Entries Tagged 'Personal Finance' ↓
August 19th, 2008 — Debt, Long Term, Money, P2P Lending, Personal Finance, loans
There are two new trends in the banking world that may actually be very dangerous for consumers. Long term personal loans and interest only loans are gaining in popularity, especially in the wake of the housing crisis. While these may seem to be a great option at the time, there are many risks from these loans that should be avoided if at all possible. If you’re considering refinancing your home to an interest only loan, or if you are looking at getting a personal or car loan, it is very important to understand exactly what you are getting into before you agree to any loan.
An interest only home loan means that each month, you only pay the interest that you owe. At face value, this can save a lot of money and it may help you keep your home if you are refinancing. Even though interest rates are going up, when you’re not paying on the principle, your overall monthly payment will be lower. However, the part about not paying on the principle is the kicker.
At the end of your interest only loan you will not own your home. Instead, you will have to pay the principle, in full, in order to get the deed. Now, if you’re planning on selling your home after the loan is paid off, this may not be as dangerous. However, with falling property values and a down market, this can be disastrous. In addition, by only paying interest, you will end up spending a lot more at the end for your home. In most cases, homeowners with this type of loan find that they spend $25k to $50k more for their actual homes.
Another issue with interest only loans is that you will not have the benefit of gaining equity in your home, even though you are making payments every month. If you end up with an emergency on your hands and need to get money quickly, you will not be able to draw on the equity in your home. This is a big problem that many people do not consider. Would you rather have lower monthly payments, or the ability to earn equity in your home with every payment that you make?
Next up, long term loans are becoming very popular as interest rates go up. Most people prefer to keep their payments as low as possible, but right now, that is pretty tough. The solution has been to roll out new long term loans, particularly for cars. As an example, you may be paying only $300 a month for your car, but you will have to keep making those payments for the next seven to eight years. Compare this to the usual time period of three to five years.
That is a lot of extra interest and many people may not even realize just how much extra they are paying. At the end of the loan term, you will have spent thousands more than the car is worth and by then, the vehicle has depreciated to the point where you will never get that money back. Long term loans do make it easier to make payments, but at the end of the day, you’re worse for the wear.
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August 18th, 2008 — Money, Mortgage, Personal Finance, Real Estate
As housing prices keep falling, many people are considering getting into the property market like never before. If you are looking for an investment property, now is certainly the time to strongly consider your options. However, before you get in over your head, there are a few things you need to know about foreclosed property. First, it is a good idea to figure out how you plan to use the property. Since the rental market is booming right now, we’re going to focus on that for this particular article. Most of the tips will also apply if you are planning on purchasing a property for resale. However, you should be prepared to wait several years before seeing a return.
1. What kind of renters are you looking for?
This makes a huge difference when it comes to purchasing property. Different types of renters will have different needs and risks change significantly. For example, renting to a family is generally safer than renting to a biker gang, but in some ways, the family could do more damage. Every tenant is a potential risk but you’ll really need to think long and hard about your intended market.
The type of renter you select will have a bearing on many aspects of the property. For example, families will need a yard, and will need to be a in specific location. Other renters may want a deck, or other features that make the home stand out. By focusing first on the type of renter you’re looking for, you can save a lot of time.
2. Where is the property located?
Just any property will not do for a rental. For example, if you want to rent to a family, it will need to be located near good schools. If you want to rent to someone that is on the career track, it helps to have the property located close to a metropolitan area, or at the very least, close to transportation. Consider the location of the property very carefully before making your move on any property.
3. What makes the property special?
If you want to charge more rent to make more money on your investment, the property is going to need to have a feature that makes it worthwhile. How big is the yard? Does it have something that makes it truly special? These are things that renters will be looking for, and you can charge a higher price for that rent if your property has it.
4. What kind of shape is the property in?
We always recommend actually visiting the property before you buy it and getting an inspection. There is no point in investing in a property only to find out later that you’ll have to spend more money on it. If you’re looking for a fixer upper great, but if not, you will need a property that is ready to go and requires a minimum of repairs or painting.
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August 17th, 2008 — Money, Personal Finance, Wealth
Good morning! How is everybody’s Sunday fairing? There were several amazing wins during the Olympics this past week. Don’t you agree? Two swim races at least with only one one-hundredth of a second margin from first and second place. Wow!
