Archive for Financial Tips


In Checking Accounts, the Less You Have, the More You May Pay

Financial complexity doesn’t happen only on Wall Street. Even a basic checking account is often no longer simple, because account rules and fees can vary widely — so widely, in fact, that the annual cost can range from zero to more than $700, according to the 2014 survey of checking account costs by WalletHub, a consumer finance information and social networking site.

The general rule is that the less money you hold in a bank, the more you pay the bank in fees. The biggest fees fall on consumers who overdraw their accounts, a common practice among less-well-off customers, whom WalletHub calls “cash strapped.” People in this category typically don’t have credit lines or savings accounts to cover them when their balances drop below zero, and their fees add up.

To assess the amounts paid by these customers, WalletHub examined the annual fees on a checking account for someone who overdraws 12 times a year, uses an out-of-networkmoney A.T.M. once a month and averages an end-of-month balance of $50. The range of costs was enormous: as low as $2.83 at Capital One and as high as $735 at M&T Bank. (Capital One’s costs were low largely because it charges an 11.25 percent annual percentage rate on the amount a customer actually overcharges, instead of charging a fixed dollar amount in overdraft fees, which is typical in the industry. In addition, Capital One doesn’t assess out-of-network A.T.M. fees.) Over all, the average annual cost of a checking account for consumers in this category was $499.02.

People with more money tend to pay lower fees. In fact, WalletHub found, the average annual cost for customers whose monthly balance never drops below $5,000 and who use only their own bank’s A.T.M. machines was just $17.85.

That’s why customers who are short on cash can be valuable for banks. Hefty overdraft fees are often imposed for transactions that are quite small, the Consumer Financial Protection Bureau found in a July study. For debit card transactions, for example, the typical overdrawn amount is around $24 and paid back to the bank in less than a month, yet overdraft fees for such transactions are about $30, that study found. In short, many banks can turn a tidy profit on customers who have trouble making ends meet.

Despite New Opt-In Rules, Overdraft Fees Still Baffle Consumers

OverdraftIT has been nearly four years since rules went into effect to help clarify when banks may charge you penalties if you overdraw your checking account using your debit card. But many people remain confused about so-called overdraft fees, a new report finds.

The report from the Pew Charitable Trusts found that in 2013, 10 percent of adults with checking accounts paid at least one overdraft fee — that is, a fee for a short-term advance from their bank to cover a shortage in their checking account. Another 5 percent paid an overdraft transfer fee, charged for transferring funds from another account or a credit card. People who overdrew reported paying fees averaging $69. The typical overdraft fee was $35, but banks may add extra fees if the shortage isn’t covered quickly.

In 2010, federal rules took effect that required banks to ask customers to affirmatively choose — to opt in — if they wanted overdraft protection on their debit cards. That means that if you use your debit card to make a purchase or withdraw cash from an A.T.M., and overspend your balance, your bank will process the transaction and cover the shortage with a temporary advance, in exchange for a fee. If you don’t opt in, transactions are declined, with no fee.

Yet more than half of those who were charged an overdraft fee when using their debit card say they do not recall agreeing to the service, the Pew report found. That suggests the banks aren’t explaining their overdraft policies clearly and raises questions about how overdraft protection is marketed, the report said.

Susan Weinstock, director of consumer checking for Pew, said in a briefing with reporters that a suggested form for explaining overdraft options, provided by the Federal Reserve for use by banks, may be confusing for consumers. “That form needs some work,” she said. Pew has proposed a simple disclosure box that banks could use to explain overdraft options to their customers. “It would help resolve the confusion that we have seen is so prevalent in the marketplace,” she said.

Still, the report noted that the proportion of people who said they had paid at least one overdraft fee had declined two percentage points, from 12 percent in a survey Pew did in 2012. Ms. Weinstock said it was not clear what caused the decline. The proportion of people paying transfer fees was unchanged, at approximately 5 percent.

Overdraft fees are a big source of fee income for banks, the report notes. Banks collected an estimated $16.7 billion in such penalties in 2011, at least $6 billion of that brought in by debit card use.

Young adults and lower-income and nonwhite Americans are more likely to be charged overdraft fees. Those with a credit card, however, are much less likely to pay the fees, the report found.

