I was with a friend the other day, as we both went to an exhibit at the convention center. She stopped and wanted to ask a question about a friend of hers at work. It seems her friend was extremely studious about his money. He was a devout saver. She told me that he would literally buy a bucket of chicken and eat that for lunch throughout the work week. Instead of eating out for lunch, he saved his money to eventually buy a home instead. How much did he save? A little over $100,000 over the years. She told me he was going to make a nice down payment but then later on he was going to take the remaining amount and pay down the mortgage therefore reducing his monthly payment. She asked if that were the right strategy.

Of course, I didn’t personally know the situation nor him at all, just what my friend had told me. But I was able to give an answer. I asked if the loan he was going to get was a fixed or an adjustable. She of course didn’t know but I told her to give him some advice or even to feel free to contact me directly for a conversation. I gathered just from his frugal nature he would be taking out a fixed rate loan due to the continuing low rate environment. 

From what I understood about his financial attitude, he wouldn’t want to take on the additional risk of rising interest rates at some unknown point in the future. It’s important to know in advance, especially if he hadn’t already bought a home and was waiting to make a sizable principal reduction, because making an extra payment down the road, at any time, has a different outcome depending upon if the loan taken out was a fixed or an adjustable mortgage. Why the difference?

When paying extra on an adjustable rate loan, it does in fact reduce the monthly payment because the new payment is calculated using the lower loan balance along with current market rates. But that doesn’t happen with a fixed rate loan. With a fixed, the payments remain the same throughout the life of the loan. Someone can have a 30 year fixed rate loan of say $400,000 with set monthly payments. It’s called a fixed rate for a reason, right? Okay, now what happens if that person makes a principal reduction of $100,000 and the loan drops below $300,000. Guess what? The payment remains at the original amount. Yes, the loan balance is reduced but the payments aren’t recalculated.

This is why it’s important to know whether or not an adjustable or fixed is better. Making extra payments is a good thing because it pays down the mortgage sooner. But if someone does have a plan to pay down the mortgage at some point in the future, perhaps an inheritance will ultimately arrive or maybe an annual bonus from work will be used to reduce the loan balance. With a fixed rate program, the payment is not affected. Just the balance.

Question: What is the difference between the CC&R's and the rules and regulations? Even if the rules and regulations were never filed on the public record, would they hold up in a court of law?

Answer: CC&Rs stands for "Covenants, Conditions & Restrictions." CC&Rs include the Declaration, Bylaws, Rules, Regulations, Policies and Resolutions.

As far as standing up in court, no one can predict the outcome of a judge or jury decision. But the HOA has a responsibility to make sure all rules, regulations and policies are in writing, distributed to all owners and residents and easily accessible when needed (website recommended for 24/7 access). If the HOA's rules are fair and uniformly enforced, most judges will rule for the Board.

Question: I am an HOA Treasurer and have been attempting to implement spending controls. We have two Board members who regularly purchase items for the HOA and want to be reimbursed. My concern is that expenditures are unpredictable and hard to track. What do you think is a reasonable policy?

Answer: Your HOA sounds like it has had a long history of directors spending money as they saw fit. The first question that comes to mind is: Has the old routine caused budget overruns? If yes, you have a sound basis for your controls. If no, you may be making much ado about nothing.

That said, it is not common for random directors to routinely spend the HOA's money. In self managed HOAs, the President and Treasurer generally handle payments, occasionally reimbursing a director for an HOA expense that can't wait for the normal payment process. Ideally, if you have a hired manager, all expenditures should be routed through the manager. It is much easier to hold an employee or contract manager accountable than a fellow director.

Your biggest obstacle doesn't seem to be opposition to good financial management practices, but perception that such is not needed. Getting a barge to change course takes time. Continue to press for change. The Board has a fiduciary duty to run HOA business in a business-like way.

