Posted on August 25th, 2010 William No comments
One of the major considerations in deciding how to allocate your retirement funds is the tax treatment each retirement vehicle receives. Which tax treatment is best for you depends on a number of factors, but it basically boils down to one question: is it more important to not be taxed now, or to not be taxed later?
Tax-advantaged retirement plans generally fall into one of two categories. Either you are allowed to invest with pre-tax dollars, or you don’t pay taxes on the earnings. Let’s take a look at the advantages of each.
Posted on September 2nd, 2010 William No comments
Remortgaging is similar to refinancing, and the two terms are often confused; it is effectively the transfer of your mortgage from one lender to another. The term remortgaging is mostly used in the UK; elsewhere it is primarily known as switching. The term applies only when the homeowner is switching to a different lender, not when switching to a different product with the same lender. The new lender pays off the existing mortgage, leaving the borrower with a new mortgage (hopefully at a lower rate).
Posted on October 11th, 2012 Guest Poster No comments
With all the bad news that reporters shout in eye catching headlines about the dire state of the local and global economy, it is easy to survey the financial landscape and conclude that there is no hope, that everyone is sliding backwards and that the only people who will ever be free from financial burdens are the extremely wealthy. Perhaps that feeling is solidified whenever you consider the state of your own personal finances….assuming you’re even brave enough to look at them at all. Given everything, it is easy to give up hope that personal financial security is available for you.
If you find yourself feeling that way, might I recommend spending some time some time at a site that you probably would not visit during your normal internet time.
Because I perform personal financial software reviews, I frequently scan the forums to read what users think about the various budgeting tools that they are using. I came to something on the YNAB (“You Need A Budget”) site that caught my eye and thought it was worth sharing. What I discovered was a somewhat discretely displayed forum section within their site. The forum had a section entitled YNAB Success Stories.
I’ve reviewed both YNAB 3 and YNAB 4 and was very impressed with how they have designed their tool. So I’m always curious what sort of results the population in general is experiencing as they use YNAB.
So, I clicked it.
What I found was page after page of personal stories shared by people who had purchased YNAB and within impressively short periods of time, had experienced significant improvement in their personal financial situation.
The stories have similar themes – people who had paid off debts they felt were crushing them, excitement over unexpectedly fast results and those who’d been using it for a while sharing how much better life is being off the paycheck to paycheck cycle thanks to a buffer of cash reserves that would never have been created without the YNAB personal financial software.
Unsolicited comments offered by excited people who thought their situation could not change and were happy to learn that they were wrong….how refreshing. Even with a modest income, financial freedom is still available.
Try this on for size. For one day, simply take the time you’d typically spend being pumped full of bad news online and spend it toward reading about something that could help you take the first step down the road that can lead you to financial freedom. You’ll be amazed how life really might start looking up for you.
This guest post is courtesy of Dustin Aldrich, owner of the review site www.PersonalFinanceSoftwareReviews.com where there are reviews of more than 20 of the current popularly used personal finance software titles like YNAB, Mvelopes, Mint.com, Quicken etc.
Posted on August 25th, 2012 Guest Poster No comments
Buying a new home as a young couple can be a very exciting thing. This is often one of the milestones of life, so it makes sense that you should be excited about getting your new home. However, if you are to have an easy time staying there, there are a number of things you would need to keep in mind. Most people usually take the process of buying a new house very seriously, and therefore do not make many mistakes. However, there are a few small things that you may end up neglecting, and which may make the acquisition of the house an easier thing. Some of these include:
• Choosing the right location. When you are trying to get a new home, you may find that it is very difficult to get one that suits your needs perfectly. In many cases, most couples tend to compromise on a number of things just so that they can get it over with. The location of the house is one of the things you should never compromise on. You always have to get a house that is in a neighborhood that you are comfortable with, and which is also close to any sites of interest you may have.
• Handling the mortgage. When you are applying for a new home mortgage, always make sure that you discuss the issue thoroughly with your spouse, and that you end up being on the same page by the time you are approaching the brokers. This will reduce the number of disagreements you may have in future about finances. To make the process of getting the loan easier, you can even split the responsibilities between the two of you. For instance, one can dedicate a majority of his or her income towards servicing the mortgage, and the other can take care of day to day issues such as the monthly bills and the savings.