The report is based on a December telephone survey of more than 1,800 people by Social Science Research Solutions. The survey included people who had been charged overdraft and transfer fees, as well as people who had transactions declined and those who had never overdrawn. The margin of sampling error is plus or minus 2 percentage points.

filing taxes

Need to Know Info About Filing Your Income Tax

January is nearly at a close, which means most residents of the US are preparing their 2014 income tax returns. Whether you are expecting a big refund or dreading writing that check to Uncle Sam, make sure you have all the information you need before you complete this yearly chore.

You Can File for Free

Tax preparers make a fortune off of individuals who must file income taxes but do not want to carry the burden on their own. However, income tax preparation can be very simple and extremely inexpensive. This is especially true if you have few avenues of income and no special situations.

A family that makes under $60,000 per year can use this IRS tool to find a free software program. It is important to note that some companies, like TurboTax, offer free state filing as well, while other companies may charge a fee for this additional service.

If you make over $60,000, the IRS makes online forms available to you. These forms do not give you the same guidance as a software program, and they only apply to federal taxes.

Not Everyone Has to File

Some individuals find themselves going through the frustration of filing taxes though they do not have to according to the law. However, according to the IRS, even those who do not have to file should in order to get any refund that is owed to them.

Use this tool to learn if you can avoid filing a federal income tax return. In all likelihood, you will need to file a state return regardless of your federal status.

You May Have More Deductions Than You Realize

Deductions are arguably the most confusing aspect of income tax. Earnings are fairly straightforward: You report everything you earn throughout the year, including interest, winnings, and inheritance. However, there are some business expenses that you may think you can deduct that you cannot, and there are many deductions that you should take that you might not even consider.

Charitable contributions are tax deductible if you itemize. Any time you decide to donate garage sale leftovers, old furniture, or used clothing, be sure to calculate their reasonable worth and get a receipt. This goes for any other type of donation that is made to a not-for-profit organization. Note: Some charities offer free event tickets, food items, or other prizes when you donate. If you accept any of these, you cannot make the deduction.

State sales taxes are oft-overlooked deductions that can make a significant difference in the final figure. Use the IRS Sales Tax Deduction Calculator to get an idea of how much you could deduct on your taxes.

Were you looking for a job in 2014? You can deduct some job-hunting related expenses. This might include resume services, transportation, and even food and lodging if you are paying out-of-pocket to seek out-of-town jobs. You cannot deduct clothing even if it was purchased specifically for interviews. You also cannot make this deduction if you were employed while you were looking for work elsewhere.

Audits Are Rare and Mostly Avoidable

If you are both honest and meticulous when it comes to tax time, you are highly unlikely to face an audit. The IRS prefers not to conduct audits because they are very expensive and time-consuming. Indeed, only about one percent of tax filers face an audit each year.

If you want the lowest risk of an audit, avoid the “red flags” that cause the IRS to take a closer look at your return. While the largest red flag items may not be entirely truthful, like earning more than $200,000 or claiming a loss on rental properties, others can and should be double checked before filing the final tax documents.

Make sure to report all earned income. This includes primary employment, part-time jobs, gambling winnings, sweepstakes prizes, and inheritance. Debt forgiveness is also considered as a type of income and, unless the debt informally between two friends, it was likely already reported to the IRS. If your income does not match what the IRS already has on file, an audit may be on the horizon.

Excessive business deductions may lead to an audit as well. Significant travel expenses, entertainment expenses, clothing, and even surgeries that have been said to be job related have triggered audits in some cases. You should be able to deduct legitimate business expenses, but you need to always make sure that they are deductible items.

You Can Track Your Refund Online

The IRS has a tracking tool for refunds. You will need to remember the exact amount of your refund in order to check the status, which is updated once each day. If you are filing jointly with a spouse, you will also need to have the social security number for the head of household.


3 Ways to Overcome Debt

After the financial crisis of 2008, the average level of household debt rose to new records.  This was true of debt in many different forms, as outstanding credit card balances, student loans, and problematic mortgage were all seen at their highest levels in recent memory.  Because of this, it has become clear that consumers need to make strict rules to overcome the rising level of debt that is seen across the country and around the world.  Here, we will look at three ways consumers can tackle their debt problems and create a long-term plan to overcome debt before it gets out of control.

Acknowledge the Amount You Owe

One of the first problems consumers face is the failure to truly acknowledge the amount of amount of debt that is owed.  This is especially easy for consumers that have their debts spread out over a number of different sources.  To be sure, it is not an easy task to go through all of your bills and accurately add the balances.  But what seems to be most difficult is coming up with the mental and emotional fortitude to face the problem and accurately acknowledge the amount of debt you owe.  As they say, “the first step toward a solution is admitting you have a problem.”

