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7 Tips to Become Financially Secure in College

by Benjamin Roussey|Posted on | 3 minute read | Advertiser notice

As a college student, cash is always hard to come by, not to mention all the expenses that you have to take care of. Not everyone has money like the spoiled Van Wilder!

Here are seven tips that will help you become financially secure in college:

Stay away from the cafeteria and fast food joints on and around campus

Cafeteria and restaurant bills can quickly pile up and while it can be a suitable place to hang out with your buddies and discuss upcoming college projects, it is better if you could pack your lunch instead of spending money on food in this manner. This will not only help you save a few bucks every week, which can turn into significant savings in the long run.

If you think packing your lunch is uncool then you should think about thinks from a different perspective. Either hang out with different people, think about how uncool it is to go further into debt, fight off that peer pressure, and so on. America is trillions in debt and its social security and health care institutions are terrible, that is uncool!

Discount coupons

Internet deal sites have made it so much easier to find and use discount coupons. So why not use them? As a student, you will also find a lot of special coupons that are specifically available to you. Make the most of it while you can. Every penny counts.

You can find coupons and deals in your local newspapers, online deal sites, and social media accounts and pages. You will be amazed at the amount of dollars you will save by spending just a few minutes before buying anything.

Have a budget

You don’t need an extremely difficult and complicated budget plan in order to succeed in your financial planning. But you do need a working budget that will help you keep your accounts in check. You will then understand where all your money is going, where you can save a few bucks, which categories are eating all your savings, and how you can plan for future expenditures. These are all critical decisions, and noting down your daily expenses at the end of the day will help you achieve this.

Managing your time

Most students are so focused on studying and saving money, that they tend to forget how to manage and save time. Time is perhaps the most valuable item that you can spend because it is limited and once spent, you can never get it back! If you watch that goofy science fiction movie In Time, you will know all about that!

You can begin by allotting time for each task and project, and getting your schedule under control. There are several apps available that you can use for this purpose. Or just write it out on a piece of paper, go old school!

Side projects

If you are following a schedule for your educational career, and have managed to manage your time, you should have some free time on your hands now. Instead of wasting these free hours hanging out with your friends, you should instead look out for some extra gigs. Look out for side projects that will help you make some extra cash, and also help you pick up some useful skills on the side.

Freelancing is a poignant way to begin. You can become a part time writer, photographer, designer, or social media manager. There are a lot of websites that offer genuine jobs. You just have to find your strength and passion.

Sell old stuff/Launch a startup

Old furniture that you no longer use and gaming consoles that you got tired of, there are  a lot of stuff that is lying around in your dormitory, room, apartment, and so on picking up dust. You can make some extra cash by selling these via classified or auction sites.

Some of the biggest startups were launched in student dormitories. Facebook is a very popular and common example. If you have an idea, do not hesitate to try it out. Who knows? Maybe it will turn profitable. Keep working on it and ask some astute friends and professors for help. Don’t get crazy though like Leo Spitz did in Transformers 2 though!

Be positive

This last tip is not going to save you money, or even help you make some money directly, however it is one of the most sagacious and most useful tips you will receive. It is easy to lose motivation and confidence, but a positive attitude will help you overcome the hardest of challenges in your student life, and inspire you to keep moving forward.

When the going gets tough, it is time to get going. Hold on because hope is always there and success is waiting for you just round the corner. Do not abandon what you started just because some doubts are popping into your head. No one said it was going to be easy! You can and will overcome these challenges!

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6 Ways to Lower Your Student Loan Payments

by Benjamin Roussey|Posted on | 4 minute read | Advertiser notice

Student loans are supposed to be easier to pay off, or so the students believe when they first apply for the loan(s). Post college life can be tough (especially with high taxes and regulations which limit growth), and once reality begins to sink in, borrowers soon realize they bit off more than they could chew.

The delinquency rate of student loan is currently at 11.2 percent in the US while there are countless others who are finding it really difficult to pay off what they owe. It is certainly worse when you spend $75,000 on a college degree that matters very little. Some degrees do not warrant jobs that pay that much so why take that type of risk? Something to think about!

Do high school guidance counselors even mention this? They should!

Here are six ways you can lower your student loan installment:

Income-Driven Repayment Plans

IDR (Income Driven Repayment) is a popular option for federal students with loans. There are four different plans available in the market that you can use to manage and lower your installment:

  • ICR (Income-Contingent Repayment)
  • REPAYE (Revised Pay as You Earn)
  • PAYE (Pay as You Earn)
  • IBR (Income-Based Repayment)

Under ICR, your student loan payment will be reduced by 10-20 percent depending on a case to case basis.

If you choose an IDR, there is a possibility that your payment might be $0. When determining the new installment, the state you are living in and its cost of living is also considered.

Student Loan Refinancing

If you are stuck with a private student loan then the only alternative that is left to you is refinancing. This will allow you to lower your payments.