• Consider any plans you may have for the future when choosing a house. For instance, if you are thinking of having children, buy a house that will be able to accommodate the number of children you want to get. It is often a good idea to get one that is slightly larger than this so as to cater for any surprises, such as when you get twins when you wanted to have one child.
These are just a few of the minor issues that most couples tend to neglect when they are getting a new home. By always keeping them in mind, you can make the process of getting the house much easier!
Posted on August 25th, 2012 Guest Poster No comments
Have you ever felt like your paycheck is disappearing as soon as you cash it in? While creating a personal financial budget may not seem necessary, it is one of the most important tricks for boosting your savings in a much shorter time period than you may think is possible. Instead of spending money as you go without a care in the world, budgets not only prevent unnecessary spending, but help in creating positive financial habits that will help you permanently in the long run. To help with the budget creation process, here are 5 steps in creating a personal budget that’ll have you saving in no time.
Income Recording: Preventing Unnecessary Debt
Before researching into one’s expenses, one should always record all of his or her sources of income. The biggest mistake in creating a personal budget is when an individual doesn’t keep in mind all earnings before and after taxation. If you’re being paid by the usual weekly or biweekly paycheck, taxes should have already been automatically taken off. If you’re being paid by a net income or salary, you may have to manually deduct taxes from your total income.
Breaking Down the Numbers: Categorizing the Necessary From the Unneeded
After you’ve figured out your total earnings on a monthly to yearly basis, gather all of your past financial statements (a year or two back should be sufficient) in regards to expenses such as your utility bills, lease payments for automobiles, and mortgages. Any kind of personal spending receipts will also be beneficial. As your statements should be dated, organize them into monthly categories to get an idea on how much you usually spend per month. This step should help you in the next step of figuring out the most important part of a personal budget: picking out the fixed expenses that can’t be skipped out in comparison to your avoidable expenses. (If you use personal finance software, such as Quicken, it will sort out your expenses by type automatically.)
Picking Out the Avoidable from the Fixed
Trim off preventable purchases and variable expenses for luxury and pleasurable purposes by setting out monthly budgets. If your past financial statements and purchase receipts indicate a lot of variable spending, then you’re most likely spending excessively. Don’t try to completely cut off optional expenses, though – not leaving a little money for fun is a surefire way to ensure you don’t follow your budget!
Determine a Goal in Mind
Once your avoidable expenses have been determined, it is time to come up with a savings goal. A reasonable goal to start with is to aim to spend only 70-80% of your total yearly earnings. Do keep in mind that you may not be stay entirely in budget for the first few months, as budgets when first created are often a little bit too idealistic. As long as your income is growing compared to your expenses, you’re making progress!
The First Few Months are the Most Important to Record
After you’ve set up a monthly budget and both monthly and yearly goals in savings, record every type of spending you find yourself doing for the first few months. This allows you to prioritize your spending habits and further determine what exactly you’re indulging too much in.
While making a personal budget may seem easy, keeping in line with it can be frustrating at times. With practice, personal budgets will become easier to follow through with and before you know it, your improved spending practices will become habitual. In turn, your savings will blossom in much less time than expected.
This guest post is courtesy of the PPI Claims team at PPI Claims Company, #1 in PPI claims information.
Posted on August 21st, 2012 Guest Poster No comments
The average student from the class of 2010 has $25,250 in student loan debt, according to the Institute for College Access & Success in Oakland, California. Some graduates who fall into financial hardship are unable to make the monthly loan payments leading to a default on their loan. This can have serious financial consequences. For example student loan default can make you ineligible for additional federal student aid, federal and state income tax refunds can be withheld or it may even result in loan wage garnishment whereby your employer withholds a percentage of your wages for payment towards the debt. A default goes on your credit report and is similar to a charge-off, but unlike other loans student debt cannot be expunged in bankruptcy.
Fortunately there are options available for graduates who are experiencing financial hardship as a result of student debt.
Deferring and Forbearance
If you fall into financial hardship and cannot repay your loan you may have the option of a deferment or forbearance. Forbearance allows you to reduce or halt payments for a set period of time. However interest still accrues on the loan for the period that payments are not made so you can end up in even more debt by the time the forbearance ends. Deferment is preferable to forbearance as the interest is paid for by the government while payments are put on hold. You only have about 3 years of deferment or forbearance until it is used up so it should only be used to prevent defaulting on a loan.