Want to win some cash?
Submit your fishing story with picture to win $100 here.
Submit a romance novel review to win a $10 gift card before next Friday.
Multiple submissions are welcomed at both sites. Great way to get more chances at the prize!
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August 14th, 2008 — Budget, Financial Security, Goal, Long Term, Money, Personal Finance, retirement
We would love to start a great new experiment, where everyone would catalog all of their impulse purchases for the course of one year. Everything from that cheap pack of gum to the “whatsit” that we really don’t need would have to be recorded. At the end of the year, everything would be totaled up to see just how quickly we are all nickel and diming ourselves to the poorhouse. The old saying is true, “The rich are rich because they don’t spend any money.”
So, how can you put this to work in your life, without being excessively frugal? Chances are, you probably buy more than you realize and a lot of it is probably unnecessary. Impulse buys are the bread and butter of many industries and there is a reason that those little items are so easy to buy. It’s so easy to fall into that trap of “well it only costs a quarter,” without realizing that we are easily spending way too many quarters every month.
If you’re finding that you are always out of money at the end of the month, or you just can’t seem to get ahead, it is definitely time to break free of that cycle. It’s time to develop a “needer” instead of a “wanter.” We live in a society where instant gratification is king and many of us have “wanters” that are out of control. It’s simply just so easy to focus on what we want instead of what we really need.
The first step towards putting a leash on your wanter is to take a hard look at everything you buy. Ask yourself whether or not you want to work at McDonalds at the age of 78. This is probably the easiest way to gain perspective on what you purchase.
When you look at everything as the tipping point between spending the rest of your life in ease, or working in a burger joint, it casts a harsh light on your spending habits. Yes, it’s a little extreme, but if you do end up nickel and diming yourself to poverty, it will be too late to do anything about it. Sometimes, you need to get extreme in order to train yourself into better spending habits.
Instead of going a whole year, do the experiment for just one month and see how much you really spend on frivolities. Now, next month, take that exact same amount and put it to work for you instead of against you. Leverage that towards creating a second income or put it in a savings account. Chances are, you’ll surprise yourself at how much money you can make in the place of that pack of gum. Your future is in your hands and it is up to you as to where you will spend your retirement. It is never too early to start making the right choices that could affect your financial future and the rest of your life.
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August 13th, 2008 — Diversification, Income Streams, Money, Personal Finance
For many, the concept of prosperity is foreign and unreachable. If you are stuck in a dead end job or your bills haunt your sleep, it’s easy to feel as though you will never be able to break free. As the baby boomer generation nears retirement, it has become essential for millions of people to find a way to have enough money to retire. The good news is, prosperity can be attained, even by the poorest people. It may take a lot of patience, and it may not happen over night, but you can become prosperous. Here are some tips to get you started on your way.
1. Become enthusiastic about your job.
It may not be the most glamorous job in the world, but it’s yours. Start getting pumped up about going to work, even if you hate it. That enthusiasm will show in the quality of your work and you’ll be moved up in line for promotions and raises. It may not be easy to get excited about a lousy job, but find at least one thing about it that you like and then go from there. If it helps, make a list of jobs that are worse than yours and start thanking your lucky stars that you don’t have to do those.
2. Perseverance is key.
There is a saying that success comes to those that were able to hang on just a little bit longer and this is certainly true of prosperity. Let’s look at it this way. Have you ever invested in a stock, only to have it drop. You get scared and cut your losses. Three months later, it jumps back to the highest levels ever and you’re out all of those profits. You’ve got to know when to hang on and when to cut and run. Develop those instincts and learn from your mistakes. Hanging in there may be the best thing that you have ever done.
3. Create more income.
You may not be able to give yourself a raise, but you can work on creating new modes of income for yourself. Let’s say that you are a minimum wage worker with little experience, but you have an incredible green thumb. You could open up your own weekend landscaping business, or start a greenhouse. On the flip side, let’s say that you have a nice little savings account, but it’s not earning enough. You could put that to work in a smart investment or in a higher yield savings account.
The bottom line is that it doesn’t matter how much schooling you have or how much money you have. Everyone of us as a talent that we may not be using or a special skill and that talent or skill could provide security for the future. If you have a dream job, shoot for it. The sky is the limit for each and every one of us, if we take that chance and believe in ourselves.