Your existing student loan will be discontinued and replaced with a new student loan by a private refinancing lender. Your repayment schedule will be extended and monthly installments will be lowered. This is a fabulous alternative for those who are facing Parent Plus Loans or Grad which is two different types of loans. Access to IDR and other benefits will have to be foregone when choosing this option, so it is advised that you weigh in your options carefully before making the switch.

Repayment Assistance Programs

LRAP (Loan Repayment Assistance Program) is free for students looking to lower their burden. You are looking at non-profit organizations, government agencies, state owned organizations that help students get back on their feet. Depending on the state you are living in, your occupation, and other factors, you will get help.

If you want more job opportunities move to low tax states such as Florida or Texas and remain far away from California and New York which are losing jobs and businesses to the former two states and many other low tax states. This can help you pay off your loans quicker and easier.

Forbearance or Deferment

Forbearance or deferment is an option that will simply pause your loan installments. If you are burdened with a federal student loan, then deferment is a better option. You will have to satisfy one of the following criteria:

  • Unemployment
  • Disability
  • Return to military (the navy is very safe as well) or college
  • Financial hardship

Your loan amount will be subsidized and will not accrue interest during the time your loan is in forbearance. It is critical that you understand the terms and conditions. You do not want to end up with a bigger loan amount than what you initially started out with.

Graduated Repayment Plan

Under the graduated repayment plan, your initial installments will be set to a lower amount. The installment will then increase periodically every 2 or so years depending on the terms set in the agreement. This will allow you time to grow in your respective field and as your income increases, so will your installment giving you time and space to think and grow. This plan is only ideal if you believe you would be able to pay off your loan amount in the next 10 years.

Extended Repayment Plan

Normally, a student loan repayment schedule is 10 years. However, if you are finding it difficult to repay your loan in that duration, there is an option to extend your repayment plan. Doing this will not only offer you more time, but also lower your monthly installments.

This is where the extended repayment plan comes into the picture. Under this formula, you can extend your repayment plan by up to 25 years which should be more than enough time for you to repay your loan amount. You can press the button for graduated or fixed payments depending on your income and future prospects. The minimum amount your student loan must be though is $30,000 before you can apply for this option.

One thing to remember is that when you choose this plan, your interest amount will rise significantly. The sooner you repay your loan, the better off you are and this goes for all loans period! The longer your repayment schedule is, the more money you are going to pay since the interest never takes a break.

If you spend $75,000 on school with 6% interest, you are really spending $79,500 on school. Just something to think about. Choose the right degree and spend the right amount! You do not want to end up like one of those Occupy Wall Street fools thinking they are entitled to something when they are not entitled to anything!

Business, Finance, Lifestyle, Tax, Uncategorized

Here are 9 States that will Save You Thousands if You Relocate

by Benjamin Roussey|Posted on | 4 minute read | Advertiser notice

Is your state taxing you too much? If you live in California and New York, it is most likely a yes then, and certainly if you work in the private sector in either of those punishing states.

Here are nine states that will save you thousands of dollars in cost of living expenses if you are thinking of relocating. For each state, you will see an index list which means a normalized average cost of a given class of goods or services. 100 is the normalized average cost, or national average, and the lower the score the better. You can have a score higher than 100. For instance, if a state is 20% more expensive than the score of 100, that state would have a score of 120.

This information was derived from Wikipedia, USA Today, CheatSheet, and Investopedia.

Let’s begin!

Mississippi

This southern state is the most affordable state in the US which is 14 percent cheaper than the national average. Here are some facts:

  • Cost of living: 86
  • Housing index: 68.4
  • Grocery index: 94.1
  • Utilities index: 89.6
  • Health index: 89.9
  • Transportation index: 93.1
  • Miscellaneous: 93.2

The homes are 30 percent cheaper than the national average and we all know how expensive owning a house can be. The median value of a house is around $112,000 while the median rent is around $1,050. Transportation is 6.9 percent cheaper while groceries are 5.4 percent cheaper.

Apart from this, Mississippi is exempt from military, federal, and in-state pension burdens. People pay the least amount of property taxes. All retirement related income, including 401k and IRA earnings, is exempt.

On top of this, there are probably more murders in one weekend in Chicago than the entire state of Mississippi for the entire year.

Indiana

The rent is slightly cheaper in Indiana at $1,000 while the median cost of a house in the state is $139,000. Transportation in the country is 8.4 percent cheaper while groceries are 7.6 percent cheaper.

Here is a look at the index:

  • Cost of living: 87.9
  • Housing index: 75.8
  • Grocery index: 92.4
  • Utilities index: 91.1
  • Health index: 94.9
  • Transportation index: 91.6
  • Miscellaneous: 92.9

Michigan

The third spot goes to Michigan. It is particularly cheap when it comes to groceries at 10.4 percent lower than the average, however, housing is also comparatively cheap here. The median listed price is about $147,000 while the rent is $1,000. Michigan is also exempt from military, federal, and in-state pension burdens. Here is the index:

  • Cost of living: 88.2
  • Housing index: 77.1
  • Grocery index: 89.6
  • Utilities index: 95.5
  • Health index: 93.3
  • Transportation index: 97.6
  • Miscellaneous: 91

Just be careful about some parts of Detroit you go into. You may want to avoid them. The fantastic movies Four Brothers and 8 Mile have warned us about this.