If you work for the government or in a public service job you are entitled to have your loan forgiven or erased after 10 years of service and 120 payments. Unfortunately only students who took out federal loans are entitled to loan forgiveness. These include Stafford loans, Federal Direct PLUS loans and direct Consolidation loans.
Financial Hardship Payment Options
If your income is low and you are struggling to make payments you may be eligible for one of the following plans.
- Income Contingent Repayment Plan – The Income Contingent Repayment Plan calculates your payments based on your income. Your payments could be reduced significantly and any remaining loan payment after 25 years is cancelled.
- Hardship Repayment Plans for Perkins Loans – Perkins loans are federally backed loans given to the poorest students. A Perkins loan means you can pay as little as $40 per month and payment can be stretched out over a longer period of time resulting in lower monthly payments.
- Income Sensitive Repayment Plan – This plan is only available for the Federal Family Education Loan and means your payments are based on your annual income, total loan amount and family size.
- Income Based Repayment Plan – You can get an Income Based Repayment Plan but it is only available for Direct Loans and Federal Family Education Loans. An income Based Repayment Plan offers more options than under the Income Contingent Repayment Plan or Income Sensitive Repayment Plan and payments can be lower. Also your debt is erased after 25 years of payments and you can pay back less than the accruing interest. However you cannot obtain an Income Based Repayment Plan if your loan is in default.
Consolidation Student Loans
Student loan consolidation is a way of consolidating or combining all of your federal student loans into a single loan with one monthly payment. This makes it easier to keep track of your debt and it can have the added benefit of reducing your interest rate and helping you get out of default.
Cancelling Student Debt
It some cases you can cancel your student loans or part of your loan if you meet specific criteria. For example you were enrolled in a school that closed while you were in attendance, false certifications where the college did not make sure that you were qualified before starting the course or you are unable to work due to illness or injury that lasts five or more years.
For students who opted for a federal rather than a private loan there are a number of options available to make payment on a loan easier and less burdensome. Income based repayment, debt consolidation, and even cancelling student debt are some of the options for avoiding default.
Posted on August 11th, 2012 Guest Poster No comments
What is Bankruptcy Fraud?
Bankruptcy fraud occurs any time someone lies or misstates income, assets or liabilities when filing for bankruptcy. Committing bankruptcy fraud can result in the bankruptcy case being tossed out of court and your creditors coming back with a vengeance for their money. Mistakes on bankruptcy filings can result in allegations of bankruptcy fraud. Efforts to shield assets by transferring them to heirs before filing for medical bankruptcy or sell items at a loss to relatives to pay off personal loans may trigger allegations of bankruptcy fraud. Always consult with a legal professional when you begin to see bankruptcy as your only option. Giving away property to mollify relatives or sell items below market value to raise cash to make this month’s debt payment could endanger your bankruptcy case later on.
What Is Future Income?
Future income is the money you will receive or earn in the future. This money can come from a salary, sales commissions, the sale of property, inheritances, insurance payouts, royalties and any number of sources.
When Is Future Income Related to Bankruptcy Fraud?
Failing to report future income is a form of bankruptcy fraud. You are not always aware of future income. If you have been trying to sell a book manuscript for years and then hit it big a year after your bankruptcy, no fraud has occurred. If you were in negotiations to sell the rights and didn’t tell your creditors this during the bankruptcy proceedings, you have committed bankruptcy fraud. If you quit your job to lower your income in order to qualify for bankruptcy or spite creditors (or an ex-spouse), you are open to charges of bankruptcy fraud if you pick up a good paying job after the bankruptcy is discharged. Failing to report deferred compensation to a bankruptcy court is bankruptcy fraud. Not reporting lump sum payments at retirement like unused vacation time and sick time is also bankruptcy fraud.
Your retirement accounts are generally protected from liquidation during bankruptcy. So are public employee pension plans, Social Security payments and disability benefits. However, failure to report these plans and any income you receive from them is bankruptcy fraud. If you can make payments to creditors but do not do so, they can request that the bankruptcy case be thrown out. While your pension payments may not be garnished, you have a legal and moral obligation to pay your creditors if you can. Failing to report pension income or future retirement plan benefits during bankruptcy is fraud.
