Benjamin Roussey, Author at Savings Roll

Finance

4 Personal Finance Mistakes to Avoid During Covid-19 And Beyond

by Benjamin Roussey|Posted on April 18, 2020 | 3 minute read | Advertiser notice

The Covid-19 pandemic has caused widespread economic disruption and chaos, both at a macro and micro level. With millions of Americans losing jobs or shuttering down their businesses, it is challenging for households to manage their lifestyle.

Managing your personal finances in these times is definitely not going to be easy. But there are certain mistakes in personal finance that can exacerbate the problem. Whether it is indulging in excessive spending beyond your means through online shopping during these times, or making misplaced investment decisions considering the high market volatilities, it’s vital to minimize your errors.

Although some of the personal finance mistakes can be course-corrected quickly, others may not be so easy to reverse and may prove to be damaging to your net worth over time.

Here are four key personal finance mistakes to avoid at present during the coronavirus crisis, and beyond.

Not Maintaining an Emergency Fund

If you rank among the low or middle income segments, not maintaining an emergency fund can be disastrous when the tough times come, such as now. If you need money in this situation for some serious medical, house repair, or another item, you will have very limited choices left with you when you cannot dip into your emergency fund.

You may either have to sell an asset at a distress price or borrow money at a high interest rate. Both are poor decisions under any circumstances, and it can take long time to recover from them. Therefore, your best bet would be to start building an emergency fund the moment the current period of uncertainty created by Covid-19 starts to clear up.

Not Having Sufficient Insurance

In your household, if you are the primary earning member, it is prudent to get yourself adequately insured. Otherwise, during a personal health emergency, an accident, or in a crisis such as the Covid-19 or Wuhan virus, if you are temporarily incapacitated or unable to work, you and your family may have to struggle to survive financially.

In addition to medical insurance for you and other family members, you must have adequate life insurance that will pay your family if you are no longer there. It is also sensible to have disability insurance, which can replace your income to some extent if you become fully or partially disabled. Consider having long-term care insurance that will protect you from extended medical costs in the event you develop a critical or chronic illness.

Compare the offers from different insurance companies to choose the best coverage for your needs. Insurance providers usually enable you to purchase one insurance policy, where you can add riders for long-term care and disability.

Ignoring Automatic Savings Plans

For most people, it is difficult to save a certain amount of money from their income consistently every month and this Wuhan virus situation is certainly proving that so since it seems so many Americans have been caught off guard (and states like California, Washington State, and New York which have been hit the hardest because they did not have any contingency planning done). Some expense or the other keeps coming up, and when you have cash in hand, it is easy to spend it fast. This can create a lifestyle where you are living from paycheck to paycheck, and not have a strong financial security for emergencies or for your retirement.

The surest way to address this situation is to invest in an automatic savings plan, which will force you to save a certain amount from your income every month during good times, so that you can fall back on those savings during times of difficulty.

You may arrange for automatic deduction of the monthly savings amount from your pay itself after talking to your employer. Discuss with a financial advisor (Charles Schwab is said by many to have a dishonest website so Fidelity, Edward Jones, and so on could be salient choices) for the right automatic savings plan that suits your needs.

Indulging in Impulse Purchases

Shopping can turn into an addiction if you do not exercise self-restraint, and you may end up spending all your savings on impulse purchases that you really did not need (don’t be like Madonna – the Material Girl!). Attractive discount offers and special deals are often available on non-essential products that could easily avoid.

But the special offers can be tempting and can compel you to indulge in an expensive purchase. Credit cards and online shopping make it easier to spend money on impulse buying at the click of a button. Set rules for yourself and your family to stay away from the habit of excessive shopping, and inculcate the good habit of saving.

Don’t spend money like Jesse Pinkman did in Breaking Bad!

If you keep a careful track of all your expenses, such as how much you are spending each month on groceries, entertainment and dining out, credit card bills and mortgage payments, it will be easier to curb the habit of impulse buying.

Business, Money

5 Strategies Billionaires Use To Multiply Their Wealth

by Benjamin Roussey|Posted on March 16, 2020 | 4 minute read | Advertiser notice

A lot of people seem to think that billionaires sit on mountains of money and just invent new ways of spending it. Which is obviously not true.

Billionaires actually don’t see money as something to spend on themselves. Money is simply there to invest and create. This mindset is what allows them to multiply their wealth day in and day out creating more jobs and businesses along the way which is why countries with billionaires are better off with countries without them.

Over the years, numerous researchers have studied dozens of self-made billionaires for several years and found that they have specific habits that help them build wealth. For starters, they focus on saving and bringing in multiple income streams.

They also tend to favor the long game and look for opportunities when others are panicking – all traits that help 10x their wealth building efforts.

The good news is, you can replicate what the 1% is already doing and increase your net worth fairly quickly. Here are some key strategies used by billionaires that you can also implement to have your money work for you.

Get into the investing game early

You may be sick of hearing this advice, but this is the reason why Warren Buffett is one of the richest people on this planet even despite his politics which have hurt so many people. The Oracle of Omaha bought his first stock when he was 11!

Buffett is unarguably one of the most successful investors on this planet today and he credits his success to his early investing habit. And many other billionaires attest to the same fact.

