The Simple Dollar: “The Best Retirement Plans and 401k Rollovers are Online” plus 19 more
The Simple Dollar: “The Best Retirement Plans and 401k Rollovers are Online” plus 19 more |
- The Best Retirement Plans and 401k Rollovers are Online
- Some Thoughts on Extreme Cheapskates
- Protecting Your Business From Natural Disasters
- Best Gas Credit Cards of 2014
- College Internship Guide
- Nine Financial Questions to Discuss When Your First Child Is on the Way
- Are You Guilty of Financial Infidelity?
- How to Find the Best CD Rates in 2014
- Questions on Golf, Price Books, Magazines, Cast Iron, and More!
- Cash Flow vs. Capital Gains Investing: The Two Investing Paths
- Small Business Insurance Basics
- Best Credit Report Site of 2014
- Hacking Six Normal Life Routines to Save Time and Money
- How Do The Rich Pay Lower Taxes? And How Can You Do It?
- Books With Impact: Voluntary Simplicity
- Student Loan Forgiveness: Move to a Place that Pays Your Loans
- Saving Money in Your Startup
- How to Get Cheap Car Insurance in 2014
- Emergency Funds on the Path to Financial Independence
- Separating Obamacare Facts From Fiction
| The Best Retirement Plans and 401k Rollovers are Online Posted: 15 Oct 2014 01:00 PM PDT I'm on a quest to find the best retirement plan to roll over my old 401(k). Since millions of other people are in this same boat, and don't know where to turn for sound advice, I figured I would conduct the most thorough research I could — publicly — then put my money where my mouth is. At the end of my research I will literally roll over my old 401(k) worth approximately $85,000 to the best plan and company I can find! A Bit of BackgroundI'm 33, have two kids under the age of three, and a wife who also has a full-time job. Because my plate is full both at home and at work, I have been desperately searching for the easiest and cheapest way to manage my passive long-term stock and bond investments. I want no hassles and no extra hidden costs. After leaving a previous job six years ago, the money in my 401(k) account has just been sitting with my old employer collecting dust. I've never met with a representative of the 401(k) plan to discuss my options or my optimal asset allocation to cover the next 30 years until I need the money in retirement. No one contacts me, and I don't know who I would even contact if I had a question. I am, like millions of other 401(k) holders, adrift with no set direction. I know from my days working in the finance industry that the less I touch my plan, the better. Overthinking my long-term assets has usually done more harm than good. It also needs to be cheap because, once I have a basic strategy in place, there really isn't any required maintenance to the plan for a long, long time. Staking My Retirement on Online Financial AdvisersIn my research for the best retirement plans, I stumbled upon online financial advisers (OFA) like Betterment, Wealthfront, FutureAdvisor, Personal Capital and others. Even online discount brokers like E*Trade: Build your own portfolio are getting in the mix. These services use software algorithms to simplify passive investing and automate many of the value-added tasks we pay money managers a pretty penny to execute. This creates easy plans you can follow at the cheapest possible price. Since looking into these services, I've become so convinced that this is the wave of the future that I'm staking my retirement on it. This is the first in a series of posts where I will investigate how these automated online retirement services are driving down costs for Main Street investors.
Why? Because I believe the current financial services compensation model is broken. The financial services model as it exists today is not aligned with your average Main Street investor. The current system utilizes high-cost funds and high-cost management account fees that add complexity and fall short on value. The financial services industry model is ripe for disruption and competition. In the posts to follow, I will discuss how the current financial fee structure is broken, compare different OFA options, and discuss why you should think about using these services in the future. Passive vs. Active InvestingAccording to Investopedia, passive investing is: "An investment strategy involving limited ongoing buying and selling actions. Passive investors will purchase investments with the intention of long-term appreciation and limited maintenance." For most people, passive investing comprises three main actions:
Active management, in contrast, involves frequent trading to try and maximize return and beat a benchmark like the S&P 500. Most mutual funds as they exist today are actively managed. For regular investors, this option is expensive and rarely returns above a passive benchmark. Virtually every study ever done has shown there is no correlation between high fees for active management and high returns. The additional transactions add to your overall costs, and any additional return above a benchmark is typically washed out by the increased fees on average. The argument for passive investing isn't new. Burt Malkiel championed this in A Random Walk Down Wall Street as early as 1973. There is no correlation between fees and high returns, so why should you pay them? The easiest and simplest way to invest is passively through low-cost vehicles. This not only saves you money, but also saves you lots of time and headaches. Problems With the Current Active Financial Incentive ModelI briefly worked in the investment management business straight out of college, but I quickly became aware of the broken incentive structure above. There are two main issues. Problem #1: Fee StructureAccording to Morningstar, a rating service, the average managed stock fund charges 1.33% per year in management fees, but also, as studies have shown, rarely returns more than the market averages. In addition to this fee, you may pay a "sales commission" of close to 5% to your financial adviser. So you start out 5% in the hole. On the other hand, low-cost ETFs that hold a basket of stocks that simply replicate the performance of the broader market have drastically lower fees. For example, the average ETF expense ratio at Vanguard, a leader in low-fee funds, is 0.14% with no sales fee. This Atlantic article does a great job of laying out how the fee difference can add up to six figures over a lifetime of savings. In their example, which uses slightly different numbers than the ones I provided, this could be a difference of $257,000! Clearly, there is a problem with how the typical investor pays for financial services and the actual value delivered. More specifically:
Problem #2: Incentive Structure Is Not Aligned
When your holdings go up in value, your adviser earns a miniscule extra amount, but when he brings on new money to manage from someone else, he gets paid significantly more. The risk to him when your assets lose value is small. Call me naive, but when I learned that I could make more money by pursuing new clients to the detriment of my current clients, I quit so I can trade financial instruments on my own in Chicago. By trading, my interests and my clients' interests were aligned – I didn't get paid if I lost someone money. Here, I could still be connected to the markets, and my income was a direct result of the return I generated for the company. I would do well if I made money, but if I didn't then I'd be fired quickly. This is completely at odds with the current financial services model. A good financial adviser, and there are scores of them out there, takes the time to work you through asset allocation decisions and can get you in the right investment vehicles. These services are well worth a price. I am not arguing that financial advisers shouldn't be paid. But herein lies the problem. Because financial advisers get paid more for getting more people to place their assets with them, they are incentivized to get many, many clients to whom they cannot allocate enough time. Once your main assets are uncovered, there is actually an incentive to spend the least amount of time with you as possible.
How Online Financial Advisers Work for YouAt the heart of online financial advising is the basic idea that you should keep more of your money. By using low-cost ETFs, and by using software to "automate" tasks, like rebalancing, that your human financial adviser performs, the cost associated with managing your account is driven way, way down. An Example Using BettermentFor example, Betterment is an online financial adviser that is growing very quickly. According to recent numbers, ETF expense ratios inside a Betterment portfolio range between 0.05% and 0.36%. So, on average, 0.155% of your assets are going to cover the expenses of the fund rather than 1.33% which, according to Morningstar, is the average for managed mutual funds. That figure is in addition to whatever fee the OFA charges to manage your funds. Now, you could simply open an account at almost any online discount broker and enjoy these modest expense ratios if you 1) know what ETFs you should choose, 2) know how to diversify, 3) know how to effectively rebalance your portfolio, and 4) understand tax loss harvesting. However, if you do not know how to do any of these four things, here is where online financial advisers such as Wealthfront and others truly shine. These services can:
On a portfolio of my size, for these added services, which are transparent and aligned with my interests and goals, Betterment charges a 0.25% fee per year. Recap the OFA mathAccording to CNN, the average 401(k) balance in the U.S. is $89,000. Using this figure and other data uncovered in this post, we can see the difference in cost from just one year of investing. Remember, OFAs charge a stated rate, and you are paying fees inside the ETF also. Managed funds have this issue as well, but those fees are significantly higher. So the comparison should look like this:
In the combined fees column I am adding Betterment's 0.25% fee to the average ETF fee that I calculated earlier of 0.155%. Now ask yourself: How often do I talk to my 401(k) adviser? Is it enough to justify an extra $778.75 per year? I think not. Wealthfront, Betterment, Future Advisor: The Online Financial Adviser LandscapeAt this point, I hope I've made a strong case for you to at least consider how online financial advisers (OFAs) can help you keep more of your money and, quite honestly, more of your time too. In the next few weeks, I will be deciding which OFA to roll over my $85,000 401(k) into. But first, we need to understand the OFA landscape and what our options are. Here is how I see the landscape segmented out. I will give an in-depth review of each service in the following weeks before making my decision. True Automated AccountsIn order for an online financial adviser to be "truly" automated, the service must be able to hold and manage your assets. This means you create an account with the service, place your money there, and the service enacts several programs to manage your account. This includes ETF selection for diversification, portfolio rebalancing, and tax loss harvesting. With this type of service, you do not have to do anything with your account if you don't want to. For my research, the top three services I will investigate are: Wealthfront. I am most familiar with this service mainly because they are the quickest advisory service EVER to reach $1 billion in assets under management. This includes household names like E*Trade, Charles Schwab, Merrill Lynch, and other well-known financial firms. Wealthfront is also working with some high-profile clients like NFL teams. Fee structure: 0.25%. First $10,000 is managed for free. Betterment. Like Wealthfront, Betterment uses modern portfolio theory to guide its asset allocation recommendations. They also have automated services that balance your portfolio and maximize your tax efficiency. The main difference on the surface seems to be their fee structure. Fee structure: Three tiers based on account balance: 0.35% for less than $10,000 with a $100 per month direct deposit; 0.25% over $10,000; and 0.15% over $100,000. This means that as your balance grows, you have the chance to pay less in percentage fees – very appealing. FutureAdvisor. Right now, I know less about this service. From their site, it looks like they offer much of the same in this category, mainly rebalancing and tax efficiency. However, the fees are double at 0.5%. Hopefully, I'll uncover some hidden gems that make this service worth the higher price! I can't wait to find out. Fee Structure: 0.5% of assets. Do-It-Yourself SoftwareDo-it-yourself services are software that make recommendations based on many of the same principles as the truly automated services, but you have to implement the trades yourself with DIY. There are a few ways to do this but, for a general idea, imagine you have your own brokerage account and you use a separate software program that reads what your asset allocation is and makes recommendations. You then take the time to implement them or ignore them. E*Trade: Build your own portfolio. E*Trade's approach gives you the choice as to how much help and control you want with your portfolio. It's not quite a hybrid because I don't think they offer human contact, but you can choose to 1) build your own portfolio, 2) choose an E*Trade portfolio, or 3) choose to have E*Trade actively manage your account. Fee structure: You pay E*Trade's low commissions on trades within the portfolio. Marketriders. Marketriders seems interesting because it can work with a variety of brokerage accounts. It recommends low-cost ETFs just like the fully automated ones, but it can work with any brokerage account. Fee structure: 0.2% of assets. SigFig. SigFig is similar to Marketriders in terms of recommending a low-cost, tax-efficient portfolio and managing it for you but, as far as I can tell, it only works with TD Ameritrade, Schwab, or Fidelity. Fee structure: $10/month with no commissions or other trading fees. Hybrid Automation With Personal ContactHybrid services might offer the best of both worlds: low-cost automation, but with the ability to contact a human adviser to answer questions. We shall see. Personal Capital. Personal Capital seems like "Mint.com for rich people" because it aggregates and displays your financial information much like Mint does with your bank account and spending info. I believe this is a free service. You can then analyze your investments and have Personal Capital manage them for you. Their fees are higher and they seem to cater to high net-worth individuals, but they do offer human interaction. This could be a good choice if it addresses some of the shortcomings that I experience with Mint.com — but those fees! Fee structure: 0.89% up to the first $1 million; 0.79% up to the first $3 million; 0.69% on the next $2 million; 0.59% on the next $5 million; and 0.49% on assets over $10 million. Vanguard Personal Advisor Service. Vanguard is the leader in low-cost ETF investing. In fact, their funds are often used by fully automated services like Wealthfront. Vanguard's Personal Advisor Service uses their low-cost funds to save you money and offers simple tools to figure out your goals and optimal asset mix. You can then partner with an adviser to plan for life changes or to change your allocations. Fee structure: 0.3% of assets. The Online Financial Advisor ChallengeI'm very excited to dig into all of these companies to see which one fits best with my long-term objectives. I view myself as a pretty regular guy who has similar work, family, savings, and spending challenges as a good swath of the country. I'm sick of paying too much for things that don't deliver on value, so I can't wait to see how these value-added services stack up. My gut tells me this is the future of long-term investing. We'll see who gets to manage my old 401(k) money. Let the games begin! The post The Best Retirement Plans and 401k Rollovers are Online appeared first on The Simple Dollar. | ||||||||||||
| Some Thoughts on Extreme Cheapskates Posted: 15 Oct 2014 07:00 AM PDT Extreme Cheapskates is a “reality” television series that airs on TLC that just entered its third season. Over the last two years, the show has launched a new season in October and, as with the previous two Octobers, I’ve been asked a few questions about my take on the show. First of all, I’m not a regular viewer of “reality” television shows – or of most television shows, for that matter. While I do watch a few series, most evenings, I’m working on personal projects or reading a book. It’s just a personal preference; many of my family and friends are avid television viewers. I just get more personal enjoyment and fulfillment out of reading a book or playing a game with friends than I get out of watching a television program most of the time. Still, given the encouragement of a few readers, I watched a number of episodes from the first three seasons of Extreme Cheapskates with a notebook and a pen on my lap. As I watched, a few key thoughts came to me. The Line That Shouldn’t Be CrossedAll of us have certain lines of personal behavior that we feel it is wrong to cross. Many people consider it distasteful to dive in dumpsters for food. Some consider it completely inappropriate to haggle, while others consider it completely fine. Some consider it inappropriate to wear highly worn undergarments, while others are completely okay with wearing them into rags. I could list hundreds of these kinds of “lines” that some people will cross and some people won’t. This show, rather than focusing on frugality, focuses instead on these “lines.” It’s pretty clear from watching even one episode that they follow the people around and film them in situations where they cross those social “lines” in order to save a buck. They present the “extreme cheapskates” without comment, then rely on our own reactions to those people crossing social “lines” for the entertainment factor. I saw many behaviors that I object to. In one episode, a mother served some food to their children that I probably would have tossed out, but that’s because I have some strong views on sanitary food practices. I won’t serve my family food that I’m not strongly convinced about. At the same time, I saw quite a few behaviors that were presented as though they should be “shocking,” but I basically shrugged my shoulders. In one scene, a person bragged about not having purchased new underwear since the late 1990s. I’m not going to see this person’s underwear. That person may have bought very sturdy underwear that lasts for a long time. If I had underwear from 1998 that held up without holes to today, I’d be very happy with that underwear. They had a long lifetime and I got a lot of value out of them. I toss out clothing based on whether it’s worn out, not based on purchase date. All of these things – and many others – come down to our own personal views on propriety and personal behavior. Rather than just reveling in the shock value, it’s often useful to think about why we’re shocked. Is there really something wrong going on here? Or are we shocked because this person is just doing things in a different way than we have always done things? The Social FactorOne big issue I saw over and over again was the social factor. It may have simply been the episodes that I watched – and the editing may have been a factor, too – but I couldn’t help but notice that many of the people presented lived fairly solitary lifestyles. They occasionally see family or have friends over, but most of their time is spent at home by themselves or just with the other residents of the home. On the occasions when social events occurred, it wasn’t hard to notice that the people around them often reacted in a negative fashion toward their behavior. For example, one person invited two friends over for dinner, served them food that had been retrieved from the Dumpster, and then proceeded to brag about this at the dinner table. One of those friends tried to use the bathroom and, instead of finding toilet paper, found a plastic bottle that the friend was expected to use as some kind of manual bidet. This was the one aspect of the show that made me seriously uncomfortable. When a friend comes into my home, I think it’s completely reasonable for them to expect that my restroom will provide them what they need to clean themselves to the standards of what they might find in a public restroom, for the most part. I also think it’s reasonable for them to believe that the food I’m serving them is of at least reasonable enough quality that there isn’t a significant chance that they will get ill from the consumption. Such steps have nothing to do with my own values and how I treat myself. They have to do with respecting others and treating them well. Serving partially-rotted dumpster items and leaving out no toilet paper and a water bottle “bidet,” in the social standards of America, does not constitute treating your guests with respect. The vast majority of people in that situation would assume that the host was either attempting to harm them or was insulting them in some fashion and the event would cause harm to the relationship. I know that if I were a guest at someone’s home and I was treated in that fashion, I would probably make a similar assumption unless I knew that person extremely well and was aware of other reasons for such treatment (such as mental illness). Without a caveat like that, I would likely assume the person did not want me around and would minimize the friendship. I get an incredible amount of value from my social network. I get companionship and camaraderie. I get help when I need it – emotionally, financially, professionally, spiritually. I get tons of useful advice. The least I can do in response to this bounty that my friends give to me is to meet basic social norms when they visit my home. That means having a clean bathroom with toilet paper and soap. That means serving food that’s healthy. That means not having any obvious health hazards present. It becomes prohibitively difficult to maintain a strong social network if you pursue this kind of extreme… cheapness. Because of that, you’re denying yourself the many valuable elements that come from having a healthy social life. Why Are You Cheap?In the end, this show left me asking one question about me and my own frugal choices, as well as the spending choices of the people on the show. Why? Why be cheap? What is the reason behind being cheap? What is gained by choosing not to spend money? When I sit down and think about my overarching goal of financial independence, I can pretty easily put that into perspective compared to the value of having a healthy meal on the table for my kids or for my friends, or having a clean and reasonably sanitary bathroom for them to use when they visit. Those things are more important to me than financial independence. At the same time, there are a lot of things less important to me than financial independence. Name brands, for instance. Unless I know the name brand will function better in a vital way, I just don’t care. I know why I’m sometimes cheap. It’s because, compared to the other things in my life, those things that I’m cheap about are less important. When I see people on this show and how they handle different aspects of their life, it becomes clear that their financial goals are far more important to them than virtually any other aspect of their life. They’re quite happy to significantly raise the risk of illness, alienate friends, and many other things in order to push toward their financial goals. This show is a window into a different set of priorities and how people live with those priorities. Final ThoughtsTLC’s formula for shows like this is pretty clear: show unusual behavior without comment and let the crossing of social “norms” provide the entertainment factor. Shows like Hoarders follow the same exact style. While watching Extreme Cheapskates, I could feel that method at work. I saw people crossing lines that would make me uncomfortable, particularly in social situations. At the same time, I saw people who were obviously deeply committed to ideas and ideals that they held dear. It takes a lot of courage to be different and make choices that are outside of social norms. My feeling on the show overall is a simple one, and it’s pretty simple to one of the core ideas behind The Simple Dollar. You should always feel completely free to make challenging choices in your own life, provided that the impact of those choices are mostly limited to yourself. Most of the things I saw fell into that category – people choosing things for themselves that didn’t really affect anyone else in any real fashion. To those people who keep their choices in that category, I say more power to you! Where I start to get uncomfortable is when those choices do start to affect other people, like when you feed your children substandard food or when you invite guests into your home and do the same. At that point, your personal choices are starting to affect others in a negative way… and that’s where I start to have serious misgivings. Never forget the Golden Rule: treat others as you would like to be treated. In the end, I actually enjoyed Extreme Cheapskates more than I suspected I would, not as a source for frugal tips, but as a window into different value structures and the different priorities people place on things in their lives. It was hard at times to resist the urge to judge, but when I managed to do that, the show was more thoughtful than I expected. The post Some Thoughts on Extreme Cheapskates appeared first on The Simple Dollar. | ||||||||||||
| Protecting Your Business From Natural Disasters Posted: 15 Oct 2014 05:00 AM PDT  Hurricanes and earthquakes can wreak havoc on your business, but too many owners overlook these risks. Running a business is fraught with challenges that must be addressed on a daily basis, ranging from personnel and payroll to competition and cash flow. Most business owners recognize the need to insulate themselves from risks, both internal and external. After all, hazards abound, whether they’re the result of honest errors on the part of the business or third-party negligence. Each of these risks are usually protected against by insurance, such as business property coverage or errors and omissions insurance. But there is another class of risks that are too often overlooked and even more frequently uninsured: natural disasters. Hurricanes, flooding, and earthquakes are sources of potential catastrophe. They are present in nearly every corner of the continent, and every year they cause billions of dollars in related losses for hundreds of thousands of businesses. Businesses that are unprepared when disaster strikes are often forced into bankruptcy because they are unable to absorb the loss. A common reason many business owners don’t have the right insurance in place is that they don’t understand their vulnerability. Risk AssessmentA risk assessment can help you protect your business against all potential threats — in particular, those less frequent but nonetheless devastating natural disasters that strike without warning. Employing a shotgun approach and insuring against everything is not a smart practice. A sound assessment starts with considering which natural disasters your business is vulnerable to and protecting against them. For example, carrying earthquake insurance for a Florida business is as impractical as having hurricane insurance in Idaho. Knowing which risks are more likely to affect your business is more obvious in some cases than others. These include heightened threat of hurricanes in the Southeast and along the Gulf Coast, or well-known risks like West Coast earthquakes. Less frequent dangers can be even more devastating. During Hurricane Sandy, businesses all the way up the eastern seaboard, including those hundreds of miles inland, learned the hard way how vulnerable they were. The lesson — learned too late for some — was that “infrequent” is not the same as “impossible.” There are some places in the United States that are nearly free from the risk natural disaster. Unfortunately, they are also among the most sparsely populated regions of the county. Most every place else is in danger from one or more natural disaster risks. They include some surprises, such as the danger of a major 5.0 or higher earthquake in the Charleston, S.C., area. In 1886 Charleston experienced one of the strongest quakes in U.S. history, and the area averages 10 tremblers a year. Here are several types of disaster-related risks, and how to insure your business against them. Business Interruption InsuranceBusiness interruption insurance pays for lost income that is the result of an insured peril. That means if your business suffers physical damage from a fire and you are unable to operate you will be paid for the lost income. Under ordinary circumstances business interruption insurance is a straightforward proposition. Everyday threats like fire, theft, water and smoke are insured. However, when it comes to natural disasters, not having a clear understanding of what is covered can result in a costly lesson. There are two important factors to consider when it comes to business interruption insurance. The first is: Does your policy cover the natural disasters you are most at risk from? For example, if your business is located near a geological fault line, will your policy pay in the event of an earthquake? Chances are that it won’t. Earthquakes are a common exclusion, so if one occurs, you may not be protected from loss of income. When you review your policies, you can request an endorsement be added. The second factor concerns what happens when your business survives a natural disaster unscathed, but access to the business is cut off. For example, if your business is located on higher ground in a flood-prone area, it may not be damaged during a flood — but the lower roads leading to it could become impassable, leaving you effectively unable to operate. Most business interruption policies do not cover this type of loss of revenue, even for covered perils. Optional protection for these types of scenarios can be added through an endorsement only if you are aware of the risk and make the request. HurricanesOf all of the natural disasters, hurricanes are the most misunderstood when it comes to what insurance covers. That’s because some, but not all, of the damage caused by hurricanes is protected by your business property insurance. It’s important to understand that a hurricane is a large cyclonic storm with winds in excess of 74 mph that is usually accompanied by heavy rain. The reason you should understand the definition is that some business property policies specifically exclude hurricanes. This is more common in hurricane-prone states such as Florida. The exclusion means that any damage that occurs during a hurricane is not insured. While this is a common practice along the Gulf Coast, it can happen in lower-risk locales like the Northeast. Policies in non-coastal states that may still be at some risk may also have the exclusion. If you find hurricanes are excluded from your policy, you should be able to add coverage with a policy endorsement. As with all added endorsements, this will cause your premium to increase. There are times when a hurricane endorsement is not an option with your insurance company. You can then consider other insurers or purchase a separate, standalone hurricane policy. Policies that do include coverage for hurricanes only cover damages that are a direct result of the hurricane itself. That means only damage that is from either the wind or rain acting directly on your business. That distinction means direct wind damage is covered if, for example, your roof blows off. Damage caused by wind blown objects such as a garbage can that flies through your window are also covered. Damage from hurricane-associated rain is insured, as long as the damage occurs before the rain hits the ground. That means you are insured against damage from rain that enters your business through a hole in the roof or through broken windows that are a result of the wind. However, as far as your policy is concerned, not all damage caused by a hurricane is considered hurricane damage. Once the torrential rain hits the ground, it’s considered flood water, and any damage that occurs from flood water is not covered by standard business policies. The same goes for streams and rivers that overrun their banks during a hurricane, or levies and dams that are overtopped. Water driven by hurricane winds, such as tidal surges, are not covered, even though the water is from the rain and the wind that pushes it is from the hurricane. They are all considered floods, and are almost always excluded from business property insurance. FloodsFalling rain is generally covered by your business owner’s policy (BOP) or business property insurance. Once that rain lands somewhere, however — whether it’s the ground, your roof, or a body of water like a lake or river — it is no longer considered rain. Any damage that is caused by rain after it lands is not covered by business property insurance. In fact, insurance companies consider nearly all water that is outside of your place of business to be potential flood water. That includes water and sewer mains, which are only covered when the pipes that carry them are located in your business. As a rule, once water enters your place of business through a pipe you are insured against damage caused by it. With the exception of falling rain, nearly any other way that water causes damage to your business is considered a flood and is excluded. So if a pipe bursts and fills your basement with water, destroying equipment, you are insured. On the other hand, if a water main breaks one foot outside your business and water rushes in your front door, you are not covered. The same principle applies to ground water that seeps in from under your business or water that backs up through your plumbing. Each of these is considered a flood or water back-up and is excluded from your business property policy. A recent court ruling determined that rain water that accumulates on a flat roof because of inadequate or blocked drains may be considered flood water — meaning it’s excluded from standard business insurance policies. Other types of flooding that are excluded from business policies include: overflowing rivers or streams, flash floods, storm surges, and tidal waves. Each of these can impact your business even if you are miles from what you believe to be the nearest flood zone. Flooding from Hurricane Sandy caused damage hundreds of miles from both the ocean and the storm’s center. Flood damage is far more prevalent than most business owners realize — until they are faced with uninsured damages from flood water. The Federal Flood Insurance Program, which is administered by FEMA, is the only way to purchase flood insurance protection for your business. Visit the program’s website, where you can check your business’s address to determine your actual flood risk and obtain rates for flood insurance. EarthquakesAccording to the U.S. Geological Survey (USGS), there are about 20,000 earthquakes each year affecting 42 states. Half of all U.S. earthquakes happen in California, where more than 80 percent of businesses don’t have earthquake insurance protection. While California has more earthquakes than any other state, more than 10,000 earthquakes occur across 41 other states every year. In addition to the dangers posed to five states along the Pacific Ring of Fire, at least nine other states are at risk from a major earthquake. The New Madrid fault, which affects a large swath in the Midwest, along with the Charlotte, S.C., fault, are often unmentioned when business owners discuss earthquake risk. Other geologically stable areas such as Pennsylvania, Texas, and Oklahoma are experiencing a dramatic rise in earthquake activity. Some have attributed the increased activity to hydraulic fracturing, or “fracking,” a process used to extract natural gas. While most of the earthquakes believed to be caused by fracking are minor and do not cause significant damage, the potential risk is still real. A November 2011 quake in fault-free Prague, Okla., registered at 5.6 on the Richter scale, qualifying it as a major earthquake. That was strong enough to damage some buildings. BOP and business property insurance policies do not provide protection for damage to buildings and equipment caused by earthquakes. Businesses located in fault zones can add coverage to their existing policies with an earthquake endorsement. Premium increases for the endorsement are based on the risk. Not all insurers in high-risk states like California offer the policy endorsement. The California Earthquake Authority offers an endorsement which can be added by either contacting the authority or your agent. The endorsement covers structural and property damage resulting from the shaking caused by an earthquake. Volcanic EruptionVolcanoes present a risk in five states: Hawaii, California, Oregon, Washington, and Alaska. Several other states, including Idaho and Nevada, have a somewhat lower risk of volcanic eruption. Business owner’s policies and business property insurance cover damage that is caused by volcanic explosion, lava, and ash; they do not cover damage by earthquakes associated with the eruption. Standard policies do not cover mudflows and flash floods caused by rapidly melting snow and ice. These events, along with burst dams and tsunamis, are considered flooding. Landslides that are the result of movement of the earth caused by tremors from an eruption require a separate earthquake endorsement to afford protection. TornadoOf all of the natural disasters that could potentially affect your business, tornadoes are the only ones whose effects are fully covered by a BOP or a business property insurance policy. The post Protecting Your Business From Natural Disasters appeared first on The Simple Dollar. | ||||||||||||
