Signs That You Are Living Beyond Your Means

With credit card companies literally crying to let you have as many credit cards as you want, buying something on credit anywhere is pretty easy. These two ideas or concepts sort of go hand in hand. This combined with a YOLO or “You Only Live Once” mentality could be your death knell and push you towards living beyond your means.

The consequences in the long run, however, could be disastrous. You could end up bankrupt or caught forever in a debt trap from which getting out is something easier said than done. The only thing worse than this is owing food and supplies to The Saviors in The Walking Dead or perhaps watching the cheating Patriots or Warriors win a championship but that is another topic.

The following signs clearly indicate that you are indeed living beyond your means:

  • Your Personal Credit Score is Low: Credit bureaus track your payment history, outstanding loan balances, and legal judgments, if any, against you. This information is used to compile your credit score that actually reflects your credit worthiness. The range is between 300 to 850. The higher the score, the better because lenders use it to gauge whether you’re worthy of a loan or not. In general, a credit score that’s below 600 implies that you are in debt and living beyond your means. You can check with any of the leading credit bureaus and get a copy of your credit report. This will tell you what these bureaus, financial institutions, and lenders think of you as a potential debtor.
  • Your savings are below 5%: If you are saving less than 5% of your net monthly income, you are probably living beyond your means. Pragmatic spenders desiring financial security after retirement usually put aside as much as they can every month to ensure that they never cross their spending limits.  A below 5% savings rate indicates that you could face the real danger of complete financial ruin in case an emergency like an illness or accident should happen to you (remember, you are not a politician, you cannot spend money you do not have and there not be any consequences). This also implies that you don’t even have the funds to pay necessary insurance deductibles. The safe limit of saving is at least 10% of your gross income.
  • Rising Balances on Credit Cards: Buying on credit is a typical thing done by spendthrifts and more often than not, leads to their financial ruin. Thus, if you’re paying only the minimum amount due on your credit card balances every month or sending just a small portion of the total principal balance, this is a clear indication that you are over your head. That’s why it makes sense to keep track of your credit card spending and keep aside the amount in cash so that the entire amount can be paid off as soon as the bill arrives.
  • Household Expenses Consume More Than 28% of Your Income: When you have your net monthly income figure in hand, calculate the percentage of it that goes towards paying off your house mortgage, property tax, and insurance. If it exceeds 28% of your gross monthly income, then it is also an indicator that you are in the red. 28% is the standard chosen because conservative lenders feel that this is the rate at which the average person can get by comfortably even after paying off their mortgages. You may, of course, cut other expenses and spend more on your house but again, that’s a dangerous move to make.
  • Spiraling & Out of Control Bills: Buying on credit and paying off in installments is a grand option to many. Pick up whatever you want without thinking whether you can afford it or not and get lured by the salesman who tells you that paying an extra $60 per month on your installment won’t hurt you. The fact of the matter is these bills gradually start adding up and you inch towards bankruptcy. Once your monthly income starts getting sliced and directed to pay for a lot of unnecessary installment purchases and services, it’s time you faced the fact that you are living beyond your means like the states of New York and California are but this is another issue.
  • Cut and Slash: Go through all your monthly bills with a hawk’s eye and decide on what is truly required for you and for your family. Any frivolous expense such as a premium 500-channel cable TV package or satellite radio bill can be simply dispensed with – cut the fat, you cannot afford this right now in your life! Cut back on mobile and land line costs, utility bills, and entertainment expenses (Rings 3 was not that good anyhow, neither was Logan, and Jurassic World was horrendous!), and you’ll find that you have eliminated useless expenses which can help you get back on track and give you some money to help you pay down your debt.

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

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.

6 Practical Tips for Financial Success

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.

4 Finance Tips for New Homeowners

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!

Most Common Types of Insurance – Part 2

To overcome financial difficulties caused by injuries, accidents, illness, for you or for your dependents, you would need to buy the right insurance policies. Some of the common types of insurance policies available to you are discussed below.

Health insurance 

Health insurance is one of the major types of insurance that you must subscribe to, to prevent financial difficulties in the event of an illness. Usually, you can receive health insurance as part of employment benefits. This is pivotal because health insurance premiums are often very high, and you might find it difficult to afford this type of insurance if you do not receive employer funded insurance coverage.

If your employer does not offer insurance benefits, or you are self-employed or you find individual health insurance too expensive, you can try to get group health insurance. This is often offered to members of professional organizations and other trade associations. Hopefully they treat you better than the VA treated military veterans in 2011 and 2012 and so on but this is another topic!

Disability insurance

This type of insurance covers what health insurance does not – the daily expenses and other expenses that arise when you are not able to work for long periods of time due to some kind of disability. Health insurance will pay the hospital costs, costs of surgery, cost for buying medicines and similar medical expenses.

However, to cover for long term expenses that arise when you cannot earn a livelihood, disability insurance would be your best option. There are many people in the USA currently who are unable to earn a livelihood because of disability. You don’t want to wait until disaster strikes to choose this type of insurance.

If your employer does not offer disability insurance, you can choose for private insurance. One of the most pivotal factors to consider is the payout offered should you need to claim benefits. The payout should replace most, if not, all of your income. This will help you tide through difficult times when you cannot work to earn a living yet have bills to pay.