By starting to invest early, you can take advantage of the power of compounding to the maximum. Don’t wait for the “right time” – there is none. Save as much as you can, start small and then increase your investments gradually.

Be patient

Ask any mega successful investor about the fundamental principle of their investing strategies, and they will all say the same thing: have patience.

Let’s circle back to Mr. Buffett for a minute because there really is no better person to learn investing about. He first bought six shares of an oil service company (Cities Share) at $38 a share. He had identified the company as an undervalued stock and was confident of making a great profit.

Unfortunately, the stock lost nearly one-third of its value within a few weeks of Buffett buying it. Most people in his shoes would have sold the shares as fast as possible but he waited. Buffett held onto the stock until it rebounded to $40 a share and received $2/share profit.

But that stock didn’t stop rising. After Mr. Buffett had cashed in, he observed the stock rising to over $200 a share without him.

If you are a newbie investor, don’t sell at the first sign of trouble. Follow the buy-and-hold strategy that all billionaires swear by and you’ll substantially increase your odds of getting rich dividends in the long term.

Always keep in mind that the market has an inherent upward bias. Just look at the US stock market: it has survived two world wars and countless recessions and crashes, and still has always managed to bounce back stronger and it certainly will after the Wuhan virus stops spreading. This will happen after it warms up but this is another topic.

Another benefit of holding onto your investments for longer is, their returns will be classified as capital gains. This means the amount of returns will be taxed at a lower rate compared to the tax rate charged at which your routine income. This is why almost every billionaire holds onto a significant amount of their assets in equity.

Put your money in real estate

There is a reason why pretty much every billionaire has invested in commercial and residential real estate. Investing in real estate has the potential to be profitable in the short-term as well as the long-term.

According to the National Association of Realtors, the value of real estate in America has appreciated by 6% each year since 1968.

Also, it can provide you with a nice steady stream of rental income every month like clockwork. Even if the real estate market crashes tomorrow and your property goes down in value, you’ll still have the monthly income to rely on.

Be strategic, don’t panic

When the market slows down, an ordinary investor starts panicking and looks for an exit. On the other hand, billionaires see it as an opportunity to make strategic investments that will pay off big time in the long run.

In the aftermath of the Greenspan/Frank 2008 recession, people called Warren Buffett crazy when he invested $5 billion in Bank of America. But he knew that even though the banking sector had experienced a crippling blow, it will bounce back. And it did. Buffett traded those shares for an incredible $16 billion in 2017 which is the same year America emerged out of the recession because of the 2017 tax cuts.

So, no matter how bad it looks at any point in time, don’t do what inexperienced investors do. Instead, do what billionaires do and look for growth and value stocks that can be bought at a steep discount.

Use tax saving strategies

Billionaires understand that using some smart tax strategies, it is possible to reduce their tax burden. Some of these strategies include setting up trusts to pass down their wealth to the future generations and holding most of their assets in equity.

You can also shrink down your tax bill in a variety of ways, such as:

Claiming as many tax deductions as you can: mortgage interest, HAS contributions, 401(k) contributions, student loan interest deductions, medical expenses deductions, state and local taxes deductions, charitable contributions, and more.
Increasing the contributions to your retirement accounts to the maximum amount possible.
Holding your equity investment for at least 1 year to take advantage of capital gains taxes.

Final word

Despite what you may think, most self-made billionaires are not Ivy-League educated geniuses with advanced degree in finance. Heck, most of them never even went college! But there’s a big difference between getting a degree and getting an education.

If you want to invest like a billionaire, start thinking like one. Instead of thinking you’re not ready or getting fixated on short-term gains, learn how to take calculated risks. We are living in times of turmoil right now, and most people are selling quality companies at rock bottom prices due to fear.

This is the time to take advantage of that gloom in the market and score yourself a deal. This is the time to buy because America will rebound soon as already indicated and the rest of the world will rise with it (though not as much because most countries have leaders who are not cutting taxes and regulations but this is another topic too).

Finance, Money

Strategies to Help You Pay Down Your Mortgage in 15 Years

by Benjamin Roussey|Posted on February 10, 2020 | 4 minute read | Advertiser notice

Throughout the years, the fixed-rate 30-year mortgage has remained the most popular financing option for homes. This empowers Americans to own property pretty early in their lives, largely due to the affordability of the 30-year mortgage. With reasonable monthly payments, even young adults are able to easily afford living on their own property, while also enjoying the perks of an active social life.

And yet, what many Americans do not realize is that this seemingly helpful mortgage plan comes with its own share of pitfalls. This includes:

A long, drawn-out payment period, with the initial years contributing more to the interest amount, than to the actual principal amount of your home.
A high interest amount that is paid out over the 30-year plan.

In fact, many people find themselves making mortgage payments even years after their retirement, when they are more likely to feel its pinch.

For this reason, an increasing number of Americans have wizened up and found clever ways to reduce their mortgage period, while still keeping their interest rates and monthly payments at an affordable limit. Here are 5 simple tricks to help you make the switch.

Re-finance your current home loan

In the rush and excitement of owning your own property, chances are you took the first (or second/ third) 30-year bank loan you could afford, with minimal research. Now when you look deeper, you may be shocked to discover the high interest rate charged by this “affordable” loan. Fortunately, you can get out of this rut by re-financing your home loan after carefully considering all variables. This includes:

Timeframe of the loan: With long-term loans (above 15 years), you end up paying a significant amount of interest, collected over the entire duration. With short-term loans (below 15-20 years), your monthly payments may be higher, but the interest is collected within the first few years. Following this, a larger contribution goes towards the actual principal amount of your property.