| Posted: 14 Oct 2014 07:13 PM PDT The best gas credit cards enable you to take advantage of high reward rates on inevitable spending. With more than 200 million licensed drivers in the U.S. traveling on average over 13,000 miles a year, there are a lot of rewards that are going unrecognized and unredeemed. The best credit cards for gas are actually cash back rewards cards. Each of these credit cards offer higher reward incentives for fuel purchases while providing a return on most other spending. The Simple Dollar's Top PicksHere are the five best gas credit cards for U.S. consumers:
Chase Freedom®
The Chase Freedom® credit card is an excellent all-around shopping tool. At 5%, it offers the highest return on gas purchases when gas rewards are part of the quarterly bonus. In 2014, this accounted for six months out of the year with all other months offering a 1% return, averaging at 3% cash back for all gas purchases. The Chase Freedom® also boasts a long list of additional benefits, highlighted below: HighlightsHighlightsWho Should Get ItFor Who?Best Way To Use ItBest Use
Blue Cash Preferred® Card from American Express
The Blue Cash Preferred® Card from American Express is the best example of an everyday purchase card. It offers a healthy reward on gas purchases (3%) and an exceptional reward on grocery purchases at U.S. supermarkets (6%). This card has one of the highest regular earning potentials for a cash back rewards card. Check with American Express to make sure the rewards will apply where you regularly shop. Most if not all major gas stations (e.g. Mobile) and supermarkets (e.g. Whole Foods) qualify; however, some smaller locally owned businesses may not. If you're the errand runner of the household, make sure you take advantage of these great everyday rewards: HighlightsHighlightsWho Should Get ItFor Who?Best Way To Use ItBest Use
TrueEarnings® Card from Costco and American ExpressThe TrueEarnings® Card from Costco and American Express is ideal for the mobile individual. It offers 3% cash back on gas purchases (up to $4,000 annually), 2% back on all travel and restaurant purchases, and 1% in all other shopping categories. It also offers the American Express travel-assistance package, which includes car rental loss and damage insurance, a roadside assistance hotline, travel accident insurance, and a global assistance hotline. If you're a business traveler who does not possess a corporate card and are a Costco member, the TrueEarnings® Card from Costco and American Express should be in your wallet. It'd be a waste to continue accruing a balance on inevitable travel purchases without receiving the most opportune rewards! HighlightsHighlightsWho Should Get ItFor Who?Best Way To Use ItBest Use
Barclaycard® Rewards MasterCard®
The Barclaycard® Rewards MasterCard® offers two points for each gas purchase. There is no annual fee or maximum earning potential, which makes it ideal for those who drive a lot of miles each year and do not have a standing membership that qualifies them for other rewards cards, like the The TrueEarnings® Card from Costco and American Express. Also, MasterCard is a more widely accepted form of payment than American Express, giving you additional freedom to shop where you want to. Unlike MasterCard and Visa, American Express is a closed-looped system, meaning they issue their own cards and have complete control over setting their own fees and rates. This makes American Express less desirable for small businesses that do not have the same bargaining power as their larger competitors. HighlightsHighlightsWho Should Get ItFor Who?Best Way To Use ItBest Use
Blue Cash Everyday® Card from American ExpressSimilar to the Blue Cash Preferred® Card from American Express, the Blue Cash Everyday® Card from American Express offers solid rewards earning potential. Due to the lack of an annual fee, the cash back rewards are slightly lower than its partner card and is a better fit for the smaller spender. HighlightsHighlightsWho Should Get ItFor Who?Best Way To Use ItBest Use
The Best Gas Credit Card for Poor CreditIf you've had some financial trouble in the past or haven't had the opportunity to build up your credit, you can still earn rewards on everyday purchases like gas. One of the best cards on the market for those with a lower credit score is the Credit One Bank® Credit Card with Gas Rewards. Credit One Bank® Credit Card with Gas Rewards
With an annual fee between $35 and $99 depending on creditworthiness, this card is ideal for the individual who spends a lot of time on the road and has yet to take advantage of one of the best gas cards. It's specifically tailored to the individual with a lower credit score by offering free online monthly credit-score tracking, pre-qualification without affecting your credit score, and automatic reviews for credit-line increases. HighlightsHighlightsWho Should Get ItFor Who?Best Way To Use ItBest Use
Why Is Using a Gas Credit Card Important?According to the Federal Highway Administration, over 32 billions of gallons of gas were purchased in the U.S. in just the first quarter of 2014. With an average gas price of just over $3.50 per gallon, that equates to over $5.6 billion in potential rewards if all buyers had used the Chase Freedom® card that quarter. Statistically, we drive more during the summer months, which means this number is likely to exponentially grow over the next two quarters. Isn't it time we started getting something back for all of our stops at the gas station? Realizing the potential of earning cash back on everyday purchases like fuel and groceries is key to combating growing prices. Fuel prices this summer were at the highest average in the past six years. What Should I Consider When Selecting a Gas Credit Card?
Gas Credit Cards for the Mobile EmployeeAs the economy continues to slowly bounce back, employees may not be willing to attempt to put their home on the market just yet, but are willing to travel longer distances to secure employment. The Worldwide ERC® Foundation reported:
More than 61 billion commute trips are taken annually, with an ever-increasing number of mega-commuters. Beyond commuting, driving is a necessary responsibility for many employees. As organizations move away from company-provided vehicles and corporate cards, it leaves more and more employees footing the bill for their gas until later reimbursement or writing off their business vehicle expenses on their tax return at the end of the year. If you're an employee who gets a cent-per-mile reimbursement or are on a vehicle reimbursement program, make sure you're using one of the best gas credit cards to maximum your earning potential. SummaryIf you own and operate a car on a regular basis, it's in your best interest to have one of the best gas credit cards. Getting rewards for everyday purchases allows you to work within a strict budget without having to commit to big purchases in order to see a return on your spending. Take into consideration all of the factors listed in the What Should I Consider When Selecting a Gas Credit Card section. Depending on how much you drive or spend on other high-reward purchases, you may want to avoid a rewards card with an annual fee. While you'll be compromising additional rewards, you always want to be sure that the benefits are exceeding the expense of the tool. The post Best Gas Credit Cards of 2014 appeared first on The Simple Dollar. | ||||||||||||
| Posted: 14 Oct 2014 03:00 PM PDT College is tough. You're applying for scholarships, dealing with student loan debt, taking tough courses, and all while worrying about the end game – getting a job after graduation. An internship is one of the best things you can do to help with your job quest. If it's new to you, an internship is a job opportunity while you're in college that occurs for a set period of time. Here is your complete guide to finding an internship and how to make the most of it when you get one: The Benefits of an InternshipWhat you'll gain with your internship is priceless. Here are some of the benefits of doing an internship: ExperienceOf course it will depend on your specific internship, but the hope is that you'll leave with great job experience. You'll learn more about your industry while gaining skills and know-how that can make you can bring to your next position. Building a resumeBesides that experience helping in your next position, it can get you your next position. Having that internship on your resume is the best thing you can do to score a full-time job or even another internship if you're not ready for a job yet. The possibility of a job offerWhen a company is hiring for a new position, they often turn to interns to fill that void. In fact, a NACE survey estimates that 67 percent of interns are offered jobs after their internship is complete. NetworkingDoing an internship could be the chance for extensive networking. The connections you make at your internships, with your supervisor, co-workers, and even other interns, can lead to other opportunities down the road. It’s also great practice on how to network. The people I’ve met in internships have landed me numerous opportunities throughout my career. ReferencesDo a job well-done, and it's the best way to score references and letters of recommendation. These are perfect for your next internship, future job opportunities, scholarship applications, and even if you decide to go to grad school down the line. Adding to scholarship applicationsIt's not just a resume for jobs that is getting beefed up with this internship experience. If you plan on applying for scholarships, which you obviously should be, then adding this valuable experience to an application can help. CompensationThere is a lot of debate about unpaid internships. If you're lucky enough, you can score a paid internship. This could also come in the form of a stipend, a lump sum of money at the end of completion. College creditMany internships offer college credit. If you need the credits anyways, this is a perfect way to kill two birds with one stone. Keep in mind that your college may have requirements for what constitutes an internship so run it by them first. They also may require additional work. To get college credit for one of my internships, I had to write an essay prior to the internship on what I hoped to achieve and my expectations. Upon completion, I had to write another essay explaining my duties and what I learned while also having my internship supervisor submit a survey on how I did. Other perksThere can be a ton of other perks with doing an internship. You may have access to company benefits such as a gym, discounts around town, or free food in the cafeteria. Being an intern, you could be welcome to attend company events, conferences, or other beneficial meetings. I’ve had friends who got their transportation costs reimbursed. As a journalism intern, I had an unpaid internship that came with enticing perks. One I had with an esteemed editor in the industry offered to proofread and edit any of my work – including school work, cover letters, or whatever else I was working on. How to Find Internship OpportunitiesOnce you've decided that you want to do an internship, it can seem daunting to try and find one. Start early. You may come across internships that only welcome Juniors or Seniors to apply, but don't let that discourage you from searching your Freshman and Sophomore years. The more experience you have, the better! WebsitesThere are plenty of websites that can help you find an internship. Keep in mind that any job search website most likely will have internships listed as well. Here are some websites to keep in mind:
Your CollegeCollege is a great resource for internships. Visit the career center for internship opportunities. Your school may also offer an online job board and job search database that allows you to search for internships. If your school offers a job fair or internship fair, be sure to attend for a possible opportunity. Lastly, ask your professors. Many times, they are industry professionals who may be able to put you in contact with supervisors looking for internships. CompaniesThe same way companies post job listings on their website, they post internship opportunities as well. Even if there aren't any internship opportunities posted, don't hesitate to contact companies you'd like intern with directly. I was one company's first intern because I pitched the idea of having an intern and of course, pitched myself. Industry-Focused Groups and WebsitesConsider your major and your career's industry while searching for internship opportunities. Professional organizations are a great way to find opportunities. Being a journalism student, I joined the Association of Women Journalists in Chicago at a reduced student rate. This gave me access to the internship job board plus dozens of valuable connections to professionals with internship opportunities to offer. Besides actual organizations, check out specific websites for your industry. For communication students, Mediabistro.com lists opportunities for internships. Making your ResumeCreating a resume for an internship is somewhat ironic. You want an internship so that you'll have experience, yet you're expected to have a resume with experience to land the internship in the first place. Don't freak out. Here's what you can add to your resume to land than internship: Job experienceWhile you may not have had super relevant job experience yet, if you had any, it is imperative you list it. Even if you don't think it's something to brag about, take a second to look back on what you did at that job. The truth is, any job you've had proves you have a work-ethic and you're responsible. Highlight any responsibilities you had during your employment. Join clubs and organizations.Check out extracurricular activities you can be a part of at your school. Highlight specific duties you had as a member. Emphasize your academic achievements.If you've got a high grade point average that's an easy way to show your stuff. But even if you don't, there's still plenty you've got to brag about. List relevant classes you've had that would make you a great intern. Volunteer in a relevant field.Any volunteer work listed on a resume is great, but try to even go one step further. Make that volunteer experience help you get that internship. There's plenty of worthy organizations that would love to have help with accounting, marketing, or other duties that would make your resume shine. Start a blog.Regardless of your goal, opting to create a blog is a good way to highlight experience if your resume is lacking. Keep posts relevant to your industry and what your ultimate career aspirations. Do you want to be a teacher? Blog about activities to do with kids, issues with education, and tips for raising a healthy child. Are you striving to be in the fashion industry? Write about trends, how to save on fashion, and other fashion advice. If you have something to show – a writer, photographer, graphic designer, or designer for example, this is the place to do it. Join professional associations.Become a member of your industry's organization. You may get access to job boards, events, and articles, but it also looks good on your resume. Applying and InterviewingNow that you've got your resume in order, it's time to apply. This is what you need to know: Keep application deadlines in mind.Internships may have specific dates they start accepting applicants and deadlines. Be sure you know what these are so you're not wasting your time. Read the job description fully.Understand what you're applying for. Besides knowing if the job is right for you, you'll be able to link certain skills and experience to the requirements of the job in your cover letter and on an interview. Clean up your online act.Go through all of your public updates and photos on your social media outlets. If there's any hesitation about whether something would be appealing to a potential employer, take it down. If you don't already have one, make a professional e-mail. Know the basics.They're simple so you may take them for granted, but don't forget the basics such as spell check, proofreading, knowing who to address your cover letter to, and how they want you to apply. When it's time for an interview, be early and dress appropriate. Do your homework.Before you step foot in an interview, go over basic interview questions so you're prepared. Research the company you're applying for and more than just skimming their website. Understand exactly what the company does, what their mission statement is (if they have one), who their clients or audience are, any relevant awards or recent news, what they do that sets them apart, and most importantly, why you want to work there. In addition to their own website, search news articles to see what other people think of them, download their app (if they have one), follow them on Twitter, like them on Facebook, and Follow them on LinkedIn. This should give you even more insight. How to Get the Most Out of Your InternshipTreat this like a job.Once you walk through the door, forget that you're an intern. Of course, you need to do the basics – dress appropriately, show up on time, and leave your personal issues or school work at home. But also do your best everyday. Take on responsibility, and try to prove yourself. Learn as much as you can.What you're learning at this internship can't be learned in your classes. Don't be afraid to ask questions or ask for more responsibility. Once you get a vibe of who is willing to help you, ask them for advice and any suggestions. If you can, ask if you can shadow them for a bit to see what they are doing for the company as well. Meet people.Next to what you're actually learning, the people you work with are your most valuable asset. I met a nice woman while interning at a company, and she taught me a great deal of information. She ended up moving on to a new place, but years after my internship, she got in touch with me about a job at her new company. Keep track of what you're doing.Keep a log of what you do every day. This will help you efficiently update your resume when you're done. You might forget about a certain computer program you used or project you accomplished. End on a good note.Once your internship is winding down, ask for a letter of recommendation. Even if you don’t need a letter of recommendation at that time, it is best to request one when your great performance is fresh in someone’s mind. Ask anyone you had a positive work experience with to connect on LinkedIn. Send a thank you note to anyone who deserves one, especially your internship supervisor. If you’re interested in a job opportunity with the company, be sure to close the letter explaining that you would greatly appreciate if they kept you in mind for any future opportunities. The post College Internship Guide appeared first on The Simple Dollar. | ||||||||||||
| Nine Financial Questions to Discuss When Your First Child Is on the Way Posted: 14 Oct 2014 07:00 AM PDT In February 2005, Sarah and I were handed a completely unexpected piece of information. Sarah was pregnant and our first child was going to arrive late in the year. It was a life-changing moment. Sarah and I had several months to prepare, of course. Unfortunately, since we weren’t in the best financial shape at the time, we didn’t really focus on the financial implications very hard. Instead, we spent our time on learning how to be parents on a day-to-day basis. How were we going to take care of this baby? While I’m glad we did so much reading and research and thinking about caring for that baby, I really wish we had spent more time preparing for the financial implications. Many of those issues came up in the first year or two of our child’s life during a period where we were frazzled by the huge life changes that parenting brings about. We didn’t always make the best choices given our exhausted states of mind. Here are nine questions that I wish Sarah and I had discussed before our first child arrived on the scene. As I said, we did address these questions after our child was born, but I genuinely wish we had considered them beforehand and planned appropriately rather than trying to make these decisions with our new parent sleep-deprived minds. It is worth nothing that these questions merely scratch the surface. Each one of these questions will likely lead to many more questions. Each one can be the foundation of a really good discussion. Of course, as with any spousal discussion about money, active listening and a calm demeanor are incredibly valuable. Listen to what your partner is saying. If you feel emotions bubbling up, take a break and come back to the topic in a day or two and spend that time trying to dig through the emotions. Let’s get started. 1. What is our child care plan?A baby needs someone to take care of him or her all of the time. Most of the time, a parent will be taking care of that duty, of course, but will there be times where a parent can’t handle the duty? If you’re both planning on returning to the workplace, unless you have a very unusual work schedule, there will be significant patches of the week where you’ll need someone else to take care of your child. Who will provide that child care? You need to figure out that solution as quickly as possible. Some parents might decide that a stay-at-home situation will work best for them. It’s likely that such situations will result in a loss of household income – that’s effectively the “cost” of that type of child care. Things you should specifically discuss: 2. What are the maternity/paternity leave options in our workplaces?Both parents are going to want to take some time off when the child is born. The family is adding a new member and new mother is facing a serious medical challenge to boot. It’s going to be a challenging time and you’re ideally going to want some time away from work to handle these situations whether you’re a new mother or a new father. The Family and Medical Leave Act allows both parents to have twelve weeks of unpaid leave from their jobs to care for a new baby without any worry of losing that job. This is an incredibly useful guarantee for new parents, but it doesn’t solve all of the potential financial problems. For example, Sarah ended up mixing together paid leave and unpaid leave after the birth of our first child. This caused a pretty healthy dip in short-term income for our family at about the two month mark in our baby’s life, which coincided with the start of paid child care. We had to dig into some additional credit card debt at that point because we weren’t prepared for it (the Christmas season happened in that timeframe as well, which didn’t help). Things you should specifically discuss: 3. Do we have an adequate emergency fund?When our first child arrived, we faced a big surge of visitors and little purchases that we didn’t expect, all of which added up to a big pile of unexpected expenses. We didn’t have an emergency fund at the time, so our credit card just got a little more bloated. With our second child, we had a big unexpected expense right after her birth. She had severe jaundice that popped up within a few days of her birth, requiring an emergency hospital stay and some serious alterations to our plans and expenses for the first week or so of her existence. There were meals unexpectedly eaten out, child care expenses (for our older child) that we didn’t expect, some medical expenses, and so on. We had to tap our emergency fund here, unsurprisingly. Thankfully, we smartened up between the birth of our first and second child and established an emergency fund. An emergency fund is a simple thing – it’s just cash stowed away in a savings account for truly unexpected expenses. I highly encourage new parents to have one. Your entire life will be on unsteady ground for a while and you’ll be glad to have a financial buffer to fall back on. Things you should specifically discuss: 4. Are we saving for college? How much?One of the biggest worries foisted upon new parents is the huge expense of college that they’ll be facing in about twenty years. Yes, right now, college is incredibly expensive, yet it is often seen as the necessary “foot in the door” for educational opportunity. Sarah and I are saving for our children’s educations. If we were ever in financial trouble, these would be among the first things we would cut back on. While we’re happy to help them with college, it is not a net benefit to them if it means that we’re not going to have adequate retirement savings. Even if you don’t plan on saving for college yourself right now, it’s not a bad idea to open up a 529 college savings plan regardless. It’s pretty easy and provides a place to stick any money that comes in. Often, relatives will want to contribute to a child’s college savings and it’s far better to have that money go into a 529 than into, say, a savings bond, which doesn’t exactly offer great returns. Things you should specifically discuss: 5. Do we actually need all of the “recommended” child care stuff?When Sarah and I first realized that a child was on the way, we were stuck. None of our close friends were parents. Our own parents lived a minimum of three and a half hours away. Even our professional mentors were either non-parents or were far, far removed from active parenting. All of our advice came from books – and most of the books in the child care genre are focused on covering every possible situation, not on covering what you actually need. It turned out that we needed far less than we thought. Secondhand clothes were perfectly fine. So were flannel wipes (cut up out of a big sheet of flannel from the store) and a spray bottle and cloth diapers. Homemade baby food was perfect. We didn’t need a wipe warmer or a changing table – we just warmed wipes a bit with our hands and used the foot of our bed or a towel on the floor as a “changing table.” Every parent has different needs, but it’s well worth turning a critical eye to all of the stuff that you supposedly “need” as a new parent. My single biggest piece of advice: find parents in your social network and tap them for ideas. Things you should specifically discuss: 6. What will we cut out to handle the new costs?As you discuss the first five questions, you’re going to quickly realize that there’s going to be an enormous change in your family’s expenses in the near future. For us, this change was more of a nebulous thing. We didn’t really think about it in a specific way – we just figured that our responsible future “parent” selves would handle it. That was a big mistake. It only took six months after our child’s birth for us to reach a devastating financial situation. Like it or not, you’re going to have to cut some costs to make this work. Yes, your tax load will lighten up a little bit thanks to your new dependent, but it’s not going to be nearly enough to offset all of the costs. Things you should specifically discuss: 7. Do we have a valid will and/or durable power of attorney and/or health care proxy?All right, let’s start by talking about what these things are. A will is a legal document where you name someone who will handle your affairs upon your death. It also typically includes instructions as to who will receive your property. A durable power of attorney is a legal document where you assign someone the power to make legal decisions on your behalf should you be incapacitated. A health care proxy is a legal document where you assign someone the power to make health care decisions on your behalf should you be incapacitated, including end-of-life decisions. All of these documents are important to have regardless of parenthood, but they become even more important when you do have a child because they will help define what exactly happens to your child should you no longer be able to care for that child. If you don’t have these documents, the state will decide (and there’s a good chance that you would be unhappy with that decision). Things you should specifically discuss: 8. Who will be the guardians of our child if we can’t do so?This is perhaps the most important decision that you’ll make regarding your children in the event of your untimely passing. If both of the child’s parents have passed away, who will raise the child? This is a hard decision. Sarah and I discussed it for a very long time and, at various points, have assigned this role to three different couples. It’s an important one, though. People generally don’t like to think of their own mortality, but this isn’t about your mortality. It’s about the life of your child. In this situation, your child lives on, and it’s your job as a parent to take care of that child. Things you should specifically discuss: 9. Do we have adequate life insurance?What does your family’s financial situation look like if one of you passes away suddenly? Could the other one make ends meet as a single parent with ease? If the answer isn’t an emphatic “yes,” then you should strongly consider a term life insurance policy for the members of your family that are financially essential. Not only that, such a policy can help take care of your child in the event that you both pass away. Why a term policy? It’s the least expensive option. It takes care of what you actually need, which is cash in the event of death. It’s also not tied into a questionable investment policy. Things you should specifically discuss: Final ThoughtsThe questions in this article are bound to provide a ton of conversation starters with you and your partner concerning the finances of having a child. It can seem overwhelming at first, but if you take these issues one topic at a time, they’ll break down much easier than you might expect. The post Nine Financial Questions to Discuss When Your First Child Is on the Way appeared first on The Simple Dollar. | ||||||||||||