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August 12th, 2008 — Budget, Diversification, Financial Security, Income Streams, Investing, Money, Personal Finance
The housing crisis has a lot of people taking a closer look at their finances and worrying about whether they too may be at risk for losing their home. There are a lot of great lessons that can be learned from this crisis, and they can be applied to all areas of your finances. Let’s take a look at some of these important lessons.
1. Don’t overspend.
It is vital to know and understand your own limits. We all know that overspending is not the smartest thing to do, but it’s so easy to get lured in. Many of the homeowners that are now homeless knew very well that they were overbuying their house, but they fell in love with it. Main point to learn: Emotion has no place in your finances. It doesn’t matter if it is the perfect house – or the perfect whatever. If you cannot afford it, you cannot afford it. It’s not a matter of life and death. In your retirement years, you’ll thank yourself.
2. Financial disasters can happen to anyone.
Everyone from the worst subprime customer to big sports stars have been affected by this housing crisis. When financial disasters occur, it doesn’t matter who you are. If you are not prepared, you will not be able to weather the storm. Never fall into the trap of thinking “it won’t happen to me.” The fact is, financial disaster is looming for each one of us, without proper planning and without the right management of our finances.
3. Having more than one stream of income is vital.
You may be set right now with your job, but what if you lost it tomorrow? What if you got sick? Relying on one stream of income is not smart, especially if you are dealing with a mortgage payment. You’ve got to be able to bounce back from a financial disaster. The best way to do that is to cut your reliance on your paycheck by creating more than one stream of income.
4. There is no safe investment.
Some of the most expensive houses in the best neighborhoods are now sitting empty. While there are good investments, there is never a sure bet in life. Always make contingency plans and never put all of your eggs into one basket. The only sure things in life are death and taxes, and it’s best to be prepared for the worst.
5. You can’t rely on anyone else to bail you out.
While big plans are in the works for bailouts, there is a lot of opposition and even if they pass, they will not be able to help everyone. You can only rely on yourself – not the government, not your family. By taking responsibility for your finances, you’ll be able to get through any financial problem with grace. Always have a backup plan and never rely too heavily on your income or on an investment. You never know when the bottom may drop out.
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August 11th, 2008 — Personal Finance
There comes a time in everyone’s life where they begin to take a hard look at their finances. If you weren’t born into wealth, you’ve worked hard to get where you are and it can be frustrating if you feel as though you’re only treading water. Every single one of us has the potential to be a financial success, but we all hit that point at different times in our lives. Here are some tips to speed up your trip to becoming a financial success.
1. Are you making more than you spend?
You are never going to be able to get ahead financially if you cannot put a leash on your spending habits. Until you start realizing that you do indeed to make more than you spend, you will not be ready to take that next step towards living your dreams. If you find it difficult, try setting a budget for yourself for just one month. It may be a little tough at first, but at the end of the month, you’re going to feel incredibly proud of yourself. With time, it gets easier to retrain your spending habits and you’ll be able to take that next step.
2. Do you pay your bills on time?
It’s easy to get into that trap of being a few days late here, or a week late there. However, this will not help you become a financial success. You need to learn to set hard and fast dates for yourself to pay those bills and make it possible with the proper budgeting. If you know that you’re not going to get your paycheck in time for that bill next month, you’ve got to put aside the money right now to cover it. There is nothing wrong with paying your bills early, or at the very least, putting the money aside to pay it by the due date.
3. Do you rely on one income?
If you are stuck living paycheck to paycheck, it’s never going to get any better. Even if you get a raise, you may get stuck into the trap of simply spending more every month. In order to become a financial success, you’ve got to have more than one stream of income coming in every month. This has the added benefit of providing a cushion that frees you from worrying about your job so much. Make small investments at first, or deposit money into a high yield savings account that will start paying interest.
4. Are you one step away from financial ruin?
80% of Americans face the harsh reality that if they lost their paycheck today and could not find another job, they would be financially ruined. Going back to point three, you have to find a way to increase your income so that this is not a problem. Put money aside, and save for that rainy day. It may never come, but at least you will be prepared if it does.