Interest rate: You should consider re-financing of your mortgage, only when the lender is able to reduce your rate of interest by at least 1%. If not, the costs associated with re-financing may outweigh any benefits gained from it.

Cost of re-financing: Most mortgage plans will have a penalty clause, which outlines the amount you pay if you do not last through the 30-year period. You will need to pay this amount off when you re-finance your mortgage. In some cases, the lender may wave off this amount, but only if you re-finance the loan with the same lender. Check all variables before you consider this option.

Redirect all unexpected savings, windfalls, and tax refunds towards your mortgage

Homeowners (and there’s more of them now because of the amazing economy because of lower taxes) have the option of making “extra” payments – beyond the expected monthly payments – towards your mortgage. The advantage of this option is that it is typically directed towards the principal amount, and not towards the interest.

In turn, this can reduce your mortgage period, also reducing the total interest amount you pay on the loan. So, try to make as many such extra payments as possible on a yearly basis.

These could come from a bonus at work, an unexpected inheritance amount, or even a tax refund at the end of the year. The more “extra” payments you can make, the faster you can clear your mortgage. Ironically, you will also end up paying a lower amount on the total loan amount.

Save on a weekly basis for your monthly mortgage payments

Typically, the lender will expect you to make monthly payments through the year. That is 12 payments in total every year. But consider if you were to save for these payments, not on a monthly basis, but on a weekly basis.

So, if your monthly payment is $1,000, you save $250 every week. This is easily possible with a little bit of planning. (Many employers are also agreeable with fortnightly payments).

In this case, you will end up saving $250 x 52 weeks every year, which is equivalent to 13 monthly payments. With this, you would have saved up enough for at least one “extra” monthly payment for the year, and thus stand to gain all the benefits outlined in (2) above.

Become a landlord

Despite owning their own residential property, it is surprising that many people rarely consider becoming a landlord to make/save extra money, and redirect this towards extra mortgage payments.

Renting a part of your property – like the basement as an independent suite, or a room as a holiday accommodation option through Airbnb – is one of the most surefire ways to make more money using what you already have. You could also consider renting your garage to a local business for storage.

Avoid loan sharks and scamsters

In the bid to refinance your 30-year mortgage, ensure that you do not fall prey to greedy loan sharks or too-good-to-be-true fraudsters. Many so-called “mortgage accelerator programs” are intentionally designed to be unaffordable in the long term, and also come with heavy penalty clauses that are nowhere buyer-friendly.

It is better to be patient yet consistent with your home’s mortgage payments, even if it is drawn-out across 30 long years, than to lose your home altogether due to a dubious finance scheme (like social security). You should also get a second opinion from a trusted person before you consider making the switch

Finance

11 Financial Mistakes That Could Ruin Your Retirement Plans

by Benjamin Roussey|Posted on January 3, 2020 | 3 minute read | Advertiser notice

To have the kind of retirement you have always wished for, you need to have a solid retirement savings strategy in place. If you can just take care to steer clear of a few major pitfalls in your retirement plan, you should be on a safe track for a financially comfortable retirement.

Mistake # 1: You have no retirement plan.

If you put funds only occasionally into a 401(k), or simply don’t save with a commitment to set aside a certain percentage of your paycheck every month in retirement account, you could have a financially dire situation on retirement.

Mistake # 2: Your saving process is not automated

If you are simply depending on surplus cash for your savings at month-end after all the bills have been paid, you could soon fall short of meeting your retirement goals. Without an automated process in place, it is tough to maintain savings discipline for long.

Mistake # 3: All your eggs are in one basket

If you are putting all your retirement savings in a single investment, it will increase your long-term financial risk. Markets go through periods of severe volatility, and diversifying your retirement investment portfolio is vital to minimize risk.

Mistake # 4: You have no time to meet your financial advisor

Even if you have a firm retirement plan in place, you still need to meet your financial advisor periodically to review market changes, and whether there is a scope for improvements in your portfolio.

Mistake # 5: Your retirement plan has not accounted for rising costs of healthcare

According to a study by Fidelity (a company that does not entice you into trading with their website like Charles Schwab which is another topic), a couple who retires in 2018 would require $280,000 to cover their healthcare costs in retirement. These costs are bound to rise in future, and your retirement plan should have the foresight to factor in such cost increase.

Mistake # 6: Your savings are regular but insufficient

A nice start to retirement savings would be about five percent of your annual income. However, the ideal figure for a comfortable retirement would be about 15 percent, according to some analysts. If you have a much lower rate of savings, you are unlikely to achieve your retirement goals.

Mistake # 7: You overextend your financial support to others

Although you may have a necessity to support your family (such as an aging parent or an adult child) financially, if you overstretch your financial support, it could prove detrimental to your own retirement goals.

Mistake # 8: You carry your debt into retirement

Work hard to eliminate your debts before retirement such as a high credit card balance, a substantial mortgage, or a home equity loan. If you carry this burden into retirement, the repayments will eat into your living expenses at that time.