This is as true in the personal finance realm as it is anywhere else, so do not forget to complete this step before you do anything else.  Taking an accurate assessment of your real debt levels will also enable you to efficiently budget, and determine where your financial resources should be allocated.  This is critical in paying off your total debt.

Reduce Your Interest Rates

If you are having difficulty repaying your debt balances, it is a good idea to call your lending companies and request a lower interest rate.  You might be surprised how often these companies are actually willing to work with you in easing your debt burden.  After all, if you are completely unable to make payments, it is much more likely that you will be forced to declare bankruptcy — and this would mean that the lender will not be getting its money back.  For these reasons, it is always a good idea to try negotiating with your lender to get repayment terms that are more favorable.

Pace Yourself

Last, remember that repaying your debts is going to be a marathon — not a sprint.  It is important to pace yourself and exercise patience.  After all, debt repayment schedules are usually designed to be manageable over an extended period of time.  If you need to make smaller minimum payments, you will need to extend your repayment period until the individual payments are more appropriate for your financial situation.   Mostly, it is critical to focus on the present and make sure that your finances are in order so that you can make your payments as they become due.  Missing payments can become very costly in a short amount of time, so consumers that pace themselves will be much better situated in accomplishing their repayment goals.



10 Tips for Credit Card Success

Credit card companies offer a number of benefits to those users, and those benefits are increasing in both quantity and quality with each passing day. As the number of credit card holders continues to decline, the industry finds itself needing to revamp its image as well as its offerings.

A recent Gallup poll found that of the 71 percent of Americans who own credit cards, 64 percent pay off their monthly balances at least most of the time. This is a five percent increase from just six years earlier and a 12 percent increase from the 2004 poll. While this is a great indicator that Americans are getting smarter about their credit card purchases, there is still more that can be done.

1. Pay The Full Balance Every Month

The Gallup poll indicates that less than half of credit card owners pay off their balances each month while another 16 percent usually pay off their credit cards. That usually is a big problem. The average APR on a credit card is 14.9 percent. If a user leaves a balance of $500 on a credit card for just one month, he or she will need to pay an additional $74.50 when the next payment cycle rolls around. Even the interest owed on a $100 balance could pay for a meal out and a cup of coffee.

2. Setup Auto Payments

Credit cards allow their users to pay online. Most, if not all, allow their users to setup auto payments that automatically deduct from a savings or checking account. Users can select to pay the minimum payment due, a set monthly sum, or the entire balance. Scheduling an auto payment safeguards those who may forget a payment date, which then leads to additional fees and interest.

3. Spend Minimally

It should go without saying that credit card users should not outspend what they can afford. Credit cards will set high limits, and in a few rare instances, no limits, but this should be viewed as a safeguard, not as a challenge. Like an all-you-can-eat buffet, a high limit credit card does not mean the user needs to overextend their spending. A good rule of thumb is to treat the credit card like a debit card, only spending what can be paid off in total by the end of the month.

4. Look For The Best Rewards

Some credit card companies offer outstanding rewards to their users. These often come in the form of cash back on purchases or points that are earned for gift cards or other perks. Even within the same company, different credit cards can have varying rewards programs. Likewise, some change their incentives annually, quarterly, or even monthly. While one credit card may offer five percent back on supermarket purchases, another may offer six percent on trips to the gas station. It may be worthwhile for some users to keep multiple credit cards, reserving each for the one that gives them the biggest bonuses. Naturally, this only works if the user can ensure all cards are paid every month.

5. Utilize Discounts With Discretion

Many credit cards include a special offers page for all users. The page lists a variety of retailers, letting the user know that they will earn discounts or increased points by clicking through this portal and then using the specific card for purchases. This can be a great feature unless the user intends to apply a discount code to the purchase. Often, any savings or earned rewards are negated with the utilization of a discount code. Likewise, codes for 20 percent off or free shipping are often worth far more than what a credit card’s portal can provide.

6. Search For Hidden Fees

The wisest card holders never allow their balances to carry over from month-to-month. However, if that does happen, some people will pay dearly. There are cards that charge an additional fee along with interest if a balance is left on the card. Other common fees include balance transfer, cash advance, foreign transaction fee, closure fee, and even an inactivity fee. In addition, some small businesses may issue a surcharge to cover their expenses for those who use credit cards. Though this is not legal in all states, many states allow retailers to provide discounts to customers who pay with cash.