| Are You Guilty of Financial Infidelity? Posted: 14 Oct 2014 05:00 AM PDT Finances and cheating are amount the most common reasons for divorce. And what happens when you merge the two? You get a case of financial infidelity, but there's a twist: a third party doesn't have to be present to cause a problem. In a nutshell, it's the practice of concealing assets, debt obligations or conducting transactions behind your partner's back that could have a major impact on your financial well-being as a unit. And apparently, financial infidelity is somewhat commonplace. According to the results of a poll published by National Endowment for Financial Education, one-third of adults involved in a relationship where finances were combined admitted to some form of financial deception. Among the list of qualifying offenses were:
For quite some time, I didn't understand how it's possible to engage in infidelity with money matters until I got married. If there was something I strongly desired to purchase but my husband was against it due to budgetary constraints, I had to make the decision to follow his advice or go against the grain and make a purchase off the record. Over the years, I've learned there are many levels of financial infidelity, some of which are serious enough to warrant a divorce. Your significant other may easily forgive you for a miniature shopping spree, but wiping out a savings account that once carried a $60,000 balance to be used for a down payment on a home could have more severe consequences. How about that pay increase that you rerouted to your personal account to fund personal wants instead of contributing to the joint account to further assist your partner with meeting the financial obligations of the family? This situation can be even more detrimental if your partner is struggling to make ends meet while you’re withholding funds that could be used to eradicate outstanding debt balances. Underlying IssuesExactly why do people commit financial infidelity? Here are a few possible explanations: 1. AddictionsWhen you initially decided to spend the rest of your life with your significant other, did you vow to stop partaking in a particular activity because they were strongly against it? Whether it was smoking, excessive dining out, binge drinking, weekly spa visits, or some other activity you couldn't seem to live without, the expenses wreaked havoc on your bank account so it was in your best interest to agree with your partner and quit. But what happens when life gets a little rocky and you anxiously crave one of those addictions? Do you stick to your guns or give in? For some, it's the latter even if their decision will have long-term negative effects on their relationship. I'm no stranger to binge spending for comfort. Before transitioning to the world of freelance writing, I was stuck in a job that I absolutely loathed and the only thing that got me through the day without having a nervous breakdown was dining out for lunch. And while we must all eat for our physical well-being, there was a major problem with my approach; not only was I failing to address the underlying issue, I was also impeding the progress of saving for larger long-term goals by spending a substantial amount of cash on lavish lunches with coworkers. When I reached the point where I could no longer continue to suppress the issue, I confessed to my husband and he handled it much better than I expected. We were also able to devise and action plan to keep the spending to a minimum going forward. 2. EmptinessWe've all experienced rough times in our lives, some which leave an everlasting void. How have you chosen to fill the emptiness that lingers inside of you? Is it through some sort of positive activity or the almighty dollar bill? I wasn't a millionaire sitting around searching for ways to blow a few dollars, but I did have a handsome sum of money at my disposal during that depressing time of my life. And since I had practically lost hope and didn’t feel worthy of living now that both of my parents were gone, I figured if I indulge in all of life's little pleasures that I didn’t have access to beforehand, everything would be OK. Boy, was I sadly mistaken. I purchased thousands of dollars in material possessions and took quite a few lavish vacations, but that empty feeling still lingered inside. Not even an expensive handbag or two hour spa session could erase the pain. Perhaps you're struggling with some form of depression, and are unsure of how to cope so you resort to money you really don't have to wash all your pain away? If these excessive spending habits carry over into your marriage, they could easily result in financial infidelity if your partner insists that the your curb your unhealthy financial actions. 3. Financial IlliteracyCourses on personal finance are not commonplace in the high school curriculum. According to Council for Economic Education, only 17 states mandate the inclusion of personal finance topics into the curriculum. So teens are either forced to learn what they can from their parents, who may or may not be financially responsible, or let life and the school of hard knocks be their teacher. Both are potentially dangerous scenarios for a number of reasons. For starters, who's to say you grew up in a financially responsible household? Your parents may have provided a fabulous life for you before adulthood, but do you really know what their finances looked like behind closed doors? I see it time and time again; parents living in grand homes, driving expensive cards, dressing to impress and giving their children the best of everything. But a quick glance at bank, retirement college fund and credit accounts clearly indicates financial mismanagement. They've robbed Peter to pay Paul each month for a number of years, each car was leased and accompanied by an exorbitant interest rate due to poor credit history, their savings and retirement accounts were practically depleted and college funds were non-existent. Assuming you attempt to follow in their 'perfect' footsteps, you will quickly learn the truth and face the dilemma of cutting back to appease your spouse and finances or keeping it up by committing financial infidelity. On the other hand, if you weren't given the talk or lessons you need to lay the proper foundation at home, the only way to learn is by making mistakes. And sometimes, it's too late to make things right once you've taken that first step. 4. Poor Decision MakingWe all make poor decisions for various decisions. And one bad move has the ability to turn your finances upside down, forcing you to turn to financial infidelity to get yourself out of a bind before your significant other finds out. For example, opening a credit card with an exorbitant interest rate and maxing it out without having a means to make the minimum payment is a recipe for disaster. Warning SignsWondering if you fit the bill? Here are a few ways to tell if you're guilty of financial infidelity: 1. Vanishing statementsWhen bank or other account statements arrive in the mail or electronically, do you review them with your partner or quickly place them in a secure place that only you are aware of? If the latter is true, is there something you're trying to hide from your significant other? Perhaps you're afraid to let them know where you all stand financially or worried that they'll have an adverse reaction. 2. Phantom (or understated) incomeDo you always have a way of making income magically appear when money's tight and your spouse begins asking questions? Whether you use a credit card cash advance, savings account or borrow funds to cover the gap, lying about income is never a good idea. On the other side of the fence are those individuals that generate a healthy amount of income, yet disclose a substantially lower number to mislead their spouse. 3. Unexplained spike in expensesThis may be the result of additional debt you've incurred or excessive fees from past-due accounts or late payments, just to name a few. 4. Dwindling account balancesOnce you're way in over your head, it's not uncommon to find yourself struggling to make ends meet. And as a result, the well soon begins to run dry. 5. Random billsHave you subscribed to random services that your partner has no knowledge of, and now you're on the edge and afraid your spouse may find an invoice and begin to ask questions? 6. 'Closed' accountsIf an account was beginning to spiral out of control, did you communicate to your partner that you paid the balance in full and closed it out when all you really did was remove his or her from the account so they'd be unaware of the actual status? 7. Calls from debt collectorsMaybe things started off on the right foot, but now you're drowning in bills and the debt collectors have begun calling non-stop to collect payment? Have you gone as far as removing your significant other's contact information from the list so they'll be kept in the dark? 8. Absence of activity on frequently used accountsTo hide transactions from your partner, have you resorted to a separate account to handle business so they won't grow suspicious? 9. Purchases that are unaccounted forHas your significant other raised concerns about shopping bags or other deliveries that entered the home, but were clearly absent from the bank statements? 10. Nervousness when discussing financesWhen your partner wants to have the money talk, do you welcome communications with open arms or quickly change the topic? 11. Constant stressAre you constantly searching for ways to generate extra income in an effort to patch things up? 12. WithdrawalDepending on how severe the financial condition actually is, maybe you've begin to withdraw emotionally from your spouse of out fear that they'll discover what you've done and immediately file a divorce before you can plead your case? 13. Constant shielding from monthly billsDo you insist on handling the finances each month even when your partner offers to help? Or maybe you find an excuse to avoid sitting down and having the money talk when it's proposed? Moving past the 'infidelity hurdle'Step 1: Plan aheadIf you're extremely nervous about the thought of coming clean, which is to be expected, have a plan of action intact to prevent things from going left in a matter seconds. Step 2: Put it all on the tableTossing and turning at night or can't seem to get money matters off your mind? It's time to come face your partner regarding the actual state of the finances. My suggestion: propose a time and explain to him or her that you'd like to have a budget meeting. Request that they bring along any pay stubs, income sources, bank statements, credit reports, tax returns (if married filing separately) and credit card or other account statements. Step 3: Relax!Once the meeting is in session, reveal the infidelity, admit responsibility and communicate your willingness to be more transparent and make things right moving forward. And remember, if you're on the defensive, your partner may shut down and be unwilling to hear your perspective. Step 4: Discuss triggers and potential solutionsExpress the reasons for your infidelity and what changes you'd like to see made to improve the situation moving forward. For example, if your partner insists that you only visit the spa once per quarter but you insist on monthly visits, try to reach a happy medium. Just don't play the blame game because it won’t resolve the issue. And if things take a turn for the worst, marriage counseling is always an option. The post Are You Guilty of Financial Infidelity? appeared first on The Simple Dollar. | ||||||||||||
| How to Find the Best CD Rates in 2014 Posted: 13 Oct 2014 11:00 AM PDT If you’re frustrated with the low interest rates of savings accounts but wary of high-risk investment strategies, Certificates of Deposit (CDs) might be your ideal middle ground. Your money will be safe and you’ll receive a better return than a savings account would offer, though the best CD rates largely depend on how long you're willing to part with your money. According to Bankrate, the average one-year CD interest rate in 2013 fell from 0.28% to 0.23% APY, or annual percentage yield. Certainly not an imposing return — that is, until you compare it to the average APY of savings accounts — 0.06% — in roughly the same time frame. As 2014 winds down, the best current CD rates are hovering around 1.10% APY for one-year terms, 1.25% APY for two-year terms, and 2.3% APY for five-year terms. Fortunately, there are several quality options that will keep you near these benchmarks for the best CD rates. Start your search by using the tool below, which lets you check out current CD rates for specific terms and minimum deposits. What Is a CD?According to Investopedia.com, a CD is “a savings certificate entitling the bearer to receive interest.” You can get a CD at just about any bank where you would open a savings account. Banks offer CDs with fixed time periods, called terms, that may be as short as a month or as long as five years or more. In most cases, you’ll face a penalty fee if you take your money out of the CD before the term expires. Main Types of CDsCDs are a fairly simple product, but banks offer several variations that can benefit you if you do your homework. Here are the main types of CDs:
Is a CD Right for You?CDs are a stable, low-risk way to dip your toes into the world of investing. They're easy to open and generally don’t require further decision-making once your money is secure. Traditional CDs guarantee you’ll get your investment back — plus interest earned with a predetermined interest rate — when your term is up. If you can keep your hands off your money for the whole term, you’ll reap a higher interest rate than what’s offered by a typical savings account. CDs are worth a look for someone who is wary of higher-risk investments and can afford to sock money away for a longer period of time. On the other hand, if you need easy access to your savings, a CD isn't the best choice. For instance, you don't want to put your emergency fund in a CD — that's money you need to be able to withdraw immediately if the need arises. Also, the interest rate on a CD might not earn you much more than a savings account unless you set aside a lot of money for a long time. Finally, consider that interest rates can only go up from today’s rock-bottom levels, and you might not be pleased that your money is locked away at today’s low rates when they finally do rise. A Primer on CD RatesRemember, interest is denoted as APY, which stands for "annual percentage yield." Don't confuse APY for APR, which means “annual percentage rate” relating to loans and credit cards. If you put $500 in a one-year CD with a 1.10% APY, you would make $5.50 in interest after the year-long term. Note that interest is always denoted annually, which can be confusing if you're considering a CD with a shorter term. Say you deposit $500 in a six-month CD with a 1.10% APY. You aren't going to see $5.50 in interest after the six-month term. Instead, you'll see $2.70 — half the interest you would have earned in a year. Another thing you’ll probably see denoted: How often your CD compounds — that is, when the interest rate is applied to the balance of your investment. This may happen as little as every year or as often as daily (or even continuously). Fortunately, if you directly compare the APY from current CD rates, you don't have to worry about how frequently the CD compounds. The APY will already take that into account no matter how frequently it occurs. Why are CD interest rates so low?As I mentioned above, today's current CD rates are nothing to write home about. In 2006, one-year CDs had an average APY of about 3.6%. With the exception of a brief rally in 2008, they’ve been falling ever since. Why? There are several factors at play. One is that banks are sitting on a lot of money. The subprime mortgage bust forced many banks to merge and consolidate their reserves, meaning they don't necessarily need your cash. Plus, in response to the subprime mortgage crisis, the Federal Reserve lowered its target interest rates to record-low levels in order to stimulate the economy. In turn, this gives banks little incentive to raise their own rates. Finally, demand for safe, low-risk places to stash money is high, meaning banks don’t need high CD interest rates to attract customers. Most experts think the Federal Reserve will maintain its rock-bottom rates well into 2015 or possibly as late as 2016. In other words, don't expect a miracle rebound in bank CD rates this year. What Is CD Laddering? The Pros and ConsIf you've poked around the world of CDs a bit, you may have heard of “CD laddering.” Simply put, this is an investment strategy in which you divide your total investment into several equal chunks of cash. You invest each chunk in a CD with a different term so that the CDs mature at different times. A major benefit of this strategy over investing all your cash in one longer-term, higher-interest CD is that you can access a portion of your investment relatively soon, when the first CD matures. Then, you can reinvest the money into a longer-term CD at a better interest rate and continue doing the same thing each time one of your CDs matures. Essentially, you get the benefits of better interest rates with the assurance that you can access some of your money periodically. For example, if you have $10,000 to invest, you might invest $2,500 in one of each of the following: a one-, two-, three-, four- and five-year CD. When your first CD matures in one year, you can access your cash, plus interest earned, without a penalty. Then you can reinvest it in a five-year CD with a better interest rate. You can do the same thing when the two-year CD matures, then the three-year CD, and so on. Eventually, you’ll have a five-year CD maturing every year. You'll be enjoying the higher APY of a longer-term CD, but you’ll still be able to access some of your money every year. The downsides to CD laddering mirror those of investing in CDs in general. Even though you'll have more access to your money, you still won't have the liquidity that a savings account would offer. And portions of your money may be locked in at a low APY even as rates rise. Fortunately, being able to reinvest periodically can help offset the latter risk. 4 Tips for Finding the Best CD RatesNow that you're clear on what CDs are and whether they're right for you, the tips below can help you secure the best CD interest rates. Tip #1: Comparison shopObviously, your local banks and credit unions will offer a range of CDs. But before you embark on a tour of nearby lending institutions, consider using the Internet to land the best deal. As with savings accounts, online banks often offer the best CD rates because they don’t have as much overhead as traditional competitors. Online banks also typically make the web and mobile experience smoother for customers than brick-and-mortar banks. Tip #2: Invest for a longer term — maybeTraditionally, long-term CDs have higher interest rates. The obvious tradeoff is that you can’t get your hands on your money as fast. CD laddering, discussed above, can help you benefit from higher interest rates without locking away all of your money. Tip #3: Look for special dealsBanks sometimes offer an attractive rate because of special circumstances. Maybe they need the cash, or maybe they’re trying to stand out in a crowded market. And it never hurts to ask in person whether your bank can do a little bit better on its rate. Tip #4: Look beyond traditional CDsToday’s interest rates are extremely low, and many experts say the tide is bound to turn by the end of next year. Liquid and bump-up CDs will let you take advantage of rising interest rates if you’re willing to accept a slightly lower initial rate. Of course, these CDs are inherently riskier, and if low risk is what drew you to CDs in the first place, they might not appeal to you. Begin Your SearchNow you know what kind of CDs are out there, why interest rates are low and how to score the best rate. If you think CDs are a good place to stash your cash, it's time to shop. Begin by comparing current CD rates using our online quote tool. The post How to Find the Best CD Rates in 2014 appeared first on The Simple Dollar. | ||||||||||||
| Questions on Golf, Price Books, Magazines, Cast Iron, and More! Posted: 13 Oct 2014 07:00 AM PDT What’s inside? Here are the questions answered in today’s reader mailbag, boiled down to five word summaries. Click on the number to jump straight down to the question. Once every year or so, I find myself taking a nap in the middle of the afternoon. I don’t like naps. If I’m feeling worn out, I would far rather solve that problem by going to bed early that night. Sometimes, though, things don’t line up exactly the way I want them to. A child cries in the night or a huge storm blows through. I can’t get to sleep because of various thoughts running through my head. I stay up too late working on a project. And then I just fall asleep on the couch in the middle of the afternoon. I hate those days. When I finally do wake up, I feel incredibly groggy for the rest of the day, go to bed early anyway, and then wake up at 4 AM because I’ve already had tons of sleep in the last twenty four hours. Guess what time it is as I’m working on this draft? 4:12 AM. Darn naps. Q1: Tracking grocery expensesI know you’ve mentioned using Excel spreadsheets for tracking spending. Do you have a basic sample that you’re willing to share? Do you use one for groceries? I remember seeing a letter from someone who had saved every receipt for the past 18 months and they wanted to know if they should spend the time putting all of that information into a spreadsheet. You said, “No, only the past 6 months.” I found myself musing that I have that many months receipts as well, so could identify with the writer’s situation. My homebrew spreadsheet for tracking expenses is really, really simple. I just have one column with the date, one column that describes the expense, another column for the category – food, entertainment, and so on – and another column for the total. At the end of the month, I just use simple formulas to total up the expenses in each category. This great article explains exactly how I do that. Essentially, off to the right, I’ll have a cell that’s labeled Total Food Expenses and then the one next to it has a formula like =SUMIF(C:C,”food”,D:D) which just totals up all of the values in column D that line up with the word “food” in column C. These days, however, I just use You Need a Budget for all of that stuff. It does all kinds of things like this much more efficiently than my homebrew kludges. Q2: Price book adviceSince I shop at different stores, how would I track prices of one store vs. another for items? I’m thinking that this could get really cumbersome, very quickly. I tried doing this once upon a time. It’s called a price book. You’re right – it gets cumbersome quickly. Instead, what I did is figured out what my twenty or twenty-five most frequently purchased staples are – things like milk or bananas that I buy every time I go to the store (or close to it). I then went to several stores in the area and priced out those items, then I totaled the prices at each store to determine which one would be cheapest if I bought all of those items. That store became my primary store (it was actually Fareway). Every year or so, I do this comparison again. In my area, Fareway usually wins because it fills my list; a few other stores can do many of the items cheaper (Aldi, for example), but they don’t seem to carry all of the items. Because of this pricing, I prefer to shop at the nearby Fareway. If I’m near an Aldi (which is farther away), I’ll shop for some items there. This takes care of 95% of my grocery shopping. Q3: Letting go of old businessOver the last decade, I built a small gardening and lawn care business from scratch. Eventually, I employed a few people and found that less and less of my time was being spent on the actual yard and garden work that I really loved, so I sold the business. I agreed not to start a competing business for a while. My big problem is that I miss the work. I really love working in people’s yards and making them look great. Few things really make me feel happy like a well-maintained lawn. So I went back to the old business and asked for a job but he told me that he really didn’t have hours for me. I think the new owner was afraid of me effectively “running the show” or poaching clients (which is understandable). I need to let go of the business and move on but I’m having a hard time with it. What do you suggest that I do? I have this same problem. I loved many aspects of the job I had prior to moving to The Simple Dollar full time. Even now, I still check in on the websites and other things that are related to that old job, and I still miss many of the people and the technical problems that I dealt with there (the parts I didn’t like were the weekend interruptions and the travel and the bureaucracy). For me, the thing that keeps me from obsessing over it is the realization that I made a tradeoff. I gave up some things that I cared about so that I could have some other things that I cared about. It wasn’t an easy or perfect decision, but it was one that I made and it was one that most certainly rewarded me with some things that I couldn’t have had if I had stuck with that job. Focus on what you gained. You gained freedom from the management parts of the job that you didn’t like. You gained some financial security, I’m sure. You gained a chance to try new things in your life. If you miss the yard work, focus on your own yard. Make it look amazing. If you reach the end of your agreement, don’t be afraid to set out your shingle again … but then keep it small so you’re not managing employees. Q4: Credit cards and international travelMy girlfriend and I, want to go to visit her parents, daughter and granddaughter in Bolivia. She has not seen them for 10 years. :( We live in Spain and Las Vegas, so our question is what travel credit card would you recommend for us to get to use for international purchases while we are in Spain? We want to go to Bolivia the end of next year. What are your thought or suggestions? The exact offers change all the time. What you should focus on are cards that offer no foreign transaction fee. As long as they’ve got the Visa or MasterCard logo, you should be fine using them in those countries (at least as far as I can tell with my research). How can you find cards like that? Again, if I were you, I’d start with cards from very large banks that operate in those countries – Citi, Chase, and so on. Go to their websites and look for cards with no foreign transaction fees and start comparing. For example, I went to the Chase site and quickly found a bunch of cards with no foreign transaction fee (here are several such options). The exact card you choose will probably depend on your preferred airline and other such personal factors. Q5: Compromise and financial goalsMy husband and I have both always been pretty cheap. We save/invest about 35% of our annual income and have done so for the past decade. The one area where we disagree financially is on cars. Whenever a car gets really old, I start to avoid driving it if I can. When a few repairs hit, I stop trusting it and I start seeing all of the flaws of age in the car and I really yearn to get a “new” one. He wants to keep driving them until the transmission is dragging along the pavement and there are rust holes in the floorboard. This has caused more disagreements than you can imagine. I was hoping you had some insight into this. This is an area where compromise really matters. Are there any areas where your husband feels that it’s appropriate to spend more than you do? For example, I’m more of a cheapskate than Sarah when it comes to cars (she’s the one that drives the newer car for her commute, while I mostly use the car bought off of Craigslist), but I prefer to spend more on gifts for others. Compromise there – you can choose a replacement car when you start getting nervous while he gets some leeway on an area that’s important to him. You guys aren’t hurting for money. If your saving dips down to 30% because of these compromises, you’re still going to be retiring really early. You’ll just be able to do it without worrying about the transmission falling out of your car. Q6: Enameled cast iron adviceMy husband and I are looking to replace some of our Teflon-coated items in our kitchen before they peel. I know that in the past you’ve sworn by enameled cast iron pots and pans (and regular cast iron skillets). I went and looked at some enameled cast iron stuff and was shocked at the price. The Le Creuset stuff you use goes in the hundreds of dollars! Is there an inexpensive way to get some good quality enameled cast iron pots? Our Le Creuset French ovens (which essentially means an enameled cast iron pot) were acquired through a gift and a going-out-of-business sale. I would also balk at the price the items go for new, but it’s pretty hard to argue with a 101 year warranty. So, what should you do if you don’t want to pay that high price? I’ve had nothing but good experiences with Lodge cast iron items, both their enameled cast iron stuff and their non-enameled stuff. These items just work well – I’ve never seen one break and it seems to work pretty much as well as our Le Creuset. Honestly, after switching to enameled cast iron for our pots, I really don’t want anything else. I can cook anything in these pots and after some scrubbing you can’t tell I did anything with them. We’ve been using ours several times a week for at least five years and they basically look new. Q7: Job change adviceA little background: I am the sole provider of a family of five; my kids are not yet school aged. I currently have a decent, low stress job that includes a decent house on acreage as part of my salary. I have a good deal of latitude and overall am comfortable. The pay is above average, but only slightly so. Sounds good, right? The twist: I’ve been contacted by a startup in my industry and have been offered a position. The position comes with a salary that is about 30% higher than what I currently make, and would potentially become much, much higher as the company grows. I would have to move my family to a new area and purchase a house. My dilemma: Do I leave a stable job with a stable company for a risky startup in a new area that may have a huge reward (or huge consequences), or do I stay in the comfortable situation and maybe miss out on the job of a lifetime? The startup has a huge upside but has just a much of a chance of failing after the first year. Your question is answered by your response to a different question: what happens if you jump ship and the startup fails? It’s as simple as that. If you can’t quickly bounce back on your feet and provide a solid income for your family very quickly, then you shouldn’t jump. If you’re not sure what you would do, then you shouldn’t jump. You should only make a jump like this if you have a healthy amount of savings and a clear plan for an exit strategy that gets you into another job quickly. I would give completely different advice to a single person or even to a married person without children. Once you have children, though, you’re responsible for someone who can’t earn but has expenses that you must be able to cover. That changes your options. Q8: “Sharing economy” thoughtsAny thoughts on this article: http://www.theatlantic.com/sponsored/delta-view-from-the-top-2014/what-it-takes-to-grow-a-startup-from-the-ground-up/187/? You rarely mention services like Uber and Lyft so I wanted to get your thoughts on them. I don’t mention services like Uber and Lyft because they don’t exist in rural Iowa. If I need a ride, I’ll ask a neighbor. Since I’m not familiar with the service, it’s really hard for me to personally recommend it. If I did start talking up Uber and Lyft, it would be pretty obvious that I was making stuff up. As for the idea of a “sharing economy,” I just feel like it’s an organized extension of what a good relationship with your neighbors and a healthy social network with people in your physical community gets you. If I need a garden hoe, I can just go ask a few people, walk to their house, and get one in five or ten minutes. I needed a corded drill with plenty of torque for a project I was working on recently – I had one in my hands, from a friend, within a day. It just seems like businesses are stepping in here to facilitate community that’s withered on the vine. Nothing is keeping anyone from asking their neighbors for help or sharing what they have with their neighbor. Q9: Amazon Prime questionWhen