Mistake # 9: You have zero equity investments in your retirement plan

The traditional rule of staying away from stock investments for retirement made good sense when the life spans were shorter and medical costs were low. If you remain over-cautious with stocks in your retirement plans today, you are not likely to get the kind of growth you may be hoping for.

Mistake # 10: You depend on a company pension or social security plan

It is an illusion to believe that somebody else will take care of your retirement planning. The problem is that the Social Security rate of return for individuals nearing retirement is only about 1.5% (many people believe it’s a giant Ponzi scheme). In the future, this may even move towards negative returns. In short, the paternalistic era of the government and employers assuring a guaranteed income for life is about to end. It is time to gear up and take charge of your own retirement planning.

Mistake # 11: You failed to maximize your tax deferral

The government has created a range of tax incentives to encourage people to save for retirement. Failing to maximize this tax advantage is a mistake. For instance, contributions to various employer sponsored retirement plans, including 401k and 403b, reduce your taxable income and enable your savings to grow tax-deferred.

Even if you may not be covered by an employer sponsored plan, a variety of other retirement plans are available to offer some combination of current tax savings as well as tax-deferred growth. These include IRA, Roth IRA, SEP, SIMPLE, and more.

Finance, Money

7 Personal Finance Tips to Boost Your Savings

by Benjamin Roussey|Posted on December 7, 2019 | 3 minute read | Advertiser notice

The US economy, by any yardstick, is the strongest it has ever been in a very long time and Americans are making more money than they did in the past couple of decades. Data from the Council of Economic Advisers (CEA) shows that since December 2017, the disposable income of the average American household has increased by $5,205.

Which means if you have been planning to boost your savings so that you have something to fall back on for a rainy day, now would be a great time to do so.

Given here are seven easy-to-follow personal finance tips that can help you boost your savings.

1. Save First, Spend Later

One of the fundamental mistakes that people tend to make when it comes to saving money is that they pay all their bills first, and then try to save what is left in their account by the end of the month. In most cases, they do not have anything left in the account by the end of the month, so they do not save anything.

Instead, make it a habit to pay yourself first, before you pay your bills (but make sure you pay your bills and if you have to stop going out to eat as much then you should do that which will be emphasized more later). This way, your savings are assured to grow on a monthly basis, which can go a long way in building a financial safety net for you in the long run.

2. Follow the 24-Hour Rule

One of the most effective ways to reduce your expenditure is to follow the 24-hour rule. Nearly 85% of Americans say that they tend to make impulse purchases from time to time. Nearly 20% of Americans say that they have spent more than $1,000 on impulse purchases at least once.

In order to make sure that you only buy what you need, follow the 24-hour rule. Whenever you want to purchase something, do not rush to the store or go to amazon.com immediately. Instead, sleep over the decision for 24 hours. The next day, if you still think it is worth spending your money on, go ahead and buy it.

3. Automate Your Savings

Let’s face it – not everyone has the discipline to save money on a weekly or monthly basis. Some people are like the state of California and the city of Chicago and San Francisco! You have to break apart from these bad habits.

From time to time, we tend to spend more than we should, which leaves us with nothing to save. To avoid this from happening, you can automate the process of saving money. Set up a recurring transfer service so that a certain amount of money gets automatically transferred from your checking account to your savings account – month after month.

4. Cook Your Meals at Home

The Bureau of Labor Statistics reports that the average American household spends more than $3,000 on eating out every year. It is a colossal waste of your hard-earned money, since you can cook your own meals at a fraction of the cost and watch a movie or a show at the same time or still the same converse happily with your family.

If you are too busy to cook every day, you can follow the ‘freezer cooking’ strategy. You can cook your meals whenever you have time, put them in the freezer, and reheat and eat it whenever you want. It does not, however, mean that you should stop eating out altogether. Just save it for the weekends and special occasions!

5. Goodbye Cable TV, Hello Online Streaming

The average American household spends as much as $100 on cable TV every month. Instead of wasting money on cable, you can subscribe to Netflix, Amazon Prime, or Hulu, each of which will only cost you around $10 a month (and still watch Transformers and Sicario via Redbox!). Not only can you save a lot of money, but you also get to watch excellent shows like Narcos via those methods. You can watch Better Call Saul, Bosch, and Ray Donovan via the internet (it’s really difficult to live now without the internet).

6. Rent It Out

If you own a house, you can earn some money on the side by renting out a portion of it. If you are not exactly thrilled with the idea of letting a complete stranger live in your home, you can rent out storage space for individuals and businesses. Either way, the money you earn can help you pay off your mortgage faster and save more in the long term.

7. Increase Your Contributions to Your Retirement Account

Many employers tend to match a certain percentage of their employees’ contributions to their retirement accounts. If your employer does the same, make sure you take full advantage of it by maximizing your contributions to the extent possible. The more you contribute, the more your employer will contribute – up to a certain extent. So, it is essentially free money which can boost your retirement savings considerably in the long run.

Finance, Money

What is a Rapid Rescore & is it Something I Should Consider?

by Benjamin Roussey|Posted on November 1, 2019 | 4 minute read | Advertiser notice

Picture this scenario. You apply for a home loan and your mortgage broker or lender says that you might be able to qualify for a lower interest rate if you could improve your credit score by a few points.