Arkansas

Arkansas is particularly cheap in the area of transportation and health bills. The median housing price is $150,000 while the rent is $1,000. Groceries are 7.3 percent cheaper while transportation is 10.9 percent. Here is the index:

  • Cost of living: 88.5
  • Housing index: 77.7
  • Grocery index: 92.7
  • Utilities index: 97.1
  • Health index: 87.8
  • Transportation index: 89.1
  • Miscellaneous: 92.8

Oklahoma

Consumers are paying up to 23 percent less for their houses here than the national average with the median home value being at $114,800 and average rent being $995.

Transportation when compared to the national average is 11.9 percent cheaper and groceries are seven percent. Experts on the other hand believe that the cost is going to increase in the near future (problem because this is an energy rich state). Here is the index:

  • Cost of living: 88.6
  • Housing index: 76.7
  • Grocery index: 93
  • Utilities index: 94.9
  • Health index: 93.6
  • Transportation index: 88.1
  • Miscellaneous: 94.1

As just mentioned, Oklahoma is going wild in oil shale which is bringing high paying and more jobs to this outstanding state. This means less money going to the Middle East and more money remains in America to do the same: allow us to have access to the energy we need. Unlike California and New York which have some of highest numbers of unemployment and people on welfare, Oklahoma does not shirk its responsibility by keeping its energy offline.

Idaho

While the prices of houses are on the rise, Idaho is still one of the cheapest states to live in with several categories that are less than 10 percent of the national average. Groceries are 14.6 percent cheaper while transportation is 6.1 percent. The median home value is $249,000. Here is the index:

  • Cost of living: 89.6
  • Housing index: 77.8
  • Grocery index: 85.4
  • Utilities index: 89.0
  • Health index: 101.9
  • Transportation index: 106.1
  • Miscellaneous: 94.8

Idaho is loaded with fresh crisp air as well. If you love the outdoors, it is hard to beat this state.

Tennessee

Tennessee, also known as the Volunteer State, has the lowest housing index in the country at 77.5. Transportation facilities and health care is also less costly compared to the national average. Groceries are 7.3 percent cheaper while transportation is 10.1 percent.

The median listing for house is $175,000 while the rent is $1,195. Local and state tax is about 7.6 percent which is the sixth lowest in the country. There is no income tax but only interest income and tax dividend.

  • Cost of living: 89.8
  • Housing index: 77.5
  • Grocery index: 92.7
  • Utilities index: 91.8
  • Health index: 90
  • Transportation index: 89.9
  • Miscellaneous: 97.5

Kansas

Kansas is another state where the median cost is about 10 percent below the national average making it a favorable destination for people looking to settle there. Media rent is about $1,050 while the houses are priced at $124,400. Groceries are 6.4 percent cheaper while transportation is 7.5 percent. Here is the index:

  • Cost of living: 90.4
  • Housing index: 77.4
  • Grocery index: 93.6
  • Utilities index: 97.3
  • Health index: 97.1
  • Transportation index: 92.5
  • Miscellaneous: 96.1

Yes, these states may not be as glamorous as living in San Francisco, LA, or New York but you will also not have to worry as much about seeing homeless people defecate in public which is what happens in San Francisco all the time. If you want to be accosted by a homeless person and smell urine all the time all the while spending massive amounts of money on living costs and taxes, San Francisco is your place.

San Francisco is also in the midst of a properties crimes epidemic. LA and NYC are violent, expensive, and chaotic. Perhaps nice places to visit once in a while but not to live. You may see someone get mugged or shot though. If that is the environment you want to live in while being mistreated by the tax policies in those cities, it is your decision.

Culture, Finance, Insurance, Tax

How to Stop Living Paycheck to Paycheck and Start Saving

by Benjamin Roussey|Posted on | 3 minute read | Advertiser notice

Are aware that around 38 million American households live paycheck to paycheck? And no, these are not low-income families. Families even with salaries above $100K per year are caught in this vicious lifecycle. The moment the paycheck arrives, most of it goes in settling the bills and couple of days of respite followed by a zero bank balance.

This is not impressive and it does help that electrical prices rose higher in the years from 2009 to 2016 which is another reason household income growth did not rise at all in those same years as well. Hopefully that changes in the next couple of years. This will mean less people will be living paycheck to paycheck.

So why even are wealthy people failing to save money or take control of their finances? Irrespective of the income bracket that you are in, there is always a way to save some portion of your income for investment and savings, you just need to start somewhere.

Prepare a Budget

The first and most vital aspect that needs to be done to improve your finances is to understand how you are spending your money. Start whenever you want, but religiously track every penny you spend for a month. Ideally, it should be the start of the month when all your bills are due.

This will help you in covering the entire month and track your expenses accurately. If you do not have time to do expense tracking at the micro level, smartphone apps can make this job easier. Remember, the first thing to do is to understand the root cause of the problem, which in this case are unchecked expenditures.