is Amazon Prime is worth the cost? From what I can tell the benefits are free two day shipping on all items and Netflix-like streaming video. I can’t decide whether that is worth the annual cost. It really depends on your situation. No service is right for anyone. While I like the two-day shipping, it’s not the killer thing for me. The thing that really makes Prime worthwhile for me is that I can now use Amazon as a true price comparison tool for everything. If I see something in a store, I can check the price on Amazon and if Amazon is way lower, I can just order it from there (or ask for a price match). The two day shipping offer with Prime doesn’t require a minimum price, so I don’t have to look for items to add to get the price up to the “free Super Saver Shipping” level. Is it worth the annual price for that? Probably not. For us, it’s the summation of the various features. We give two day shipping service to my parents as part of our Prime membership. We certainly take advantage of the two day shipping for us. I use the Kindle Lending Library pretty frequently. We also watch a number of shows on Amazon Prime. In all, the pieces add up to “worth it” for us, but they might not for you. Q10: Salary advance questionMy employer was recently acquired by another organization. We went from a bi-weekly payroll schedule to semi-monthly, and they offered a salary advance to offset the difference in payroll cycle. The repayment agreement states that I will pay the partial salary advance back by 6 equal payroll deductions from future paychecks. My question is this: the payroll advance was netted, with deductions made for 401k contributions and applicable tax withholdings. But the repayment agreement states that I will pay the gross amount back. Is this correct? I feel like that would mean I am paying taxes twice. The numbers: net advance $800, gross $1,200. Repayments of $240×6 pay periods. Can you explain what I'm missing? You’re not missing anything. If you were given a pre-tax salary advance, then it should be “paid back” in a pre-tax fashion. It sounds like that’s what your agreement says, too. If I were you, I’d head over to your human resources office and get this straightened out. This sounds like someone messed up the distinction between “net” and “gross.” If you can’t get them to fix it, I’d contact the IRS and see whether or not you can resolve this when you file your personal income taxes. You shouldn’t have to pay income tax twice. That’s double taxation. Q11: Magazines worth keeping?What magazines do you think are worth keeping around for future reference? We have several magazine subscriptions and save them all, but I just realized that we really don’t look at them. We have a closet full of magazine boxes. On the occasion when I find an article or an item in a magazine that I might want to reference in the future, I tear out that page and scan it into my computer, then I chuck the magazine. This lets me search the article text later on. I have a folder on my computer of articles I’ve scanned over the years. This generally only happens with how-to magazines – food magazines, do-it-yourself magazines, and so on. I’ll occasionally find an article I want to save to reference in future writing, too. The only magazine I’ve saved is MAKE, which is a do-it-yourself magazine. However, I also have the issues in electronic format, so I’m not sure I’ll be hanging onto the paper versions forever. They are taking up space in a closet; when I look at old issues, I always look at the electronic back issues. Q12: Earning money in an emergencyWhat kinds of things can a person do to earn money *legally* in a short period of time (like a week or two)? Let’s say I have a property tax bill that needs paid by the end of the month but I don’t have access to that kind of cash. How can I earn $1,000 or so beyond my normal income in just a few weeks? There are a number of things you can do to earn some quick cash. Sell plasma. Clean out your closet and sell stuff you’re not using. Offer to babysit with every parent that you know. Go to some free dinners in the area and avoid spending money on groceries. Get a part-time job. Hang up postings that you’re willing to do odd jobs. There are lots of ways to make a quick buck. Obviously, many of those things aren’t sustainable. A new job can work in the short term, but often presents logistical problems after a while. You can only sell so much stuff out of your closet. These tips only really work well the first time around. Still, those ideas should give you a jump start toward your goal. Between them, you should be able to come up with most of the cash. Q13: Use for phone books?A couple of decades ago I read some homemaking tips from a book by Ruth Stout, who’s best known for popularizing mulch farming in How to Have a Green Thumb Without an Aching Back. Anyway, this idea is from another of her books. She wrote about using pages from an old phone books for paper towels. I’ve done that ever since–never pay for paper towels again. This works because in our town anyone can get free phone books any time of the year. I go through 3-4 a year. If we couldn’t get those for free, I’d probably ask friends to save their old phone books when the next year’s one comes out. That’s certainly a good idea. It turns something that isn’t very useful today – phone books – into something that is useful. Around here, at least, they’ve stopped shipping out phone books. We haven’t received one in a while – at least a year or two since our last one. I think that the companies that make the books have realized that they’re not as useful as they once were. My solution for a paper towel substitute is… get this… a hand towel. We keep a bunch in a drawer in our kitchen and use them when needed. They just go through the normal laundry and back into the drawer. Q14: Too many goals and projectsHow do you deal with having too many goals and projects on the docket? I keep pretty careful track of all of my ongoing goals and projects and they number in the dozens. There are far too many to make forward progress on each and every day. Is this a problem that you run into? How do you handle it? If you have so many goals that you can’t make forward progress on them, you’ve got to cut some of them out. There’s no way around it. I try to focus on single projects that move me forward in multiple dimensions of my life at once. For example, let’s say I want to get into better shape and also want to spend more time with my kids. If that’s the case, why not institute some sort of family exercise? Take a family bike ride a few days a week or play basketball together a few times a week. That way, you’re killing two birds with one stone. Just look through your projects and come up with ones that can meet the needs of multiple priorities in your life, then toss the rest of them. You can always come back to them later as your priorities change. Q15: Finding old golf ballsI wanted to share one of my favorite tactics for golfing on the cheap. I golf about once a week over at a local public course when the fees are really low. They have “happy hours” and other times where you can golf for a pittance. Anyway, my big tip for saving money is to look in the weeds for balls when you hit your ball over there. I hit my balls in the weeds all the time and I usually find it, but when I do, I’ll find a few “lost balls” too. I toss these in my bag. Right now, I have a five gallon bucket in the garage with hundreds of balls in it and I haven’t purchased a ball in many years. This is a really good idea for people who aren’t exactly “pro” when it comes to their golfing (like me). About three weeks ago, Sarah and I went golfing with friends on a public course. It was my first golf outing in years. I had several old balls in my golf bag that I used, but I actually came home with more than I left with. I found a ton of balls in the deep rough. When I got home, I cleaned up those balls and put them back in my bag. It now looks like I have a pile of new balls! Sure, they might not be functionally perfect, but they’re close enough that I won’t be able to tell (especially in three years or whenever I go golfing again). Got any questions? The best way to ask is to email me – trent at thesimpledollar dot com. I’ll attempt to answer them in a future mailbag (which, by way of full disclosure, may also get re-posted on other websites that pick up my blog). However, I do receive many, many questions per week, so I may not necessarily be able to answer yours. The post Questions on Golf, Price Books, Magazines, Cast Iron, and More! appeared first on The Simple Dollar. | ||||||||||||
| Cash Flow vs. Capital Gains Investing: The Two Investing Paths Posted: 13 Oct 2014 05:00 AM PDT Ever wondered what it takes to become a successful long term investor? You don’t necessarily need to have deep macro knowledge about international trends, or a gambler’s mentality. No, long term investing really comes down to your investment principles, and having the courage to stick to them. In the investment world, there are two basic investment principles. They are:
One of the foundations for successful investing is to be clear on which principle you want to follow. It’s advisable to choose one as your main principle even if you end up doing a bit of the other along the line. If you decide to go in just any direction at any point in time, chances are you’ll end up being confused – and frustrated. If for no other reason, the one reason why you want to have an investing principle is to help you measure your success. I should make it clear that, contrary to what you might have read in the past, cash flow investing isn't superior to capital gains investing – nor vice-versa. It all depends on what you want to achieve in the end. Let's consider these investing principles one by one. Capital Gains InvestingAt its heart, capital gains investing is the art of buying and selling an asset for a profit. For instance, you are a capital gains investor if you buy a stock for $100 a share and sell at $150 a share. This means that being successful at capital gains investing fundamentally hinges on your ability to identify undervalued assets. People often mistake capital gains investing for the game of speculating on assets. While there is a risk of speculation when investing for capital gains, this investing principle isn't about speculating. Successful capital gains investors don't buy and “pray” that the asset just appreciates, as many antagonists of this investing principle describe it. Capital gains investing is a principle of buying below retail value and waiting for the asset to rise (its stage of maturity). It’s not the game of buying at, or even above, retail price and hoping that inflation will occur to make a profit. The latter is speculating while the former is investing. Investors who invest for capital gains research assets to be sure they are trading below their intrinsic value. A good way to see capital gains investing is by seeing yourself as a value investor. Value investors look at certain aspects of an asset to determine the asset presents an upside potential. If you're going to invest for capital gains, the first thing you want to do is to research an asset to make sure that it’s not already overpriced. You have to put down some criteria for anything you want to invest in. We'll consider two instances, one for stocks and the other for real estate, to establish a proper capital gains investing discipline. Instance 1: Investing in StocksNote: This example isn't to recommend any mentioned stock, and I do not own shares of any mentioned stock. Since the stock market is made up of various industries, the first thing I recommend is to only invest in the industries you understand well. Investing in industries you don't know is the first step to becoming a speculator, as your investment decisions won't be adequately informed. On the flip side, when you invest in industries you understand, you can easily tell when a company is doing something that presents an investment opportunity. Having said that, let's consider some investments that target capital appreciation. Let’s say that in 2007, when Steve Jobs unveiled the iPhone, you predicted Apple would change the mobile phone landscape. So, you bought Apple stocks with some level of certainty that its price would rise in future. In reality, when the iPhone finally delivered on that promise, Apple stock rose. Now let’s say that when Google came out with Android, based on your research you determined Apple could no longer dominate the mobile phone market. So, you decided to cash in at a profit. You wouldn’t if you found something new in Apple that promised an even greater upside potential. Instance 2: Investing in Real EstateAs a capital gains investor who wants to invest in real estate, you have to lay down some real reasons why you want to invest in any property. Whatever the reasons are, there must be an upside potential. You can't just buy a property because there is an in-built theory in real estate investing that properties will always appreciate. Again, that would mean you're speculating on the property. Here is a good instance of proper capital gains investing in real estate. You might set your discipline as investing in properties in regions that could see significant urbanization over the next few to several years. For instance, if you have reliable information that a higher institution will be established in an environment that is relatively under-urbanized, you might decide to take positions in properties in that environment knowing that, when the institution arrives, the value of the properties will rise. You’ll notice that, in the two examples, the key strategy is buying when an asset is undervalued and selling when it's no longer fairly priced, or better yet, overpriced. Capital Gains Investing Best PracticesAs I stated above, it's easy to speculate when you invest for capital gains. However, if capital gains investing is your favorite path, consider the following as part of your discipline:
Cash Flow InvestingSimply put, cash flow investing is the art of purchasing an asset and holding onto it in expectation of getting a constant return on a monthly, quarterly, or even annual basis. Regardless of the interval, the keyword here is a "constant return on your investment." The periodic return usually takes the form of dividends for certain investment vehicles like equities, or it could come in form of rent in real estate investing. The core idea of investing for cash flow is to build wealth steadily. This investing principle is what gurus would tell you to use to prepare for retirement. This model is also good for building capital, as it assures you of a constant income at intervals. The reason why investing gurus advise people to invest for cash flow is that it helps people keep their eyes off short-term market movement, which could lead into panicking. With cash flow investing, you aren't caught up in the risk of estimating too much. I must state at this point that, as shown by various researchers, if capital gains investing is done right, it promises better return than investing for cash flow. In fact, as Geoff Considine found, income investing reduces safe withdrawal rates. However, investing for capital gains comes with a somewhat higher estimation risk. Since you’re after capital appreciation, it is easy to overestimate the investment opportunity at hand. But with cash flow investing, you won't have to do much estimation since what you’re after is steady income. Another reason why income investing could be potentially safer than capital gains investing is that it doesn't depend very much on your ability to time the market. Strategy Still MattersCash flow investing isn't all about just putting your money into some income-generating assets. You will need to have a strategy. First, you should always take the long-term view. You have to research the potential state of an asset (real estate or securities) for years to come. At the minimum, even if the asset will have a problem in the future, you need to be certain to some extent that the asset would have generated enough cash flow to cover your initial investment. Again, here are two instances to understand the proper way to invest for capital gains. Instance 1: Investing in StocksYou can’t afford to invest in a dividend-paying stock just because it pays well at the moment. You need to conduct research to have some level of certainty that the company behind the stock has the potential to, first and foremost, sustain its business at a level where it can keep distributing its gains among investors at intervals. It's of great importance to know that lethargic economic growth and depressed earnings forecasts, among other factors, could make companies cut their dividend payout or even completely stop paying dividends. When investing in stocks for income, you need to be aware that the most important thing is the ability of the company in question to maintain a huge cash reserve. It is from cash reserves that companies pay dividends. If, for instance, you want to invest in Microsoft, you want to be sure that the company can generate and maintain a huge cash reserve. An effective way to assess a company's cash-generating power is by looking at its businesses. You want to check how diversified the company is. You have to check the company's position in the markets in which it operates. One thing I have found with the most-performing dividend stocks is that they are leaders – not necessarily number one – in their industries. In the case of Microsoft, the company is a leader in the PC market, and it is also well diversified. It also generates sufficient free cash flow from its businesses. As long as the company leads the PC market and remains diversified enough to keep generating a healthy cash reserve, it would be a good option for generating income. Without these fundamentals, investing in Microsoft just because it pays dividends will be risky. Instance 2: Investing in Real EstateAgain, you can't afford to invest in any property just because the income is great at the moment. You also need to be sure that the properties you invest in can perform long enough for you to recoup your initial capital. When investing in real estate for cash flow, you have to think about things like this: What future events could cut me from this stream of income? Earthquakes or any natural disaster? Civil unrest? And then, you have to research into the possibilities of these events occurring. This will help you make safe and informed decisions. For instance, a good practice would be to invest in properties in areas that are usually peaceful. Such areas will naturally attract residents, which will assure you of a consistent – and perhaps growing – income from rentals. However, if you invest in some property in a volatile area just because it generates high income at the moment, you are exposing yourself to significant risk, as such an environment might end up being unsafe to inhabit and end up forcing income down due to decrease in property demands. As a matter of fact, you might want to follow the approach I described in capital gains investing. Invest in any asset because you see value in it. This approach, while it may not promise the highest yield, gives some assurance that your invested capital will be safe, whilst you generate income. Cash Flow Investing Best Practices
A Big MisconceptionOne of the biggest misconceptions about income investing is that it’s all about buying and holding. While you shouldn't focus on short-term market movements which, by the way, isn’t even advisable for capital gains investing either, you need to keep tabs on the fundamentals of your investments. No matter how attractive an income-generating asset could be at the moment, you would be right to cash in and look for better options if the fundamentals are no longer there. How to Determine the Path You Should TakeThere is no one-model-fits-all approach here, but beginner investors are better off investing for cash flow — at least until they have a positive cash flow and can manage their emotions and expectations. An in-depth understanding of markets is required to make it in capital gains investing. In addition, if you're planning for retirement – a relatively modest one at that – cash flow investing could be better suited for you since it guarantees a constant income. Capital gains investing, on the other hand, is better suited for you if you already have a constant flow of income – like salary – and you're not preparing for retirement. A constant flow of income will help you stick to your investing disciplines no matter what. However, you need to be able to stomach more risk if you're going to invest for capital gains. The post Cash Flow vs. Capital Gains Investing: The Two Investing Paths appeared first on The Simple Dollar. | ||||||||||||
| Small Business Insurance Basics Posted: 12 Oct 2014 11:00 AM PDT There are about 45 million businesses in the United States of which more than 99 percent are considered small businesses. More than 40 million of those small businesses have fewer than 20 employees. All businesses, small and large share a common need for protection against the unexpected, and small business insurance satisfies that need. Unlike, big businesses that can have policies tailored to their exact needs, small businesses must rely on off the shelf solutions. The challenge when it comes to small business insurance is twofold, having the right coverage and enough of it to provide adequate protection. The answers to both challenges are unique to the individual business, however, making a decision about how much insurance is necessary cannot be done without knowing what kind of insurance is needed. To help decode the myriad business insurance offerings, we’ve created an overview of each of the different business insurance products available. Types of Small Business InsuranceBusiness Owner PolicyWhen small businesses set-up shop the most common type of insurance they get will be a Business Owner Policy. The reason for the ubiquity of this policy is its ability to customize to meet the particular needs of different businesses. This is possible because a BOP allows a small business owner to package a variety of coverages under the cover of a single policy. This simplifies administration for you by having only one premium and renewal date to keep track of. At the heart of all Business Owner Policies is business interruption insurance, which may also be called business income insurance. Its purpose is to replace part of all of your lost income in the event your business is unable to operate because of a disaster that forces you out of your place of business. In addition to replacing lost income due to disaster events such as fire you may be eligible to receive additional funds to help defray the added costs of operating from a temporary location. As a bundled coverage policy, you can add other types of coverage to your BOP based on your particular needs. Additional coverage can be added for things as disparate as outdoor signs and e-commerce protection for viruses or other cyber attacks that inhibit your ability to conduct business online. Each of the additional types of insurance you add increase your base premium and share the same renewal dates as your original policy even when they are added at different times. While having much or all of your business insurance in a single policy has the advantage of convenience, there can trade-offs that should be considered. The foremost of these is cost, which can be higher. For example, in many cases the separate premium for business car insurance may be lower than it would be if it is part of a BOP bundle. A popular school of thought is to bundle as much as possible under a single BOP when a business is new and insurance needs are limited and to break out coverage into separate policies as the business grows and it becomes cost effective to do so. Property InsuranceThis popular component of a business owner policy can be purchased separately and tailored to your needs. Property insurance offers protection for two types of business property, structures and contents and is sometimes called fire and theft insurance. The structural portion of commercial property insurance insures your business premises from damage, whether you own or lease. It also covers certain exterior features such as signage fencing and landscaping against loss or damage due to covered risks. The contents portion of a business property insurance policy covers loss or damage to what’s inside your place of business. You furniture, computers, equipment and inventory are all covered for loss or damage. Work product items, like architectural drawings or client files are also covered. For example, if a fire occurs in an adjacent office and your business has damage from smoke and water you will be paid for the damage and the cleanup costs associated with the incident. Liability InsuranceLike business property insurance, liability protection is often added into a BOP for new and very small businesses with limited liability risk. An uncomfortable reality for all businesses is the possibility of being sued due to faulty service or a bad product. Liability insurance also provides protection in the event someone is hurt by your business or while at your place of business. Liability insurance will pay for the medical expenses of those injured up to the limits of your policy. In addition to providing for actual damages this insurance will pay for an attorney and court costs associated with defending your business. Workers CompensationWorkers compensation insurance will pay for the medical expenses and a portion of lost wages of covered employees who are injured while working for you. The requirements for workers compensation insurance vary from state to state with the exception of Texas which does not require it. The majority of states require that your business has coverage if you have one or more employees. A small number of states do not require workers compensation for less than three to five employees. It is important to check with your state’s department of labor because not having required insurance can result in substantial fines and penalties. Business Auto InsuranceThe insurance portion of business vehicle insurance works exactly the same way it does with your personal car insurance. In most cases you will not need this separate coverage if your car is used for both personal and business. However, if the vehicle is exclusively for business use you will need a separate policy. The same types of coverage are available, liability, collision, comprehensive, personal injury protection and uninsured\under-insured motorist. A significant difference is that a business auto policy may only cover drivers that are named on the policy. While this can be bundled with a BOP policy it often pays to shop for the best rate separately. Errors and OmissionsThis is similar to liability insurance in that it protects you against lawsuits, but it is for professional services which why it is also known as professional liability insurance or malpractice insurance. It is intended for businesses that provide services to consumers, such as doctors, lawyers, accountants. This insurance should also be considered by certain other service type businesses such as advertising or insurance. In fact, any business where the customer is relying on the opinion and expertise of the business should consider E&O insurance. Employment Practices Liability InsuranceOnce, only large corporations had to be concerned with employee claims that their rights had been violated but in recent years the number of suits against small businesses has skyrocketed. Employment practices liability insurance, EPLI works by defending you against claims such as; sexual harassment, discrimination, wrongful termination, negligent evaluation and other employee initiated suits. If a claim is successful EPLI will pay the claim. EPLI will not pay for punitive damages or fines. Small businesses that want this protection can have it added to the BOP policy as an endorsement. Not all insurance companies that offer business owner policies offer an employment practices liability endorsement and those that do usually have rigorous underwriting requirements. Rates for this coverage are based on several factors, including the number of employees and your company’s history of disputes and lawsuits. Directors and Officers Liability InsuranceThis type of coverage can be summed up as personal protection for professional decisions. Directors and officers liability insurance insures managers and board members in the event they sued personally for actions they took as managers or board members. D&O coverage is primarily of interest to businesses that operate outside of the United States at least a part of the time since such lawsuits uncommon in the U.S. D&O liability insurance is often confused with errors and omission insurance because both protect against lawsuits that result from bad decisions where the company is the plaintiff. Coverage is based on claims made basis, which means directors and officers are only protected while the policy is in force. Any legal actions that are initiated after the policy is cancelled are not covered even if the incident occurred while the policy was in place. Key Employee InsuranceKey employee insurance is life insurance with the specific business purpose of providing money to ease the cost of losing an important employee. A key employee life insurance policy is one that is owned by the business and has the business as the beneficiary of the policy. The purpose of this type of insurance is to provide income or funds to help with expenses while a replacement for the deceased employee, manager or even owner is found. This coverage could also be used as a means to replace income that results from the untimely death of a business’ top salesperson which can be particularly devastating if they were responsible for generating new business rather than servicing existing customers. Key employee insurance may even be required by some lenders when credit is based on the contribution of the key employee to the business. Since these policies are permanent forms of life insurance such as whole life the accumulated cash value is often given to the employee upon retirement as compensation. The IRS does not allow companies to deduct the premiums as an expense unless the policy has been assigned to a third party such as a lender. The IRS does not treat proceeds of the policy as taxable as part of the employee’s estate even if the employee was the owner of the company as long as the beneficiary is the company and not an individual or estate. Data Breach/Cyber Liability InsuranceBusinesses understand that protecting the personal information entrusted to them by customers is of the highest priority, but still data breaches can and do occur. Data breach and cyber security insurance protects against the loss of electronic and paper records by thieves. This coverage may be purchased as a stand alone policy or added to a BOP as an endorsement. Policy terms vary from one company to another, but generally help offset the costs of notification, public relations and legal and liability expenses resulting from the breach. Umbrella PoliciesAs the name implies umbrella insurance provides protection over and above the limits of other policies. For example, if a company has a $1 million or more umbrella policy and it is sued successfully for $1.5 million as part of a personal injury suit and only has $1 million of liability coverage the umbrella policy would provide the additional $500,000 to satisfy the claim rather than the company having to make the payment. The post Small Business Insurance Basics appeared first on The Simple Dollar. | ||||||||||||
| Best Credit Report Site of 2014 Posted: 11 Oct 2014 10:22 AM PDT The Simple Dollar team and I dedicated an extensive amount of time researching credit reporting agencies, credit sites, consumer reviews, national surveys, and other published research to determine the best credit report sites that suit a variety of individual needs and life circumstances. When you're choosing which credit monitoring company is the best fit for you, there are several factors that play into your decision. Do you need to monitor your credit reports regularly on a continuous basis? Do you need to know your FICO score more often, or just when you're applying for credit and are potentially denied? Have you recently cleaned up all the errors on your three credit reports and aren't planning to make any major purchases in the near future? As I delved into my research, I discovered a lack of clarity as to where individuals should turn to depending on their current life stage and, more importantly, where they plan to be in the future. So, I separated life scenarios into three general stages based on the level of involvement necessary while monitoring one's credit. I have selected the top two best credit report sites most fitting for each scenario, highlighted below. The Simple Dollar's Top PicksHere’s a brief overview of my findings. As you continue to read, I go more in depth and explain why these companies is the best for different purposes. Best Credit Report Sites: For those who are vested in their financial future or have been neglectful in the past. Best Credit Score Sites: For those who want to keep a pulse on their FICO score and make financial decisions at the most opportune times.