The problem, however, is that even if you manage to reduce your loan balance, it can take anywhere from 30 to 60 days for the updated information to appear on your credit report which is not as long as the NFL thinks of ways every year to help the Patriots win but this is another topic. Unfortunately, you cannot afford to wait that long, since mortgages are time-sensitive.

How to update credit report quickly in such a scenario? This is precisely where a rapid rescore can help you.

What is a Rapid Rescore?

It is a process wherein you can get your credit report updated quickly through your lender. Rather than waiting for the credit bureaus to update your report on their own – which can take anywhere from 30 to 45 days – you can submit the updated information to your lender, who can then submit it to the bureau and get your report updated immediately.

How Does Rapid Rescoring Work?

It is a two-step process.

The First Step

You need to inform your lender of the changes to your credit history that are not reflected in your credit report yet, provide proof for the same, and place a request for a rapid rescoring.

For instance, if there is an erroneous entry in your credit report which states that you defaulted on a loan, when you actually did not, you can bring it to the attention of your lender and get it removed immediately.

Similarly, if you recently paid off a personal loan or a portion of your credit card balance to bring down your debt-to-income ratio, you can request your lender for a rapid credit rescore.

The Second Step

Once you provide your lender with all the information they need, they will contact the credit bureau, provide them with the updated information, pay a fee, and get your credit report updated.

Can an Individual Place a Request for Rapid Rescoring with a Credit Bureau?

Rapid rescoring is essentially a service provided by lenders. Individuals cannot approach credit bureaus by themselves and place a request for a rescoring. So, you can only get it done through your lender.

How Long Does the Rescoring Process Take?

It usually takes anywhere from two to five days. In some cases, it might take up to a week.

What Does Rapid Rescoring Cost?

It does not cost you any money, as the service is offered completely free of cost. Your lender, however, has to pay a fee – anywhere from $25 to $50 – in order to get your credit report updated. They cannot pass on the costs to you, as they are prohibited by federal law from doing so.

The Fair Credit Reporting Act, which was passed in 1970, clearly states that an individual cannot be charged for disputing wrongful information on their credit report. Since rapid rescoring is essentially an ‘expedited dispute process’, the lender cannot charge you any money for it.

What Are the Benefits and Limitations of a Rapid Credit Rescore?

Benefits

Rapid rescoring can help you update your credit report in very short period of time, improve your credit score, and help you qualify for lower interest rates.

Let us assume that you apply for a mortgage and the lender tells you that if you can raise your credit score by 20 points, you can pay a smaller down payment and qualify for a lower interest rate. In such a scenario, you can pay off a loan or reduce your credit card balance, submit the updated information to your lender, get a new and improved credit score, and qualify for a lower interest rate.

Let us assume that you are planning to apply for a mortgage, but there is an error in your credit report. It is reported that you failed to repay a loan, even though you paid it off a couple of weeks ago.

Again, in this scenario, you can contact your lender, provide them with the relevant documents, and request to have your credit report updated. Within a few days, you can get a new and improved credit score and apply for a mortgage.

In these types of cases, the expedited rescoring process works to your advantage, as you can raise your credit score by a few points within days and qualify for a low-interest rate loan. It is simply not possible under normal circumstances, as it can take as long as two months to get your credit report updated.

Limitations

A rapid rescore can only expedite the process of updating your credit report. It does not make any difference to your actual credit score.

Let us assume that you can increase your score by 20 points by paying off one of your credit card accounts. Under normal circumstances, it can take up to 60 days for your credit score to be updated. If you request for a rapid credit rescore, you can get it updated within two or three days.

In both cases, your credit score only increases only by 20 points. The only difference is the time it takes to get it done.

Can a Rapid Credit Rescore Repair Your Credit?

No, it cannot. It is important to understand that rapid rescore is not the same as credit repair. It can only update your credit report. It cannot remove any negative information from your credit report.

For example, if you pay off a delinquent account, you can get it updated quickly through by requesting for a rapid rescore. You cannot, however, get it removed. It will stay on your records for seven years, like it normally does.

Alternatives to Improve Your Credit Score

If you have a poor credit score, there are a number of steps you can take to improve it.

Negotiate with your lenders to get your interest rates reduced.
Pay off your debts – credit cards in particular – aggressively. Make sure your debt-to-income ratio (your monthly debt repayments divided by your monthly income) does not exceed 36%.
Pay all your bills – irrespective of the amount – on time. The very fact that you are late on your payments can hurt your credit score, irrespective of how much you owe.

Most importantly, make it a habit to check your credit report on a regular basis and fix the errors (if there are any) immediately. If you keep tabs your credit reports, there is no need to worry about fixing anything in the last minute.

Finance, Lifestyle, Money

How Long Does It Take To Close On a House?

by Benjamin Roussey|Posted on October 2, 2019 | 6 minute read | Advertiser notice

It is important for homebuyers to know how long it may take to close on a house once their purchase offer is accepted. Except where the deal is all-cash, the buyer’s lender will take some time to process the loan and close.

If you are well-prepared with all the necessary information and documents your lender may require, the closing process could be hastened.

However, chances are that you may still face situations where you have to discuss or negotiate with the other party. Indecisiveness or inaction will only make the closing process longer in these situations.