Question: I recently took over professional management of an HOA which, I just discovered, has over $70,000 of unpaid water bills. The water department has threatened to shut off service within 48 hours. The Board directed me to impose a special assessment of $1000 per unit without a meeting or member vote. Can an emergency special assessment be imposed without member approval?

Answer: You need to read the governing documents to see what authority the Board has to raise special assessments. Even if the Board has authority to do so, proper and reasonable notice must be given to the members and time to raise the cash.

If a special assessment requires approval of the members, a member meeting needs to be called with advanced written notice. The meeting must have a legal quorum and a legal majority vote as defined by the governing documents. You may be able to pull this off by mail in ballot if your governing documents allow it. But none of this could possibly take place within 48 hours.

The Board needs to make immediate and adequate payment arrangements for the water bill, perhaps by getting a short term loan from the bank (and quick). Or, you might be able to get the water department to leave the water on if money is on the way (special assessment or loan). But they will, no doubt, want to see the written evidence (letter from bank, copy of special assessment notice, etc.).

The bigger question is, if this HOA has allowed things to get so bad that basic utilities can't get paid, what other fires are you going to find that they want you to put out? This crisis didn't happen overnight and the Board likely has others waiting in the wings. Unless you are getting paid extra to deal with these special circumstances, you need to seriously evaluate whether this is an account worth your time.

Saving money is great. But saving money can also prove problematic. While a piece of furniture that’s not used a lot or a knickknack that is not prominently displayed might be fine, you want to be careful when pinching pennies if it means compromising on quality.

This is a mixed bag. You can get away with an inexpensive coffee table, and you may be able to score a killer deal on a dining table that looks far more expensive than it is. But when it comes to upholstery, proceed with caution—especially with large pieces. Cheap textiles can pill, rip, wear out easily, and stain permanently. Plus, the material is often scratchy and uncomfortable.

“The sofa is one of the most significant items you’ll ever buy for your home. It takes up a lot of visual space, it’s important for comfort purposes, and it’s something you could have for two or even three decades,” said The Spruce. “Look for something made with high-quality materials such as kiln-dried hardwood and eight-way hand-tied spring construction, and purchase a classic style so that over the years it can be recovered if you want to update the fabric and give it a different look. Remember the rule that a high-quality sofa should last around 25 years while one of average quality should last about 10.”

Many designers will tell you that money is no object when it comes to art. “Unlike a rug that may get dirty in a couple years or a glass that could end up breaking at your next dinner party, the art you invest in is likely to stay with you for many years, or maybe even a lifetime,” said Real Simple. “The key is to take your time finding art you love, that you’ll want to spend years living with, and that fits your style.”

We agree with all of that, except for the “need to splurge” part. It’s gonna be awhile before we’re playing with Picasso money. In the meantime, we love finding great new resources to buy inexpensive art—especially those that allow us to support emerging artists instead of buying stuff that’s mass-produced. From Society6 to Minted to to Etsy, there are a number of places you can find great stuff without a great expense.

Skimp out on your flooring and you might find yourself having to redo it soon—or living with the consequences of a poor choice. Everything from a wood product that is made too thin, and therefore is damaged easily, to poor adhesive, to carpet that doesn’t have the quality to stand up to kids, pets, or everyday use can cause problems sooner than you may expect.

“One of the best items to buy cheap is an area rug, Gen Sohr, one half of the husband-and-wife team behind Pencil & Paper Co., a Nashville-based interior design firm, said to Real Simple. “I think there are so many wonderful area rug options that are a complete steal. And really who wants to break the bank on something that's going to eventually get soiled and need to be replaced?” she says. For an option that’s both affordable and durable, she recommends a natural sisal rug, which also hides the appearance of dirt. A flatweave wool rug is another popular option, and Sohr recommends finding deals on Overstock.com or Rugs USA.”

It can be tempting to go cheap on a mattress simply because it so expensive. But, if you really spend a good third of your life in bed, it’s worth it to pay for quality. If you can’t pay outright, it’s usually possible to get a zero-interest payment plan from a mattress stores if you have decent credit.