Another form of bankruptcy fraud is selling rights for less than they are worth or transferring rights to someone else. If you sell an oil and gas lease for pennies on the dollar to a family member, future income from that lease could have been used to pay creditors. Transferring royalties for a book or patent to an ex-spouse to prevent increased demands for child support or alimony could be construed as bankruptcy fraud. Signing a quit-claim deed on a rental property to a family member or former spouse can also be mistaken for bankruptcy fraud. Always consult with a legal professional before giving up sources of future income.
–About the Author
Michael Bolinske is a Minnesota Chapter 7 bankruptcy lawyer helping people file bankruptcy the right way.
Posted on August 11th, 2012 Guest Poster No comments
Primary mortgages are rarely modifiable, even in bankruptcy court. However, your bankruptcy attorney can work with your first mortgage holder to enter a payment plan to make up missed mortgage payments or enter a longer mortgage term to make the monthly payments more manageable. Unsecured second mortgages have more flexibility, both inside and outside of bankruptcy court.
Keeping Your House With a Second Mortgage
For those entering Chapter 13 bankruptcy, the second mortgage can be added to the debt repayment plan along with the primary mortgage. You must include the second mortgage in the bankruptcy petition, whether it is a secured loan or unsecured debt. Then you will need to make the monthly payments on time and in full. At the end of the payment plan, the debt is paid off, payments continue under the mortgage terms reaffirmed by the court or the remaining second mortgage balance is discharged by the bankruptcy court. It is possible that the second mortgage balance is discharged even while the primary mortgage remains. However, you must speak with a bankruptcy attorney to find out if this is an option where you live.
You can save your home from foreclosure even if you have two or mortgages on it. However, you need legal representation to properly renegotiate these loans or enter a payment plan to be able to keep your home. Without legal representation, you may inadvertently agree to become liable for a deficit if the house is later sold in a short sale or foreclosed upon.
Second Mortgages, Foreclosures and Short Sales
If your home is sold to pay your mortgage debts, the second mortgage is paid after the first mortgage is paid. If there is not enough money to satisfy the second mortgage, the remaining debt may be paid out of the money raised by liquidating your assets or it is dismissed when the bankruptcy is discharged. If you sell your home, you can also choose to enter a payment plan to pay off the second mortgage balance.
If the mortgage holder forecloses on the property before you file for bankruptcy, they can take the house regardless of the repayment terms you would like to enter. The balance remaining with the first and second mortgage holders becomes unsecured debt and will need to be included in your bankruptcy petition.
A bankruptcy court in rare instances will force mortgage holders to accept a cram down or reduction in principle, where the court forces the creditor to modify the mortgage agreement to accept less than was originally agreed without reclaiming the asset or forcing its sale. This happens more often with second mortgages than first mortgages. It is rare for a court to cram down or modify a first mortgage. Seek the advice of a legal professional to find out if this is an option in your state. However, your attorney can negotiate with the creditors to turn a 15 year mortgage into a 20 year mortgage or refinance it into a lower interest rate loan. If the home is sold at a loss, as happens with many underwater properties, you need legal representation to prevent a crushing debt load or massive tax bill on the forgiven balance.
Never send back the keys and hope that this will satisfy the mortgage company. While “jingle mail” may be emotionally gratifying, it does not resolve the problems associated with unpaid bills, outstanding mortgage balances or collection efforts.
–About the Author
Michael Bolinske is a Minnesota bankruptcy lawyer at Bolinske Law, helping people improve financial troubles.
Posted on May 20th, 2011 William No comments
If you’ve seen The Social Network (which is entertaining, if somewhat fictionalized), then you’ll know that Mark Zuckerberg originally was strongly opposed to putting ads on Facebook. If you’ve used Facebook lately, you’ll also know that that this is no longer the case – Facebook now serves up quite a few ads. So is advertising how Facebook makes money?
Ads, ads, ads
In a word…mostly. While ads don’t make up all of Facebook’s revenue, they’re definitely responsible for the lion’s share. In 2008, Facebook sold $300 million in advertising; that increased to $500 million in 2009 and more than tripled to $1.86 billion in 2010, of which 60 percent came from small companies. $740 million came from well-known brands including Coke, Proctor & Gamble, AT&T, and Match.com.