Best Sites for a Free Credit Report: For those who will not be making any large financial decisions in the future but want to stay involved.
Your financial life changes over time, and you may find yourself jumping between these categories. Don't be afraid to revisit and determine where you best fit. Before I go in-depth about what the best credit companies are, let's talk about credit in general. If you feel as if your knowledge of credit is subpar, you're not alone! According to a survey conducted by the Consumer Federation of America (CFA) and VantageScore Solutions, last year, less than 60% of Americans reported they possessed basic knowledge of credit. What Is Credit?Credit is your financial reputation. It defines your freedom to borrow and is measured by credit scores based on your predictability to repay. As with any reputation, it takes time to build trust and reliability, and one misstep can cause a need to rebuild that relationship. Credit is no different. Your credit scores are derived from credit reports compiled by the three major nationwide credit-reporting agencies: Equifax, Experian, and TransUnion. These reports comprise all your financial borrowing and repayment history. The majority of lenders use an individual's FICO score, which takes into consideration a ratio of factors from all three reporting agencies to determine one's creditworthiness. Why Is Credit Important?The two most impactful consequences of credit are money and opportunity. I have yet to encounter a person who would willingly and knowingly walk away from either of these things. By monitoring your credit on a regular basis, you have the control to capitalize on these concepts. Let's explore examples of each. The lower your credit score, the higher the risk of repayment is for lenders. This in turn increases your interest rate and, therefore, monthly payments. According to Stephen Brobeck, Executive Director of the Consumer Federation of America, "Low credit scores will often cost car buyers more than $5,000 in additional finance charges and cost home purchasers tens of thousands of dollars in additional mortgage loan costs." According to the Business of Consumer Protection (BCP), landlords have the right to take action on those with unfavorable credit scores by requiring a larger deposit, increasing the rent in comparison to an applicant with a higher credit score, or rejecting your application altogether. All they need to do to treat you differently from your neighbor is issue an adverse action notification, just one brief letter dropped in your mailbox. They can do this solely based on your credit score. A 2012 survey conducted by the Society for Human Resources Management found that 47% of employers use credit reports when making a hiring decision. Fresh out of college, and totally oblivious to the importance of credit when seeking employment, I failed to check my credit reports prior to applying for a job. The interview and reference checks went great, but I was denied the position due to discrepancies on my credit report. I was fortunate enough to provide my prospective employer evidence of my pending disputes of these claims and, upon resolution, was offered the job. Your credit history is important to a lot of parties, including lenders, utility companies, prospective employers, landlords, cell-phone providers, and banks. Any of these groups may check your credit at some point, but this is why your credit should be important to you.
Who Needs to Regularly Monitor Their Credit?If you've been a recently been a victim of identity theft and/or plan to borrow money from a financial institution within the next few years for a home, car, refinancing, or business or personal loan, you should be regularly monitoring your credit score. Many companies like Identity Guard provide you with reports from all three credit-reporting agencies. Unlike most other companies, Identity Guard provides these reports on a monthly basis, has customizable plans to fit your budget, and provides exceptional identity theft protection services. The potential savings when one invests in the monitoring and improvement of their credit report is tremendous. Now that you know more about credit, let's discuss the best places to obtain and monitor your credit reports. Best Credit Report SitesThese sites and services are for individuals who need to monitor their credit regularly. If you're planning to make a large purchase that will need financing in the near future, are a recent victim of identity theft, or haven't monitored your credit in the past few years and need to dedicate some time to cleaning up your credit reports, this level of service will be the most beneficial. #1 Identity GuardIdentity Guard may sound more like an identity theft protection service than a credit report monitoring site, but it offers the best of both worlds. They provide a free two-week total protection trial, including premium credit monitoring and ID theft protection solutions. With over 16 million victims of identity theft in the U.S. in 2012, one cannot discredit the importance of identity theft protection in conjunction with your credit score monitoring. As you can imagine, identity theft can have a serious, detrimental effect on your credit score. The goal is to hinder any negative trends to your credit score before they happen. For $19.99 per month, Identity Guard goes beyond identity theft protection and includes a personal credit dashboard where you can easily monitor all three credit bureaus and keep a pulse on your credit-building progress. They provide a detailed analysis of what exactly is affecting your credit score and send you email alerts with any changes. Identity Guard has a variety of plans to fit your budgeting needs. For individuals who are planning to make a serious investment, such as the purchase of a home, a comprehensive monitoring subscription such as Identity Guard Platinum is an absolute must. Failing to invest in the maintenance of your credit score in advance of large transactions will have a sustained negative impact on your financial future. The recommended Identity Guard Platinum membership costs $24.99 per month and provides the following services:
Drawback: Identity Guard does not provide a FICO score or VantageScore, and only the scores provided by each of the three credit-reporting agencies. #2 Privacy GuardSimilar to Identity Guard, Privacy Guard provides you with a monthly three-bureau credit report along with a credit score. A monthly monitoring of all three credit reports is critical in order to catch potential errors as quickly as possible. Privacy Guard provides one-on-one dispute assistance for any identified errors along with an array of identity theft protection services. New members can try out the monitoring service for just $1 for the first 14 days followed by a $14.99 per-month fee. With this membership, you get such services as:
Drawback: Privacy Guard does not provide a FICO score or VantageScore, just the CreditXpert Credit Scores from information on file at Experian. Best Credit Score SitesThese sites and services are for individuals who just need their FICO or VantageScore in order to make the best financial decisions. They will want to continuously monitor these in order to strategically move forward with these decisions at the most opportune time. #1 EquifaxEquifax is one of the three major credit-reporting agencies and has been in existence for over 100 years. With Equifax credit monitoring, you not only receive their credit report but also those of the other two major credit-reporting agencies, Experian and TransUnion. In addition to the reports, you receive your FICO and VantageScore, which is pretty unique to this industry. While FICO scores are used by the majority of lenders, VantageScore has been gaining in popularity and, by using a different methodology, provides further credit insight. Equifax offers both credit monitoring and ID theft products as well as one-time credit reporting and credit scoring. Their Credit Score Watch includes monitoring of your FICO score and purchasing power and starts at $14.99 per month. The Premier Plan includes the following and comes in at just $19.99 per month:
Equifax also has a family plan, which is ideal for the married couple who will start or continue to apply for mortgage loans together. While credit scores are tied directly to an individual's Social Security number, when two people apply for a joint loan the financial institution defaults to the lower credit score of the two. Drawback: Equifax offers continuous monitoring of their own reporting, but only provides annual reports from the other two major bureaus. This should be sufficient unless you are hoping for more continuous and in-depth monitoring. If so, I would recommend scrolling up to the Best Credit Report Sites section where both top options are able to provide monthly updates from all three major credit-reporting agencies. #2 myFICOI rank myFICO as one of the best only because this section is specially tailored to individuals who have a need to continuously monitor their FICO score. While FICO is the most widely used scoring system for lenders in their determination of creditworthiness, other credit monitoring sites often do not provide FICO scores. A myFICO monitoring subscription includes a FICO Score Simulator that provides you insight to how your financial decisions can impact your overall score. They also alert you of any additions of new accounts, score changes, contact information updates, or inquiries. However, unless you subscribe to the three-bureau credit monitoring, you will only receive alerts from Equifax. As of recently, myFICO added the ability to monitor identity theft both in conjunction with FICO credit monitoring or entirely on its own. For $29.99 per month, you'll get the FICO Identity Ultimate plan and receive:
Drawbacks: There is a three-month minimum required for all credit monitoring subscriptions. Also, the credit reports from the three major agencies are only provided annually, which U.S. consumers can get for free anyway. Best Free Credit ReportThanks to the Fair Credit Reporting Act (FCRA), all U.S. residents are able to obtain a free copy of their credit reports every year from each of the three major nationwide credit reporting companies, Experian, Equifax, and TransUnion. Just visit AnnualCreditReport.com. These do not need to be ordered at the same time and, if continuous monitoring is not in your immediate budget, it may be best to stagger these throughout the year. There are also a few other free credit tools available out there. As with any free service, there will be less information, accuracy, critical analysis, potential protection, and services provided. An increase of advertising can also be expected on each of these sites. Be leary of the fact that your financial information is analyzed within this setting and therefore easier for these sites to customize and push products on your based your situation. However, depending on your budget and future financial plans, these free credit sites could be perfectly sufficient for your needs. #1 Credit SesameCredit Sesame offers free credit monitoring and scoring on a monthly basis. However, this comes with the limitation that it only reports on one of the major credit reporting companies, Experian. The score provided is not a FICO score, as their computation is proprietary; however, they do offer a comparable score that will allow you to see fluctuations. Along with the monthly score, you're given:
One of their biggest strengths is identity theft protection, which is rare in the world of free offers. They also have a patent-pending analytical tool to help you determine how to save the most with your debt repayment. Drawback: As mentioned, Credit Sesame only provides one-bureau data. With over 20% of credit reports containing at least one disputable discrepancy, as determined by the Federal Trade Commission's 2012 study on credit report information accuracy, this really exposes the risk of missing potential detrimental information on the other two major credit-reporting companies' reports. #2 Credit KarmaCredit Karma also offers free credit-monitoring services along with four free credit scores annually. Keep in mind that the score provided is limited to one credit reporting agency, TransUnion, and is not a FICO score. Rather, the score is a comparable three-digit number to monitor for fluctuations. Along with the monitoring notifications and scores, you get:
Credit Karma's credit report card does an excellent job of breaking down the different components and their weights to provide a better general understanding of your credit score or grade. Their Credit Score Simulator helps predict how specific financial actions, such as a late payment, can affect your score over time. Drawback: Similar to Credit Sesame, Credit Karma only provides one-bureau data. Based on my personal experience and consumer reviews, they also have occasional system issues that inhibit the functionality of some services like the Credit Score Simulator. How Do You Establish Good Credit?The only way to establish credit is to use credit. Prior to borrowing, make sure you're confident that you'll be able to pay any and all bills on time. Even if you're only able to pay the minimum amount, know that late payments will result in a decrease of your credit score, and therefore borrowing ability, with every infraction. Credit scores are developed similar to a grade you would receive in school. Understand that different components, such as on-time payments and credit utilization, weigh more heavily on your score than other components, such as total number of accounts. While test scores often were the largest determining factor in a school grade, you still needed to complete your homework in order to get an A. Consider a secured credit card as your first line of defense. Visit the Best Credit Cards for Bad Credit (or perhaps no credit) section for a more in-depth explanation of which card may be best for you. Make sure not to apply for too many credit cards in a limited period of time. Unlike shopping for the best rate on a loan, hard credit inquiries for credit card applications will negatively impact your credit score. As you initially develop your credit score, and throughout your lifetime, try to maintain a variety of credit types. These include:
Certain factors out of your immediate control, like length of credit history, have an impact on your score. Continue to monitor your credit reports annually at minimum in order to mitigate the risk of reporting errors. How Do I Improve My Credit?In order to improve your credit, you have to commit time, effort, and resources. I would recommend subscribing to one of the Best Credit Report Sites for at least a year. From there, you can determine if monthly monitoring is necessary, or if a scaled-back or free service may be sufficient for some time until your next big financial decision is on the horizon. The Federal Reserve published five tips for improving your credit score: #1 – Get copies of your credit reports, then make sure the information is correct. As discussed earlier, it's your responsibility to stay informed when it comes to your credit and take action when necessary to correct discrepancies. In late 2012, the Federal Trade Commission (FTC) reported a study to Congress concerning the accuracy of information in credit reports, specifically from the three major credit-reporting agencies. In summary, over 26% of participants, more than one in four, found potential errors on one or more of their reports. Over 13% had a change to their credit score after the discrepancy had been disputed and ultimately resolved. Of those modified reports, 8% saw a FICO point increase of over 50 points. Do not find yourself becoming one of these statistics. Research RecapCredit is not built overnight and requires an understanding of all components involved in the development of your credit score. Make sure you take preemptive action to monitor and improve your credit score well in advance of any major financial decisions. While credit can seem confusing at times, keep yourself educated. It is your responsibility to understand your credit score and use it to your advantage to save money and provide endless opportunities. My top recommendation for anyone looking to get started is Identity Guard, but ultimately the best choice depends on your personal situation. The post Best Credit Report Site of 2014 appeared first on The Simple Dollar. | ||||||||||||
| Hacking Six Normal Life Routines to Save Time and Money Posted: 11 Oct 2014 07:00 AM PDT In my experience, many of the truly useful frugal tactics come about from little tweaks to one’s daily routine. If you can look at something that you do almost every day and find some little way to shave a minute off of it, you’ve saved more than six hours over the course of a year. If you can look at that routine and shave a quarter off of it, you’ve saved $90 over the course of a year. If you can do those kinds of changes to several routines in your life, you’re starting to look at some impressive savings. I’m not talking about things that throw your routine to the wolves and force you to start over from scratch. I’m talking about simple little ways to alter a routine so that the expense of each run of that routine is a little less or the time involved is a little less. Here are six examples of pretty normal daily routines in my life that I’ve managed to “hack” in significant ways over the years to save both time and money. Doing LaundryWith two adults and three kids living under one roof, laundry is practically a daily occurrence around here. It eats up time and it definitely eats up money in the form of detergent and energy. How I Once Did ItOnce upon a time, I would simply buy a jug of detergent and a box of dryer sheets from the store. Whenever I did a load of laundry, I’d follow the instructions on the tags and also sort the clothes by color before doing a load. I’d use warm or hot water on the clothes, then use the dryer appropriately afterwards to dry the clothes. How I Tweaked It to Save Time and MoneyThe first tweak I made was to make my own laundry detergent, a process that I described in detail here. These days, I actually just make powder detergent by mixing the soap, borax, and washing soda in powder form and using just a tablespoon per load. Making this laundry soap takes about five minutes once every two months or so and trims the soap cost per load from about $0.20 to about $0.02, adding up to about $64 in savings per year. The second tweak I made was to only wash large loads. A washing machine only uses a bit more energy and a bit more water when you’re using a large load rather than a medium-sized load. Since I’d estimate that I do two large loads rather than three medium-sized loads, it’s a net savings of both time and money. The third tweak I made was to use cold water for everything unless specifically directed not to do so by a garment tag. I’ve never seen any difference in terms of getting my clothes clean, so using warm or hot water just wastes energy and adds to the monthly energy bill. The fourth tweak I made was to cut my dryer sheets into quarters. This takes about a minute to cut the sheets from a single box into quarters. The quarter sheets do a perfectly good job of softening my clothes and it reduces the expense of the dryer sheets by 75%. Most dryer sheets cost about $0.06 a pop, so over the course of a year, this quick cutting technique saves about $6 a year. The fifth tweak is to do laundry late in the evening, just before bed. By doing this, we’re using the cheapest energy our energy company provides, which usually kicks in at 7 PM for us. Check with your energy company – off-prime hours are almost always cheaper for energy use and that’s when you should run your big appliances. This tactic works for other appliances like your dishwasher. The final tweak worth mentioning is that we use a drying rack for many clothes items. Rather than just throwing everything in the dryer, I’ll hang up many of the items on a drying rack or a line in the laundry room. This makes for much smaller loads in the dryer without any additional time (it doesn’t really take any longer to put a shirt on a drying rack than it does to stuff it in the dryer) and a smaller load in the dryer means less energy used and less dryer time, too. Making a Simple BreakfastEvery single school day, I have to make breakfast for my three children (and myself, and often for my wife who is rushing to get to work). It’s a routine that requires a healthy breakfast to be prepared and also really values using minimal time. How I Once Did ItUsually, I’d wake up in the morning and make whatever I had on hand. This usually meant quickly cooking an oatmeal packet or scrambling some eggs or something like that. That procedure involved at least a little bit of prep time. How I Tweaked It to Save Time and MoneyMy first tweak was to make a ton of breakfast sandwiches in advance. Homemade breakfast sandwiches are substantially cheaper than ones purchased in the store and don’t take terribly long to assemble. I usually do this as an extension of a normal breakfast on a weekend day, assembling fresh sandwiches for the family and then freezing a bunch of them. I usually wrap them in a paper towel, then put them in a pint freezer storage bag for storage. In the morning, you can just pull out the sandwich and microwave it for a moment or two and have a perfectly fine breakfast. According to my calculations, I can make a sandwich for $0.55 when similar sandwiches cost a dollar or so at the store (or at a restaurant). This saves some time in the mornings (mostly due to moving that time usage to the weekends) and also saves some money. My second tweak was to make “overnight” oatmeal in a slow cooker. Rather than buying oatmeal packets, we just buy a large container of steel cut oats. Before going to bed, I put the steel cut oats and some water (and a bit of honey) in a small slow cooker and turn it on low. The next morning, we just serve the oatmeal, usually topping it or pairing it with some fruit. This is substantially cheaper per serving than oatmeal packets (my math indicates that we save about $0.15 per bowl) and it’s far quicker in the morning, too. I just toss the crock into the dishwasher when we’re done. My third tweak was to buy discounted fruits. I watch the grocery flyer and when fruits go on sale, I purchase just those fruits and use them to accompany breakfast that week. Some weeks, my children enjoy bananas; other weeks, they enjoy strawberries with their breakfast. They’re cheap because of the sale and they’re very quick to prepare. Washing DishesWith five people in our home (and guests on a pretty regular basis), we find ourselves doing a load of dishes almost every day – and often two or even three loads in a single day. How I Once Did ItI’d throw dishes in the dishwasher to maximize the number of dishes I could fit in there, then I’d close the door and start things up, using hot water to get them really clean and hot drying to avoid spots. I also used whatever detergent was on sale. How I Tweaked It to Save Time and MoneyMy first tweak was to switch to a good detergent and buy it in bulk. The better the detergent, the lower the likelihood of dishes not being clean at the end of the load. Also, cheap detergents can slightly etch your dishes, reducing their lifespan. Adding those factors together, the cost of cheap detergent usually adds up to more than the cost of good detergent. I usually stick with Finish Quantum tabs, which are highly recommended by Consumer Reports. My second tweak was to start using vinegar in each load. Most dishwashers come with a spot for a rinsing agent like Jet Dry, but for most dishes, a bit of white vinegar works just fine as a rinsing agent and costs about 10% as much as the commercial rinsing agents. I use vinegar in most loads. My third tweak was to turn off the heat during the drying cycle. If you’re using a rinsing agent, you don’t need heat to prevent spots. The rinsing agent takes care of that, so you don’t need hot air during the dry cycle. Just turn off that setting on your dishwasher and never use it again – it’ll save energy. In fact, I’ll often just open the door if I notice it when the load is finished and allow the dishes to air dry. My fourth tweak was to pay attention to how I load the dishes. Almost all dishwashers operate better if you load the dishwasher in a smart way. Load plates on the bottom rack with the plates facing the middle of the dishwasher (as best you can). Put silverware in the silverware rack with the handles down. Bowls and cups go on the top rack with cups facing down and bowls slanted downward. Most dishes that aren’t fully washed fail because they didn’t follow those simple rules. It doesn’t add any time in loading, but it does reduce the need for re-washing. My final tweak was to use the short wash cycle. I once used the “pots and pans” cycle for almost everything until a friend showed me how silly that was. Now, I use the short cycle and virtually everything gets clean. The only key is to make sure that you’re not putting dishes in there that actually have food “chunks” on them – if there’s a chunk, rinse it off quickly in the sink. You’ll save a lot of water and energy this way. Cleaning Out the RefrigeratorThis is a task that needs to be done on a regular basis to prevent outdated items in your fridge from going bad and contaminating other items in there. I don’t particularly relish the task, but it’s something that needs to be done. How I Once Did ItAbout once a month, I’d pull everything out of the fridge, evaluate each item, and put some of it back. I’d end up throwing away a significant portion of what’s in there. I usually needed to clean the racks at this point, too. How I Tweaked It to Save Time and MoneyMy first tweak was to start a weekly rotation. This is really easy and only takes a few minutes. Just reach in the back, pull out the items that are furthest out of sight, and put them in the front. It’s incredibly easy and it brings attention to the older items. My second tweak was to assemble a meal plan as part of that rotation. I got into the routine of doing that item rotation when I assembled my meal plan for the week. This would often inspire me to use those things in the refrigerator that needed to be used up – a half-empty jar of marinara sauce or a bowl of rice cooked two days ago, for example. Rather than letting these things go bad in the back of the fridge, I incorporate them into next week’s meals. These items get used rather than wasted, saving money. My third tweak was to start using transparent containers when possible. I often miss leftovers when looking in the fridge, which again means that they wind up going bad in the back. By using transparent containers, I can see what’s in there, which means that I don’t overlook them and they actually get used, saving money. My final tweak was to simply save a thorough washing until it needs it. Since I’m not pulling everything out all the time, I find that I actually don’t need to do that top-to-bottom cleaning as often. This saves me time over the long run. These tips also work perfectly when cleaning out your cupboards or pantry. By just using a little bit of time frequently, you wind up wasting far less stuff, cut back on your grocery bill, and avoid having to do the “big clean” nearly as often. Preparing DinnerOne of the central tenets of our family life is that, if at all possible, we eat dinner together around the dinner table (or at a community dinner). While that’s awesome, it does also require that a family meal be prepared every single night. How I Once Did ItI’d go to the grocery store with a few vague ideas for meals in mind, then toss stuff in the cart to fulfill those meals. Each evening, I’d spend half an hour to an hour preparing a meal. How I Tweaked It to Save Time and MoneyMy first tweak was to start using a meal plan/grocery list system for grocery shopping. It’s so simple, yet it saves a ton of time and money. Before I ever go to the grocery store, I pull out the grocery store