Find Expenses that You can Cut

Tracking your expenses will enable you to identify the expenses that you can do away with. For example, the expensive cable plan you have subscribed to can be trimmed down to a bare minimum (do you really Direct TV for instance?). Switch to online streaming service providers. Scourge the Internet for discount coupons while buying anything, you may be surprised how much money you can save this way.

Check your credit card bill for subscriptions and memberships you no longer use or do without (how often do you attend that gym; can you not exercise in your home or run around the block a few times?). There is no need to walk into Starbucks every day for that caffeine dose either. Stop or cut down going to fancy restaurants or restaurants at all. You can buy TGI Friday’s frozen food at supermarkets, for example. You would be surprised how making these small changes to your spending habits can help you save money.

Do you really need life insurance? You know that is one of the biggest scams in America. Well, unless you are afraid of dying broke and we here are trying to get you in a better financial place so that does not happen.

Moreover, the savings then can be channelized towards investments or savings. That is making those spending decisions compound for you. If you are a smoker, cut down on those cancer sticks (that is what they are!). Not only you will be healthier, but also save hundreds of dollars a year.

Do Side Gigs

The Internet has made it easier to find side gigs that pay well or pay something. There are numerous dedicated platforms out there which you can use to find gigs such a web design, online accounting work, virtual assisting, consulting, research work, and so on. If you are not proficient in any of these, try something simpler like dog walking. Your home is full of things you don’t need or do not use any longer. Sell these on Craigslist or eBay. Extra cash you earn this way can be utilized in a productive way.

Consolidate Debt

If your debts are unmanageable and that is one of the primary reasons you live paycheck to paycheck, it’s time to think about debt consolidation.

In debt consolidation, all your debts are paid off by a debt consolidation firm. Then you have a single payment to make towards your debt that is optimized based on your financial profile. Though it may be an extreme measure, nevertheless it’s a percipient and prudent strategy to get out of debt trap and start fresh.

Create an Emergency Fund 

Life is full of uncertainties and you should be prepared for anything that life throws yours way. Research indicates that you need at least six months of expenditures saved up just in case the you know what hits the fan. The emergency fund should be sufficient enough cover all your bills for six months should you be out of work or in bed due to an accident or an illness.

The emergency fund should be impenetrable so do not dip your hands into it (have more discipline than most politicians!). If your emergency fund is piled up high, simply channelize it towards other purposes that are vital, such as a nice mutual fund. And no, going out to Pizza Hut is not wise. Do not sink back into bad habits!

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How to Choose Most Suitable Personal Finance Advisor for Yourself?

by Benjamin Roussey|Posted on | 3 minute read | Advertiser notice

One of the tenets of personal finance is investing your money and at one point, you will have to go to a personal finance advisor for that. After all you cannot buy stock yourself. You do not have a series 7 or 63 license do you!? And you may not even want one but that is another topic.

Many people do not want handle other peoples’ money for many reasons. It takes a special kind of mentality to have that type of confidence and wherewithal.

However, the market is full of people who call themselves a personal finance coach, finance planner, or advisor. This makes selection of a personal finance advisor even more critical.

Here are five things you need to consider before you hire a personal finance advisor and it should not be a business or anyone who is trying to get you to invest regardless if the investment is stellar or not just to register another transaction fee. Think about that! OK, here we go:

  • Education – Education plays a key role in understanding the complex world of finance. And a personal finance advisor who is educated in the same field and possesses relevant certification from Securities and Exchange Commission is the most suitable person to handle your financial planning. Competent personal finance planners or advisors will already have their website and should be publishing blogs and articles. That should be a good starting point for your search. If they do not have a website or not any online presence, that should raise a red flag for you.
  • Credentials or Certifications – Apart from self-proclaimed financial planners, any financial planner worth his salt will have a certification to boast of. For instance, a Certified Financial Planner (CFP) certification is awarded to only those candidates who have undergone extensive study materials, have taken 6 hour long test and have 3 years of experience under their belt. Moreover, the CFP has to renew his certification every three years. A CPA, EA, AFC, and CFA would have undertaken similar training. If you wish to work with the best, look out for these certifications and your search is almost over.
  • Fees – This is one of biggest factors that will determine whom you will hire. Typically, a personal finance advisor can charge you in two ways – flat fee that is charged hourly or per session. The other is commission based. Financial advisors who charge you flat fee are always recommended. That is not the case with financial advisors who work on commission basis. The premise is simple, a financial advisor is likely to give a biased advice if he is getting paid through commission. This might give rise to conflict of interest. For instance, a particular mutual fund might be most suitable for your risk appetite, however, if the advisor is getting more commission from some other mutual fund company, he will recommend that. If your assets are in the higher bracket, you can go for another compensation model wherein the advisor gets a percentage of total assets under management.
    • If you plan on doing a lot of training or one trade a week for example, a business that has a large transaction fee may not be your best bet. If you want to invest for the long term, then a company that helps you choose that asset and has a large transaction cost may be OK for you.
  • Level of Care – In the financial advisory world, you will typically come across personal finance advisors in Registered Advisory Firms and in banks and financial institutions. Both sell financial products. While advisory firms are fiduciaries, advisors at banks and financial institutions will act by suitability standard. A fiduciary will always look for its client’s best interest while the one that goes by a suitability standard will find the most suited (not the best) solution for you. With that being said, the fee factor also comes into play. So not only you now have to decide between advisory firm and a bank, you also need to factor in how the advisor will get paid.
  • Relation that Matters – This element is very subjective. Do you prefer your financial advisor to check-in with you every now and then or you want it to be an annual affair? Again, several factors come into play here. If you are busy and would not like to disturbed every few months for long meetings, than the latter would be appropriate for you. Consider your comfort level with the advisor too. You have to have rapport with them!

