Sunday, November 27, 2016

9 Financially Responsible Gifts for Kids

Have you ever walked into a child's playroom?  It seems like they are usually stuffed to the gills with toys.  Many of these toys are ones they no longer use.  How long does it take before the "new" toys become "old" and "unused" ones?  A month?  Two months?  Then the latest and greatest toy joins a pile of clutter.  Well, I don't know about you, but I already have my own clutter, I do NOT need to add to it, nor do I need to add to the clutter of others.  Additionally, what do parents really worry about when it comes to their kids?  Are they deeply concerned that their kids will not have enough toys in life?  Usually not, right?  Parents are worried about their children's futures and about molding them into responsible and happy adults.  Maybe the best gift you can give is one that helps with those things.  So, I've compiled a list of gifts that you can give to children in order to promote financially responsible behavior and financial education.

  1. U.S. Savings Bonds:  I have siblings that are significantly younger than me, and I used to buy them savings bonds.  There were always so many people buying them clothes and toys that I didn't need to, and I lived in a different state and struggled to keep up with their latest likes and dislikes.  The funds can be used for anything, but must be cashed in, so they're unlikely to be used for an impulse buy.
  2. A Piggy Bank:  Filled of course!  This is fun for littler kids.  I remember the child of some dear friends.  She got a piggy bank as a gift, and spent the next several months carrying around her piggy, hitting adults up for change.  whenever someone would give her change she would joyfully announce "It's time to feed the piggy!"  As silly as it may sound, this piggy became like  a toy for her, AND she learned the joy of saving at a very early age!
  3. A Treasure Chest:  If you are the crafty type, you can have a great time making one.  Go to a local craft store (or raid you own craft stash) and look for supplies to make a little "treasure chest."  Go to your local bank or credit union and get a roll of dollar coins.  A full roll is $25, and they're gold in color now.  Crack it open, and dump them into your box.  You can either wrap it up and give it that way or you could get creative create your own treasure map in order to make a game of it.
  4. Money Tree:  My step-mother did this for me as a teen.  She wasn't sure what to get me so she went to a craft store and bought a small, artificial Christmas tree and hung two dollar bills from it.  You can certainly choose your currency and get as fancy or as simplistic with decorations as you would like.
  5. A Savings Account:  There is nothing that says financial responsibility like a good old fashioned savings account, complete with initial deposit!  
  6. A 529 Plan:  It is never too early to start planning for the future, and with rising costs of education, the earlier the better.  A 529 plan is a special investment account that allows you to save for college in a manner that has tax advantages.  If the child in your life doesn't have one, consider being the person to start it.  For more information about 529 plans, read the Question and Answer Section written by the IRS.
  7. A Special Outing:  While this suggestion may seem out of place among these more "financially minded" gifts, the truth is that there is nothing more valuable than time.  Consider some experiences you would like to have with them:  tea parties, skating, sporting event, theatrical event.  The options are as expansive as your imagination.
  8. Cash:  Perhaps this is the least creative item on the list, but this can be accompanied with a conversation about the value of saving.  If this child is older, perhaps they are working toward a car.  If younger, perhaps a bicycle.  Regardless, it is likely there are some big ticket items on their radar, and you can be a part of teaching them about how they can get it.
  9. Stock:  This one sounds a little wild, right?  Buying stock for a kid?  Hear me out.  Pick a company that you KNOW the child has a connection to: a sports fanatic, try NIKE...  Cartoon lover?  Maybe Disney.  You can use this gift as a tool to teach a child about investments.  What does it mean to own a share of a certain company?  When people buy products produced by that company, how does it impact them as shareholders?  I sure wish someone had taught me about stocks when I was little!
Any of these monetary gifts will be best accompanied with a conversation about why you have chosen it.  Maybe it is a conversation about saving our money, or how to budget the amount to spend vs. the amount to save.  Perhaps you talk to the child about investing, or college savings, or about how time together is to be valued above possessions that create clutter and that we don't need.  I could go on and on about which conversations you might pick, but I think you get the point.

Sunday, November 20, 2016

The Landlord Files: Location is Key!

A lot of people want to get into the real estate game, and some actually do.  Of those that actually do, I am always amazed at the sheer volume of investors that  have set their sights on sites located in their own city.  While that maybe a great idea for some, it is a terrible plan for others.  If you live in a city where purchase prices are high, you might not really make enough on monthly rent to make it worthwhile as an investment.