7. Monitor Credit Ratings

A credit card user is only as valuable as his or her credit rating, or so believe the credit card companies. Knowing one’s own credit score is vital when seeking loans or rate increases. Keeping a close eye on credit ratings also allows a card holder to be immediately aware of any fraudulent activity.

8. Renegotiate Terms

Holding a credit card does not mean that one must settle for the same APR and rewards program for a lifetime. Card holders can and should attempt to renegotiate terms as often as they like. This is especially true of those who improve their credit score.

9. Shun Department Store Credit Cards

Department store offer excellent discounts to first-time card holders. They often offer a large percentage off of an initial purchase along with regular coupons for card holders. However, they also have much higher APRs, which means that if a user does manage to carry over a balance, he or she will be paying roughly double the amount of interest of a standard issue card. Likewise, store credit cards tend to have low limits. If a user charges close to the max, he or she could easily see their credit score drop in one shopping trip.

10. Scrutinize All Transactions

One of the most important aspects to wisely holding a credit card is safeguarding its usage. Too many people trustingly look at the lump sum due before making a payment in one fell swoop. They might miss small, seemingly innocuous charges that could later lead to big problems. Professional credit card fraudsters will start their usage of a card in this way. They may order small items online, like socks or batteries. If this charge is not caught, they will move on to bigger and better things until a card holder’s credit line is maxed out and the authorities have to get involved. Even without fraudulent activity, closely observing one’s own credit card can help them find any accidental double charges or simply better understand their own spending habits.

Target-Date Mutual Funds Face the Challenge of Rising Interest Rates

Tips For Choosing A Mutual Fund

Once you have developed your savings account to the point where it is time to start investing in the financial markets, one of the first places most people look is at mutual funds.  This is for good reason, as mutual funds tend to be one of the safest areas to put your money with the expectation of long term capital appreciation.  But, of course, not all mutual funds are created equal and there are some general rules that should be followed so that you can make sure you are getting the best deal for your investment Dollar.

Watch Your Fees

All mutual funds charge fees in exchange for granting access to a well-diversified portfolio of conservative investment assets.  Many investors fail to pay much attention to how much exactly is being charged, and this is one of the worst mistakes that can be made.  First and foremost, there should be no sales charges for the transaction.  This means no contingent deferred sales loads, no front loads, and no level loads.  These are some of the ways mutual fund sales managers collect additional fees, but any fund that conducts these practices should be avoided.

The next factor to watch is the fund’s expense ratio, which is present in all funds but should never exceed 1%.  All funds are going to need to charge you some fees in order to actively manage your money and look for new opportunities.  This is just the cost of doing business.  But any fund that comes with an expense ratio of 1% or above should be immediately avoided as there are much better deals out there.

Make Sure The Fund Is Conservatively Managedinvestment-chart

The next area to watch is the turnover rate for the assets included in the fund.  You do not want to get involved in a fund that comes with a turnover rate of more than 50%.  Even that is on the high side, as there are plenty of funds that come with turnover rates of around 20%.  Remember, investing in a mutual fund is not day trading or a get rich quick scheme.  Instead, you are looking for a conservatively managed set of high quality assets that come with preferable turnover rates.

Last, make sure that the fund’s assets are fully invested.  If you were willing to leave your money on the sidelines, you might as well just leave it in a bank where you can at least

funds-distearn some return in the form of interest.  Investment policy at your mutual fund should be associated with cash reserves that are close to 0%.  This way you can ensure that your money is being actively managed and that your potential for strong returns is not being hurt by the fact that your money is not even at work in the market.

In all, these are many of the factors what must be considered when choosing any mutual fund.  There are many choices out there, so do not settle for any fund that does not match this set of criteria.

bank account

Tips For Choosing A New Bank Account

By Richard Cox:

Frequently these days we see new banks popping up offering different types of checking and savings accounts.  Sifting through all the important information and fine print can seem like a daunting task, but if we keep some key strategies in mind the entire process becomes much easier.  It should always be remembered that all of these banks are competing with one another for your business.  So, you don’t need to feel as though your hands are tied with only a few banking options.  Here, we look at some things you should always consider when choosing a new checking account.

Avoiding Unnecessary Fees

One of the trickiest ways that banks look for pad their profits is by charging user fees that are largely unnecessary.  Specifically, this will often take the form of a monthly fee for the bank account or for added fees taken out when withdrawing money from an ATM.  Not all banks will take out the same fees in both of these areas but since there are so many user options for bank accounts, there is really no reason to settle for a bank that will charge you for these unnecessary fees.

