- Posted by MyFreeCa$h on January 15, 2010
Almost everybody has some form of insurance policy in their life: whether it's car, home, renters, disability, life, business, general liability, or any other type of insurance, almost everybody has at least several, and for good reason -- insurance mitigates risk, in the event of unforeseen or unavoidable occurrences in life. But how many people have an insurance policy that covers their general portfolio against loss? Surprisingly, very few individuals take the time to consider and establish an asset protection plan, which serves to insure their assets against the unforeseen. I recently read an excellent book on this topic, titled Asset Protection : Concepts and Strategies for Protecting Your Wealth, which goes into great detail about the ethics of asset protection, as well as separates the strategies that actually work in the real world from those that people usually think of, like elaborate off-shore trust accounts that aren't actually effective.
Part of what I enjoyed about this particular book is that the author takes great care to examine the ethics of using asset protection as an insurance policy. For example, consider two scenarios:
- Due to negligent driving on your part, you cause a collision which causes serious bodily harm to someone else, and they sue you for damages related to medical bills and lost wages. You are completely at fault, and the injured party should be entitled to collecting from you to pay their bills. In this instance, it would not be moral for your asset protection plan to try to hide assets from the injured party, as your negligence caused the injury. However, a good umbrella insurance policy might be helpful in this instance.
- You own a rental house, and your renter invites some friends over; in the course of their visit, they manage to break their leg in the back yard of your rental house, and sue you for damages. In this instance, depending on the circumstances, you may be liable for some damages -- but if anything, they should be contained to the assets of the rental property, and not your personal retirement funds.
If the difference of the two examples is not immediately apparent, consider that in the first instance, your negligent behavior was the direct cause for injury to another party; in the second case, as long as the property was generally in repair, someone got injured and is looking to collect from the incident. You have a claim to moral defensibility in the second instance, but not the first. A subtle difference, perhaps, but a very important moral distinction none the less. Asset protection should be an ethical process, designed to protect you from unscrupulously litigious individuals who are trying to deprive you of your assets.
In addition, the main goal of a proper asset protection plan shouldn't be to prevent a judgment in court -- it should be to prevent being sued in the first place. Even if you are absolutely innocent, there are always court fees that you will have to pay to prove your innocence; avoiding the whole process before it starts is the best defense you can have. When determining whether to accept a case to sue you, a lawyer will generally run a basic background check on any public assets that you might have. If your asset protection plan is properly set up, anything of value that you own or control will be sheltered by layers of corporations, making it seem as if you don't actually have anything. As such, most lawyers will not take the case on a contingency -- in other words, they will demand money up front -- because they don't think they will be able to successfully collect a judgment against you. This in turn can dissuade many frivolous lawsuits before they even happen, as you are not an easy mark.
There are many good reasons to establish an asset protection plan for your portfolio, and the most compelling reason is that you just don't have control over who can sue you; and, in our extremely litigious society, the risks of losing your entire portfolio to a lawsuit becomes more and more likely. By properly isolating various portions of your assets from each other, and obfuscating your real net worth, you provide a great deal of insurance to protect yourself from any financial accidents that might occur in your life.
I hope you never have to experience getting sued, but in reality a large percentage of people do get sued at some point in their life, and you need to have a strategy in place long before this happens if you want to protect yourself. If you are interested in reading more about this topic, I highly recommend the book Asset Protection : Concepts and Strategies for Protecting Your Wealth -- not only does it go over the ethical and social considerations of asset management, but it also examines in great detail the specific strategies and layers of protection you can implement in order to protect your own assets from potential litigation.
Learn more about hedge fund asset management firms like GoldenTree Asset Management.
- Posted by MyFreeCa$h on December 4, 2009
The basic premise of a diversified portfolio is that you don't want to cripple yourself with any single loss. By keeping a variety of investments, you minimize the risk of all of them, as even a market-wide crash will only affect a portion of your total portfolio. Furthermore, by spreading your money out over four specific investment classes, you are able to ensure the overall health and growth of your portfolio. These asset classes work in symbiosis, providing a collective growth that is greater than the sum of their individual parts. By protecting your assets with diversification, and maintaining each of these four asset classes, you ensure that your total portfolio continues to grow, even in spite of any individual losses.
There are four main components to a balanced portfolio: aggressive growth, low-risk growth, preservation of capital, and cash flow investments. By tailoring these to your own personal goals and risk tolerance, you can create constant growth and generate an increasing income from your portfolio. Imagine that your portfolio provides you a paycheck every day, and each day it’s larger than the last, but the portfolio never goes down in value. This should be your main goal for a well-balanced portfolio, as your assets will continue to grow all throughout your retirement years. Each step has an important role in the overall portfolio, and can be customized based on your own personal motivations.