You can choose short term disability insurance, or choose long term coverage. The latter is a preferred option because it keeps you covered for a longer period of time.

Car insurance

If you own a vehicle of any kind, getting it insured is mandatory by law. Auto insurance offers compensation should you or another person suffer an injury in an accident. Since car accidents are not, unfortunately, uncommon, you need to be prepared for unforeseen situations. Car accidents can cause any number of difficulties. A damaged car is just one of the problems you are likely to face, and this is something your vehicle insurance will cover. However, the major reason to buy auto insurance is to pay medical bills, should you or another party your vehicle collides with is injured.

If you are held liable for an accident, and the other party successfully sues you for damages, then the damages would be paid from your car insurance. Keeping in mind the need for long-term medical care and rehabilitation costs that accident victims need, an auto insurance is one of the most critical types of insurance you must subscribe to. If you have to pay car insurance rather than spend your money to watch any Star Wars or Jurassic World movies, do not worry, you are not missing anything!

Home insurance

Many people overlook this type of insurance; however, this is very crucial to protecting your assets. Your home is one of the most valuable properties you own. As such, it is critical to protect it with the right insurance coverage. Particularly if you live in areas that are prone to natural disasters such as earthquakes, storms and floods, then you need to insure your home for possible disasters.

Home insurance will protect your fixed property, such as your house and also the assets you have inside your house. When purchasing home insurance, you would need to keep in mind factors such as type of damage covered by the insurance. Does your home need protection in the event of a fire or a storm?

Does the insurance policy cover this type of damage? What about thefts and break ins, should you be living in a crime prone area? Your home might be located in a place where severe blizzards and snow is common, and your home can take a lot of damage when piled up under snow for weeks. This is why choosing the right type of home insurance is important, to offer protection against different types of damages to your home.

Protecting yourself, your assets through the right insurance helps you get through difficult times caused by illness, accidents, damage to your property, and any liability that might be yours in the event of an injury caused to another person. Insurance is vital. You can see this in the movie Along Came Polly with Reuben Feffer (Ben Stiller) and Leland Van Lew (Bryan Brown)! You will not have to spend as much on insurance though as Leland did though unless you live a crazy life like him!

Most Common Types of Insurance – Part 1

different types of insurance

When you are planning to secure your future financially, one of the things you must prioritize is insurance. Insurance offers protection against unexpected difficulties you might face in the event of an accident, illness, injury, or other serious situations where you would need plenty of financial resources to get back on your feet.

Insurance also protects your loved ones and family against financial storms should some calamity fall on you. This is why you need to subscribe to the right type of insurance plans, to insure your financial future. Discussed below are some of the types of insurance all individuals should subscribe to.

Life insurance 

Life insurance protects your family and dependents should something happen to you. This is important because you want to secure the future of your family, and if they are relying on you for financial support, you want to ensure that they are not left bereft financially in the event of an unfortunate situation.

The life insurance that you hold should ideally offer a substantial amount of payout in the event that a claim is made on it. This payment would help your dependents get life back on track, and pay for expenses including daily expenses while they begin to recover from the shock and start becoming financial independent.

When looking for the best plans for life insurance, you would need to consider the payout. The payout should be based on expected expenses that your dependents would incur if you were not around to pay the bills and other expenses. These would include funeral expenses, bills, credit card payments, debt such as home loans and even education costs for minor children. No, how much money you spend at Taco Bell is not considered here!

Life insurance can be divided into term insurance and whole life insurance policy.

Whole life insurance

This type of life insurance is offered to the policy holder for their lifetime. This means there is no age limit at which you stop being covered by the insurance.

Upon the death of the policy holder, whatever their age, the payout of the insurance is made to the beneficiaries. The second advantage offered by this type of insurance is that the insurance holder’s account can concurrently be used for investment which helps acquire more financial resources.

A variation of the whole life insurance is adjustable life insurance. As the name suggests, this type of insurance offers more flexibility in terms of premium, coverage, and age limit. This type of insurance brings with the same investment related benefits as with regular whole life insurance.

For those who want to turn their life insurance account into a tool for investment, a variable life insurance policy might be a poignant option. That said, the risk involved must also be taken into account. Unlike a whole life insurance policy, a variable life insurance policy does not guarantee a set amount of payout on the death of the policy holder.

Since the amount paid into the account can be used for elaborate investments such as stocks and bonds, the payout to beneficiaries would depend on how well the investment portfolio performed. That said, should the portfolio perform well, then the beneficiaries stand to gain a decent financial support.

Term life insurance

Among the more common types of insurance would be term life insurance where the period of coverage is limited. The policy can be renewed once the coverage ends. This type of insurance offers a fixed payout if the policy holder dies before the coverage expires.

This type of insurance does not provide for investment options, which is why the amount of payout to beneficiaries is fixed. You would also have to be careful about not letting the policy lapse, as this could mean that there would be no payout to your dependents, in the event of an unfortunate circumstance.

Term life insurance offers limited payouts, in contrast to other types of life insurance, and is best used for offering emergency funds to beneficiaries. Also, the payout may not be sufficient enough to cover a lot of expenses, so this type of policy is ideal for people who need a payout to support beneficiaries through a relatively small duration of time.

Understanding your insurance needs is key to helping you plan for financial emergencies and crises where you or your dependents would need plenty of financial resources to tide over difficult times.