While Facebook still lags behind Google, they have the advantage of offering very precise targeting. Users (well over half a billion of them) share a lot of information on Facebook: age, location, relationship status, sexual preference, education, employment, interests, religious views, political views, favorite music, favorite books… you get the idea. As a result, advertisers can now put their ads in front of the people most likely to be interested in them, making them more cost-effective. (As one example, my current employer is running Facebook ads to hire more people…a fact I’m aware of only because I fit the profile to see them!)
Of course, Facebook ads don’t have particularly high clickthrough rates – people who use social media sites tend to be more tech-savvy than most, and either use an ad blocker or just ignore the advertising, resulting in an average clickthrough rate of only about a twentieth of a percent – but when you’re serving a couple of billion ads per day, it still adds up pretty quickly!
However, advertising doesn’t tell the whole story. How else does Facebook make money?
We’ve all seen the notices – your friend’s birthday is this week! Send a virtual gift for only a dollar! The Facebook gift shop is gone now – which surprised a number of people, considering that it brought in around $75 million in 2009 -but there are still a number of third party apps that offer similar functionality, and of course Facebook takes a cut. Like Apple’s app store, 99 cents apiece for virtual items adds up really fast when people are buying millions of them! Of course, even before Facebook, there was a thriving business in virtual items as people sold in-game goodies on Ebay. Which brings us to..
The big new thing for Facebook these days is their virtual currency, which you can use to buy things inside games and other apps. Want to level up faster in that game, or maybe buy a shiny new trinket that’s just fancier than the free one? Facebook will take 30% of that purchase. By promoting credits, of course, they encourage you to spend even more time on the site (after all, you now have money invested in the games, as well as time), which means you’ll see even more advertising and be tempted to join in on even more activities that require credits.
If You Built It, They Will Come
At heart, Facebook’s strategy is simple: build an addictive social platform, get tons of users, and then figure out how to monetize it. At the start, the gimmick was exclusivity: only students at particular universities were allowed in. Now, with the service open to everyone over 13, the main reason to join Facebook is simple: it’s where all your friends are. Facebook, then, needs to ensure that this continues to be true – that their platform remains the easiest way to stay connected with the majority of the people you know. As long as they can do that, the money will follow.
Posted on May 8th, 2011 William No comments
These days, a lot of people are working to pay down debt, which is a great idea; few things are more stressful than owing money, so paying off your debts not only helps you to have a better retirement, it can have positive benefits on your health right now.
Still, that doesn’t mean that paying down debt is always the best option. One particularly bad idea is to cash out a 401(k) plan to pay off your debt.
Why is that a bad idea? Here are the three biggest reasons:
1) The money is supposed to be for retirement! If you pull it out now, it may look like a smart move – after all, you’re probably paying more interest on your credit card than you’re making on your retirement plan – but it’s a lot easier to ignore your retirement account being too small than your debt being too big (at least until you get close to retirement!) You should make a practice of never touching your retirement funds if it’s at all possible; once the money is in there, it’s off limits.
2) The government will even help enforce that practice; if you haven’t reached retirement age and you try to take money out of your retirement account, you’re going to face some hefty penalties and interest (with the exception of principle on a Roth IRA, of course). Just by taking the money out of your account, you could end up losing a third of it immediately, before it even has a chance to do you any good.
3) Retirement funds (up to a certain limit) are exempt from bankruptcy. If your debt gets the better of you and you’re forced to declare bankruptcy, you can shed the debt and keep the retirement funds. As such, even when things feel hopeless, it’s still best to leave the money in your 401(k) alone if at all possible.
Of course, sometimes there really is an emergency – most likely medical – that completely justifies pulling the money out; in this case, you may even be able to avoid the early withdrawal penalties. However, consider your options carefully; not having adequate retirement savings is always a bad idea!
Posted on April 20th, 2011 William No comments
You’ve probably heard that you should max out your retirement contributions each year, if you’re financially able to do so. Aside from the obvious reasons – a little saved now can be worth more than a lot saved later – the government puts a limit on how much money you can put into a retirement account each year. The maximum amount generally increases each year, so even if you put aside the maximum last year, it’s worth checking to see if you can increase your savings.