Average Time Taken for Home Closing

For a new home purchase, according to Fannie Mae, the average closing time is 46 days, while for mortgage finance it is 49 days. A similar time period for closing is also involved in FHA loans.

The closing process is often expedited if the loan has been pre-approved (rather than pre-qualified). If the buyer’s bank statements, employment record, and credit report have already been verified, closing on the property will usually take place within one to two weeks.

Estimated Timeline for Closing

Completing the official loan application – 1 day
Official loan disclosures (and loan estimate) – up to 3 days
Additional document requests and review – 4 to 7 days
Appraisal process – 7 to 14 days
Underwriting – 1 to 3 days
Conditional loan approval – 7 to 14 days
Cleared to close – 3 days
Closing and loan disbursement – 1 day

Factors that can Delay Home Closing

In many cases, delays in closing on a house occur at a stage when the file has been submitted to the underwriters. While an experienced loan officer would be well-versed with underwriting guidelines, it is difficult to predict how an underwriter would respond.

Delays are more frequent with institutional lenders than with mortgage brokers because their procedures may be longer and slower. Here are some of the key issues that could delay or even prevent closing on a home.

Credit Report Issues

If your credit report reveals questionable items, such as a sudden decline in credit score, new debts, errors, or a major late payment reported recently, it could cause a delay in closing.

Lower Appraisal

Lenders usually ask for an appraisal of the home before they finance it. If the property appraisal turns out to be lower than the asking price of the seller, your loan may be refused. You may either have to pay the difference from your pocket or renegotiate your terms with the seller for the loan to be cleared.

Home Inspection Raises Concerns

The home inspection may result in adverse findings, such as faulty wiring or leakage in the bathroom. Repairs will have to be undertaken before the home closing can be done.

Need for Additional Documents

In some cases, the lender may ask for additional documents to explain some doubtful aspects related to your finances. For instance, a document may have a discrepancy about your marital status, or a bank statement may show your maiden name, or some insurance information may be missing.

Problems with the Title

The home sale may be delayed if there are problems with the title, such as lien. Clearing the title may take time and cause a delay in home closing.

Unforeseen Changes with Financial Impact

Right before the closing, any unforeseen life changes with substantive financial impact, such as a divorce or loss or job may also result in a delay.

Inexperienced Loan Professionals

In some cases, both the buyer and the seller may be diligent in accomplishing their role in the process, but the professionals handling your loan may be inefficient.

What can you do to Minimize Delays in Home Closing?

In order to close on your house in a smooth and timely manner, be prepared to respond actively to the requests made by your real estate agent and your lender. While you have no control over how other parties in the value chain perform their role, you can make sure that no delay occurs because of you.

Any time you receive a request for information or documents from the lender, you should be ready to produce it as soon as possible.

Anticipate the requirements and keep ahead of the curve to ensure your home closing process does not drag on like an episode of that 90s show Mad About You.

Don’t move out of your current place of residence until you can actually move into the home you are buying. You don’t want to be sleeping in your car for a few nights or have to get a hotel.

If you are well-prepared with all the necessary information and documents your lender may require, the closing process could be hastened.

Average Time Taken for Home Closing

For a new home purchase, according to Fannie Mae, the average closing time is 46 days, while for mortgage finance it is 49 days. A similar time period for closing is also involved in FHA loans.

Estimated Timeline for Closing

Completing the official loan application – 1 day
Official loan disclosures (and loan estimate) – up to 3 days
Additional document requests and review – 4 to 7 days
Appraisal process – 7 to 14 days
Underwriting – 1 to 3 days
Conditional loan approval – 7 to 14 days
Cleared to close – 3 days
Closing and loan disbursement – 1 day

Factors that can Delay Home Closing

Credit Report Issues

If your credit report reveals questionable items, such as a sudden decline in credit score, new debts, errors, or a major late payment reported recently, it could cause a delay in closing.

Lower Appraisal

Home Inspection Raises Concerns

The home inspection may result in adverse findings, such as faulty wiring or leakage in the bathroom. Repairs will have to be undertaken before the home closing can be done.

Need for Additional Documents

Problems with the Title

The home sale may be delayed if there are problems with the title, such as lien. Clearing the title may take time and cause a delay in home closing.

Unforeseen Changes with Financial Impact

Right before the closing, any unforeseen life changes with substantive financial impact, such as a divorce or loss or job may also result in a delay.

Inexperienced Loan Professionals

In some cases, both the buyer and the seller may be diligent in accomplishing their role in the process, but the professionals handling your loan may be inefficient.

What can you do to Minimize Delays in Home Closing?

Any time you receive a request for information or documents from the lender, you should be ready to produce it as soon as possible.

Anticipate the requirements and keep ahead of the curve to ensure your home closing process does not drag on like an episode of that 90s show Mad About You.

Don’t move out of your current place of residence until you can actually move into the home you are buying. You don’t want to be sleeping in your car for a few nights or have to get a hotel.

Finance, Money

5 Steps to Tackle Your High Levels of Debt

by Benjamin Roussey|Posted on September 5, 2019 | 3 minute read | Advertiser notice

You can do a number of things to eliminate debt entirely, or at least pay off most of it. Being in debt can be stressful for anyone, regardless of your circumstances or the amount you might owe to another party.

Here are 5 steps you should take, which will help cut down your debt levels.