- Aggressive Growth: This highly-volatile component bears the most risk, but also provides opportunities for exponential growth of your investments. For example, if you have a 50-50 chance to triple your money, this would be considered an aggressive growth investment, because it’s likely that you could lose your entire investment. However, it’s actually a very prudent (but high-risk) investment, as you have an equal chance of massive returns, provided you have sufficient tolerance for risk. In fact, your expected value from this investment would be a 50% return on your money over time, since you would either lose your investment (half of the time) or triple your investment (the other half of the time). In other words, suppose you had two separate opportunities to invest $1,000 in this opportunity. Statistically, you will lose your full investment of $1,000 on one transaction, and turn your other $1,000 into $3,000 on the second investment. Your net result would be $2,000 invested, and $3,000 returned, for a total profit of $1,000, or a 50% gain on your total investment. This is considered an aggressive investment, however, because each individual transaction has a high probability of catastrophe. In the above example, it's quite possible that you would lose $2,000 -- it's equally possible that you would gain $6,000! Aggressive growth doesn't mean you have to take on unwarranted risk; you should still make sound investments, but these investments will tend to have much higher default rates than the rest of your portfolio. This isn't a cause for concern at all, at least within a well-diversified portfolio, since your overall gains will rise faster than any individual losses. The primary role of aggressive investments are to spearhead the growth of the entire portfolio, and without at least some aggressive growth, your will be crippling the growth of your overall portfolio.
- Low-Risk Growth: Here, the objective is to provide moderate growth over time, but also to avoid capital loss. In other words, you want to avoid the volatility inherent to aggressive growth, but still increase capital at a rate that exceeds inflation. Risks should be very mild, and returns are likely amortized over many years, but consistent and reliable. These dividends help to fund the overall expansion of the portfolio, and steady, consistent gains have an incredibly propensity to compound over time. Both aggressive and low-risk growth are important to every portfolio, but your own tolerance for risk, and your timeframe for the investments, will dictate exactly how you want to balance these ratios. Someone in their early twenties would likely only want a very small percentage of their assets in low-risk growth, and a much larger percentage in aggressive growth, since they have plenty of time to weather market fluctuations. On the other hand, an investor who is already well into their retirement would want the majority of their growth assets to be allocated in more conservative investments, for exactly the same reason -- as one ages, importance begins to shift from capital growth to capital preservation. It is important to note, however, that regardless of your age, it would be highly unusual--and almost always quite imprudent--to avoid aggressive growth entirely.
- Preservation of Capital: By having a portion of your assets insulated from volatile market forces, you ensure that there are funds available to invest during market downturns. This allows you to become a capitalized opportunistic investor, and to take advantage of the incredible deals available during down markets. For example, as the housing market declines, the buying power of your preserved capital increases in that market. In other words, you are able to buy a lot more house in a down market than you could in the midst of an appreciating market. If you have the funds available to purchase assets that are artificially deflated due to market conditions, and still have underlying value, you will be able to make excellent investments when banks might not be lending money. This works equally as well in the stock market -- during a recession or depression, it's not uncommon to see a strong company's stock "on sale" for what essentially amounts to 50-75% off. The value of the company has not significantly changed, but the price has been depressed by the economy. If you thought it was a smart investment at full price, it's an exceptional investment at a steep discount. By ensuring that you always have a portion of your portfolio preserved, irrespective of what the markets are doing, you guarantee that you will have funds available to take advantage of incredibly opportunities only available to cash buyers. These types of investments often provide substantial gains at almost no risk, and are only made available by keeping some of your funds preserved. In other words, preservation of capital -- the cornerstone of the portfolio -- measures your consistent economic growth, and allows for value investing during down markets. This portion of your portfolio should always be increasing over time, and provides a good snapshot of where your entire portfolio stands at any given moment.
- Cash-Flow Investments: Often comprised of stocks that provide dividends, these investments produce a regular income over time, which helps to both offset recurring liabilities, and fund recurring investments; with solid cash flow investments pumping money back into your portfolio, you ensure constant and stable growth over time. For example, suppose you make a one-time investment of $20,000 into a real-estate investment trust (REIT), a vehicle known for producing reliable cash flow, that pays out a dividend of $100 per month (about a 6% annual return). Then, you set up an automatic investment with your broker to purchase $100 of stock every month in a high-growth index fund. Suddenly, you have created an investment that will continue to grow over time, without any additional work on your behalf. Your initial capital is generally preserved, and you use the dividends to purchase another asset class with more potential for growth. The same investment is essentially working for you twice, and is well-diversified. Another strategy for cash flow is to build up your passive income such that it exceeds your basic living expenses. Instead of thinking of your retirement needs in terms of a total portfolio amount, consider how much money you need to replace your income. If you can build up your investments to provide a steady stream of income every month, your portfolio is large enough to support you indefinitely. Of course, your goal should be to exceed your monthly expenses so that you can apply the surplus to additional investments, such that your disposable income grows each and every month. Once you are at a comfortable level of income, you can stop investing new funds and the portfolio can maintain itself forever. You are effectively retired, and your income will continue to grow every year. You don't need to have millions of dollars in your portfolio before you can comfortably retire -- you just need enough income from your investments to pay your expenses.