Many newer banks have opted to do away with these extra charges, so there is really nothing wrong with choosing a newer bank that is more eager to attract your account tips  There are many introductory offers that are available for bank users that have never opened an account before, so keep your eyes open to capitalize on these offers as they arise.  If you are not happy later with the bank services, you can always close the account and move elsewhere.

Avoiding User Account Limitations

Another way that many traditional banks will inconvenience its customers is to enforce minimum monthly balance requirements or to place limitations on the number of transactions that a bank user must conduct within a given amount of time.  At this stage of the game, there is really no reason to settle for a banking agreement that will place limitations like these, so if your bank is not willing to lift these requirements you should probably move on to another bank that will.

Both of these types of limitations can wind up costing you money in the long run, so if you need to take more time to research a better banking arrangement the added work will probably pay dividends for you at a later date.  Now that banking has become more digital, it is always a good idea to look for bank accounts with good online banking access and a 24/hour customer service center that can be accessed via live chat.

If you ever have any questions about whether your bank is placing any of these limitations on your account, you can always go online and ask.  Remember, you are the customer and banks are always looking for ways to take your business away from the competition.  So always feel free to stand your ground and demand certain aspects in your banking agreement.



Getting Credit After Bankruptcy Discharge

No matter the type of bankruptcy you’ve gone through, there is always a chance to rebuild and establish credit, especially after a bankruptcy discharge. Though it might feel like a monumental task to complete, it should be noted that by following a handful of credit building methods on a continual basis, you can actually establish credit in next to no time. The following will provide you with an in-depth look at what a bankruptcy discharge entails and the best methods of establishing credit after a bankruptcy discharge.

What Does Bankruptcy Discharge Entail?
A bankruptcy discharge is slightly different with all types of bankruptcy. That being said, there are some basic definitions that can be found with all types, more of which can be found here. In essence, a bankruptcy discharge is the point during the bankruptcy phase in which the debtor, which is you, is provided with an injunction that will stop the commencement of any collecting or recovering that is typically done in order to obtain any money you possibly have for the debts you owe. As such, a discharge provides the debtor with a veritable “clean slate” in which they no longer have to pay their debt and can instead begin to rebuild their credit and livelihood after having filed for bankruptcy.

It’s important to understand that a discharge can typically only be issued to a debtor once every eight years and won’t be issued for all types of debt. For instance, any possible student loans that have been received will not be discharged through this ruling, except in rare cases. The same holds true for any alimony or child support. You should also know that being provided with a discharge isn’t an extremely easy process. A court can choose to deny the discharge at any time if misconduct is suspected, or if certain assets that you still had were never disclosed during the initial bankruptcy process. That being said, if you have received a bankruptcy discharge, the first thing you are going to want to do is rebuild and establish your credit.

Best Methods of Establishing Credit After Bankruptcy Dischargeroad-to-good-credit
The first thing you should know about establishing credit after a bankruptcy discharge is that there is no quick fix. You can’t establish a credit score in a matter of days, no matter how much you try. However, credit can be established in a matter of months. As such, the following methods of establishing credit can prove beneficial towards doing so in a relatively timely manner. First of all, if you still have any existing loans after filing for bankruptcy, such as a house or car loan, make sure to pay special attention to these loans and pay every single one of your bills on time. It’s also wise to always pay at least a little more than the minimum payment due whenever you can. Over a few months, this will help you to build up a strong and useful payment history that will show up on your credit report and work wonders in helping you to establish a good amount of credit when the time comes.

The best way to ensure that you will be able to pay all of your bills on time and thus start building a strong credit report is by building a budget for yourself that is reasonable and won’t have you spending too much money on non-essential items. When creating a budget, always try to place your budget at a point that is below the money you make each month, which will help you in paying your bills on time and saving up should an emergency arise in the future, which you can find out more about here. View all of the upcoming payments that you do have as the most necessary thing on the budget you create, as missing even one payment can hurt your ability to establish credit after a bankruptcy discharge.

You should also consider applying as soon as possible after bankruptcy for a secured credit card. These cards are available to those that have gone through bankruptcy and are very similar to standard credit cards. In fact, they are essential for building credit in a matter of months instead of a longer period of time. These cards are special because of the fact that you will need to first deposit money in order to establish a line of credit. Make sure that the card you receive is one that utilizes reports from all three national credit bureaus every month to establish credit quickly. As mentioned previously, make sure that all of your payments with this card are paid on time each month, as the payments history aspect of your credit report accounts for 35 percent of your credit score. These percentages are displayed in further detail here. To ensure that your debt on this card never gets too out of hand, use it as little as possible and pay off all or most of the balance you have each month.

