make stuff fly — dangerous stuff. Soldiers noticed this, too. By the twelfth century, the armies of the Sung Dynasty added metal grenades to their arsenal. China pioneered fragmentation bombs, whose casings shattered into deadly shrapnel. Within another hundred years, Chinese factories made hundreds of military rockets and bombs, some filled with poisons, such as arsenic, that released on impact. Others were packed with tar and oil, designed to start fires. The Chinese also built early guns, metal barrels packed with gunpowder, which shot out a rock or a metal ball.

Spreading explosive news
News spread west along the ancient trade route, the Silk Road (which winds along a natural corridor between China's rugged mountains and extends all the way to the Mediterranean Sea). The Arabs got primitive firearms by the late thirteenth century. In 1267,the recipe for gunpowder turned up in Europe, in the hands of English scientist Roger Bacon.

Less than a century later, European armies began using crude cannons. Archers with longbows, not their innovative comrades who were trying out noisy, stinky little firepots, decided the 1346 battle of Crécy (in the Hundred Years' War between France and England), but the primitive cannon was a sign of things to come. The early European cannon was called a firepot because it was pot-shaped. It propelled an arrow (yes, an arrow) with impressive force, but little reliability, and no accuracy.

Craftsmen who until then made church bells were the earliest European gunmakers. Often they melted down bells to make cannons. Soon the gunmakers found out that a tubular barrel worked better, and that it should propel a metal shot. You could knock down a castle gate that way, or level a house.


Bringing in the big guns
By the early sixteenth century, the Italian writer Niccolo Machiavelli observed, "No wall exists, however thick, that artillery cannot destroy in a few days."

Guns were already big, although some of the biggest didn't work so well. In the early fifteenth century some weighed 1,500 pounds and discharged balls 30 inches in diameter. How did anybody back then make a cast-metal barrel that big? At first, it wasn't cast, but pieced together out of forged iron staves, like the curved boards used to form a pickle barrel. Iron hoops held the staves together — temporarily anyway.


In 1445, artillerymen in Burgundy (then an independent principality, later part of France) were firing one of these monster bombards (early cannon) at invading Turks when a hoop burst. The crazy thing is, they fired it again. Two more hoops and a stave blew apart on the next shot.

In 1460, one of his own guns exploded and killed King James II of Scotland and many members of his royal party.

Battering down Constantinople's walls
Sometimes a big gun was just the thing. Remember how the Arabs failed to capture stout Constantinople? Deciding to meet the challenge with big guns, Ottoman Turkish Sultan Mehmet II hired a Hungarian gunmaker who built him a cannon that sent a ball flying a full mile.

In 1453, the sultan fired that gun, nicknamed Mahometta, at the Byzantine capital's ramparts and kept firing. Like so many of these giants, this cannon cracked after the second day and became unusable after a week. But Mehmet had other big guns. After 54 days of pounding, the 1,000-year-old Byzantine Empire, a victim of technological advance, finally fell.


Refining the new weaponry
Although massive bombards worked, military leaders knew there must be less cumbersome ways to win battles using cannons. Weapons makers went to work devising guns that were more useful and more versatile — and that fit specific niches in the Renaissance arsenal.

Making guns lighter and more maneuverable
Eventually, artillery experts figured out that you could cast some guns in light-yet-strong bronze, rather than iron. Less-cumbersome guns that could be moved into place more quickly, fired more often (some of the big ones could deliver a shot only once in two hours), and that weren't so likely to explode, could do even more damage than the giants could.

Improving gunpowder with brandy
Guns got better, but gunpowder needed improvement because the sulfur, carbon, and saltpeter had three different weights. The saltpeter crystals settled to the bottom while the carbon came to the top.

Mixing the ingredients right before you loaded your weapon — the only way to ensure that the gunpowder worked — was difficult and time consuming. Then somebody came up with a way to make the ingredients stick together by mixing the gunpowder with brandy and letting the resulting paste dry into corns, or grains, containing all three ingredients.

But what a waste of brandy. Soldiers tried substitutes, such as vinegar, which worked okay, but human urine worked even better — especially the urine from a soldier who had put that brandy to more pleasurable use. (It didn't improve the smell of gunpowder, however.)


Putting guns in soldiers' hands
Guns were first seen as replacements for the catapult and the battering ram — destructive, but not precise. As gunnery improved, however, it gained accuracy and usefulness.