It is important to note that the specifics of how you invest in each asset class are not discussed in this article. For example, the aggressive growth portion of your portfolio might be comprised of a blend of domestic and international stocks, peer-to-peer loans, speculative investments in businesses, etc. By the same token, your preservation of capital portion might also contain international stocks. In other words, just adding international stocks to your portfolio doesn't adequately diversify it -- if your total portfolio is comprised of domestic low-risk investment funds, and you purchase some international low-risk investment funds, you have perhaps succeeded in diversifying that specific investment class, but your total portfolio is not properly diversified. You should strive to spread assets over all four of these classes first, above and beyond worrying about diversifying each one individually. No matter how much you diversify your low-risk growth, if you fail to provide sufficient aggressive growth stocks, your entire portfolio will suffer. By the same token, if you have mostly high-growth stocks, but neglect your preservation of capital, you will lose out in the long-term, since you won't have the funds available to invest in value stocks during a down market. Each asset class has its own purpose, and diversification is critical to the overall health of your capital.
If you aren't comfortable making these decisions about your finances, you should find a fee-based financial planner to help you analyze your tolerance for risk, and your timeframe for investment. But always be mindful of the importance of diversification, and strive to keep a balance between growth, preservation and cash-flow. Ensuring that you keep a diversified portfolio, tailored to your own personal risk-tolerance, will ensure that your portfolio continues to work for you, and it will eventually be able to provide you an income without further investment on your behalf. By properly diversifying, you minimize your investment risks, while maximizing your potential gains.
- Posted by MyFreeCa$h on November 9, 2009
I'm sure you've heard the old adage: a penny saved is a penny earned. This holds true because money that you don't spend can instead be invested -- which is sort of like giving yourself a raise, except you won't have to work any harder for it. Here's ten easy ways to lower your expenses:
- Ask your utility company to average your bills over the year. This gives you consistent and predictable expenses every month of the year, instead of having extra large heating (or cooling) bills for several months of the year. Statistically, having volatile bills from month to month can disrupt your budgeting, and may cost you money in fees or interest if a bill is larger than expected. Usually this service is offered for free, so inquire with your utility companies to see if you can sign up. This way, you will know exactly what your bill will be every month, and you can budget for it and forget about it.
- Scale back on non-essential bills. Do you pay extra for premium cable packages, frivolous features on your phone, expensive gym memberships, etc.? You may find some wiggle room in most of your non-essential bills -- for example, you might be able to watch your favorite shows online for a cheaper price than your cable bill, or start jogging regularly instead of paying for the gym. Be careful not to do anything too drastic here, though -- these things you pay for can contribute to your quality of life, so where applicable, try to scale back a bit instead of eliminating them completely.
- Familiarize yourself with your local library. Check out books from the library (for free!) instead of buying them, unless it’s something you're going to use on a very regular basis. If it's a book that you want to re-read a few times, keep in mind that you can always check it out again! Your local library generally has a very wide selection of books -- both leisure and professional -- as well as magazines and trade publications. You can usually even request that they purchase a book you want if they don't happen to have any copies, or they will obtain it from a nearby library too. Many libraries even carry movies you can rent for free (actual recent releases, too!). The library exists as a service for the community, so take advantage of it!
- Stop overspending on drinks. If you regularly buy coffee or bottled water, you can realize tremendous savings by investing in a coffee maker and a thermos, or in a water purifier and a reusable water bottle. Both options will give you the same result for pennies on the dollar, and by using reusable containers, you also help the environment by reducing waste.
- Always research purchases in advance. Impulse shopping notoriously hurts your wallet; spend some time to plan ahead and find the best deals. Do a quick online search to see if any coupons or mail-in rebates apply to your purchase, and always check for retailer cash-back programs too. It can also be useful to read some reviews on the product you're planning to purchase, in order to make sure that it is a quality product that won't need to be replaced soon. Sometimes, spending more money initially can end up saving a lot of money over time, and investing in a quality product is always worth considering.
- Stop overspending on your cell phone bill. The average consumer spends around $90 a month on their cell phone, but cheaper alternatives are beginning to permeate the market from multiple carriers. For example, you can get unlimited minutes, text-messaging and data for under $50 a month -- or if you don't use your phone much, you can get plans for under $10 a month, too. Even if you are currently under contract with your phone company, it might be worth breaking it and paying the early termination fee if the savings are large enough.
- Start a vegetable garden to save on groceries. For the price of buying a few tomatoes, you could instead buy tomato seeds, and give yourself a fresh supply throughout the year. Obviously this requires some planning, but the potential savings are definitely there. You also get the benefit of fresh and organic produce, instead of mass-produced crops with questionable additives. If you don't have room for a garden outdoors, try planting some herbs on a windowsill, or even cultivate some plants indoors under artificial lighting. It can be a fun hobby to maintain, while at the same time saving you money and contributing to a healthier lifestyle.