Eventually, you need to sign up for a standard credit card. Those that go through bankruptcy will typically start to receive credit card offers after 6 months or more have passed since the filing. Don’t just accept and sign up for any card, do so for the one with the best interest rate available, so that your debt never spirals out of control again. That being said, paying off your balance each month will keep that from becoming a problem in the first place. A credit card will slowly help you to build and establish a good credit rating. However, make sure not to sign up for more than three cards in a six month span, as this will adversely affect your credit rating. Also pay attention to any costs associated with the card before signing up. By utilizing each of these methods for establishing credit after a bankruptcy discharge, you will be back to having a great credit score in no time.

fix vs arm

Fixed or Adjustable-Rate Mortgage: Which Is Best For You?

So you have decided to buy a new home. You may be asking yourself, what’s next? There are many issues to consider, not the least of which is deciding which type of mortgage works best for you. In the lending industry, there are two standard types of loans: fixed rate and adjustable -ate. Before you jump to a conclusion that one is better than the other, it is best to learn as much as you can about the advantages of each.

What Is A Fixed Rate Mortgage?

Just as the name states, a fixed rate mortgage is a mortgage with one consistent rate that does not deviate throughout the length of a loan. Fixed rate mortgages are usually 30-year terms, but can be as low as 10 and, rarely, as long as 40. Though the percentage of the loan will not change during the term, the monthly amount due may change if taxes or insurance rates fluctuate.

What Is An Adjustable-Rate Mortgage?

An adjustable-rate mortgage, commonly referred to as an ARM or a variable-rate mortgage, is a loan that varies sometimes from month-to-month or year-to-year. The fluctuations follow certain criteria that are determined by the lender, though most use the US Treasury Rate as their benchmark. While there are different types of ARMs, the most common is called a Hybrid ARM. The Hybrid ARM allows for a fixed interest rate for a specific number of years. This is followed by a change in interest rates that occurs once annually. Depending upon the benchmarks used by the lender, those rates could either go up or down.

Why Choose A Fixed Rate Mortgage?

You may want a fixed rate mortgage if you want to avoid the uncertainty that comes with an ARM. If your future salary earnings are uncertain, a sudden increase in payments might be a shock that you do not need and cannot afford. Likewise, if you plan on remaining in your home for the long term, a fixed rate may prove to be less costly over time. Considering that the average homeowner stays in his or her house for 13 years, your odds of moving soon after a purchase may be slim.

Fixed rate mortgages are the most popular despite the fact that they are initially more expensive than ARMs. Approximately 80 percent of mortgages held in the United States are fixed rate. This may also be due to the unfortunate and misleading idea that ARMs are risky ventures. It could also be due to the relative ease of refinancing a home mortgage to get a lower rate.

Why Choose An ARM?

An ARM might be your ideal choice if you want to save money on the initial interest. ARMs arm mortgageoften offer a much lower rate to start than fixed rate mortgages. If you are newly starting in your career, you may prefer to purchase a smaller home with an ARM so you can take advantage of a smaller monthly bill as you get settled. This is particularly true if you expect to start a family, which may require an upgrade to a new home. Likewise, if you expect a career change or job move, you can still enjoy home ownership without the higher price tag that may come with a fixed rate loan.

Interestingly, if you are already well-established in your career, an ARM may be for you as well. Rising interest rates are unlikely to cause you any financial burden, while the chance of a lower interest rate may be attractive enough to make you consider choosing this route.

Another reason to choose an ARM is to secure a larger mortgage loan. Those lower monthly payments let you extend yourself a bit further. This is especially beneficial if you are able to take advantage of low home costs, and then flip your investment into earnings or an upgrade by selling a few years down the road.

Which Is The Best Choice For Second Homes?

Primary home ownership is quite different than owning a second or vacation home. Lenders use different criteria for second homes than they do for your primary residence. You must have a high credit rating, a healthy debt-to-income ratio, and at least 20 percent for the down payment. If you meet these qualifications, you can then decide whether to use a fixed rate or ARM to secure your second home.