Soon, gunmakers came up with models for use on the battlefield itself — both as light artillery (usually a horse-drawn cannon on wagon wheels), and also as weapons that soldiers could carry. Handcannon, as the smallest guns were called, scared the enemy's horses (and your own, for that matter) and perhaps intimidated a knight or two. But for quite a while handcannon did not seem a practical replacement for bows and swords. How did you hold a gun, aim it, and also effectively set fire to the gunpowder charge?

In the middle of the fifteenth century, the solution was a wick soaked in alcohol and coated with saltpeter, attached to a trigger. Pulling the trigger lowered this slow match into the gun's touchhole to light the powder charge.


The matchlock, shown in Figure 1, freed a marksman's hands to aim a weapon, including one called a hackbut or arquebuse — variations on the German Hakenbuchse, which meant hook-gun. Some had a hook that you could brace on the edge of a wall when firing over it. The hook caught some of the shock from the gun's powerful recoil.




Figure 1: The matchlock added a fuse to ignite the gunpowder and free the soldier's hands.
The name musket comes from mosquito. It was supposed to irritate the enemy like its namesake. But muskets were anything but mosquito-like in size. Many a musket had to be propped on a forked rest, like a crutch, to be aimed and fired. So in addition to the heavy gun itself, a musketeer had to lug around this cumbersome prop.


Striking sparks
Because a slow match (see above) could send off a spark that lit the charge too soon, the musket was dangerous for the musketeer. Gunsmiths came up with other ways to fire a powder charge, such as the wheel lock, a piece of flint held against a spring-loaded steel wheel. If you ever examined the moving parts of a cigarette lighter, you have a pretty good idea of how it struck sparks. Eventually the simpler flintlock, consisting of a spring-loaded hammer that struck a flint, became the dominant technology, lasting from about 1650 into the nineteenth century.

Waking Up to the Enlightenment

In "Rules of Reasoning in Philosophy," an essay included in his 1687 book Principia, Newton wrote:

We are to admit no more causes of natural things than such as are both true and sufficient to explain their appearances.

This approach toward exploring the world — objectively, without prejudice — was also a foundation for a branch of philosophy called empiricism, the idea that knowledge is based on experience, derived from the senses.

Along with rationalism, a contrasting way of seeking truth based in inherent reason rather than experience, empiricism signaled more than a growing openness to new ideas. These and related philosophies, together called the Enlightenment, rearranged conventional thinking, then politics and government, in earthshaking ways.

Experiencing empiricism
John Locke (1602 to 1704), an English medical doctor and philosopher, introduced empiricism in his 1689 Essay Concerning Human Understanding. He and his empiricist heirs — among them the Scotsman David Hume (1711 to 1776) — took the natural sciences as their model for all knowledge.

Locke's work was tremendously important to philosophy, but he had just as big an influence on political thought, especially with his idea that authority derives solely from the consent of the governed.

If you contrast that with older notions about the divine right of kings (which held to the belief that nobody except God — and sometimes the pope — should be able to tell a king what to do), you can see how Locke's idea led to political upheaval. Locke's work influenced the men who set the American Revolution in motion. Some French guys that you can read about in just a few paragraphs were on a similar wavelength.


Living a "nasty, brutish, short" life
Not every philosophy rooted in scientific thinking seemed pointed toward popular revolt. Thomas Hobbes (1588 to 1679) was an Englishman who took an intellectual route from mathematics to political theory, a path that led him to advocate absolute monarchy.

The Oxford-educated, well-traveled Hobbes became interested, rather late in life, in why people allowed themselves to be ruled and in what would be the best government. In 1651, he wrote his famous work Leviathan. (Although the word means "sea monster" and sometimes refers to a whale, Hobbes applied it to the powerful state, or commonwealth.)

Hobbes argued that each person is self-interested and thus the people collectively cannot be trusted to govern society. Perhaps the most often quoted thing he wrote was a description of what human life was, or would be, without strong authority to keep everybody in line:

During the time men live without a common power to keep them all in awe, they are in that condition called war . . . as if of every man against every man. . . . The notions of right and wrong, justice and injustice have there no place. . . . No arts; no letters; no society; and which is worst of all, continual fear, and danger of violent death: and the life of man, solitary, poor, nasty, brutish, and short.

The "solitary, poor, nasty, brutish, and short" part drew much attention, especially "nasty, brutish, and short." (No, it's not a description of Hobbes.) A simple search for just those three words on the Internet turns up many references to the phrase. Among them, you'll find the English rock band that goes by the name of Nasty, Brutish, and Short.


For all his distrust of human nature, Hobbes was interested in justice and he did advocate that people band together so that the monarch would hear their concerns. He even coined the term "voice of the people."