Step 1: Estimate Your Financial Obligations

As a first step, you need to know how much you owe and to whom. It’s a salient idea to organize your figures on an excel sheet or use an online debt calculator to keep a tab of kind of debt (loans, credit card), interest rates (in order of lowest to highest), and the total amount due to various parties.

You will never hit your target to mitigate debt if you don’t know how much it really is. Be upfront about it and create a systematic debt reduction plan that will actually work.

You should also prepare a list of your monthly income and expenditure while you are computing your total debt. Expense items would typically be listed on your credit cards and you can take account of the cash expenditures from your bank statements.

This will provide you with a fair picture of the total debt and how much you might be able to spare every month to pay off the most expensive debt components first.

Step 2: Halt any Further Debt Creation

You need to stop creating more debt if you plan to reduce it. You will never be able to get out of the vicious debt trap if you continue using borrowed money to finance your lifestyle. Remember, you are not the state of California or Congress.

For instance, you can curb the habit of charging some credit cards to pay off the debt amount on others.

Get into the habit of utilizing cash as your primary mode of payment. This will at least start reducing your credit card interest costs, and even deter you from making impulsive purchases. It is far easier to spend money by paying with plastic on things you do not need.

Postpone any non-essential purchases, and start focusing exclusively on resolving your current debt situation.

Step 3: Have a Prudent Debt Elimination Strategy in Place

Your goal should be to double down on your credit card payments because credit cards usually have the highest interest charges which is no fun to pay even during a solid economy with lower taxes. Unless you create a solid debt management strategy and execute it with a firm resolve, it will be difficult to come out of the debt cycle.

Snowball Debt Reduction Approach

This strategy involves paying off your smallest debts first. The advantage is that when you start small, it will give you the confidence that you can come out of your situation one small step at a time. The emotional advantage will be immense when you see your smaller loans are getting eliminated one by one.

Once you begin small, you will continue to gather momentum to take more tangible debt reduction steps. One small step will eventually ‘snowball’ into a huge dedicated endeavor on your part to eliminating your bigger debts.

Avalanche Debt Reduction Approach

The avalanche debt management strategy involves paying off the costliest debt first. Remember that your goal here is to focus on the highest interest rate, and not the total debt amount or the total interest cost.

While you can keep paying minimums on other debts, you can start working on eliminating those debts first which are crushing you with a very high interest burden.

Stay committed to the debt reduction strategy you choose, and slowly you will start emerging out of your difficult debt situation.

Step 4: Set Aside an Emergency Fund

While it may appear counter-intuitive to set aside an emergency fund when you are working to eliminate debts, this is a vital step that will help you prevent additional debt. Life offers no guarantees to support you in your difficult financial situation.

An unforeseen health trouble, car breakdown, or a leaky roof needs to be taken care of, and if you have an emergency fund, you will not be forced to pile on more debt. Keep a goal of building a fund of about $1,000 for these types of emergencies.

Step 5: Consolidate Multiple Debts into a Single Loan

A well-structured debt consolidation plan can help you combine multiple consumer debts into a single loan. This will usually result in a lower overall interest rate on the entire amount, and you will need to make just one payment every month.

It will simplify your finances, and give you clear goals about debt elimination. You will have to discuss with your credit union, bank, or another lender to see if they are willing to cooperate with you on this proposal of debt consolidation.

Finance, Lifestyle

How to Choose a Travel Credit Card That Delivers The Best Value to You?

by Benjamin Roussey|Posted on August 24, 2019 | 3 minute read | Advertiser notice

The right credit card can make or break your travel budget and costs, regardless of whether you are planning an annual family trip or are a regular business traveler.

Your credit card should not give you a nagging worry of losing out a significant amount on foreign transaction fees and currency conversions while paying for hotels, flight tickets, and other things.

This comprehensive guide will walk you through the key elements that need to be considered when you are comparing various credit card options for your next travel.

Annual Fee

You should be aware that most travel cards come with an annual fee. This can range anywhere from $90 to $100 for regular travel cards and even in a strong economy with stellar tax cuts these fees should not be ignored.

But the fees can go up to $450 or more for premium cards that come with a host of perks and rewards. You need to weigh these perks against the annual fee to make sure that it evens out.

If you are wondering whether there are any good travel credit cards without the unnecessary annual fee, then you are in luck. There are many no-fee travel cards, but then they have a few drawbacks, like rewards of lower value, reduced perks, and a smaller sign-up bonus.

Rewards Rates

Rewards can be primarily segregated into the following two categories:

Burn rate

Burn rate is the value you receive for the miles or points when you go in to redeem them. The standard industry burn rate is 1 cent for every mile or point. However, some cards, especially hotel cards offer a lower value on the ‘burn’ end, but make up for it by offering more points for every dollar spent on the earning side.

Earn rate

Earn rate signifies the number of miles or points you receive on every dollar spent. There are some standard travel credit cards that only offer rewards on a flat-rate. This means that you get the same type of rewards on all kinds of purchases, such as 3 miles per dollar or 2.5 points per dollar.

Co-branded cards and others offer a base rate (say a point per dollar) and then raise the stakes for certain categories. For instance, you may be paid a higher reward rate for hotel stays, airline tickets, restaurant meals, and other general travel expenses.