- Plan way ahead for large expenses. If you know you will need to make a large purchase, start to plan for and research it many months in advance. This will give you the opportunity to watch the market, and see whether a sale price is a good deal, or regularly offered. It also helps a lot if you don't have a specific date that you need to make the purchase. For example, if you need a new refrigerator, but the old one still works, you can become an opportunistic shopper -- you can hold out until a great deal comes along, and then buy it using a combination of cash-back credit cards, coupons and rebates, and retailer cash-back programs. However, if you wait until your old one conks out before thinking about replacing it, you will be forced to purchase one impulsively; this almost always means you will be overspending for the convenience.
- Review your insurance policies. Whether its car insurance, renter's insurance, homeowner's insurance, life insurance, disability insurance, or any number of other insurance products available, they are generally very competitive industries, with many companies looking to secure your business. Take the opportunity to shop around, and get quotes from a variety of insurers -- you will probably find one with similar coverage that can significantly reduce your expenses. You may also consider modifying your plan to save money -- increasing your deductible can oftentimes be a very prudent financial decision.
- Treat yourself to gourmet cooking at home. Instead of paying for a fancy dinner out, splurge on some quality ingredients and indulge in a great home-cooked meal. Most of your restaurant bill goes towards the ambience and not the food, so you can enjoy a high quality meal at home for significantly less than it would take to go out and eat. Plus, you can almost guarantee that it will be much healthier than a restaurant alternative, and you can make exactly the foods that you enjoy the most. If you really enjoy eating out, don't eliminate it completely from your budget, but do try to scale back a bit, and cook at home once or twice a month instead of going out. These savings can really add up over time.
Remember, while trying to scale back your expenses can be a fun and/or necessary project, spending money allows you to enjoy the luxuries of life, and your quality of life is important. Do what you can to cut back on expenses, but don't be too hard on yourself -- it's ok to indulge from time to time. Just be smart about your finances, and keep your long-term goals in mind!
- Posted by MyFreeCa$h on October 21, 2009
If you've become overwhelmed with credit card debt, you have no doubt received countless pieces of mail from a plethora of different consolidation service firms offering their credit card debt repayment services to you. Whether they call themselves credit counseling services, debt repayment plans, consolidation loan firms, or loan modification companies, they all do essentially one of two things: they either work with your credit card companies to reduce the amount you owe (or at least the monthly payments), or they consolidate various high-interest loans into a single payment (at a still high, but hopefully less so, interest rate). There can be value in both approaches, so lets explore the pitfalls to watch out for in both instances.
First, before you obtain any professional services to lower your credit card payments or balances, make sure you exhaust all possible options yourself, personally. The rationale is simple: any time you obtain a service from a credit consolidation firm, you are paying them, whether you realize it or not. Credit card companies are willing to compensate these agencies if they think it will help them collect something from you, but in almost every instance, these are just savings going to the consolidation company, instead of into your pocket. If you can do the same work yourself, you may be able to realize more savings on your credit card debts. So, give your creditor a call and see if they will work with you. Simply asking for a reduction in your interest rate, or a reversal of fees, can very often result in money saved. Credit card companies have even been known to stop charging you penalties for an entire year, just for asking. It never hurts to ask, so always remember: credit card companies would rather have you re-pay what you owe than have to sell your debt off to a collection agency. They want to be reasonable, so give them the opportunity to work with you.
If, after exhausting all your options with the credit card companies yourself, you are still unable to get on top of your debt, you may want to work directly with a credit counseling agency. They have the advantage of working in the credit card consolidation field every day, all year long, so they may have more proficiency than you could ever expect to have, or know some tips and tricks to work with specific companies. They might even have some personal connections that can make things happen, which is always a benefit of an established firm or agency working on your behalf. Sometimes, you might hit a brick wall talking to the credit card company yourself, and then a debt management firm will come in and instantly reduce your payment significantly. This is where the value of these firms comes into play, and theres nothing wrong with taking advantage of them. Just remember that they are, somehow, being compensated for their work -- so use them as a last resort, but do take advantage of them when all else fails. They can certainly save you money, and saving some money (while their agency gets paid) is certainly superior to not saving any money at all.
Finally, you may want to take advantage of a debt consolidation loan. There are two types of loans: secured and unsecured. A secured loan can be taken against your house, your car, or any other significant asset you have. Companies are willing to extend a lower interest rate to you on a secured loan, because if you do default, they have a claim to your property. This mitigates their risk, and they are thus able to offer lower terms to you. Obviously this is the preferred method, as long as you are confident in your ability to repay the loan. It could be the difference between a 12% secured loan, and a 24% unsecured loan. Another option is to talk directly to your bank: they do offer personal loans at fairly reasonable rates (certainly less than you're paying on your credit card), but usually they are only for a few thousand dollars, at the most. This might help you out, but if you're very heavily into debt, it probably won't be an ideal solution for you. But again, this is something you can do on your own, so check with the bank first, before engaging a debt consolidation firm and asking for help.