flyer and look through the pantry and the refrigerator so that I can come up with meals that use the things that are on sale along with what we already have to make really cheap meals. I then make a list of the things I need to buy for those meals, then I stick with that list at the store. It makes grocery store visits way cheaper and also much quicker. My second tweak was to make meals in advance. As with the breakfast sandwiches above, I try to take advantage of the process of making whole meals in advance and saving them for later in the freezer. Casseroles and soups work really well for this. The method I use is to make a quadruple batch of a meal on a weekend, using one of them that evening and freezing the other three. When I need to use them, I let them thaw in the refrigerator for twenty four hours (or so), then cook it as normal. This saves prep time on busy evenings, saves overall prep time (because you’re preparing the meals simultaneously on the weekend), and saves money because you can buy ingredients in bulk. My third tweak was to use a slow cooker. This is an invaluable tool around our house as it allows us to prepare simple meals in the morning – I usually do this just after the kids leave for school – and then have a ready-to-serve meal on the table as soon as everyone arrives home. This is an incredible time saver for our family, moving the prep time from a period where my time is in high demand (when the kids arrive home from school) to a time where the demand is less (right after they leave for school). Plus, most slow cooker recipes are simple fare, which means that you’re buying relatively inexpensive basic ingredients. My fourth tweak was to prep leftovers for lunch in two days. After a meal is finished, we’ll ideally have some left over for future meals. Sarah and I will both prepare future lunches out of these leftovers, putting them in containers for future use. Ideally, we eat that leftover meal not the next day, but the day after that. Doing that prevents “leftover burnout” where we don’t want to eat the same thing the next day. My final tweak was to have “leftover night” every third or fourth night. Sometimes, Sarah or I won’t use our prepackaged leftovers or maybe there will be extra leftovers at the end of a meal. Every third or fourth night – Thursdays and Sundays seem to often be the dates for us – we’ll pull all leftovers out of the refrigerator and that’s what we’ll have for our family dinner. This allows everyone to choose among several different dishes so that they can eat more of what they liked and less of what they didn’t like. It’s very fast to prepare it and it drastically reduces food waste, saving us money, too. Washing the WindowsNormal life causes your windows to gradually get dusty and a bit grimy. Eventually, they need to be cleaned, but it’s never a fun task. How I Once Did ItI’d grab a spray bottle of window cleaner at the store. When it’s time to clean, I’d head to the windows with a roll of paper towels and that window cleaner. How I Tweaked It to Save Time and MoneyMy first tweak was to fill my window cleaner bottle with my own homebrew. Instead of buying more window washing solution at the store, I took the bottle I already had and added two cups of water, 1/4 cup white vinegar, and a small squirt of dishwashing soap. I swirled it a bit before each usage then sprayed it as normal. It’s way cheaper and does a great job on our windows. My second tweak was to ditch the paper towels and use a sponge and a few rags. The paper towels were very wasteful. Why not just use items you can clean and re-use? Now, I just spray the window down, use the sponge to clean it, then use the dry rags to wipe the windows dry. The sponge and the rags can be used again and again and again. My final tweak was to do it during the right time of day. This seems surprising, but it’s much harder to wash windows when light is directly shining on them. There are more streaks and more problems when hit with direct sunlight, causing you to have to re-wash and clean up spots. I usually just wash the windows in the evenings. Final ThoughtsIdeally, you’re already using some of these tweaks in your normal routines. Different people have learned different tactics along the way. Having said that, the real value in this article is that there are time and money savings to be had from almost every daily routine. You can save money and time on your commute. You can save money and time on your lunch break. You can save money and time on almost all of your normal routines. The key is stepping back and taking a look at those routines in your life that feel completely natural. Are there little changes you can make to shave a little time from those routines or save a few cents without adding effort? If you can find one or two little tweaks like that, you’ll end up saving a ton of time and/or money over the long run because of the sheer repetition. The post Hacking Six Normal Life Routines to Save Time and Money appeared first on The Simple Dollar. | ||||||||||||
| How Do The Rich Pay Lower Taxes? And How Can You Do It? Posted: 10 Oct 2014 07:00 AM PDT Erin wrote in with a wonderful question that I started to address in Monday’s reader mailbag, but the answer quickly escalated into many, many paragraphs. Here’s her question:
She’s referring to statements like this one from Warren Buffett:
He’s not lying. It is very likely that Warren Buffett is paying a lower tax rate than the other people in his office. How is that possible? Well, let’s dig in a little bit and find out. Tax Rate and Your Tax BillMost of the time, when someone refers to how a rich person pays low taxes, what they’re actually referring to is the percentage of their income that they pay in income taxes. For example, let’s say that Millionaire Joe makes $2,000,000 a year and his income tax rate is 18%. That means he’s paying $360,000 a year in income taxes. On the other hand, Ordinary Guy Bill makes $50,000 a year, but his income tax rate is 20%. That means he’s paying $10,000 in income taxes. Millionaire Joe is indeed paying a lower tax rate than Ordinary Guy Bill, but his tax bill is way higher than Ordinary Guy Bill. Simply having a lower tax rate doesn’t mean that your total tax bill is lower. Your tax rate matters in terms of your tax bill, but so does your annual income. Normal IncomeWhen anyone earns income from their job, they pay the normal income tax rates, which are summed up in this useful article. For example, a single person who earns $50,000 a year will have a total tax bill of $5,819. That means their overall tax rate will be about 11.6%. On the other hand, a single person who earns $300,000 a year will have a total tax bill of $80,904. That means their overall tax rate will be 27%. (I used this income tax calculator for the tax bill, then used division to get the overall tax rates.) As your normal income goes up, so does your overall “effective” tax rate. That’s how most people expect that income tax works and that’s why it’s so surprising when it doesn’t seem to work that way. Investment IncomeWhere things get crazy is when you start considering investment income. From that same article above:
So, let’s take another look at those income levels above. Let’s say that someone has chosen a path of early retirement. They’re choosing to live on their investments and so all of their income during the year is from dividends on stock investments that they made years ago. This means that the dividends are considered “qualified dividends” and they qualify for a lower tax rate. If this person makes $50,000 a year from these dividends and nothing from any other income source, when that person files their taxes, they’re only going to owe $443 in income taxes. Yes. That’s it. Their effective tax rate is less than 1%. (I used this calculator, filing single, with the default settings, $0 in regular income, and $50,000 in qualified dividends.) Compare that to the tax rate calculated above. A single person earning $50,000 in normal income will pay $5,819 in federal income taxes, an 11.6% rate. A single person earning $50,000 in qualified dividend income will pay only $443 in income taxes, a 0.9% rate. Wow. That’s huge. It gives us a great hint as to how rich people are able to keep their tax rates low. What about that $300,000 person? If that person earns $300,000 this year in qualified dividends and $0 in normal income, that person will pay $37,943 in federal income tax. That’s a 12.6% rate. The person earning $300,000 a year in normal income, as noted above, will pay $80,904 in taxes. That’s a 27% tax rate. Again, that’s really dramatic. That’s a difference of more than $40,000 a year in taxes paid in this example and it’s a huge clue as to how the wealthy keep their income taxes low. Wealthy People Usually Earn a MixMost of the time, wealthy people have a total income that represents a mix of these different types of income. Here are a few typical examples. A person who launches a startup company that eventually goes public is probably the CEO of the company. He might earn a salary of… let’s say, $500,000. A person in that situation usually owns a ton of shares of that company. Let’s say that person owns 10 million shares of their startup. Since they’ve never sold any of those shares, they’ve never paid any taxes on those shares. The company then pays a dividend of $0.25 per share. That guy has 10 million shares, so he makes $2.5 million in qualified dividends each quarter, totaling $10 million over the course of the year. (He might also sell some of those shares, but since he’s owned them for years, any money he makes from that sale are also taxed at the same lower rate that applies to qualified dividends.) So, what’s this person’s tax bill? Remember, this guy just made $10.5 million this year – a $500,000 salary and $10 million in dividends. That person is going to pay $2,151,026 in federal income taxes. That’s a 20.5% effective income tax rate. Remember earlier, when we looked at the person earning $300,000 as a normal salary? That person is actually paying a 27% effective income tax rate. This is almost exactly how Warren Buffett pays a lower tax rate than the people who work for him. The vast majority of his income comes from qualified dividends and long term capital gains, both of which are taxed at that lower rate. How Can Ordinary People Take Advantage of This?So, how can an ordinary person take advantage of this knowledge and use it to trim their tax bill a little bit? Here are some strategies that can work. Live lean. Try as hard as you can to spend as little as possible. Trim your household expenses. Get involved with low-cost hobbies, especially ones that might earn you a little money. Move to a lower-cost area. There are lots of ways to do this, but it’s hard to ever put yourself in a better financial place if you’re spending all of your income. Get rid of debts. Debts devour your monthly cash flow. You need monthly cash flow to invest consistently. The interest on your debts is gobbling up your post-tax income, which is really painful. Get rid of your debts as quickly as you can. If you’re living lean, channel that money toward debt freedom. Invest for the long term. You can’t take advantage of the things described here – qualified dividends, long term capital gains – if you don’t hold onto your investments for a while. So, when you start investing, invest in things that you’re happy to sit on for a while. I especially like index funds for this as they’re diversified and many of them pay dividends. Once you own them for a while, the income generated from those investments are going to be taxed at that lower rate. Use tax-advantaged accounts. Investing in a 401(k) and/or a Roth IRA and/or a college 529 account is a great way to reduce your tax rates over the long haul. Each of these accounts provides tax advantages in various ways. The 401(k) delays your tax payments until you’re retired, which means you’re earning less and paying a lower tax rate, while a Roth IRA eliminates taxes on the money you earn (as does a 529 if the money is used for educational expenses). Ask for (some) compensation in the form of stocks. If you work for a company, see whether or not you can receive some of your compensation in the form of stocks. This not only gets you on board for earning qualified dividends and (eventually) long term capital gains from selling them, it also indicates that you’re professionally interested in the long term health of the company. This can be risky – if you can, you should balance this by investing in other things so that you don’t have all of your eggs in one basket. All of these strategies will either reduce your tax rates over the long term or set you up for using those strategies. Final ThoughtsLike it or not, tax laws in the United States are designed to benefit investors. Most wealthy people are investors. Thus, the tax laws benefit wealthy people. Having said that, the only thing that’s keeping you from being an investor is your own financial choices. If you’re spending everything you earn, you’re choosing to not invest. You’re choosing to accept the higher tax rates. It is a hard choice to make. It requires financial discipline to get there. But once the ball starts rolling, it’s amazing. The post How Do The Rich Pay Lower Taxes? And How Can You Do It? appeared first on The Simple Dollar. | ||||||||||||
| Books With Impact: Voluntary Simplicity Posted: 09 Oct 2014 07:00 AM PDT The “Books with Impact” series takes a deeper look at specific books that have had a profound impact on my financial, professional, and personal growth by extracting specific points of advice from those books and looking at how I’ve applied them in my life with successful results. The previous entry in this series covered Early Retirement Extreme by Jacob Lund Fisker.
That’s not what I got at all. Instead, I read through what seemed to be an argument on behalf of the environment and how the everyday choices we make can benefit the environment. That’s not to say the book wasn’t interesting and worthwhile. It just wasn’t what I wanted to read or think about at that point in my life. I was focused on improving our financial state and our career options at the time. While environmental issues were absolutely on my mind, they weren’t central to me, at least not in the way that seemed to be proposed by Voluntary Simplicity. So I just walked away from it. I tossed it on my shelf of books that I thought were interesting enough that I might look at them again someday, but it didn’t quite make the cut of books that I regularly turn to for reference and inspiration. It sat there on that shelf gathering dust for a while. In fact, at some point, I had made up my mind to trade away most of those books on that shelf, so I sat down to decide whether I really wanted to keep each of those books. At that point, a year or two ago, I reopened Voluntary Simplicity. Very quickly, I realized that, somehow, I had completely internalized the message of the book. It made sense to me in a completely different way than it once had. The book absolutely uses an environmentalist theme throughout it, but the real core message of the book is that you don't have to overconsume – or consume at all – in areas that aren't important to your life. If an item or expense doesn’t do something that you truly need in your life, then you don’t really need that item or expense. Voluntary Simplicity often relates that core idea to environmentalism, which can blind some to the valuable core idea of the book. Avoiding overconsumption has an environmental benefit, but it has benefits in almost every area of life. One | Cool Lifestyle for a Hot Planet
The core idea of this book is that simplicity does not mean deprivation. Instead, it means actively choosing elements of your life so that you’re less invested in less important things and more invested in more important things. Each of us define for ourselves what is important, of course. Simplicity merely means that you’re chopping down the things that aren’t important to you so that they’re not distracting you from the things that are more important to you. For example, I’ve made the choice to have a really simple wardrobe. Most days, I wear a t-shirt and simple denim jeans and walk around the house in my bare feet. They’re comfortable. They’re inexpensive. They’re easy to wash. I choose well-made items, so they last and last and last. As a result, I spend very little time thinking about or putting effort into my clothing. I don’t have to worry about special washing. I don’t have to worry about clothes replacement very often. I rarely have to think much at all about my wardrobe choices as almost everything works with everything else. It doesn’t cost much, either. It’s about as simple as it can possibly be.
That type of thinking can work in almost every avenue of life. I used clothes as an example, but the same logic occurs in almost every element of our lives. We can make choices that add to the complexity of our daily life or we can make choices that reduce that complexity. Do we sign our kids up for another activity? Do we make a simple meal or a complicated one? Do we spend a bunch of money on stuff at Target this weekend or do we just buy the essentials and get out of there? What do we do with that stuff when we get home? It’s an endless series of choices… but it’s a conscious series of choices. We actively decide which path we’re going to follow with practically every choice we make. I really like that Target example. We live not too terribly far from a number of department stores and grocery stores. Each week when I do our family’s shopping (I usually take care of it on Friday afternoons while the children are still in school and I’ve ideally finished my writing for the week), I have the option of going to those stores and buying things without any planning while just relying on my whims and intuition, or I can spend time consciously assembling a grocery list. The grocery list method takes some more time up front, but it results in less time in the store, less stuff in the cart, less stuff to put away when I get home, less stuff in the cupboard to dig through, and fewer items that we’ll probably rarely use. To me, a grocery list is practically a poster child for voluntary simplicity.
People often mistake “simple living” with “poverty.” While they both have elements that might appear the same to the outside world, they’re far from the same thing. The book touches on this idea again in chapter three, so I’ll go a little bit further with it when we get there. Two | Pioneers of Green Living
To me, voluntary simplicity shines because it frees up time, energy, and money in your life for the things that truly matter the most to you, no matter what those things might be. You’re called to compromise much less frequently when you have fewer things in your life that can interfere with those matters that are truly important to you. In that way, you’re doing more with less. By reducing the time, money, and energy spent on things in your life of a lesser importance, you naturally increase the time, money, and energy you can spend on things in your life that you view as more important. Remember that clothes example I gave above? Let’s say that those choices save me five minutes a day in choosing my wardrobe and an additional five hours a year avoiding shopping for clothes. That’s a total of thirty five hours a year that I’m not devoting to clothing. Plus, there’s the reduced expense of it all. That time, energy, and money can directly be devoted to other things. I can spend those extra five minutes a day reading a few pages of a book that I’ve always wanted to read and, over the course of the year, finish two or three thoughtful books. I can use that saved money to push myself a little closer to financial independence or to purchase a “buy it for life” item that will last for years and years and reduce my maintenance effort on that item or apply it to some other goal in my life. That simple choice of “less” when it comes to my clothing becomes “more” in other parts of my life, parts that I view to be more personally important. That’s the exact recipe for a more fulfilling life and voluntary simplicity is a big part of it.
It is really tempting to use net worth as a way of “keeping score” when it comes to financial growth and a move toward financial independence. I’ll be the first to admit that I keep track of my family’s net worth on a regular basis. That number isn’t really all that important, though. It’s mostly a signifier that I’m still making good financial choices – nothing more, nothing less. It does not matter as a comparison to anyone else because no one else has the same situation as I do. It only matters as a self-comparison, a tool for evaluating how good my recent decisions have been. Three | Living Voluntarily
This sums up the difference between “voluntary simplicity” and “poverty” quite beautifully. Because voluntary simplicity is a choice, it really has no way to elicit resentment or anger. It’s all about positive feelings because you’re choosing a path that has more benefits for you. Poverty doesn’t involve freedom of choice. It involves forced choice and, because humans are often wired to see the greener grass on the other side of the fence, it can feel incredibly painful and bitter. It’s also an interesting lesson for the outside world. If you see someone bicycling to work, what’s your initial reaction? Is that person poor? Is that person just making a personal choice? What about when someone is driving an old car? What about when someone has a cart full of generics and produce at the grocery store? Often, the tools we use to make assumptions about others are completely off base. If we assume that there are people out there who choose voluntary simplicity – and there are; I’m one of them much of the time – then the assumptions that we make based on quick glances like that can easily be way off base. It all comes down to mindfulness. Voluntary simplicity has actually reinforced a very valuable lesson for me – the idea that the first impression you get from someone or something is often a very poor impression.
What does this mean? Let’s say you’re standing in your favorite store in the world, whatever that might be. Maybe it’s a hardware store. Maybe it’s a bookstore. Whatever it is, you’re in there and you’re holding an item in your hand that you want but you don’t need at all. You’re looking at it and you’re consciously talking yourself into that purchase. You have lots of reasons for buying it – you have the spare money, it’s got a good price on it, you’ll enjoy it. But on some level, deep down in your gut, there’s a question mark. You might overlook that uncertainty as you’re consciously thinking about the item, but it’s there. If that question mark is there, you should never buy. You should always walk away. The problem is that it’s really easy to overlook that question mark in your gut. Often, your conscious mind is running through the options in an active way and you’re not listening to that little voice deep down in your gut. That voice is usually telling you good things – I find that it sums up lots of little things that I’m not consciously noticing. It just takes a lot of work to learn to pay attention to it.
Again, it comes back to mindfulness – something that takes time and essentially has to be trained. You have to work at it. For me, the best approach I’ve found is to spend some time each day thinking about some of my decisions that day after the moment. Was that the right call? Did I really need to make that purchase? Did I really need to spend an hour playing Civilization? The point isn’t to second-guess myself. The point is to really figure out if those uses of time, money, and energy were good ones and whether or not there were better ways to use my time, money, and energy. It informs future decisions. Four | Living Simply
I like to think of the distinction this way. Living voluntarily means that I think more about each decision that I make. It means that I try to be mindful about all of those choices I make each day and I strive to make those decisions as well as I possibly can. Living simply means that I actively try to remove those decisions and choices in advance. I make choices so that I don’t have to make as many choices later on, allowing me to focus more at that later time. Those two things work together quite well. It’s been shown over and over again that too many choices tax the brain, leading to worse decisions. By making life simpler, you have more time and more mental energy for the remaining decisions in life. This idea is called “decision fatigue;” the more decisions you have, the more tired your brain becomes, leading to poorer decisions. Here’s an example. Let’s say I have a distracting computer game installed on my workstation. I’m living voluntarily when I actively choose not to play that game and instead choose to work. I’m living simply when I make the decision to just delete that distracting game entirely because it’s rarely beneficial for me to play it, thus eliminating that repeated choice of whether to play or not to play that game.
Most of the readers of The Simple Dollar are above that threshold of “a basic level of economic well-being.” In other words, most of us are actually striving for those other factors in life: good health, personal growth, strong social relationships, service to others, and connection with nature. We just want money to get out of the way of those choices. How do you get money out of the way? You get rid of debts. You spend less than you earn. You choose lower-cost hobbies and activities to fill your time. This results in fewer and fewer decisions every day that involve spending money. That’s the truth of it: when you get your finances in order, you make fewer money decisions in an average day. Because of that, you can make better money decisions because you’re not suffering from as much decision fatigue.
That’s a brilliant question to ask about every single decision you make that involves owning or buying something. When you’re about to buy or acquire (or sell) something, ask yourself this: does that item promote activity, self-reliance, and involvement, or does it promote passivity and dependence? This doesn’t have to be your only decision-making tool when it comes to buying something, but it’s a pretty useful one. Try using it when you’re at the grocery store – it almost always encourages healthier buying choices. Try using it when you’re buying things for your hobby – it almost always encourages productive and fulfilling hobbies. Five | The World at the Tipping Point
This section of the book focuses on the connection between our day-to-day choices and global issues. I was actually quite happy to read that the author touches upon issues that are of concern to almost every area of the political spectrum. In this sentence alone, Elgin touches on both climate change and peak oil, which are global concerns for somewhat different groups (although there is overlap). The specific issues that Elgin raises are not the point, though. Regardless of what issues worry you at night, his point is still the same.
If you are worried about something in a global fashion and yet you make choices in your day-to-day life that just makes the problem worse, it can be very difficult to feel good about what you’re doing. One of the most powerful parts of voluntary simplicity is that it gives you the breathing room in life to actually take daily actions in favor of those things you really care about. You’re not squeezed into poor choices because of economic concerns or because you need to take “shortcuts” because your life is complicated. It frees you to live your day-to-day life in alignment with your global concerns. For example, if you’re worried about peak oil, you can make day-to-day choices to reduce your reliance on oil. If you’re worried about climate change, you can make day-to-day choices to reduce your carbon footprint. Can you change the world with those actions? No. But you do have the chance to make a person’s worth of difference. You do have the chance to influence the people around you.