Don’t just blindly look at the numbers while comparing reward rates. You need to take a closer look at the category those numbers apply to and find a travel card that best matches your spending pattern.

It may seem great to receive 5 points every dollar. But, if those 5 points only come with purchasing office supplies and you don’t intend to use your travel card in an office supply store, then you may just end up getting a lousy deal.

Foreign Transaction Fee

Foreign transaction fee is never charged by a good travel card. These fees refer to the surcharges on purchases that are made outside the United States. The industry standard where foreign transaction fee is concerned is 3%, which is just enough to wipe out all the rewards you may have earned during your travel.

This is not of much concern if you don’t travel outside the US much. But, anyone who leaves US frequently should invest in a travel card with no foreign transaction fee. There are many issuers, like Capital One and Discover that offer cards without foreign transaction fee.

Reputation of the Issuer

You need to make sure that your travel card is backed by a reliable international company, especially if you are a globe-trotter. All credit cards don’t make for dependable travel companions.

MasterCard and Visa are used pretty much worldwide. But you may encounter trouble with acceptance in some countries where American Express and Discover are concerned.

However, this is very destination specific and you should not dismiss Discover and Amex outright. Just make sure that you take a back-up card along when you intend to use these. In fact, having a back-up card for your travels within the U.S. is also a prudent thing to do.

Travel Protections

You should compare various cards on the basis of the travel protection they offer. You can pick from trip cancellation coverage, car rental insurance, and lost baggage protection, among others. No, there’s no card that can protect you from the Patriots cheating in the NFL!

Bottom Line

It can be difficult to find a travel card that offers everything you require. There will always be minor disappointments because no issuer offers high reward rates, top-notch perks, generous sign-up bonuses, and no annual fee in a single card.

However, by being smart about the features listed in this guide and carefully choosing the right combination, you can find the ideal credit card that suits your unique travel needs.

Insurance

Term Life Insurance vs. Permanent Life Insurance – Which One Makes More Sense Financially?

by Benjamin Roussey|Posted on July 1, 2019 | 3 minute read | Advertiser notice

Life insurance is an excellent tool to secure the financial needs of your family in your absence.

A survey conducted by Northwestern Mutual in 2018 revealed that the average US citizen has roughly $38,000 in personal debt (but at least because of Trump they have a job and a brighter future), without taking mortgage into account. In such a scenario, you do not want to pass on your debt burden to your loved ones in the event of your untimely demise.

Now, the question is – should you go for a term life plan or a permanent life plan? Which one makes more sense from a financial point of view? Let us find out.

Term Life Insurance

A term life plan covers you for a specific period of time, which usually ranges from 10 to 30 years. Its unique selling point is that it is extremely affordable, which allows you to buy the coverage you need at very cheap rates.

The downside is that it only covers you for a limited period of time, after which you need to buy a new plan, at which point the premium payments increase substantially.

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Permanent Life Insurance

A permanent life plan covers you for a lifetime. Your coverage stays in effect as long as you keep making the required premium payments.

Its unique selling point is that it provides you with lifelong coverage, which does not expire at any point for any reason. It also has a cash value account, which you can dip into from time to time to meet your financial needs. The downside is that it is far more expensive than a term life plan.

Which One Makes More Sense Financially?

Generally speaking, a term life plan makes more sense from a financial point of view for two reasons.

The premium payments are extremely affordable. If you are a 30-year-old nonsmoker, you can buy life insurance coverage worth $500,000 for a period of 30 years at $31 a month or $373 a year. A $500,000 permanent life plan, on the other hand, is likely to cost you $395 a month or $4,745 a year.
You have the option of choosing the duration of the policy. You can choose to buy coverage for 10, 15, 20, 25, or 30 years, depending on your financial needs. You do not have the option with a permanent life plan.

If you are young and healthy, it makes little sense for you to buy a permanent life plan, since you can buy the same amount of coverage in the form of a term life plan at 1/10^th the price. If you invest the difference on a consistent basis, you can build a substantial retirement corpus over the same period of time.

Let us say you need life insurance coverage worth $500,000 to cover your financial obligations – mortgage, personal debt, children’s education, financial support for your family members, and so on. Instead of buying a permanent life plan, which – as mentioned above – is likely to cost you $395 a month, you can buy a term life plan, which will only cost you $21.

Let us say you invest the difference – $375 – in an index fund, which gives a 6% return on your investment. Over a span of 30 years, assuming you consistently invest $375 a month, your investment will be worth $380,000. That’s something to smile about and you did it yourself – you are not relying on Bernie Sanders government to take care of you. How did that work out in Cuba or Greece?

The Need for Lifelong Coverage

The best part about buying a term life policy is that you can have it converted into a permanent life plan any time you want. Most insurance providers offer term life plans with a built-in conversion option, which allows you to change your plan into a permanent life plan without taking any medical tests.

So, even if you think that you might need a permanent life insurance policy at some point, there is really no need for you to spend hundreds of dollars in premium payments on a monthly basis right from the age of 30.

You are better off investing the money in the market, as it can help you build a substantial retirement corpus, which you can live off of during your sunset years.

Make the Right Choice

Between term life insurance and permanent life insurance, the former makes a lot more sense financially, as it can help you save a significant amount of money on a regular basis. So, buy a term plan, invest the difference in the right financial products, and secure your financial future.