A fixed rate mortgage could be the best choice due to the fact that most vacation homes are long-term investments. However, interest on vacation homes is generally more expensive than the interest on primary residences. This may cause you to gravitate to an ARM, which has an initial lower interest rate. Theoretically, you could also purchase a second home in a more ideal location with money saved from choosing an ARM. As with loans for your primary residence, choosing the type of loan for your vacation home depends largely on your own comfort level.

Why You Should Buy a Home in 2015

How to Save for a Home

Take 20% of the cost of the home you can afford and you’ve got your savings goal.

But buying a home is easier said than done. During the housing boom of the mid-2000s, almost anyone could buy a home with zero money down. Today, it’s a different situation, as lenders have gotten much pickier. The best loans with the lowest interest rates go to people with steady incomes, great credit scores, and that magic down payment of 20%.
On a $250,000 home, the down payment would be $50,000¬¬. That’s a lot of money. You might be able buy with less than 20% down, but your interest rate will likely be higher, adding thousands—even tens of thousands—to the total cost of the loan. You also may be required to buy private mortgage insurance, which is typically 1% or more of the loan amount each year. If you could only swing a $20,000 down payment and had to take out a $230,000 loan, your mortgage insurance would be a minimum of $230 a month. But don’t give up hope. You can get to that 20% with discipline and careful planning. Here’s how.

Open A Savings Account
A savings account is a deposit product that allows customers to safely store their money and earn interest. Savings account deposits are generally pretty easy to access, but funds still aren’t as liquid as they are with checking products. In many cases, money can only be withdrawn a maximum of six times per month from a bank teller or ATM. The required minimum deposit and interest rate will vary depending on the type of savings account you choose. Depending on where you bank, you’ll also have the advantage of federal insurance from either the NCUA (for credit unions) or the FDIC (for banks).

Deposits through credit unions and banks are federally insured through the National Credit Union Administration and the Federal Deposit Insurance Corporation, respectively. Currently, the FDIC and the NCUA offers insurance coverage of $250,000 per depositor, per institution. In the event of a bank failure, you’ll get reimbursed. That’s more protection than you’d get by tucking your savings under your mattress!
While savings account rates highly competitive overall, you can’t argue with free money. The earnings you receive from your deposit is still more than you’d get without an interest-bearing savings account.
Many financial institutions provide overdraft protection, should you accidentally have insufficient funds in your checking account. Through an overdraft protection program, some banks and credit unions will allow you to link your savings account to your checking account. When your account is overdrawn, the bank will pull the needed funds from your savings so that the transaction can continue to go through.

Set a goal
Figure out how much home you can afford. This depends on your income and your current debts, because lenders generally limit the percentage of your income that can go to all debts. If you currently rent, that will give you a rough sense of how much you can pay. (Note that once you own a home you’ll also have to pay for maintenance and repairs, property taxes and homeowners insurance.) Take 20% of the cost of the home you can afford and you’ve got your savings goal.

Build a budget
A budget can help you see how much money comes in, how much goes out, and what’s left over. Make it realistic—look at your actual bills and paychecks—because if you just guess, you’ll almost certainly underestimate how much you spend and how much you can save.

Stop mindless spendingThumbnail for 12684
Buying things is very easy. All it takes is a swipe of a card, a click of a mouse, or a tap on a screen. Take a “cooling off” period before you purchase anything other than basic staples. If you’re tempted to buy something, wait anywhere from a few hours to a few days before opening your wallet.

Reduce your debt
If you’re paying a lot of high-interest debt, like for a credit card, take care of it. That money can then start going toward your savings. What’s more, most lenders won’t even consider you for a loan unless your total debt is below a certain percentage of your income. Typically, lenders say your total debt—including home expenses, credit cards, student loans, and the rest—should not exceed 36% of your income before taxes.

Minimize your expenses
Take five of your big monthly bills—heating and cooling, cable, and cell phone possibly among them. Talk to friends and family, go online, or work with the service providers to learn how you can reduce each one.

Start “robo-saving”
save-your-moneyConsider opening a bank account just for your down payment. Set up automatic monthly deposits into that account. They should occur just after your paycheck is deposited into your primary checking account so you’re not tempted to spend the money. Alternatively, perhaps your employer could divide your paycheck between your checking and savings accounts from the start.
Even if you don’t make it to the magic 20%, reducing your debt and accumulating a decent-sized down payment may help to get you approved for a loan and lower the interest rate you’ll be offered. Money moves like these can also help spruce up your financial picture overall.