No matter what direction you decide to take, its important to recognize the reason that you are in debt in the first place. If you are a habitual shopper, using your credit cards to live above your means, simply consolidating all your debts won't help the underlying cause. You need to address the habits that have placed you in the situation you are in today, and focus on improving yourself. Otherwise, you will fall back into your old ways, and continue to slip further and further into debt. The most important decision you can make is to take personal responsibility for your situation, and work towards a solution that will get you back on track. Whether you decide to employ a credit counseling agency, or take advantage of a debt consolidation loan to eliminate your credit cards, or simply work directly with the companies yourself to eliminate your high interest debts, you need to sincerely remain diligent and focused on your goal to get out of debt.
As a final word, when working with creditors or debt consolidation agencies, keep in mind that they do want to help you. No matter how frustrated you get, taking out your anger on the person at the other end of the phone will never improve your situation, and could likely ensure that they don't go out of their way to help you. Be curteous and professional, but firmly work towards a solution that will help both you and the credit card company. Remember, both sides want to reach an equitable resolution -- you need something fair and manageable that works for you, and they want to get their money. Certainly, some common ground exists between both parties, and remaining level-headed will ensure that you receive the best terms available.
Getting out of debt is going to be hard work, no matter how you look at it, but by using these techniques, you can ensure that you get there as quickly as possible. Debt consolidation firms may provide additional resources for you, but always try working directly with your creditors first; you might be surprised just how interested your credit card companies may be to work with you towards a payment plan that ensures they (eventually) get what they're owed.
- Posted by MyFreeCa$h on October 16, 2009
If you're looking for a way to save money on your cell phone bill (and these days, who isn't?), or simply shopping for a cheaper wireless carrier, Walmart has just introduced a very competitive solution from StraightTalk that should save you money, and give you more minutes (and features) too. They are introducing two pre-paid plans, available either online (Walmart.com or StraightTalk.com) or in-person at their stores:
- $30 per month - 1000 minutes, 1000 text messages, 30MB data
- $45 per month - unlimited minutes, unlimited text messages, unlimited data
Both plans are nationwide (see the coverage map - domestic long distance is free) and use the Verizon network. Note that the data access is NOT 3G speeds, and according to their terms of service, you aren't allowed to tether your phone to your laptop for use as a modem. However, data access from your phone will be reasonably fast, so if you're looking to read the news, check emails, etc. from your phone, this is an excellent and reasonably-priced deal. Also, so far they have four phones to choose from (starting at $30), and it's unknown at this time if you will be able to purchase your own phone and register it with Walmart's service.
You can purchase the equipment and plans from StraightTalk.com -- this is an exceptional deal, and should help you save some money each and every month. Also, pre-paid phone cards are not subject to the ridiculously high taxes that you have to pay with a normal contract phone, so that's even more money saved over a conventional contract plan.
If you're at all interested in lowering the cost of your monthly cell phone bill, using Walmart's pre-paid wireless option looks to be a great cost-saving measure. They offer a lot more minutes and data than their competitors, and at a significantly cheaper price. And since they use Verizon's cell towers, the coverage should be great, too. So if you want to save some money in your budget, consider signing up for this plan from Straight Talk!
- Posted by MyFreeCash on October 13, 2009
Almost everybody has at least some debt, and there are many reasons you might find yourself owing money to others. Unfortunately, most financial pundits don't appreciate that there are plenty of valid reasons to go into debt, and not everybody is just living above their means and squandering their income. For example, most people I have worked with have debts related to investments, whether its investing in their own education (student loans), real estate (rental property mortgages), small business loans (or credit card debts related to the business), etc. Medical bills and funeral expenses are also fairly common. But, regardless of how you managed to get yourself into debt, if you want to live a debt-free life, the escape plan is always the same. However, there is a lot of contradictory advice out there regarding the best way to get out of debt, and in this article we will compare and contrast the two prevailing methods.
Before getting into the specifics, there are some action steps you need to take, regardless of which method you decide to employ to escape your debts. First, you need to have a clear understanding of where you stand. Make a list of all your debts; include the name of the creditor, your account number, the current balance, the minimum payment required, and the interest rate on the debt. Once you have aggregated this information into one location, you will have a clear view of where you stand, and where you need to go. Next, decide which debts, if any, you don't need to pay off. Sometimes, carrying a debt is a good thing. For example, if you own a rental property that has positive cashflow, there's not really a pressing need to get rid of that mortgage debt. If your renter is paying the mortgage interest, that investment is making money, in spite of the debt. There's no pressing need to pay that off, and it shouldn't be a high priority. Additionally, if you have very low-interest loans, you might not want to pay those off either (Does Paying Extra on your Mortgage Make Sense?). Keep in mind that debt is not inherently bad, and you shouldn't indiscriminately try to eliminate all debt from your life (at least initially). Part of making prudent financial decisions is recognizing and differentiating good debts from bad.