Like any other professional, financial advisors too are made different. You will have to take into consideration several factors before you decide which is the best suited financial advisor you need or want to hire. No one is perfect and no system is perfect. That is also something you have to consider.

Finance

4 Habits to Achieve Financial Success

by Benjamin Roussey|Posted on | 3 minute read | Advertiser notice

Every year, thousands of people make New Year resolutions to get their life back on track, financially, and every year many of them fail to honor these resolutions.

Today, in this post, you will learn about 4 killer habits that will help you achieve financial success.

Set Goals and Have a Plan

Here is a vital but overlooked question – where do you see yourself in the next five years? How much are you going to earn and what will your investment portfolio look like at the end of these five years? These are critical questions that need answering and successful people have a vision that covers this. Well, everyone accept Michael Kelso from That 70s Show!

This is where planning and setting goals come in. If you are planning your retirement, say after 30 years, divide this big goal into small five year goals that looks more achievable. Do not get overwhelmed. It is equally important to measure your goals periodically to understand where you stand and what needs to be done.

Whether you are saving for college, or planning your retirement, the process remains the same. Plan, set goals, and reassess every few years. Saving will be easier in a year or so when taxes are lower and the economy is shooting upward. This is not something that happened from 2009 to 2016 because of the Barney Frank and Alan Greenspan recession but this is another topic.

Setting and Sticking to a Budget

It doesn’t matter whether you are a millionaire or a struggler. A budget is something that we all need. There is a suitable reason why every financial adviser advices to have a budget.

Having a set budget will help you understand your goals and whether they are achievable or not, set parameters for your daily/monthly household expenses, calculate your savings, and understand how much can you invest.

A budget is only as good as you stick to it. If you set a budget and then fail to follow it, it is useless.

If you have never created a budget before, start with something simple. What are your basic necessities and how much you need to cover it? You are looking to answer this question – if I lose my job tomorrow, what are the expenses I have to bear to run my house?

You need to pay for rent, food, fuel, your kid/s school fees, but you do not really need to pay cable fees or watch movies on the weekend (well, unless it is Transformers, Sicario, Deepwater Horizon, Hacksaw Ridge, other movies of this caliber but let’s not digress too much). You can certainly cut out the restaurant eating!

Using this as a groundwork, you can slowly work on a budget that will help you understand how much can you save, and eventually invest. Create a budget, stick to it and as always, periodically evaluate it.

Savings and Compound Interest

When you start saving money from an early stage, you quickly discover the power of compound interest which is often underestimated. The going trend is that if you have a choice between saving money and following your passion, people are increasingly choosing to follow their passions.

Compound interest will help you grow your money faster because the interest is going to build up over time upon itself. The beauty of compounding shows when you have time, and the longer you take to start saving, the less time you have on your side. It is prudent that you do not procrastinate, and work on saving as much as you can.

Professional Help

Looking to make your financial journey a little less stressful, and a little more fun? You are looking for the right kind of financial expert, someone who can help you understand your situation and then guide you in the right direction. This will not only save you valuable time, but also help you get off to a decent start. Your goals will be much more achievable and your life will be that much less stressful.

Everyone needs help. Pro athletes have pro coaches who help them get in shape, motivate them when they are feeling low, and help them perform well at their game. You can use a coach too, someone who will help you navigate the ups and downs in your life financially. Why try to do this on your own? When your car has an electrical problem, do you try to fix that yourself? Probably not!

This is where a financial advisor comes in. He can act as an accountability partner of your life. His job is to offer help, advice, and support whenever and wherever you need it.

It is easy to let go of yourself, to forget your long term goals for immediate gratification, and indulge yourself in short term pleasures. A professional financial advisor will help you keep yourself in check, and make sure that you are working towards your goals and to help you realize what those goals are.

Finance, Insurance, Lifestyle, Tax

6 Practical Tips for Financial Success

by Benjamin Roussey|Posted on | 3 minute read | Advertiser notice

Despite every single individual trying to attain financial freedom and stability, the subject is not yet taught in our schools. Thus, it is not uncommon for young people to be clueless about personal financial planning.