It is really easy to simply lay blame for the big problems of the world on others. Other people caused it. Other people will fix it. It’s too big for me. The problem is that if you allow yourself to think this way, you justify making daily choices that actually go against solving the problem that worries you. For example, if you’re worried about jobs going overseas but then you choose to buy goods made in nations where labor is cheap, you’re personally making choices that make the problem worse. Sure, you might be pushed into that choice by economic need or by time pressures, but those pressures often exist because your life is overly complex. A big part of the point of voluntary simplicity is to remove those pressures so that you can make those personal choices. No more excuses! Six | Deep Simplicity and the Human Journey
The Simple Dollar isn’t really a place to discuss various religions, faiths, and intellectual traditions. Our goal is to help people reach their financial goals regardless of the spiritual and intellectual ideas they may hold. This section, however, makes it clear that the idea of simplicity pops up in most of the major religious and intellectual traditions in our world. I consider it a beautiful thing that so many faiths and traditions hold so many key principles in common. We are all more similar than we realize in terms of our ideals. It is only when we focus on the differences that we fall apart. We would all be better off if we focused on the many things we have in common rather than fighting over the relatively few things we see differently.
I don’t believe that most people really view their life in this way. They don’t find happiness primarily in material things. They don’t decide that their life matters by the pile of things they’ve accumulated. Most of the people I know find happiness and judge the quality of their life based on the things I mentioned above: good health, personal growth, strong social relationships, service to others, and connection with nature. When I think about what really makes me happy in life, money and possessions rarely come to the forefront. I think of my wife and my children. I think of the things I’ve actually achieved in life through my own effort. I think of my closest friends. I think of the moments when I’ve actually felt connected to the world and of the moments when I’ve had a flash of understanding. Those aren’t moments driven by money, though they can be pushed away by worries over money. Those moments can be cultivated, though, and choosing simplicity really helps.
I think that “TV advertising” is a pretty narrow description here – I’d also include things like the TV programs themselves, magazine articles, print advertising, and most of the content on the internet – but I agree with his point. We often look to those sources (whether we directly notice it or not) to help us define what we should buy and what levels of luxury we expect and/or “deserve” in our lives. My solution in this regard is to look at every hot new thing that’s talked about on television or online or every cool item that a friend or a neighbor has and reflect on a single idea, that the new item might make that person happy, but other things make me happy. I can certainly be glad that someone else is happy because of their new possession… but that doesn’t have to imply anything about my own happiness. I already know the things that make me happy, as I mentioned above. Why would I choose to add more stuff and more complexity to my life that would take me away from those sources of happiness? Final ThoughtsVoluntary Simplicity is a very philosophically-oriented book. It rarely talks about specific steps to take in order to achieve the methods described in the book. The author assumes that you can figure these out on your own by doing additional reading. I respect that approach. It allows the book to focus on the “why” of voluntary simplicity instead of the “how” because if you really understand the “why,” filling in the “how” blanks is both (fairly) straightforward and (very) fulfilling. In the beginning, my voluntary switch to a simpler lifestyle was done out of pure financial need. I knew that if I stepped back from many of the ways I spent money, I would be able to take on my debt problem and eventually start building toward a better life with a nice home for my family and perhaps more career options. Eventually, I came to realize that the choice represented more than that. It represented a desire I had inside of me to spend my time and energy on things that were more meaningful to me, not necessarily those things that were prevalent on the television shows I watched or the online articles I read. It’s a process of constant re-evaluation: is this part of my life really doing anything for me? Is it building me into a better person? Is it bringing me joy on a deep level? Is it improving the world in any fashion? I make mistakes on that journey every day. I waste time and money and energy on things that aren’t as fulfilling as they could be. My goal is to try to learn from those mis-steps. One thing I can’t help but notice, though, is that I’m almost exclusively more happy and more fulfilled by options that involve spending less money. Generally, those choices involve less maintenance time and effort, too, and generally have a better impact on the people around me. Those things tie together even if I don’t necessarily see the connections. Voluntary Simplicity is a philosophical guide to that shift. The post Books With Impact: Voluntary Simplicity appeared first on The Simple Dollar. | ||||||||||||
| Student Loan Forgiveness: Move to a Place that Pays Your Loans Posted: 09 Oct 2014 05:00 AM PDT Dealing with student loan debt can seem unbearable and overwhelming. As mentioned in the article, 15 Ways To Deal with Student Loan Debt, the average student owes a whopping $40,000 after graduation but almost 19 percent owe $50,000 and above with 5.6 percent owing over $100,000. Maybe you worked hard to save money in college diligently keeping your student loan debt in mind. Maybe you made some huge financial mistakes during college and ended up taking out much more than you imagined. Whatever road you took to have this student loan debt, now is the time to start planning your exit route. One idea often thrown around when talking about student loan debt is the option of Student Loan Forgiveness. Student Loan Forgiveness is simply what it sounds like – a portion of your student loan debt gets forgiven, and you no longer owe that set amount of money. Pretty sweet, right? Many people don't explore this "too good to be true" option since they don't know about it, they don't understand it, or they don't think they'd qualify for such an amazing benefit. That is exactly why I decided to do this Student Loan Forgiveness Series, exploring different ways you can eliminate your student loan debt. Next up, moving to a place that offers a student loan forgiveness incentive. Why Are Places Locations Offering Student Loan Forgiveness?The places mentioned in this article are looking to grow economically and/or build their population. Generally speaking, college graduates would add to economy by drawing more businesses to the area and putting more money into the economy. Recent college graduates can not only mean more apartments are getting rented and even homes being built, but it can also mean more money spent at restaurants, shops, and other businesses. Things to Consider Before Moving for Student Loan ForgivenessBefore you start packing your bags, take some time to consider if this opportunity would be right for you. It's a big decision and comes with other stipulations, including a length of time you'd be required to live there before you receive student loan forgiveness. Here are some questions to ask yourself before changing your zip code:
Places to Move to get Student Loan ForgivenessThe following places offer some type of incentive for recent college graduates with a student loan balance to move there. Check out these locations, what it's all about there, what you're required to do, and how much you can earn to pay down your student loan debt: Detroit, MichiganWhere you need to live: Live in Downtown Detroit or one of the nearby neighborhoods listed below. Location details: They boast 13,000 theatre seats, pro sports teams, and the Detroit RiverWalk, a 3.5 mile promenade with bike paths along with Detroit River. Like many urban big cities, you'll find museums, a variety of bars and restaurants, and shopping. However, Neighborhood Scout ranks Detroit at number six for most dangerous cities in the U.S. Requirements: You need to live in one of the following Detroit neighborhoods: Downtown, Corktown, Lafayette Park, Eastern Market, Woodbridge, Brush Park, Cass Park, Art Center, and Lower Cass. You also need to work for a specific company. These include Blue Cross Blue Shield of Michigan, Compuware, DTE Energy, Marketing Associates, Quicken Loans, or Strategic Solutions. What you'll get in return: If you're buying a new home, you can receive up to $20,000 forgivable loan toward the purchase of the primary residence. If you want something less permanent and want to rent instead, you'll receive $2,500 allowance of funding towards the cost of your apartment the first year and then $1,000 the next year. Learn more at Detroitlivedowntown.org. KansasWhere you need to live: Reside in one of 77 counties included in the Rural Opportunity Zone list. These counties cover most of the state. Also, in addition, some participating Kansas communities – Plainville, Osborne, Lincoln, and Marquette, offer free land if you're building a home. Requirements: To be eligible for student loan repayments, you must establish residency in the Rural Opportunity Zone after July 1, 2011, which shouldn't be an issue if you're researching this now. You'll need to have previously earned an associate's, bachelor's, or post-graduate degree, and have an outstanding student loan balance. There is no requirement on when you graduated, unlike the other programs that stipulate a time restriction on graduates. This eligibility is also only determined by where you live so you may live in one area and work in another. What you'll get in return: For moving to the Rural Opportunity Zone, you can get student loan repayments up to $15,000. In late fall, you'll receive a check that you must deposit and then send to your lender (you'll need to show proof). The program pays 20 percent of your outstanding loan debt up to a maximum of $3,000 per year. You can take advantage of this program for up to five years, hence the total $15,000 reimbursement towards your loans. But according to their website, each county can determine if it wants to pay over that $15,000 amount, but the state will not match anything over $15,000. Plainville is giving free lots for construction of a new home plus a 50 percent property tax saving over a 10-year period. The City of Osborne is also offer free home lots as well as Lincoln and Marquette. Also, you can be eligible for a Kansas income tax waiver (if you've lived outside of Kansas for five or more years immediately prior to establishing a residency in one of these Rural Opportunity Zones). You'd need to live in the zone for the entire tax year to claim these benefits. For more information on these Rural Opportunity Zones, visit their website. You can also find out how you can apply, where exactly you'd need to live, and how the process works. Niagara Falls, New YorkWhere you need to live: You need to live in the designated downtown area on Niagara Falls, NY. Location details: Despite being a major tourist attractions for both Americans and visitors, Niagara Falls has experienced a rapid population decline over the last 50 years. The city boasts, most notably, Niagara Falls State Park, a wine trail, and festivals and events year-round. Requirements: In order to receive student loan reimbursement, you need to have earned a 2 or 4-year degree from an accredited college and either rent an apartment or buy a home in the designated area. What you'll get in return: According to Inquisitr, you'll earn $3,500 per year for the next two years. Saskatchewan, CanadaWhere you need to live: You'll need to live and work in the province of Saskatchewan in Canada to qualify. If you're not familiar with where it is, it is directly above North Dakota and Montana. Location details: The province boasts an arts culture with festivals and events, parks, a good health care system, and leisure sports and recreation opportunities. According to their website, Saskatchewan's taxes and household charges are amongst the lowest in Canada, and if you have little ones, kindergarten through grade 12 is no cost for residents. The province has a mix of cities, smaller villages and towns, and a vast Northern area. In an effort to appeal to immigrants, the province offers many cultural organizations, various religious centers, and says they have a "high quality of life with a low cost of living". What you'll get in return: The Graduate Retention Program (GRP) offers a refund up to $20,000 of tuition fees. According to their website, you'll receive this over the course of seven years. The amount you can earn depends on the duration of your program. For example, that $20,000 amount is for graduates of a 4-year degree program. If you've taken a one, two, or three year program, your student loan reimbursement amount will be less. Visit their website for more information on how the program works, requirements, and how to apply. Things to Keep In Mind For Any Student Loan ForgivenessOnce you think you have the chance to get a portion of your student loans forgiven, it can be quite tempting to instantly sign up. But before you apply and especially before you sign a contact, you need to thoroughly understand how you receive this loan reimbursement and what you'll be doing to get this. Here is what you need to know:
The post Student Loan Forgiveness: Move to a Place that Pays Your Loans appeared first on The Simple Dollar. | ||||||||||||
| Posted: 08 Oct 2014 04:00 PM PDT We get it. You’re starting a new businesses and you’re strapped for cash. There are a million questions going through your head. We empathize with bootstrapping entrepreneurs and small-business owners everywhere, and today we explore meaningful ways (that add up) where your business can save money in the early phases. That said, every small-business owner and entrepreneur has a unique set of circumstances that pertains to their business, industry, strategy, and execution. Here we will outline some of the key choices, some obvious, some less obvious, on ways you and your small business can save money. Where is your business located?The cost of living cannot be ignored when you’re looking at starting a business. While the glamour of the big city lights and talented potential workforce might be appealing, it might not be the best place for you to start a business. The cost of creating a startup in San Francisco or New York versus a small town in the Midwest needs to be taken into consideration. Having lived in San Francisco, Los Angeles, New York, Chicago, and Madison, Wisconsin, it's far easier to start a business in Madison, WI from a cost perspective. Geographic ComparisonLet’s take a closer look at how the difference of geographic location affects your balance sheet. The average one-bedroom apartment in San Francisco rents for $3,140 a month as of June 2014 (according to data company Priceonomics). Annually, that’s an expense of $37,680. According to Rent Jungle, the average one-bedroom apartment in Detroit rents for $751 a month. Annually, that’s an expense of $9,012. The per-year difference in housing costs is $28,668. Think about how saving nearly 30 grand a year could help your business and extend your runway. The Oracle of Omaha, Warren Buffett, would agree. If you have the flexibility to move to save money and find somewhere with a low cost of living and an educated workforce, it can greatly assist your business in getting started, growing, or keeping the lights on. We realize not everyone can pick up and move across the country, but consider real-estate options within your own town, as “fake it till you make it” is the fastest way for your startup to run out of money. The longer the runway you have, the better your chances of success. When it makes good business sense, keep expenses low. Where You Should Work: Office Space vs. Coffee Shop vs. Co-WorkingKeeping overhead expenses low is one key way to improve your chances of starting a successful business. For recent college grads, starting a business while living under mom and dad's roof may be one of the best times to do it. Whether or not they are pushing you out the door, you have more of a safety net to try and start a business when you aren't paying rent. Merely looking at the statistics, more and more college grads (as high as 85%, according to CNN Money) move back in with their parents after college. If this is you, you have a window to start a business where your overhead is as low as it will ever be. Nowadays, depending on your type of business, you have several options for where you can work once you’ve found a place to live: a traditional office space, coffee shops, and co-working spaces. Traditional Office SpaceFor decades, getting office space was synonymous with starting or operating a small business. Over the last few decades, we've heard about the Googles, Dells, and Apples of the world that started off in a dorm room or in someone's garage. And while running a business out of an actual garage might not be your cup of tea, the symbolism is not to be ignored. The goal? Keep overhead expenses as low as possible until the business is generating a steady revenue stream, at which point it makes more sense to plow some money back into the business. While the idea of getting a physical office space is something to consider, it's not a necessity for all businesses these days. Advantages of renting office space
Disadvantages of renting office space
Coffee ShopsThe Real Math of Coffee Shop "Free Internet"A grande (medium) latte at Starbucks in New York costs $4.30, while that same drink costs $3.55 in Detroit. Here is a comparison of the prices of Starbucks lattes in cities across the world. Again, as mentioned before, each city is going to have a very different cost of living, which will affect you and your business. Being conservative, and using prices in Detroit, one latte a day five days a week would cost you $71 a month. That's for one drink a day, not including food or anything else you purchase at the coffee shop or taking into account gasoline or transportation costs to and from the coffee shop. If you're anything like me, my coffee shop visits usually included multiple drinks along with snacks, which functioned as fuel and pseudo-meals to keep me going. There were days I easily spent $20 a day on caffeine and snacks. $20 a day five days a week runs you $400 a month. For a budding entrepreneur or small-business owner, that money is better invested elsewhere. Coffee shops are also limited for what resources they can offer the entrepreneur. Many entrepreneurs or small-business owners need to make phone calls, copies, or hold meetings, which can be challenging in the coffee shop environment. Some business calls are not appropriate being held in the coffee shop setting (for privacy reasons), and respecting the other patrons at the coffee shop is also something to keep in mind. I have been in coffee shops numerous times where I have witnessed an important business meeting being held next to a table with distracting small children or a conversation that interfered with the meeting. Coffee shops do provide comfortable seating and access to caffeine and Internet, but it’s important to think about what the benefits and limitations of coffee shops are before evaluating if that’s the best out-of-house exit strategy for you and your business. Advantages
Disadvantages
The Co-Working OptionAs a co-founder of the co-working space 100state in Madison, WI, we have unleashed a new model of bootstrapping entrepreneurship, innovation, and how to live, work, and give back to our community. At 100state, we house about 150 entrepreneurs and consultants. The most common reason why people join is a sense of community and a (reasonably priced) place to work. Many of these entrepreneurs had been previously working from home or in coffee shops. As an entrepreneur, working from home seems like a promising idea. No mandatory work attire and complete control over when you work. I worked from home for about three years. While I saved money on office space, at times I suffered from a lack of discipline, and at times I sorely missed the ability to bounce ideas off a co-worker and learn from the information overspill of what the person next to me was working on. The next logical step for me and most work-from-home entrepreneurs was to get out of the house. You want to find a place to be able to get some work done — with comfortable seating, Internet access, and a space to clear your mind from anything and everything going on at home. Enter the coffee shop. For the better part of the 90s and early 2000s, with the growth of the Internet, coffee shops were heaven sent for entrepreneurs who needed to get out of the house for a couple hours a day (or longer) to get some work done. The market for Starbucks and other Internet-friendly coffee shops boomed as coffee shops evolved from merely a place to grab coffee and gather socially to the new home office for thousands of consultants and entrepreneurs. As outlined above, there are advantages and disadvantages to coffee shops. Is co-working for you?
Most "co-workers" do not work for the same company, though the co-workers often share resources, ideas, and connections for a monthly membership fee. Most co-working spaces provide Internet access, restrooms, access to copiers, and other small-business needs. I just spoke with one of our co-workers who recently started an electric moped company called Flux Mopeds, and they are looking for innovative ways to market the product and increase sales. We spent 30 minutes brainstorming, discussing sales, marketing, and potential strategic partnerships to help grow the business. It was a nice break from what I was working on and I'm always happy to share my ideas with fellow co-workers. By being part of a co-working community, Matt gets to leverage not just the physical space of the co-working community but also the brainpower of other co-workers. When was the last time that happened to you at a coffee shop? Most co-working spaces cost $50 to a couple hundred dollars a month. When factoring in the saved cost of caffeine and unnecessary purchases to justify the coffee shop loitering, the savings can add up, not to mention the intangible value adds. While co-working is an opportunity to save money, there are other reasons it may be a smart financial decision for your business. One of the reasons I mentioned Flux Mopeds was to highlight the additional benefits of being part of a co-working community. Connections and resources. Most small businesses and entrepreneurs are limited with financial and human capital resources and are always in search of the right connections to run and grow their businesses. Advantages of co-working
Disadvantages of co-working
Check out co-working spaces in your area to see if you can find one that fits your needs. It’s good to assess privacy, a place to take phone calls, hours, and other things that may be important to your business. Visit: www.desktimeapp.com to locate a co-working space near you. If that doesn't produce your intended results, you may want to Google your city (and state or zip code) + “co-working.” Most co-working spaces let you come visit for a day or buy a day pass, which is a good way to check out the environment before committing. SummaryManaging your company's expenses, especially when just starting the business, is essential to keeping your business solvent. We focused today on location-based solutions to save your business money. A quick recap… Find a city where overhead costs are manageable for you and your business. If you’re a recent college grad, there’s no better time to start a business (assuming you have an idea or experience) than when you're living at home with mom and dad. Consider all your options before investing in office space. Most office space requires a lease and 12-month commitment. Most startups and small businesses have a degree of cash-flow uncertainty, so minimize your risk by exploring coffee shops and co-working spaces until your firm has smooth and predictable cash flows. Check back for my next post in this series as we explore more ways for entrepreneurs and startups to save money. The post Saving Money in Your Startup appeared first on The Simple Dollar. | ||||||||||||
| How to Get Cheap Car Insurance in 2014 Posted: 08 Oct 2014 02:00 PM PDT Whether you have a set of shiny new wheels or a decaying rust bucket, cheap car insurance is a must for staying legal on the road. The good news? You have more control over factors that influence your car insurance rates than those that affect other types of coverage, such as life insurance or home insurance. In this guide, I'll outline seven strategies that will help you save on car insurance. In a nutshell, those strategies are:
Before you can shop, you need to know what kind of car insurance to purchase. Here's a refresher on your policy options so you don't overbuy. The major types of car insuranceThough companies offer several more nuanced options and add-ons, the three major types of car insurance boil down to:
Liability coverageLiability coverage, required by law in most states, covers the other driver's personal injury and property damage in a crash where you're at fault. Importantly, it does not cover your own injuries or property damage. Buying only liability insurance is always going to be your cheapest option, though not necessarily the wisest. Sometimes it makes sense to carry only liability coverage, and sometimes it doesn't. More on this in a minute. You'll probably see your liability coverage written like this on your quote or car insurance policy: $50,000/$100,000/$50,000 (or 50/100/50). That means you have $50,000 in bodily injury coverage for each person, $100,000 in bodily injury coverage total, and $50,000 in coverage for property damage. Your state will require a minimum amount of liability insurance for you to stay legal. Buying the bare minimum is tempting since it will keep your rates as low as possible. Unfortunately, that's a bad idea — a bad crash can mean your costs will easily surpass low state minimums, and then you'll have to pay up. If you don't have the money, that will leave your other assets vulnerable. Collision coverageThere is also collision coverage, which covers the damage to your own car sustained in a crash. Most commonly, this covers crashes when you're at fault, but it may also pay in certain circumstances when another driver is at fault, or in scenarios not covered under your other policies. The cost of your collision coverage will largely depend on your car's value, but you control the deductible — the amount you pay out of pocket before your insurance company picks up the rest of the tab. Comprehensive coverageTrue to its name, comprehensive car insurance covers almost any car-related calamity you can think of minus damage resulting from a crash. Instead, comprehensive policies pay for things like auto theft, damage from severe weather, or needed repairs after a late-night rendezvous with a disoriented deer. Comprehensive coverage is meant to complement collision coverage, not replace it. Like collision coverage, the cost will depend on your car but you control your deductible. What type of car insurance coverage do I really need?Comprehensive and collision coverage seem like a smart choice, but they come with a much heftier price tag than liability-only insurance. If you took out a loan to pay for your car, you probably don't have a choice — your lender will require proof of comprehensive and collision coverage. And dropping comprehensive or collision coverage isn't a good idea for anyone without the savings to pay for repairs out of pocket. But there are situations when opting only for liability makes sense. For instance, if you drive an older, paid-off vehicle that you can easily fix or replace, keeping only liability coverage can mean significant savings. Comprehensive and collision coverage may also be overkill on any car you drive sparingly. To see how much I would save on car insurance by nixing all coverage but liability, I plugged my own stats into a quote generator from GEICO. I'm a married female in my early 30s driving a paid-off 2011 Hyundai Sonata. I live in a small southern city, have a clean driving record, and average 12,000 miles a year. A policy with 50/100/50 in liability, as well as comprehensive and collision policies with $250 deductibles, would set me back $45 a month. Dropping the comprehensive and collision policies would bring my bill down to just $24 a month. Would I do it? No, since my car is still relatively new and would cost a significant sum to repair or replace. But let's say I have a beat-up 2004 Nissan Altima with 150,000 miles on it. Replacing it would probably only cost about $2,000, a sum I could cover with my emergency fund if my car was totaled. Suddenly, potentially cutting my car insurance bill in half by dropping comprehensive and collision coverage makes a lot more sense. Bottom line: Liability coverage is your cheapest option and will keep you legal on the road, but dropping collision and comprehensive coverage might be a risky move if it would be a major financial hardship to fix or replace your car. Other types of coverageThere's a number of other coverage types and add-ons. Of particular note is personal injury protection, which pays your own medical expenses after a crash. There's also uninsured or underinsured motorist coverage, which means you won't be left on the hook in a crash when an uninsured or underinsured driver is at fault in a crash with you and can't afford to pay. Other add-ons pay for rental cars and roadside assistance. If you're trying to keep your bill low, personal injury coverage probably isn't a smart buy as long as you have a good health insurance plan — there would be too much overlap between the two policies. However, uninsured and underinsured motorist coverage is a decent bet, especially in areas with a high percentage of uninsured drivers. It's also fairly inexpensive: Adding both options to my GEICO quote boosted my monthly bill only a few dollars. As for other little add-ons, consider skipping them. If you can cover the cost of a rental (or borrow a car from a friend while you're in a jam) rental-car riders are unnecessary, and an AAA membership is probably a better deal than roadside assistance coverage. 