Now that you have your aggregated list of debts in hand, we can consider the two prevailing methods of debt reduction. The first, popularized by Dave Ramsey, is called the "debt snowball" method, and it focuses on paying down your lowest balance first, regardless of the interest rate. So, if you have a $500 credit card balance and a $4,000 student loan, you would focus on the credit card first, and once it is paid off, move on to the student loan. Employing this methodology, you will see your smallest debts being eliminated first, and the theory is that this will provide emotional motivation for you to continue eliminating the rest of your debts. I call it the instant-gratification method, as you see tangible results quicker, but it ultimately takes longer to get out of debt. And how gratifying is it, ultimately, to pay more interest than you need to?
If you're serious about getting out of debt, it only makes sense to do it in the most prudent manner possible, and this brings us to the second method, which is to focus on the debts with the highest interest rate first, regardless of the balance on the account. This means you will ultimately pay less interest over time, and you also pay off all your debts faster. It's true that, using this method, you don't have the gratification of seeing your individual accounts being paid off, but you DO see your total debt decreasing even faster than with the "debt snowball" plan. To keep yourself encouraged, and provide a similar level of emotional gratification to the Dave Ramsey strategy, make a chart or spreadsheet that tracks ALL your debts, and see how quickly you're eliminating them as a whole, as you focus on the highest interest rates first. Eliminating low-interest debts while you are being destroyed by high-interest balances is financially irresponsible, and using the excuse that its "emotionally motivating" to be imprudent is just a cop-out. You need to eliminate your debt as quickly as possible, and you do this by paying down the highest interest rates first. It's simple mathematics, and that should be all the motivation you need.
To better understand these two plans for debt-reduction, consider the following (intentionally exaggerated and extreme, but still valid) hypothetical example: suppose you have a $10,000 student loan at 4% interest (minimum payment $200), and a $20,000 credit card balance at 29% interest ($500 minimum payment). Now, suppose you have an extra $300 per month to apply towards debt reduction. According to Dave Ramsey, you should focus all your efforts on the student loan, while making minimum payments on the credit card. With the extra $300 per month towards the student loan, it would take about 17 months to completely eliminate that debt, leaving you with just the high interest credit card. You would now re-direct the funds you were paying towards the student loan into the credit card, meaning you would be paying $1,000 per month on it. It would take another 30 months to eliminate the credit card, and so the total time using the "debt snowball" plan would be approximately 3 years and 11 months. You would have paid about $16,000 in interest using this method.
Now, consider the scenario if you instead focus on eliminating the high-interest credit card first. Since you would be paying $800 per month towards it, it would take about 33 months to eliminate the credit card debt. Re-directing those funds into the student loan would eliminate that balance in another 6 months, meaning you would be debt-free in about 3 years and 5 months. You would have paid about $10,000 in interest.
As we can see, using the instant-gratification "debt snowball" method costs more than $6,000 in extra interest payments in our example. Clearly, paying down the debt with the highest interest rate makes the most prudent financial sense. And for me, personally, I find a whole lot more gratification in saving $6,000 than in seeing one of my debt balances reduced to zero. When you think about it, does a completely arbitrary number (the number of accounts you own with a balance) really matter? If you owe $30,000 on one credit card, how is that any different than owing $30,000 split between ten cards? The number of accounts you have is completely meaningless, and for that reason the "debt snowball" plan really doesn't make sense. If paying your low-balance debts gives you emotional gratification and encouragement, and helps you to eliminate your debts, great. I suppose its better to get out of debt than to not, even if you do choose to pay a lot of extra interest in the process. But, I really don't see how you would be emotionally pleased to realize you're paying an extra $6,000 for absolutely no reason. Make a commitment to eliminate your debts, focus on the highest interest rate, and track your progress. You'll save a ton more money than the "debt snowball" plan, and that fact alone should be all the motivation you need to get yourself out of debt.
- Posted by MyFreeCa$h on October 8, 2009
If you have no credit history at all, you can build up your credit score within six to twelve months. Just follow these simple instructions, and remain disciplined throughout the process. As long as you are willing to invest time into improving your financial future, you will be able to continually enjoy the benefits that excellent credit provides for many years to come. If you're starting from a blank slate with your credit history, here's how to get started:
- Apply for two credit cards that you are confident you will be accepted for. Generally, having no credit is not a bad thing, and lenders seem happy to extend credit to you. If you're a student, there are a few special student cards that you are almost guaranteed to be approved for. If all else fails, you can try a secured credit card (you deposit an amount, say $100, and the credit card company extends $100 of credit to you. After a few months, you may be able to get your deposit back as you show good payment history. Even though you have to deposit money to get credit, this still counts as a credit account on your file, and it will build your credit. It works well if you have the money up front.