It is also not uncommon for a high school student to graduate in an American inner city and barely be able to read because of political correctness in public schools but this is another topic. See The Wire – the 5th season on this! That was junior high school students in Baltimore but the high schools are just as rough.

Moreover, if you are one of those people who are just stepping into this hyper-competitive, time-strapped world, or someone who has been working for a couple of years without any concrete financial goals, the following tips will come in handy.

Self-Control is the Key

Credit cards make it so easy to purchase anything on impulse. And if you are an impulsive buyer, like most Americans, you might be carrying a debt of $15,000 just on credit cards. Not good but this is not uncommon either!

Most of this can be avoided. Avoid eating at fancy restaurants, buying that expensive pair of jeans, or that new smartphone. Learn what delayed gratification is. Always save and purchase anything you wish with cash. Do not buy a couch you cannot afford and make monthly payments on it, for instance. You have to pay interest on that couch so handling your money this way is nonsensical. Pay in cash or do not buy. Go buy some cheap chairs for temporary use and save up to buy the couch.

Emergency Fund

One of the most neglected principles of personal financial planning is emergency funds. No matter the amount of debt you are carrying in the form of student loans, mortgage, credit cards, car loan or a personal loan, ensure you set a certain amount aside for emergencies.

Also, just forget that that the money exists. Treat it as a non-negotiable monthly expense, like your credit card bill. And use a high-interest saving account, money market account, or a CD for building up an emergency fund, or else inflation will erode the value of your savings.

Start Retirement Planning, NOW

If you have nothing saved for retirement, now is the time to start on that. Ideally, you should start your retirement planning the moment you start earning. The sooner you start investing in retirement products; the bigger your retirement kitty will be as long as you do not invest in Solyndra! Company-sponsored retirement plans are one of the most effective tools. Mutual funds, equities, and what not are other options to consider. Again, the mantra is to start early.

Keep the Tax Monster at Bay

Taxes seem to be omnipresent. Even before you get your first paycheck, learn how much of it will go into taxes or what will be your take-home pay. An increase in pay due to promotion or job hopping does not mean you will have extra disposable income like you are hoping. Trump will cut taxes but taxes will still be a part of our lives.

Furthermore, it might happen that you have moved from a low tax bracket to a higher tax bracket which increases your tax liabilities significantly making your increased pay not as impressive as you were hoping it would be.

You should also work with an accountant that can give you concrete tax advice or educate yourself on this topic if you do your taxes by yourself.

Never Ignore Health Insurance

A single emergency room visit can set you back by thousands of dollars, and without health insurance, it would be difficult to manage healthcare costs. Just like an emergency fund, it’s essential to have suitable health insurance for you, and if applicable, for you family too.

Yes, because of the ACA America’s health care picture is not impressive (it will hopefully get better in the years ahead but that is another topic) but you still need insurance regardless.

Also, unlike your wealth, your health will erode as your age progresses thus ensure you exercise regularly to keep yourself fit. As they say, “Health is wealth.”

Guard Your Assets

Guarding your wealth is as vital as acquiring it. A simple mistake can cost you your entire life’s savings. For instance, driving without car insurance and then you cause a wreck can be financially painful.

Similarly, if you rent your property, having renters insurance is of paramount importance. Any damage to the property due to burglary or fire will mean substantial losses to you. If you employ a financial planner, choose fee-only rather than commissioned based financial planner. It will help ensure that you will invest into financial products that are beneficial to you.

It is not difficult to plan your financial life, a little effort in educating yourself will reap rich dividends. Never invest in complex financial products if you do not understand them and if your name is Napoleon Dynamite, do not invest in anything! Protect yourself and your assets with the necessary insurance and avoid impulsive buying.

Follow these six principles to come closer to enjoying a stress free financial life.

Business, Finance, Tax

Why are Mutual Funds better than Stocks for Low-Risk Appetite Investors?

by Benjamin Roussey|Posted on | 3 minute read | Advertiser notice

Investing a certain portion of your earnings enables you to build wealth over a period of time. Though the investment market is full of investment products, stocks and mutual funds are most widely known and preferred by retail and small time investors.

However, considering the fact that stocks are extremely volatile, you should consider investing in mutual funds rather than investing directly in stocks. Here are few reasons you should consider investing in mutual funds rather than in stocks if you have a low-risk appetite.

No Need to Pick Stocks

Picking the right stock at the right price is one of the critically important factors that determine its success. In the case of mutual funds, a fund manager does this for you. If you are investing directly in stocks, you have to keep track of them, ensure you sell them at the right time and make appropriate allocation in different sectors. This is time-consuming and knowledge intensive exercise. And even if your stock does well, such as Apple or Ford for instance, the stock price could still go down if their future guidance is not right.

That is very frustrating!

Many instances have been found amongst Baby Boomers who invested their money into stocks and never tracked them. Most companies in which money was invested no longer exist. A mutual fund manager, on the other hand, keeps track of all the assets in mutual fund avoiding such situations.

Do not worry, your mutual fund manager will not be Napoleon Dynamite. This person will be a professional and not keep tater tots in his pant’s pockets! That type of behavior does not inspire confidence!