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August 10th, 2008 — Personal Finance
Welcome to another edition of Sunday Money Madness. The posts below are from several blogs in the financial blogosphere that I found to be well worth reading. Have a great finish to your weekend and as the summer wraps up good luck with your back to school shopping.
I want to also thank the carnivals that included us this past week.
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August 8th, 2008 — Book Review, Personal Finance
Wiley Publishing has put out a series of “Little Books” but this one may be the most important. If you are looking for ways to logically increase your wealth and secure your financial future, this is definitely a great starting point that will get you going in the right direction and help you avoid some common pitfalls along the way. We appreciated the no-nonsense style of writing and found that unlike many personal finance books, this one actually contained information that anyone can use, regardless of their current financial status or their knowledge of finance in general.
If the process of finding out which companies are the best to invest is somewhere between Greek and Sanskrit for you, this book offers a true guide to figuring out on your own what you need to do. From breaking down complex investing theories, to providing you with the tools to know when a deal is a good buy and when to walk away, this book has it all. Rarely have we seen a book that worked so hard to make it easy for anyone, and we really mean anyone, to invest.
You’ll learn how to spot economic moats as well as what may appear to be a moat, but is in actuality something else. The book uses real world examples to illustrate their points, such as the failure of Pets.com, to national clothing makers that investors thought were solid, only to have their clothes end up in discount stores within a few years. This is the kind of information that you need, especially if you are not working with a broker, or if you want to try figuring out the markets on your own.
The best section was the tools for valuation, which provides investors with easy ways of figuring out whether or not a stock is a good buy. This section alone is worth the cost of the book and we walked away with information that we could put to use right away. Another must read several times is the section on knowing when to sell. Many first time investors make the mistake of bolting when they need to hold on, or holding on too long. This chapter will help them find the right balance.
Overall, we loved the book and found it to be a resource that you can turn to again and again. It was very well written and engaging, which can be difficult for a book that is about facts and figures. We also fell in love with the fact that the book did not focus on get rich quick schemes, investing in insurance policies or investing in the housing market using shady deals. Unlike many books, the advice in here is proven and it really works. When it comes to making more money, this book can definitely get you started and you’ll have the benefit of working with the same techniques that Warren Buffett has used. You really can’t get any better than that.
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August 7th, 2008 — Debt, Goal, Personal Finance, bad debt, credit cards, good debt
Although debt is a dirty word to many, the fact of the matter is that the vast majority of us are in debt in some way or another. No matter how hard we try, there are times when you simply need something and cannot afford to pay for it straight off. For example, school tuition is the most common form of debt, and most of us cannot afford to pay for our educations up front. Discharging debt doesn’t have to be difficult.
So, most of us are dealing with debt in some way or another, but are we managing it correctly? Let’s look at a few signs that may indicate that your debt is taking control of you, instead of the other way around.
1. You can only make the minimum payment each month, and even that is a stretch.
This is a very bad sign, especially if you have more than one credit card. Your monthly minimum payment is only a suggestion from the credit card company and usually is not enough to pay down the interest that the account racked up for the month. This means that you are caught up in a spiral that may take years to correct.
Solution: Consolidate several cards into one low interest card. Make larger monthly payments to pay down that interest as well as the actual debt.
2. You use your cards for the majority of your purchases.
Credit cards should be used really only in times of emergencies or when you would like to take advantage of the ability to get a larger ticket item and pay it off gradually. Many of us fall into the trap of using our cards for gas, groceries or things that we really don’t need. Over time, these purchases really add up.
Solution: Only use that card for a real emergency. Set up a budget for yourself and remove your cards from your wallet if you have a hard time sticking to it. Never spend more on your credit card than you can pay off in a month’s time if you had to.
3. Late payments and over balance fees occur commonly.
Once you’re trapped in a debt spiral, late payments start to become more common as you try to scrape together enough money every month to make those payments. If you’re already close to your limit, a few late fees can put you over the top, and then you’re dealing with over balance fees as well. This can quickly get out of control, especially if you are only making minimum payments.
Solution: Always send your payment in 10 days before it is due. Many card companies use 9am on the morning of your due date as a time cutoff. If that day’s mail doesn’t have your payment, you will be considered late. If possible, try to pay your payments online so you don’t have to worry about it getting delayed in the mail, but watch out for surcharges that card companies will sometimes tack on for online payments.
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