- The reason you only want to apply for two credit cards is that each time you apply for credit, it counts as an inquiry on your credit report. If you have too many of these in a short period of time, credit agencies view it as risky behavior, and it hurts your credit score. Ideally, you will have two new credit cards, and only two inquiries on your credit report. Inquiries last for two years, so it's important to use them sparingly. However, the most important thing is that you have two credit cards; do what it takes to get two credit card approvals, even if it takes an extra credit application or two. I generally apply online, since you can usually see your approval status within a few minutes; this can really help to minimize credit inquiries in your file. Since inquiries hurt your score, you shouldn't apply for new credit unless you really need it.
- Once you have two credit cards, the strategy is to make small purchases on both cards, and pay them off every month. You only want to use a small portion of the credit given to you, so if your limit is $500, keep your monthly balance in the $150 or less range. The idea is to charge a little each month on both credit cards, and then pay the entire amounts off when they're due due. Since you are paying the full balance each and every month, you won't ever owe any interest. However, the credit card companies will report your good payment history every month, and your credit score will continue to rise. Just make sure that you charge something to both of your cards every month, and make the payments on time each and every month.
- You can check your credit reports once per year, free of charge, at https://www.annualcreditreport.com/ -- this won't give you your credit score (you can pay extra if you want to see), but you can ensure that your credit history is being accurately reported. There are three credit reporting agencies, so you can either check all three at once, or spread them each out over the year. In the early stages of your credit development, you might find it helpful to check one every four months. Since the agencies report almost identical data, you'll be able to accurately see your credit profile grow every four months.
- After 6-12 months, you will have established an excellent credit history, and will have many more options available to you. You can start to use rewards credit cards, which means you'll start to get a rebate for everything you purchase. If you're feeling entrepreneurial, your new credit score will be instrumental in applying for business loans, and if you're looking to buy a residence, you should even be able to qualify for a mortgage. Not only will having excellent credit open up these financial opportunities to you, but also note that some employers consider your credit history when making hiring decisions. This means that you can even improve your ability to land a job, just by building and maintaining your credit.
There are many reasons to want to build credit, but always keep in mind that it is significantly more difficult to repair your credit than it is to just start off in the right direction. If you have no credit history at all, follow the above steps and you'll quickly build a solid financial foundation on which to base your future financial life upon.
- Posted by MyFreeCa$h on September 29, 2009
If you're already enrolled in a college or university, I will show you how to earn $1,000 per year in free tuition money for continuing to do what you're already doing. If you have been thinking about taking classes, or have an interest in investing in your education, you will receive $1,000 for completing one term of coursework at a college or university. Compare this with the full-time tuition rates of a local community college (less than $900 where I live -- your mileage may vary). In my case, I'm actually getting paid to further my own education. I love it!
Here's how it works:
Bank of America offers a credit protection plan on their credit cards that pays you $500 for either (a) enrolling in school full-time (12+ credits), (b) getting a 3.6+ GPA for the previous term, or (c) graduating with a degree (like an AA or BS, etc). You can make two claims per year, which translates to $1,000 total. Since there's also a $20 fee per month for the credit protection plan, you want to plan carefully so you only have the credit protection plan active when you need it. Also, you must have the credit protection plan for at least 30 days before you can make your first claim. Follow these steps to maximize your earnings:
- Get a Bank of America credit card. If you don't have one already, click here.
- Call customer service, and sign up for the credit protection deluxe plan. It should cost $20 per month. Make sure to do this at least 30 days before you plan to make your first claim.
- If you aren't enrolled in school yet, you'll want to get an acceptance letter; make sure its dated at least 30 days after your enrollment date with the credit protection deluxe plan. Once you're accepted, call customer service for instructions on where to send your admission information and upcoming class schedule. You need to register for at least 12 credits, which will earn you a $500 statement credit for enrolling in school full-time. When you complete the term, send in your grades; this qualifies as the second claim, as long as you received a 3.6+ GPA for the term, and you'll get a $500 statement credit. Skip to step five.
- If you are already taking classes in school, activate the credit protection deluxe plan at least 30 days before the end of the term. Let them know you'll be completing a term soon, and ask for instructions on how to send in your transcript. Remember, you need a 3.6 average GPA for the term, and at least 12 credits. After finishing your current quarter ($500), register for and complete another term, and send in your grades again. Collect your other $500 and move on to the next step.
- As soon as you receive the second $500 credit to your account, you may cancel the credit protection plan, since it costs $20 per month and you don't need it anymore. If you plan carefully, you should pay for only 4-5 months of the credit protection plan, meaning in four months you earn $900+ for taking some courses at a local college.
This is obviously a great deal if you're already taking classes, since its a free $1,000 in tuition money for doing what you're already doing. Even if you weren't thinking about school at all, a free $1,000 in college tuition provides an excellent opportunity to invest in your own personal education at a subsidized rate. Also, many colleges have a diverse range of courses available, so you have the opportunity to focus your education in whatever direction you think will most help you as an individual, personally or professionally. And using free tuition money to educate yourself is one of the best investments you will ever make.
Get the Bank of America credit card. follow this guide, and you're on your way to a free, quick and easy $1,000 in college tuition. Enjoy!