Distributed Costs

As an individual investor, you pay brokerage charges for buying and selling the stocks, which might be in the range of 0.5-1%. However, a mutual fund or the Asset Management Company that manages the mutual fund, due to economies of scale, pays a minuscule brokerage for trading the stocks. The management fee is all inclusive thus your overall costs of churning the portfolio are barely noticeable.

Low-Cost Investing

If you buy and sell stocks within a year, you will be liable to pay short-term capital gains tax which might wipe out profits. Of course, the same situation may be applicable in the case of mutual funds, but there is a difference. For instance, you might have to sell the stock within a short span to book the profits.

So apart from brokerage for trading stocks, you will also end up paying short-term capital gains tax and even with Trump getting the job done and doing things that are long overdue, such as cutting taxes, you still have some taxes to pay. Any time you can save money via taxes is something you should take serious.

A mutual fund, on the other hand, will incur just the trading charges (which are very low), and since your money stays invested in the asset management company, you do not have to pay any capital gains tax. Only if you exit the mutual fund within a year, you will have to pay capital gains tax on the profits made.

Optimized Asset Allocation

A concrete portfolio consists of 25-30 stocks spanning different industries. This requires a significant amount of time and stamina. You should be checking your stocks every day as well; you really do not have to do that with a mutual fund since they own a hundred companies or so and so a mutual fund is not as volatile since the risk is not tied up with one stock but many of them. You may not be in a position to invest that amount of money or time into this craft.

Moreover, it requires in-depth knowledge of stocks to pick the right ones. As you buy units of mutual funds depending on your budget, every unit is equally diversified. This significantly reduces the risk to your portfolio.

However, as the underlying asset for equity-based mutual funds is equities, if the entire market declines, your investment too will decline. A balanced mutual fund which has a mix of stocks and bonds, however, will offer better protection against market volatility as already mentioned. If you are extremely averse to risk, it is also possible to invest in debt mutual funds that offer low but assured returns.

As indicated earlier, you can lose your entire investment in a single stock. That rarely happens in the case of mutual funds since your mutual fund manager is looking after these companies making changes to the asset allocation as per the market conditions and new laws being voted into existence or even ending. He or she will not make the terrible investment decision we saw the main characters make in Horrible Bosses II. Not impressive!

Mutual funds moreover are tightly governed by the SEC. Thus, if you are new to investing, have low risk appetite, and are patient with your investments, mutual fund is the best investment vehicle that suits your profile. It does not mean you should not invest in stocks directly. Do that only if you have the market know-how, can dedicate time towards it, and do not mind taking losses.

Business, Finance, Insurance, Lifestyle, Tax

4 Finance Tips for New Homeowners

by Benjamin Roussey|Posted on | 3 minute read | Advertiser notice

Here is an interesting fact. According to recent research, about 40% of Americans do not own their own homes, but the remaining 60% are enjoying the benefits of ownership. However, there is also a downside of owning your own home which is the cost of an acquisition. It is not only the down payment that you have to manage; there are other expenses that you will have to pay for.

Here are some tips for you if you are a new homeowner:

Always have a budget

It is a known fact that your monthly mortgage payment will always differ, if only ever so slightly, from your rent payment. Most tenants feel that they only have to adjust their budget slightly when they choose to buy but they couldn’t be more wrong. Most buyers, when they are home hunting, they usually go for a home that is larger and more spacious than the one they are currently living in. This increases their cost of living.

They forget to factor in other expenses such as heating and electricity expenses, maintenance cost and so on. Now you have a lawn which needs time and money to maintain and since you are the owner, this is your responsibility. You do not want to end up with a lawn that looks like Dick Harper’s (Jim Carrey) in Fun with Dick and Jane. You also do not want your lawn to be repossessed!

What you need to do is to budget for all the potential expenses that you will have to bear so you know what it would be like to own a home. Then you can keep track of these costs and be able to evaluate the situation. This will help you come up with a budget to work with it, and help you understand the actual cost of relocating and actually owning a home.

Repairs and maintenance

As long as there are homes, there will be repairs and maintenance. There is no escaping this fact and the sooner you account for it, the better it will be. While most home owners do consider the cost of repairs and maintenance, they often underestimate it.

A suitable rule of thumb is that you are going to spend anywhere between one to four percent of your home’s value on repairs and maintenance every year. So for example, if you own a home that is worth $400,000, you must be prepared to spend anywhere from $4,000 to $16,000 every year to maintain it.

There are also these unexpected financial hits that will smack you every once in a while. For example, getting a new roof or replacing your heating or cooling system. This is why you should have some money saved. An appropriate rule of thumb is to save up to six months of expenses in advance.

Rising property taxes

Property taxes are determined based on local taxes and the assessed value of your home. Take these factors into account before you decide to buy that 2,000-square-foot house, for instance.

At the time of buying a new home, you will be notified of your new tax liability, but it is important that you understand this – property taxes have a cruel tendency to shoot for the north side of your graph which means that it is going to increase in the future. It doesn’t matter whether the value of your home has decreased, property tax might still see an increase.