Notice that I said generally, not always…and as it happens, the maximum 401k contribution has stayed the same in 2011 as it was in 2009 and 2010. If you are under age 50, you can contribute a maximum of $16,500 to a 401(k), 403(b), or 457 plan; if you are 50 or over, you can put in an additional $5,500 (for a total of $22,000). Note that you may have multiple plans (for example, a traditional and a Roth 401k) but the combined contributions cannot exceed these limits. Additionally, you cannot contribute more money to a retirement plan than you actually earn!
In addition to the amount you put in, your employer is permitted to contribute to your account as well; this contribution (generally in the form of matching funds, such as a 50% match on your savings) must be made with pretax dollars regardless of whether you have a traditional or a Roth account. The employer contribution can be up to 25% of the employee’s pretax earnings, up to a total of $32,500. This means that the combined contribution (employee + employer) can reach a total of up to $49,000 (more if you’re over 50).
Maxed out your 401(k)? Not to worry – you still have IRA contributions to make! IRAs and 401k plans are completely separate; maxing out one doesn’t affect your ability to contribute to the other. However, the IRA contribution limits are much lower: $5,000 per year, or $6,000 if you’re 50 or older. As with the 401(k), you can divide your contributions between multiple IRAs, which may be traditional, Roth, or a combination, but the total contribution must be no more than $5,000 (or $6,000) per year.
Do note that if you make a lot of money, you may not be eligible for certain types of retirement accounts; once your income reaches six figures, you’ll want to consult with a tax professional.
Posted on April 17th, 2011 William No comments
An interesting trend in finance these days is the rise of peer to peer lending, in which borrowers get a loan from individual investors rather than from a bank. In theory, everybody wins: borrowers get a loan at a lower rate than the bank would offer (or get a loan that the bank wouldn’t offer at all), investors make a higher rate of return than they would otherwise, and of course, the facilitator takes a cut. These sites have been around for years – I originally joined prosper.com, perhaps the most prominent, over four years ago – but have been in the news lately, and have been featured in the Wall Street Journal.
So are Prosper loans a scam, and if not, how do they work?
At the time that I joined, Prosper loans were funded through an auction format. As a lender, you would find a loan that you were interested in funding, then bid both the maximum amount you would lend and the minimum interest rate that you would accept. Interest rates started at the buyer’s maximum; once the loan was fully funded, lenders would automatically compete against each other in a sort of reverse Ebay, such that the entire loan was funded at the lowest interest rate that would still bring in sufficient funds.
In order to get funding, borrowers generally needed to write a detailed post explaining why they needed the money and how they intended to pay it off; Prosper also did a credit check and ranked borrowers on their creditworthiness. Many people participated on the site as both borrowers and lenders, taking advantage of their good credit ratings to borrow money and then lending it out again at higher rates.
So how well did it work? Well, I invested $1,000 into the site in 2007, in half a dozen loans. At the time, all loans were for a three year period. I reinvested the payments for my loans (which had an average interest rate of around 15%) back into the site, so pretty soon I’d lent out quite a bit more than my initial investment.
Unfortunately, this was in 2007, and towards the end of that year, the US economy fell into a recession and people started defaulting on their loans. By the time I pulled all my money out, half of my loans had defaulted and I got back only about $750 of that original $1000.
So are Prosper loans a scam? I’d say no; the site seems to work as promised, and I got my money back right away whenever I cashed out. I lost money, but I also knew and accepted the risks involved, and until the start of the recession I had no loans in default. If a loan isn’t paid back, the company turns it over to a private collector, but the percentage successfully collected tends to be low.
Prosper itself is still around, but with a slightly modified business model; the company was rumored to be facing bankruptcy last year, but obtained more capital and resumed lending. They now claim over a million members and nearly a quarter billion dollars in loans.
Do I recommend the site? It’s hard to say. A lot of people are here because they can’t get credit elsewhere, and sometimes that’s for good reason. Some people might like knowing that they’re providing credit to those who otherwise wouldn’t be able to get it; however, you can also get that from microlending sites such as Kiva that are strictly charitable (they return your money, assuming it’s repaid – which the microloans almost always are – but without interest). Prosper, on the other hand, has a significantly higher loss ratio than traditional banks. Still, it provides a nice way to diversify, and the site claims actual returns averaging 10.4%. I wouldn’t put a huge amount of money into it, but if nothing else, it can be an interesting place to stash a small part of your portfolio.