That is why I suggest, expanding your search to include cities that are NOT your own.  While, being a landlord in your own city may make it easier for you to be "hands on," is that really what you want?  Personally, I am in favor of using a management company.  That being said, the property does NOT need to be in the city I live.

So, what are you looking for in choosing a city to buy rental property?

  1. Find a city with a low purchase price and a high rental price.
     Start looking at various cities on the internet.  Some real estate search engines will actually tell you how much like properties rent for in the high-medium-low price ranges.  Alternately, search for properties for sale, then follow it up with a search for rentals with similar attributes in similar areas/zipcodes.  Once you get really serious, there are several calculations you will want to make, but let's assume for now, you are just zeroing in on cities of interest as far as investing is concerned.  After you've completed this step, go on to the next steps if it is a city you are actually interested in.

     2.  What is the unemployment rate of the city you are investigating?
     This is really important information.  It gives you an idea about the economy in a place you may have never lived.  Just to give yourself a clearer idea, compare the unemployment rate there to cities you know or have lived in.  This should give you an idea of what you are looking at.  Use government websites and filter for the current year for the most accurate data.  Remember, unemployment rates are skewed because it considers you "employed" if you work even 1 hour a week (which you could never actually live on) and doesn't count the disgruntled folks that have more or less given up on their job search.

     3.    What is the average income in the city you are investigating?  
     Again, consider comparing this information to that of a city you know.  This will also help shape your idea of the local economy. This information is usually available on government websites which also tell you about unemployment rates.

    4.  Research foreclosure rates.

     By doing so, you might get an idea how the city is bouncing back from the recession.  You don't want to invest in a situation where there are blocks upon blocks filled with empty, vandalized houses and one or two houses with people living in them.  That is a recipe for disaster.  You may be able to get this data from state or local bureaus in statistical form, but I also recommend looking for local news articles to get "the real story" about what's going on in that realm.

     5.   Research rental vacancy rates vs. occupancy rates.

   Ideally, you want to know if places in this city sit unoccupied for long periods of time, or if a ton of people are constantly looking for rentals.  Real estate companies and news articles are sometimes good sources for this information.

Once you've done this sort of research, I recommend setting some automatic alerts on your favorite real estate search sites so that you can keep an eye on the market in your chosen location while you make your plans to move in on it!

Monday, November 14, 2016

Grocery Spending- Part 2: The 50% Challenge

Update:  Alright, it's week two for me on the 50% Grocery Challenge!  I know that next weekend, I need to shop for all of the Thanksgiving ingredients needed for my contribution to our annual Thanksgiving Potluck.  So, I decided to try it again.  Could I hit my goal a 2nd week in a row?

Now, last week, I told a lot of you that I spend about $100 per week on groceries.  If I could cut that by 50% for a couple of weeks, I could easily buy these extra items needed for the Thanksgiving Potluck without exceeding my "normal" grocery budget for the month.  Given the fact that November and December hold two major holidays that I celebrate, PLUS the birthdays of both my partner and myself, NOT exceeding my regular grocery budget would be a huge help.

Since I am someone that loves "rules" or "guidelines," here are the ones  adopted.

The 50% Challenge

  1. Analyze your assets!  You probably have tons of things that you can use to your advantage in your pantry, freezer, or refrigerator.  Go rummage through them.  You will build your week around the things you already have working in your favor.  It turned out that my assets included tons of grains, beans, canned tomato products, and pasta (frozen and dried).
  2. Decide how many different meals you need.  They key word here is different.  Our breakfasts and lunches are identical 5 days a week.  What about dinner?  As a time saver, we cook 2 big meals on the weekend, and reheat them for dinners during busy week nights.  So, for my household, that's 4.  We need 4 different meals!
  3. Decide WHAT those meals are going to be based on your assets.  My breakfasts and lunches will be the same that they have been, and dinners will be based on a big pot of chili, and pasta if we run out (didn't use any of the pasta last week). 
  4. Make a grocery list.  Only write down realistically what you need to fill in the gaps.  The point in the list is to avoid impulse buys.
  5. Buy only what is on the list!
  6. Be willing to compromise on brands in order to get sale prices.
  7. Buy in bulk.  It's cheaper than prepackaged most of the time.
  8. NEW:  Consider how might you use the same set of ingredients to create two different things?