For example, in the year 2000, about $247 billion was collected in property taxes, and by the time 2010 was here, the number doubled to $476 billion. This happened irrespective of the property bubble burst the US markets saw in the later years of that decade which was caused by Barney Frank but that is another topic.

Depending on the locality that you are residing in, you might have to reassess your property tax every few years. Once again, you will have to make some room in your budget for these hikes. Well, unless you vote for someone who lowers your taxes!

Escrow system

It is possible to merge your property tax and insurance into your mortgage payments using the escrow system. If you are unsure, here is how it works.

The lender will charge you a fixed amount every month which will be above your mortgage payment amount. The access money will be put in an escrow account and this will be used to pay your property taxes as well as homeowners’ insurance amount.

This is not true for all mortgages and you will have to talk to an expert to understand your particular situation. Some will just ask you to pay the exact mortgage amount while being responsible for property taxes and insurance.

If you belong to the second category, once again, you will have to budget accordingly. An average US homeowner spends about $2,127 in property taxes per year. It varies from state to state.

So now that you know how vital a budget is, and the different types of expenses that you will have to deal with once you buy your new home, you can plan accordingly.

Just do not mess up like Dick Harper did! And don’t rob convenience stores!

Finance, Tax

A New Retirement Plan that Works like a Pension Plan

by Benjamin Roussey|Posted on | 3 minute read | Advertiser notice

Americans are known to spend more money than they should (America is trillions in debt and many Americans have thousands in credit card debt) and unlike Asians (the Japanese are known for their thriftiness, for instance), do not believe in saving money for their future. Although, not everyone thinks alike, this is a common and growing issue in the country.

A Growing Issue

According to a study, more than 40 million households in the US do not have any assets for their retirement. This accounts for 45 percent of the total population, a disturbing number. The research was conducted and the report was published by the National Institute on Retirement Security. About 20 million of these households have someone in the age group of 45-65 who is running the house. It is also estimated that many if not most Americans leave behind up to $65,000 in debt when they die.

Those who are saving money for their retirement are not sure if the amount saved will help them get through retirement. 401(k) accounts are self-regulated which means that if you are not competent at handling taxes and know a thing or two about investing, your future is in trouble.

Longevity Income Annuities

Government pension plans provide security even after you retire, and so do some pension plans offered by ubiquitous companies. If you are not part of any of these, there is still a way for you.

In the year 2014, the Treasury Department paved the way for an initiative regarding 401(k) retirement savings plans. Too bad no one has paved the way to prevent any more Jurassic World movies from coming out, that movie was horrendous!

Some tax laws were changed and some restrictions were removed, but the Treasury Department was successful in converting funds that were lying in the retirement savings plans to LIAs (Longevity Income Annuities). This new plan offers lifetime guarantee which is good news for all those who are not or unable to save anything for their retirement and old age.

If you understand deferred annuities then you understand LIAs. They have been active for more than three years now, but picked up steam only recently. It is possible that the treasury department will force it to become part of the target funds in a 401(k).

How LIAs Work

This is how they work and can help you when you need them the most:

You have a retirement savings account with a balance of $100,000. When you turn 65, you use $10,000 to buy a LIA. Now under this situation, according to a report published by National Bureau of Economic Research paper:

“Even in the current low-interest-rate environment, a deferred single-life annuity purchased at age 65 for a male costing $10,000 can generate an annual benefit flow from age 85 onward of $4,830 ($3,866 for a female) per year for life,”

This means guaranteed income which can come pretty handy when the situation presents itself, for example, old age. You have to bet that you are going to live a long life (unless we do something about Iran and North Korea but that is another topic!), long enough to take advantage of this pension plan. In that sense, it can be called a hedge. So what happens when you die early?

AARP

Olivia S. Mitchell, Wharton School of the University of Pennsylvania professor, says that LIAs are available to investors but they are not part of defined contribution plans. This is not to say that the concept has not been considered. There have been talks making them part of target-date suite of funds and even employers are looking for alternatives.

401(k) plans do not have lifetime income streams and annuities as a standard feature. If an individual who is already passed his or her prime is not sure how long they will live, he or she might underestimate their chances of living a longer life than the asset. Some people are simply unable to understand advance or even basic financial concepts. Retirement is a one-time event and people often underestimate it.

This is not to say that LIAs cannot be accessed easily simply because they are not part of defined-contribution plans. There is a plan called AARP that has been actively offering lifetime income program to its members since 2006. There is also a cash refund initiative where if you die before your total payments are equivalent to your annuity purchase price, the person you have nominated as the beneficiary will receive the difference amount.

LIA is not the right option for you if you are in poor health in which case, you should not sign up for deferred annuities. People who are very rich may also not require LIA. This is a plan for a specific class of people. Kind of like the movie Star Wars: The Force Awakens was for a specific class of people, people who enjoy movies with no impressive characters, weak writing, and subpar action scenes but this is another subject!