- Posted by MyFreeCa$h on September 28, 2009
Peer-to-peer lending describes the practice of extending small micro-loans to your peers. In other words, you get to be the bank, which means earning a healthy return on your money while helping someone with a financial need. By extending loans directly to your peers, you have the opportunity to make a difference in someone's financial life, and you earn a high interest rate on your loans. Talk about a win-win situation! Here's how it works:
John, a borrower, wants a loan of $3,000 so that he can consolidate his credit card balances, which cost him an average of 29% annual interest. He has a stable job but poor credit, so he sets the interest rate that he will accept at 22%, which will still save him money. After reviewing his loan scenario, credit report and income documentation, you decide that making a loan to John would be a prudent and equitable financial decision. However, if you fund the entire loan balance, you put a lot of capital at risk for default. Instead, you pool your money together with 29 other investors, and the thirty of you each extend a $100 micro-loan to John. And this is the power of peer-to-peer lending: instead of funding a single loan, and risking default, you are able to spread your money across a diverse portfolio of loans, enabling you to make money in spite of the inevitable default of some of your loans.
So, just how many loans will default? Suppose you have thirty loans of $100 each, at an average of 22% interest. Statistically, about eight of these loans will default, leaving twenty-two that will be paid at an average rate of 22% interest. Since your portfolio is comprised of micro-loans, even if eight default, the high interest rates on the remaining loans will still manage to earn you a total return of over 13% on your investment. That's a great rate compared to what a bank will give you for a Certificate of Deposit (CD), and the risk is heavily mitigated by spreading your investment out over many different loans.
For those looking for a low-maintenance investment vehicle, Prosper even has portfolio plans that bids on loans for you based on pre-defined criteria. I have been using their "aggressive" plan for about 15 months now, and even after having a few loans default, I still have an annualized return of over 15%. Probably the best part about Prosper is that I don't spend any time personally reviewing the loans I fund; the process is completely automated. I even have an automatic transfer set up to regularly deposit money from my bank into Prosper; this money, along with my regular interest payments from all my loans, gets automatically re-invested into more loans. This means my money is aggressively compounding every day, at over fifteen percent interest, with absolutely no effort on my part! That's nearly five times what a bank would pay me on a Certificate of Deposit.
Keep in mind that, like a CD from the bank, loans made on Prosper are not liquid -- since your money was loaned to someone else, you can't just withdraw it whenever you want. You'll have to wait until it gets paid back from the borrower. However, since I do have a multitude of micro-loans currently funded, I get dozens of small interest payments every month. While I choose to re-invest these payments into more loans, if I wanted I could certainly withdraw them and maintain a very reliable source of income from my investment portfolio. I just personally prefer to use that money to fund even more Prosper loans, so that my portfolio income will grow even faster.
If you're looking for an aggressive investment opportunity, Prosper is one of my favorite investment vehicles for aggressive growth, and I strongly recommend it to all of my readers. You might also want to check out LendingStats.com, which has a lot of statistical information on the investment performance of Prosper.
- Posted by MyFreeCa$h on September 26, 2009
This is one of those books that I have read at least a dozen times, and every time I read it again I learn something new. This book covers the four main ways of earning income: working for someone else (an employee), working for yourself (self-employed), owning a successful business (a business owner), and investing in other successful businesses (an investor). The first two are active means of income; in other words, they require you to continue devoting time and energy into the equation in order to make money. If you stop working, the paychecks will stop coming. The latter two are passive, in that once you invest the time or money initially, they continue to pay you day in and day out. Most successful people choose to create investment vehicles which continue to grow without their continued involvement, as it leaves them more free time to find new investments. Vast fortunes can be made in any of the quadrants, but most successful people end up as business owners and/or investors.
One thing I like about this book is that is makes a clear distinction between people who are self-employed, and people who own a business. Many people think they own a business, but are actually self-employed. A common example of self-employment is a doctor who has clients, and bills them for visits. If the doctor were to go on vacation, he wouldn't be meeting with patients, and thus he wouldn't be making any money. Though he is operating as a business, the doctor is actually self-employed, as his income depends on his own work. If he stops working, his business will grind to a halt. Compare this with someone who employs doctors and nurses and administrative staff, provides an office, and hires someone to manage all his personnel. The day-to-day operations of the business are no longer in the hands of the business owner; his business will continue to make money whether he works or not. As long as he hires competent talent, he can go on vacation, or focus on other ventures, while his doctor's office business continues to thrive, and even grow without his presence. He is now a businessowner-- he makes money from the company whether he chooses to work there or not. Clearly, having income that doesn't depend on your own efforts gives you much more freedom, and allows you to pursue your dreams and passions without having to worry about working for a paycheck just to get by.
This is a must-read book, so go check out a copy from your local library. I received my copy as a gift, and have gotten so much use out of it over the years. Every time I read this book with a slightly different mindset, I continue to learn new ideas that I hadn't thought about the last time I read it. To get more information about this book, view it on Amazon.