I went to the grocery store, setting out on my weekly grocery mission.  I also needed to build in the ingredients for a special birthday brunch for my partner.  The addition of number 8....Same ingredients, two meals... proved to be extremely helpful.

The results...
and drumroll please.....


Mission Accomplished!


Sunday, November 13, 2016

Student Loans: Repayment Plans Explained

For those of you that read every week, recently discussed how to figure out where your money is going, and setting a budget (Financial Freedom: Finding a Starting Point and Creating a Budget: The 50/30/20 Budget System).  The whole point of setting a budget is to give every dollar a name, and the reason for doing THAT is to set yourself up for financial freedom.  This means freedom from debt, and freedom to do the things in life that you really want whether it be travel plans, early retirement, start working part-time so you can write that book you've been dreaming of....  One of the things that holds you back from living the life you really want is debt.  Once you've established the dollar amount in your 20% "Goals" category, you can choose to allot a certain amount of "extra funds" to paying off your debt.

Today, I would like to start addressing on kind of debt in particular: student loan debt.  With the cost of tuition on the rise, wages are simply not keeping up.  Parents frequently don't have the money to foot large tuition bills.  The end result being college graduates that are crippled by student loan debt.  For those who have it, getting out of student loan debt is key!

If you have federal loans, step one is  knowing your payment plan options.  The federal government has generously placed a ceiling on their student loan rates (6.8%) and offers a large variety of plans under which you can keep current on your payments (keeping current is really important).  The only drawback is that choosing a plan can be confusing.  So, here is the breakdown.

Standard Repayment Plan:
The standard repayment plan offers the highest monthly obligation.  The benefit is that it is over in 120 payments (if you don't pay anything extra).  That is 10 years.  It sounds like a long time, but it can certainly be lessened with extra payments.  It is important to note, that this is the plan you are automatically placed on, if you do not take any action to "choose an alternate plan."  This plan is likely to have the lowest interest payment over the life of the loan.

Note:  In some cases, it could be a 5 year repayment term, but that is not typical.  The 5 year term, is generally for borrowers with very low balances.

Graduated Repayment Plan:
Under this play, the payments are less expensive than in the standard repayment plan for the first two years, then they jump up to an amount that is higher than the standard.  This payment plan is good for graduates that want to begin payment right away, and expect their income to raise within a couple of years of graduate.  If working in a field that offers a good income increase with a couple of years of experience, but lower starting wages, this could be a good choice.  This payment plan is typically structured for 120 months as well, so the loan is paid off in 10 years.  Additionally, this plan does cost more in interest over the life of the loan.

Extended Repayment Plan:
This payment plan is usually a fixed monthly dollar amount (although graduated is possible), and usually spread over a 25 year term.  While it doesn't sound great to be in repayment for that long, it is useful for people that have gone into fields with lower salaries, or those with very high loan balances.  The drawback is that this does create a much larger interest payment over the life of the loan.

Income Based Repayment Plan (IBR):
This plan sets the borrowers monthly payment obligation to approximately 15% of their discretionary income.  In order to calculate this, the borrower is required to submit proof of income on an annual basis.  In other words, the payment can change each year, but it should be within the realm of affordability.  Be careful, if you are on this plan and fail to submit your proof of income on time, you will become automatically enrolled in the standard plan, which would clearly create a huge increase in payment amount.  If the borrower is enrolled in this payment plan, and the loan still isn't paid off in 25 years, it will be forgiven by the federal government.  That's a pretty good deal for those who anticipate continuing to be in a lower wage profession for an extended period of time.  The drawback is obviously, making payments for almost as long as a mortgage!  On the other hand, if you work for a non-profit of some sort, being enrolled in this plan is a huge bonus because your balance will be forgiven after only ten years (assuming you make 120 consecutive payments that are on time, and continue to work for a non-profit).  Another important thing to note, you will end up paying taxes on the amount that was forgiven (it's basically considered income).  In order to be eligible for this plan, you must demonstrate a "partial financial hardship."

Pay As You Earn Repayment Plan (PAYE):
This is a plan that is not available to everyone.  In order to be eligible for this plan you must have been a new borrower as of Oct. 1, 2007, and had your loans disbursed on or after Oct. 1, 2011.  This plan works much like the IBR.  Monthly payments are approximately 10% of discretionary income.  Borrowers must  prove their income on an annual basis.  Remaining balances are forgiven after 20 years, 10 for public service (non-profit) employees.  In order to be eligible, you must demonstrate a "partial hardship" financially.