Reasoning to rationalism
Rationalism, another seventeenth-century philosophy, chose reason, rather than observation (the senses) as the basis for knowledge.

That way of thinking traces to René Descartes (1596 to 1650), the French mathematician who invented analytical, or Cartesian (for Decartes) geometry. (Cartesian geometry uses algebra to solve geometric problems, in case you were wondering who to blame for that.)

Descartes believed reason could be based on knowledge that just exists — independent of sense-experience. (Think of the way mathematical principals seem to exist on a plane separate from everyday reality.)

Descartes decided that the only thing beyond doubt was his own thinking. This resulted in one of the most memorable quotes in all philosophy: "I think, therefore I am."


Rationalism grew into a political movement, too, based in Paris and embodied in a group of writers including the poet Voltaire (1694 to 1798) and Swiss-born essayist Jean Jacques Rousseau (1712 to 1778).

Expanding to the Encyclopedists
In the 1770s, Voltaire and other leading thinkers, led by the critic Denis Diderot (1713 to 1784), published Encyclopèdie, a collection of social and political writing. Encyclopèdie used reason to attack France's old order, the ancien régime.

The Encyclopedists were intensely interested in the American Revolution, which broke out in the same decade that they were collaborating. The interest was mutual. Many of America's rebels were Enlightenment thinkers — especially Thomas Jefferson, who wrote the Declaration of Independence. Signed in 1776, it contained phrases such as "We hold these truths to be self-evident" (rationalism) and 'certain unalienable Rights" (which sounds inspired by Locke and Rousseau).


Jean Jacques Rousseau's works — especially his 1755 Discourse on the Origin and Foundations of Inequality Amongst Men, which emphasized the natural goodness of human beings, and 1762's The Social Contract — had a big influence on political thinking of the time. The Social Contract introduced the slogan, "Liberty, Equality, Fraternity," battle cry of the French Revolution in 1789.

Running Hot and Cold Following World War II

The years after World War II weren't peaceful. But they didn't erupt into World War III either (cross your fingers). For much of the time after World War II, the major world powers were preoccupied with a game of nuclear standoff.

The major powers, by the way, turned out to be the United States and the Soviet Union. The United States expected to enjoy its nuclear monopoly for 20 years or more, but the Soviets surprised everyone by developing their own atomic bomb in 1949. Allies on the winning side of World War II, the nations became bitter rivals very soon afterward.


Soviet foreign policy, reflecting Josef Stalin's viciously paranoid behavior toward any rival — real or imagined, internal or abroad — became increasingly exclusionary and closed off. Soviet goals included maintaining control over satellite communist states, several set up in Soviet-controlled Eastern Europe in the wake of World War II, while keeping out foreign cultural and economic influences.

The United States emerged as leader of the West — meaning western Europe, the Western Hemisphere, and developed nations anywhere that resisted communism and promoted (or at least permitted) the private pursuit of profit in their trade policies.

Daring each other to blink
With their nuclear arsenals, the Soviet Union and United States engaged in a Cold War. It amounted to a diplomatic, cultural, political, and military standoff.

In diplomatic and military terms, the Cold War took the form of each side daring the other to fire the first nuclear shot. Both nations built more and more, bigger and bigger missiles and warheads. Missiles became capable of delivering a nuclear bomb from a Nebraska wheat field into downtown Moscow. Both nations developed the ludicrously tragic ability to blow up the Earth several times over.


This madness was tempered a little with a Nuclear Test Ban Treaty in 1963, numerous arms talks, and even arms reduction agreements, but the two nations basically kept their guns pointed at each other's heads until one, the economically ruined Soviet Union, blinked — or in this case, fell apart. Along the way, several other countries built nuclear arsenals — China prominent among them.

Returning to arms
Meanwhile, many regional wars raged. Among them, the United States was embarrassed in a futile attempt to keep Vietnam, a former French colony (and before that, a sometime Chinese vassal state) in Southeast Asia, from going communist. The Soviets squandered a lot of resources and international good will fighting Muslim rebels in Afghanistan.

When Israel, a new Jewish state, was established in 1948 in what was British-ruled Palestine, surrounding Arab nations joined Palestinian Arabs in opposing it. The disagreement turned violent many times, with wars in 1956, 1967, 1973, and 1982. Also in the region, Iraq fought Iran. Then Iraq invaded Kuwait and a U.S.-led international force turned it back.

Horrible intertribal violence broke out in Africa. Terrorist bombings threaten people on every continent. Clearly, humanity has not come close to achieving a world without war.