You May Be Sabotaging Your Own Financial Stability

You May Be Sabotaging Your Own Financial Stability

As humans, we don’t always make smart financial decisions. From impulse buys to psychological barriers, sometimes we make dumb choices. However, even with our mental weakness, it is possible to overcome destructive ways and store a nice nest egg for the future. We are our own worst enemy when it comes to our financial situation. Here are some things that can ruin our finances.


One of the main things that we do that is so detrimental to our finances is called anchoring. This is where wespecial rely heavily on information others give to us regarding a purchase. If someone tells us that you cannot get a home for under $150,000 that is in a worthwhile neighborhood, you can rest assured that anytime you see a house under this price, you will remember this. We often don’t do the research by ourselves, but take some random person’s word for it. Just like the old theory that a salary for an engagement ring should equal three months’ salary, who comes up with this stuff? We should set our own budgets based on our ability to repay and not what everyone else is spending.


You probably have never heard of the term myopia before. Most people see themselves as always being a fit and young person that is in the picture of health. While it is good to have an optimistic outlook, realty must be considered. Sure, you don’t want to see yourself sick, cash-strapped and in financial hawk. Because many people don’t see tomorrow as anything other than sunny, myopia is ruining their financial futures. Saving for your retirement in your 40’s or 50’s is way too late. The time to prepare retirement is now regardless of your age. So many people deplete savings and retirement accounts thinking that they will never see this age, but time flies by so quickly.

Gambler’s Fallacy

Many people play the stock market and make good money. The worst thing to do is to use the past history to predict the future. Just because a stock is flying high for a year doesn’t mean it will continue to do so. It’s like buying a lottery ticket, just because someone in another state won doesn’t mean that you will. One winner doesn’t change your odds of winning. So many people may want to sell their stocks for fear of losing money. Rather than using the ups and downs of the stock, make decision on grounded facts. Always analyze investments and don’t follow trends.


Many people love to avoid something, especially a financial decision. Procrastination can really cost big money. Dealing with your finances is not like a missed doctor’s appointment where you can re-schedule. If you miss the deadline for your company’s health insurance selection, you may be stuck with the highest rate plan all year. Unlike a missed appointment that can be fixed, you could be stuck with inflated premiums for a year. Don’t put off what needs to be done today. The same can be said of investing in 401K and other type of accounts. Putting this move off is hurting your retirement.

Confirmation Bias

Do you often make decisions just based on the good reviews and skip over the bad ones? There are a lot of people who only want to see the good, even when the bad is starring them right in the face. People always tend to look for an opinion that mirrors their own. If you do this it is called confirmation bias. You can make the decision in your head and use blogs or other media information to back your investment. However, this really doesn’t mean that this investment is the right choice. A decision needs to be made by analyzing all the facts, both good and bad, before acting.

Loss Aversion

This one is a big one. So many people are afraid of losing their investments and act or react accordingly. Just like when the stock market crashed in 2008, many people told their investors to pull their money. However, being afraid of losing can make people make poor decisions regarding their financial decisions. Those who pulled their money out of the stock markets were victims of loss aversion. Investors in the crash who grabbed what was left and ran, only rebounded by twenty five percent. Those who stayed the course recovered their funds and then some. Nobody is going to have a portfolio full of winners, sometimes its hanging onto the losers and hoping that in time they too will turn a profit.

Overconfident Investing

Those who are confident in their investments are good, but what if you are too confident? People who are arrogant fool themselves into thinking that they can beat the market. There are people who make full time jobs out of trying to beat the stocks, but they usually end up failing. Decisions should all be based on cold, hard facts and nothing else. Save intuition and gut feelings for gambling, not the stock market.

Mental Accounting

Oftentimes we look at our money that we earn from employment as the money that should be saved. However, if we get birthday money, financial gifts for Christmas and any other time of the year, we often want to spend or treat ourselves to something. This is called mental accounting. It is where we put financial values on the money and its importance. While a person should have a budget for things they need and want, putting away that teen_smallbirthday money can add up quickly too.

This is also true of people with credit cards and cash. Most are more apt to spend more on their credit cards than they are cash. The theory is buy today and pay later and this form of mental accounting can be trouble.

Herd Mentality

The biggest financial issues we have are caused from herd mentality. If our friend caught wind of a housing development hat went bankrupt and now the plots are dirt cheap, you may be inclined to buy with the masses. Sure, investors might be snatching up these properties, but they may have experience and capitol to back them. If you have no experience flipping houses, you should avoid making such a rash decisions. Just because everyone else is doing it doesn’t make it the right choice for you and your family.



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