Income Contingent Repayment Plan (ICR):
Under this plan, borrowers pay for up to 25 years (then balances are forgiven if still in existence).  The monthly obligation is calculated to be based on discretionary income (approximately 20%) as well, so the payments can be cheaper, similar to PAYE and IBR.  The benefit to this plan is that you don't have to prove a financial hardship in order to qualify for it (which is a requirement of IBR and PAYE).  Public service employees (non-profit) can have their loans forgiven after 10 years under this plan as well.

Income Sensitive Repayment Plan:
If you don't qualify for ICR, you may qualify for this one.  Monthly payments are from 4%-25% of total gross monthly income.  The payment amount must be greater or equal to the amount of interest accruing on the loan.  There are some extra rules to this one that makes it very different from the others.  For example, you need to qualify again each year, and you can only be on this plan for 5 years, then you are literally required to enroll in a different plan.

In general, the standard payment is going to get you out of debt the fastest, however if you have a relatively low income, and expect it to stay that way, several of these plans will offer you a lower monthly obligation.  This can be a great strategy if you work as a Public Service employee (for a non-profit).  Either way, several of these plans will allow you to kiss you debt goodbye after a fixed period of time.  You will be taxed on the amount forgiven, but the loans WILL be gone.  If you work in the public service arena, I definitely think you should take advantage of this, because you loan forgiveness occurs after ten years.  For everyone else, if you can manage the payment under the standard plan, please give it heavy consideration.  While having your loans forgive is great, do you really want to pay them for 20 or 25 years?

If you want to do more research on payment plan options Federal Student Aid is a government website that offers a lot of additional information.

Saturday, November 12, 2016

Student Loans: Paying Off Private vs. Federal Loans

Financially, I have accidentally done a lot of things right.  I'm not sure that student loans were one of them.  I got out of my bachelor's degree with very few loans (all federal), but went on to pursue my theatrical dreams.  The tuition was higher than what the federal government would loan me the money to finance, so I had to go back to the financial drawing board.  I was dead-set on attending this specialized school, and it's intensive programming wouldn't easily allow for me to work part time on the side.  My parents didn't have the finances to contribute.  Since I had good credit, I was able to qualify for a private student loan.  So, I took the loan, and never looked back.  I wouldn't change the education or training for anything in the world to tell you the truth.  I still use my theatrical education to this day, and the schooling was among the best experiences of my life.  That being said, I was still being fairly naive when I took out that loan.  Regardless, it's mine now, and I need to deal with it!

So, for those of you in the same boat as me and have both private and federal student loans, it is essential you pay the private loans off first.  They are typically variable rate, and do not come with the same deferment options that federal loans allow you. It is a tricky choice to make (paying them off before the federal ones) because on the surface, they look cheaper.  Right now, I am paying 3% interest on the private student loans.  That is a pretty cheap loan, comparatively.  The catch is, that since it is variable, they can raise it on me as much as they want, whenever they want.  I mean, they have to give me notice, but they can still increase it on me!  Secondarily, they have very limited deferment options, if any at all.  My private loans can be deferred for 12 months over the ENTIRE life of the loan.  That pretty much buys me one year of hardship, or unexpected life event of ANY KIND.  The federal government is much more generous and offers a plethora of deferment choices to keep you out of trouble if something terrible happens and you cannot pay your loans.  For example, you can defer for up to 36 months for financial hardship, or unemployment (among other reasons), and then set your payment plan to adjust based on your income.  While, you don't really want to stall paying them, because the interest will keep adding up, if you have a total and complete life disaster, you won't go into default (which would destroy your credit).

So, the moral of the story is that if you have private loans, they come first.  Please tune in for a explanation of your repayment options for federal student loans.

Sunday, November 6, 2016

Retirement Investing and Fees: What are "loads" and "expense ratios"?

I don't know about you, but I've been wanting to deal with investing my money for some time (both creating new investments and tending to old ones), and admittedly, I have been dragging my feet a bit because there are a few things I've felt I didn't completely understand.  One thing is fees and expenses that come with buying stocks, mutual funds, etc.  Your money can quickly get eaten up by fees.

I've been doing my research for several months now because I feel the need to take a more active role in my investments.  Right now, I have a Roth IRA that is invested in the stock market (mutual funds), and a 401K from a previous employer.  I should probably roll the 401k over and would like to move the Roth IRA into a different investment.