7 Tips to Find Cheap Car Insurance CompaniesNow that you know what kind of car insurance you need, it's time to do a little more legwork to get a good deal. Certain factors that affect your car insurance rates are largely beyond your control. These include basic demographics such as your age, gender, marital status, location, and job. But other factors, including what and how you drive, are easier to change. And everyone can comparison shop, exploit discounts, and consider bundling policies to find the cheapest car insurance companies, too. Tip #1: Shop aroundIt's a no-brainer, but it always pays to shop around for cheaper car insurance. Instead of wasting time making endless phone calls or filling out the same information on dozens of websites, save time by using an online quote tool. Online quote tools help you get a quick snapshot of potential rates from several auto-insurance companies at once. The results of your search can surprise you. Don't assume a certain provider will be the cheapest car insurance company because it was the case for your family or friends. So many factors affect your rate that you'll never know which company will come out on top until you compare apples to apples. Use the tool below to start your search. Tip #2: Bundle policiesMany car insurance companies will give you a discount if you have other policies with them. For instance, you may get a break on car insurance if you use the same provider for life, home, or renter's policies. Bundled policies are convenient, too; you'll be dealing with only one bill and one company. A note of caution: Don't automatically assume bundles will save you money. Companies that offer only auto insurance may offer compelling discounts to keep your business. Sometimes that means you get cheaper car insurance if you keep policies with separate insurers. Tip #3: Boost your deductibleYour deductible is what you pay out of pocket before your insurance covers the rest of the cost to fix or replace your car. A plan with a $250 deductible will generally cost more than one with a $1,000 deductible. For a real-world example, I plugged my own stats into a quote generator from Progressive, changing only the deductible to see how it would affect my rate. As mentioned earlier, I'm a married female in my early 30s driving a 2011 Hyundai Sonata. I live in a small southern city, have a clean driving record, and average 12,000 miles a year. With a $100 deductible on comprehensive and collision coverage, I would pay roughly $120 a month. Raising that deductible to $250 brought my bill down to about $100 a month. A $500 deductible reduced my monthly bill to $90, and a $1,000 deductible pushed it down to $82. That means I get to hold onto $456 if I go with the $1,000 deductible instead of the $100 deductible — not a bad sum. However, raising my deductible is a good move for me only because I have $1,000 set aside in an emergency fund to cover the higher deductible. If you don't have cash stashed away to pay the higher deductible in case of a crash or other calamity, raising your deductible isn't the wisest move. Also keep in mind that factors such as your age and driving record will affect how much raising your deductible will save you. Tip #4: Drive a low-risk carPowerful, sporty luxury cars are always the most expensive to insure. These cars have the power to go extremely fast, and insurance companies know their drivers are more likely to get into trouble. These cars also cost a lot more to fix and are attractive targets for thieves — all situations your insurance company wants to avoid. The most expensive 2014 car to insure, the 545-horsepower Nissan GT-R Track Edition, will set you back about $3,169 a year in car insurance, according to Insure.com. Right behind it are a slew of luxury rides including the BMW M6, Mercedes-Benz CL550, and Porsche Panamera Turbo S, all of which average close to $3,000. If you don't have six figures to drop on a car, here's some good news: Family-friendly vehicles including minivans, sedans, and smaller SUVs cost the least to insure. Their drivers tend to be more careful, ultimately filing fewer claims. These vehicles are simpler to fix and they aren't quite as tempting for thieves. The cheapest car to insure, the Jeep Wrangler Sport, will set you back only about $1,080 a year. The Honda Odyssey LX, Jeep Patriot Sport, and Honda CR-V LX are similarly easy on the wallet. Ultimately, the choice is yours, but a less-glamorous ride can help you nab cheap auto insurance. Tip #5: Change your driving habitsInsurance is all about risk. If you get a speeding ticket every month, your bill will skyrocket. If you've had a clean driving record for years, you will have cheaper car insurance. Unfortunately, cleaning up a spotty driving record can take time. A quicker way to save that's often overlooked? Simply drive less. Consider your options carefully: Can you carpool? Work from home? Use mass transit or even move closer to your job? All of these options can help you save since less time behind the wheel means less chance of a claim. Be sure to tell your insurer about your new habits, though. Tip #6: Look for discountsMany car insurance companies have discounts that go beyond bundling or safe-driving rewards. High-school or college students with solid grades may be eligible for good-student discounts. Active-duty military and veterans can reap savings, too. Installing a car alarm or other safety equipment may earn you a break with some car insurance companies, as can taking a defensive driving course. Many insurers will even lower your rate if you pay in full or automate your payments. Ask companies for a full list of discounts while you're shopping since they may not publicize all of them. Tip #7: Maintain good creditIt may seem unfair, but the vast majority of car insurance companies look at your credit score to help determine your rate. If you have good credit, your insurer assumes you'll be more responsible behind the wheel. Bad credit means you're statistically more likely to file a claim, insurers say. According to consumer advocacy group United Policyholders, a rock-bottom credit score could mean you'll pay double, triple, or even quadruple over someone with a perfect credit score. This controversial practice is illegal in a four states: California, Hawaii, Maryland, and Massachusetts. If you don't live in those states, you'll want to work on raising your credit score in your quest for cheap auto insurance. It's time to saveReady to get started? A little legwork now can save you big in the long run. And remember to re-evaluate your car insurance at least annually. Your own changing circumstances and old-fashioned competition always have the potential to hook you a cheap car insurance policy. Now that you know what you need and how to save, compare rates from several car insurance companies to start your search. Our streamlined quote tool can help you get multiple cheap car insurance quotes quickly. The post How to Get Cheap Car Insurance in 2014 appeared first on The Simple Dollar. | ||||||||||||
| Emergency Funds on the Path to Financial Independence Posted: 08 Oct 2014 07:00 AM PDT One of the first things that’s recommended for people as they start on their journey toward financial recovery is to build an emergency fund. The reason is simple. An emergency fund is simply cash held in a savings account that you can tap when a life emergency happens – like an unexpected death in the family or an automotive issue – without negatively affecting your financial progress on your debts. You simply tap that emergency fund to handle the issue, fill it back up over the next few months, then keep pressing forward. However, when you move a lot further along the path toward financial independence, your financial situation changes quite a bit. Usually, you have no outstanding debt (other than perhaps a mortgage). You’ve been saving money in your retirement accounts and have a healthy balance; you may also have been saving money in an investment account or in a 529 for your children. Do you really need an emergency fund at that point? If so, how much? To answer this question, there are two concepts that need to be explored a little bit. Cash FlowThe biggest financial difference between someone struggling with a mountain of debt and someone who is debt free (or close to it) is monthly cash flow. Let’s say you make $50,000 a year, which means you bring home a check for about $3,000 each month. Out of that check, you might have to spend $500 on food, $200 on household expenses, $500 on enjoyment, and another $300 on utilities and other bills, adding up to $1,500. For a person without debt, that means they have $1,500 each month to spend on investing and preparing for the future. That’s pretty sweet! It’s one of my favorite arguments for getting rid of debt (along with the reduction in personal stress… and the amount of money you’re no longer just handing to the bank…). On the other hand, a person with lots of debt sees a different picture. They might have two maxed-out credit cards with a $200 total bill, a $300 student loan bill, and a $800 mortgage. That adds up to $1,300 in debt payments, leaving them with just $200 in breathing room each month. If a $1,000 emergency comes along, the debt-free person can knock it out of the way with their ordinary cash flow for the month. The person with debt? Not so much. That’s why they have an emergency fund. If you’re looking at the situation solely from the cash flow perspective, an emergency fund, at least for relatively small things, might not make a lot of sense for a person with no debts. An emergency fund for a person in this situation is intended to help with larger emergencies (like suddenly flying your family to Boston for an unexpected funeral) or a simultaneous stack of several smaller ones (like a transmission failure coupled with a flooded basement and a loss of a freelance contract). LiquidityTheoretically, a person with great cash flow is going to be doing something productive with that extra money. They’re going to be investing for the future in some fashion, whether it’s through buying real estate, investing in stocks, funding a business, or something else. Some of those things are going to be very liquid. By that, I mean that the investor can quickly obtain cash from those investments if needed for life emergencies. Money in a savings account is incredibly liquid, for example. You can just stroll down to the bank or to the nearest ATM and withdraw money at your convenience. Stocks are pretty liquid – usually, you can just issue a sell order to your stockbroker and you’ll have cash in a few days. Other things aren’t so liquid. If you have all of your money tied up in the purchase of a house, for example, you might not have any spare cash that’s easy to tap. In those situations, a short-term significant emergency can cause some serious financial problems. In other words, I consider it vital that you have some liquid assets at all times no matter what your financial state. You should never, ever have all of your money tied up in something that you can’t sell off within a day or two. If you do that, you’re begging to put yourself in a real financial pinch. What About Credit?Some people feel as though they’ve solved this problem by having a credit card with a healthy credit limit or some other line of credit through their financial institution – maybe a home equity line of credit. If something significant happens in their lives, they can simply tap that line of credit, right? This works fine if you assume a couple of things. First, you’re assuming that the bank will always exist and always extend this credit to you. If a bank changes ownership or financial direction or re-evaluates the credit they’ve extended to you, they may choose to no longer extend that credit. If that happens, your “emergency fund” has just vanished. Second, you’re also assuming that identity theft will never happen to you. A pervasive case of identity theft can severely impact your credit and can even cause existing credit cards and lines of credit to close. In that situation, you can be in big trouble if you don’t have access to cash. People often overlook these constraints because the chance of their occurrence is relatively small. Of course, the chance of most types of emergencies is relatively small. In my eyes, an emergency fund is the one portion of your financial state that should have the absolute minimum risk and choosing to use credit introduces an additional level of risk. In other words, the purpose of an emergency fund is to protect yourself against the unknown. Emergencies where your credit is denied are certainly part of the “unknown,” but a credit-based emergency fund won’t protect you in that situation. Of course, if an emergency occurs and you judge that emergency to be one that you can handle with credit without accruing significant interest instead of tapping your cash emergency fund, that’s a personal call regarding your financial state. (This is not a choice I would make if I were carrying a balance on any line of credit or credit card in my name.) So, What Should You Do?No matter what your financial situation, I strongly encourage you to have enough liquid assets to cover any significant emergency that comes your way. This is regardless of the amount of credit you have or any other aspect of your financial state. Having said that, I would still be hesitant to simply call my stock investments or other liquid investments my “emergency fund,” for several reasons. One, many liquid investments are quite volatile. They can vary widely in value from week to week or month to month. If you find yourself in an emergency, it can quite likely coincide with a big dip in the value of your investment, leaving you short. The best way around this is to have a very healthy amount in that liquid investment. Two, selling off part of your investment to cover a personal emergency will trigger capital gains tax. If you sell stocks, for example, you’re going to be facing capital gains tax on the profit you earned, which is going to affect your tax bill at the end of the year. Three, selling off part of your investment will alter the balance of your investment portfolio. You may find yourself exposed to more risk than you’d like… or you might wind up with a more conservative set of investments than you desired. Four, any assets that you can’t sell locally may be difficult to acquire during an emergency. If a natural disaster hits your area, it is much easier to get some cash out of the local bank than it would be to get cash from a sale of stock through your stockbroker. Some investments are just more liquid than others. Given those reasons, I still maintain a healthy cash emergency fund. Our savings account always contains six months of living expenses for our family; money beyond that is invested elsewhere. There is almost no emergency that I could face (at least, emergencies that are fixed in some way by money) that couldn’t be solved by having those savings available – and tapping that money isn’t going to disrupt any of my financial plans or trigger any kind of tax bill. You may choose otherwise, but there is at least some level of risk that’s added by using credit or investments as your emergency fund. It’s a higher level of risk than simply using a savings account at your local bank. My emergency fund is the one element of my finances where I want to absolutely minimize my risk and maximize my liquidity. I don’t mind not getting much of a return on that portion of my finances. I consider the benefit of minimal risk and very high liquidity to be worth it in terms of how it protects me against personal emergency. Because of that, I’m pretty happy with just earning 1% in a savings account on that portion of my money that serves as an emergency fund, even though I have plenty of credit and plenty of investments that could step in during a true disaster. The post Emergency Funds on the Path to Financial Independence appeared first on The Simple Dollar. | ||||||||||||
| Separating Obamacare Facts From Fiction Posted: 07 Oct 2014 11:00 AM PDT Chances are you already have a strong opinion about Obamacare — and you’re not alone. The one consistent factor since Obamacare was passed and signed into law is that most people find the law confusing. Much of that confusion is driven by misinformation and misunderstanding. We’ve gathered some of the most common ones here. I’ll explain what the facts are and, when possible, how the rumors got started. What’s in a Name?The term Obamacare refers to the Patient Protection and Affordable Care Act, which was signed into law in March 2010. Most of the time the law’s name is mentioned in the media it’s shortened as the Affordable Care Act, ACA or healthcare reform. Adding to the confusion are the state-administered Obamacare plans in 18 states. For example, in Kentucky, where Obamacare is called Kynect, an overwhelming majority of people doesn’t like Obamacare. A smaller percentage dislikes the Affordable Care Act. However, a significant portion of Kentuckians love Kynect, which is Obamacare. So What Is Obamacare?Nothing, it does not exist. There is no such thing as Obamacare, the law. There is no such thing as Obamacare Insurance. Obamacare does not exist. The term was coined because it was an easy way to associate the law with the President. After the name took hold in the media, it became widely believed that it was a new kind of health insurance. Insurance that everyone had to buy. The name is used throughout this article for the same reason it is used elsewhere: familiarity. What About the Government Takeover of Health Care?There hasn’t been a government takeover of health care. Health care continues as it always has, as a business run by private companies and non-profit organizations. With the exception of Medicare for senior citizens and Medicaid for the poor, health insurance can only be purchased from insurance companies. Insurance companies operate in the same way as they always have: as privately or publicly owned corporations. Insurance companies are regulated in the same way they were before the law, mostly by state laws along with some federal statutes. The only thing the Affordable Care Act did was to change some of the rules to give consumers and patients greater rights and more protections. The WebsiteNow let’s discuss the Obamacare website healthcare.gov. The federal site acts as a marketplace for individuals, families, and small businesses to comparison shop for healthcare insurance. Eighteen states and Washington D.C. run their own exchanges or healthcare marketplaces operating under the same guidelines as the federal site. What About the Problems With the Website?The federal healthcare exchange healthcare.gov “failed to perform as expected” when it was launched in October 2013. That is bureaucratic speak for: It didn’t work. It’s true; when the site first came online, it was plagued with problems. The government was forced to hire a new contractor to oversee repair of the site. The result? Most of the fixes were completed by January 2014 and are all done now. Healthcare.gov and each of the 18 independent state exchanges are now all working perfectly. I Heard the Website Is Not Secure?This is both true and false. The healthcare.gov website, like most e-commerce websites, is secure. However, like all websites, there is always the possibility that it can be hacked. Human ingenuity and greed will always mean there is someone somewhere who will try to break in. What is not true is that the site has been breached repeatedly and that identify theft is rampant. If I Don’t Use the Site Will, I Be Fined?No one is required to use either the healthcare.gov or any of the state sites to shop for or buy insurance. The healthcare marketplace websites are there for people who want to compare plans from multiple companies or want to apply for a subsidy. Those who are not comfortable using the website can call a toll-free number or visit a service center to apply. There are no fines or penalties for not using healthcare.gov or a state exchange. Public Opinion PollsNews organizations, particularly cable news channels, love public opinion polls because they help them create stories on slow news days. The problem with poll results and the news is they can sometimes be mistaken for facts and not people’s perceptions. This next group addresses some rumors that resulted from polls. Is It True That a Third of People Who Signed Up Never Paid?When open enrollment ended in March 2014, about 80% of applicants on the website paid their first premium. Of the 20% who did not, many got health insurance elsewhere, such as through their employer or by direct purchase from an insurance company. According to a Gallup poll in April 2014, just under 10 million people got insurance through an Obamacare website. What Happened to the People Who Wanted to Keep Their Old Insurance?In most cases, those who wanted to keep their old insurance could. It is true that some health insurance plans were cancelled because they did not meet the new standards for coverage. Some low-cost policies that did not meet the minimum standards, as defined by the law, were taken off the market. This caused some people to have to find different insurance. Most of those whose plans were cancelled found better coverage for a similar cost. Are Women Being Forced to Use Birth Control?This is a case of straight misunderstanding. The law does not require anyone to use birth control. It does require all health insurance plans give access to birth control at no cost. Another side of this controversy is that religious organizations that are opposed to birth control are being forced to provide it. As of June 2013, all religious employers are exempt from having to pay for contraceptives as a part of their healthcare plan. The rules defining religious organizations were expanded and simplified. This resulted in more organizations qualifying for the exemption. The IRS and TaxesEveryone’s favorite villains and least-liked subjects, the IRS and taxes, are discussed next. Obamacare Is the Largest Tax Increase in HistoryAt the core of this rumor is a kernel of truth in the form of a small tax increase for high earners. The tax increase applies to individuals making more than $200,000 per year and families earning more than $250,000. Taxes were also increased on the healthcare industry, including physicians, hospitals, and pharmaceutical companies. The majority of taxpayers and businesses are unaffected by the tax-rate increases. What About the New Tax on Sporting Goods?This one probably began like the childhood game of telephone where a message is whispered from one person to another and comes out the other end as something completely different. The rumor started when the 2.3% tax on medical devices made its rounds in emails and was eventually picked up by some media outlets. The logic behind it was that exercise has health benefits so exercise equipment can be considered a medical device. While it’s true exercise is good for you, treadmills and soccer balls are not medical devices and not subject to the tax. The medical device excise tax only applies to manufacturers, not consumers. Is the IRS Keeping a Medical Database?Minnesota Congresswoman Michelle Bachmann is personally responsible for getting this one going. She started it during a television interview on May 2013 when she conflated the IRS and insurance companies by way of the subsidy. The only actual involvement the IRS has with health care are the tax credits. The IRS sends insurance companies the tax credits for qualifying individuals and families. The flow is one way, and the IRS does not have access to any of your healthcare information. There is no IRS database and they are able to see your health records no more than the cashier at the supermarket. Business and EmploymentOn both sides of the same coin, business and employment are discussed in this section. While rumors about mass job losses and businesses being driven into bankruptcy are less common, they still persist. My Small Business Can’t Afford to Provide Healthcare InsuranceMost businesses are exempt from having to provide health insurance to employees. The employer mandate, which was delayed a year, begins in January 2015 for businesses with more than 100 full-time employees (30 hours a week or more). They will have to provide employer-funded health insurance or face penalties. Companies that employ more than 50 full-timers start in 2016. The more than 96% of small businesses that have fewer than 50 employees are eligible for tax credits and do not have to provide insurance. How Many People Are Losing Their Job Because of Obamacare?According to the non-partisan Congressional Budget Office, no one is expected to lose their job because of Obamacare. The rumor first came to life in the North Carolina Senate race when Thom Tillis made the claim in a TV ad that 2 million jobs would be lost. The ad misstates the CBO report of February 2014 that estimates between 1.5% and 2% of workers will voluntarily reduce their hours. The reason being is they will no longer need the extra income to pay for health insurance. A quick check of the math shows that 2% of the U.S. workforce is about 2.25 million Americans, and the root of the rumor. Another side to this story gained prominence thanks to a 2013 interview with Florida Senator Marco Rubio. He said that up to three-quarters of small businesses planned to lay off workers to avoid having to comply with the law. The claim was debunked by the U.S. Chamber of Commerce in a study that showed that less than 10% of businesses with 50 or more full-time employees were considering cutting their workforce. That translates to less than one-half of 1% of all businesses. The LawThe items here are mostly nuts-and-bolts issues about the law. Most of them are complete fiction rooted in one part of the statute or another. Others are related to how the law is treated and who is treated differently. You Can Go to Jail for Not PayingThere is a slew of stories circulating about potential prison time for not buying insurance. Other stories land people in prison for not paying the penalty assessed for not having insurance. None of them are true. The IRS, which is the agency responsible for collecting the fees and taxes, does not have police authority. That means they can’t arrest anyone. In fact, they can’t even ask that another agency make an arrest for them. The only authority the IRS has for collecting the healthcare-associated taxes and fees is to withhold it from refunds. They are not even allowed to levy wages or assets to collect outstanding penalties. Non-Citizens Get Free Health CareThere are no provisions in Obamacare for free health care for anyone. This includes citizens and non-citizens, both legal and undocumented alike. Undocumented individuals are not allowed to apply for Medicaid or Medicare. Will I Be Forced to Allow the Government to Inspect My Home?This provision of the law is for an optional program that sends nurses on house calls to check on pregnant and poor women. The rumor started when the South Carolina legislature decided to address a problem that did not exist. The program is entirely voluntary and does not involve inspections of any kind. Why Is Congress Exempt From the Law?While it is true that Congress regularly exempts its members from all sorts of laws and rules, this is not one of them. Members of the House and Senate, along with their staff, are required to have health insurance just like everyone else. As employees of the federal government, they do receive employer-sponsored health insurance just as other federal employees. Death PanelsThe most famous progenitor of this rumor is former Alaska governor and VP candidate Sarah Palin. She started the ball rolling with an August 2009 Facebook post. The misunderstanding comes from the law’s requirement that Medicare pay for doctor’s visits to discuss end-of-life issues. Before Obamacare, Medicare did not cover patients discussing living-wills, do-not-resuscitate, and other end-of-life decisions with doctors. Governor Palin transformed that into death panels. Despite being widely debunked and the butt of countless jokes, this absolutely bogus story still manages to rear its ugly head every few months. The Law Is Unconstitutional!This is a popular battle cry of opponents of the law who continue to rant about it at every opportunity. They do so in spite of a Supreme Court ruling in 2010 that found the law constitutional. The crux of the constitutionality argument is the individual mandate, which is the requirement that individuals buy insurance or face a penalty. The constitutionality issue was resolved when the penalty was changed to a tax. The court said the Constitution grants the federal government the authority to levy taxes. No One Has Ever Read the Whole LawThis claim comes in a couple of parts. First, there’s the notion that the law is 2,000 pages or more long. It is not. It is 974 pages, including the extensive table of contents and even more extensive footnotes. The pages also have excessively wide margins, making it appear longer than it is. While it’s not a Ray Bradbury short story, it is readable and has been read by countless people, including me. Cost and Quality of CareThis final group addresses concerns that are at the core of the law, the cost, and quality of care. The Cost of Insurance Has Increased Since the Law PassedTrue! The cost of health insurance has increased since Obamacare was passed into law. Equally true is the fact that healthcare premiums and costs have risen every year since WWII. This includes many years where costs rose by double digits. Preliminary estimates from the CBO and the Kaiser Family Foundation point to a slower rate of increase since the law has passed. Many economists and healthcare experts suspect it will take at least a few years to determine if the slowing is permanent or just a hiccup. Will I Have to Change Doctors?Much was made of the claim, “If you like your doctor, you can keep your doctor.” Marco Rubio went so far as to call it false, which is itself mostly untrue. There are some cases where switching insurance will mean moving to a plan that your doctor does not accept. However, doctors are also business people and they make money based on being able to see as many patients as possible. That means that most doctors make great efforts to accept as many insurance plans as possible. So in most cases, you will be able to keep your doctor. I Heard There Will Be Healthcare RationingThe theory behind this one is that once everyone has insurance there won’t be enough healthcare providers to go around. The bottom line on this one is the bottom line, meaning health care in the United States is a for-profit business. The greater the demand for healthcare, the more providers there will be to meet the need. Contrary to what some detractors say, Obamacare is not government controlled or socialized health care. That means the marketplace will always rise to meet demand. Medicare!Seniors have been subjected to an onslaught of rumors and misinformation regarding the effect of Obamacare on Medicare. From the fabled death panels and rationing to cuts in reimbursements and increases in out-of-pocket costs, Medicare is under assault. The fact is that the only changes to Medicare under Obamacare have been to increase and improve benefits. The best example of this is closing the prescription drug donut hole. The post Separating Obamacare Facts From Fiction appeared first on The Simple Dollar. |
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