9 years ago, my father passed on, and left me a small amount of money.  I immediately made an appointment with an investment consultant at my financial institution and put the the money in a Roth IRA, in an investment that they recommended (a mutual fund).  My money has doubled, so I can't complain there, but I'm not sure this is the BEST choice for me.  You see, the investment I was placed in was an "A fund."  While this isn't the end of the world, it isn't great.  In order to explain more clearly, let me tell you what I've learned about fees that come with this type of investing.

Since I am the kind of person that will invest a certain amount per month, I should be going with a no-load mutual fund (lump sum investors should consider EFT's--more on that in the future).  When buying a mutual fund, one type of fee is called a "load."  A "load" is a commission or sales charge.  These are charged either at the time of purchase or at the time you sell.

An "A-fund" charges a load at the time you purchase the fund.  So, if the load is 5%, and you invest $1000, only $950 actually gets invested.  You've basically lost $50 before you've even started.

A "B-fund" charges a load at the time you sell the fund if you sell within a certain period of time.  Frequently, they will charge you the load at different rates if you leave within a certain number of years.  Maybe it's 5% if you leave the first year, 4% if it's the second, etc.  They also have higher expense ratios (another type of fee), so I would say "B-funds" are the worst choice.  Just avoid them.  Go for what is called a "no-load" and avoid this issue.

You will not, however, be able to avoid the "expense ratio."  An expense ratio is the annual fee you pay for an EFT or Mutual Fund.  It covers administrative and management costs.  Everyone pays it.  You can't get out of it.  So, ideally you want this to be as low as possible.  It will be expressed as a percentage typically.

I just used a Fund Analyzer that helps you to compare funds.  A side by side comparison shows that the fund I am in has an expense ratio of 1.18%.  I chose a no-load mutual fund (an index fund) as a comparison, and see that it has a .15%.  It also showed me how much money this would mean over time.  This make my decision making process really clear!  Even if you are not ready to pull the trigger yet, please log into this Fund Analyzer and play with it, just so you can practice reading it.  Compare your 401K funds or IRA funds, just for practice.  It's made my decision pretty clear!

Saturday, November 5, 2016

Grocery Spending: The 50% Challenge

Full disclosure, November always makes me feel a little insecure about my money.  Between November 1st and December 31st, our household of two encounters, Thanksgiving, Christmas, and two birthdays.  It can feel a little overwhelming.

One thing that overwhelms me is our grocery bill.  We have all of the regular breakfast, lunch, and dinner meals to account for PLUS the things we are obligated to bring with us for holiday meal gatherings we attend.  This is why the weeks preceding Thanksgiving are so important.

At our house, we go to the grocery store once per week typically.  On average, it is a hundred dollar trip.  This week, I issued myself a 50% challenge.  If I could achieve this kind of savings, I could reallocate that same money to some of the holiday extras!  That being said, could I really buy our groceries for the week for HALF of our normal spending?  If I was going to try, I would need a serious game plan!  I am one of those people that seriously likes rules.  The "do" and "don't" categories work for me, so I created some guidelines to help myself out, and if you decide to take the 50% challenge, I encourage you to follow them as well!

The 50% Challenge

  1. Analyze your assets!  You probably have tons of things that you can use to your advantage in your pantry, freezer, or refrigerator.  Go rummage through them.  You will build your week around the things you already have working in your favor.  It turned out that my assets included tons of grains, beans, canned tomato products, and pasta (frozen and dried).
  2. Decide how many different meals you need.  They key word here is different.  Our breakfasts and lunches are identical 5 days a week.  What about dinner?  As a time saver, we cook 2 big meals on the weekend, and reheat them for dinners during busy week nights.  So, for my household, that's 4.  We need 4 different meals!
  3. Decide WHAT those meals are going to be based on your assets.  My breakfasts and lunches will be the same that they have been, and dinners will be some version of burritos or rice bowls and pasta.
  4. Make a grocery list.  Only write down realistically what you need to fill in the gaps.  The point in the list is to avoid impulse buys.
  5. Buy only what is on the list!
  6. Be willing to compromise on brands in order to get sale prices.
  7. Buy in bulk.  It's cheaper than prepackaged most of the time.
I admit that I was doing a little mental math as I walked through the store, but I was still unsure of the total since I had some bulk items in my basket.  I got everything on my list for $48.06.  My goal was $50, which effectively slashed our grocery store bill in half!

Mission Accomplished!