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58f4edeb155b80bb84bd5a565b03f201 | https://www.investopedia.com/articles/pf/07/after-bankruptcy.asp | Life After Bankruptcy | Life After Bankruptcy
What does life after bankruptcy look like? When you're considering this move, it's important to look ahead before you decide your next steps.
People can find themselves at a point where there is no chance they will be able to pay off the debts they have accumulated. For example, consider someone who has depleted all their savings and maxed out all of their credit cards due to medical problems and losing their job. Even with unemployment or a temp job, they might find that they can no longer make even the minimum monthly payments on their cards or keep up with their rent and car loan. That's when a helpful option is talking to a bankruptcy attorney. Chapter 7 could turn out to be the logical next move.
Unfortunately, this situation is all too common—in fact, Mark Twain, Walt Disney, Elton John, and Henry Ford all filed for bankruptcy at some point in their lives. If you think bankruptcy could be looming for you as well, read on to discover what you can expect and what to watch out for after filing for personal bankruptcy.
Key Takeaways After filing for bankruptcy, your first step would be to inform your creditors of your bankruptcy and liquidate your nonexempt assets. It may take up to 10 years to get a loan for a big-ticket purchase in case of a Chapter 7 bankruptcy and up to seven years for Chapter 13 bankruptcy. There are certain steps you can take to regain control after bankruptcy, including maintaining your job, paying bills on time, keeping a positive balance, and rebuilding your credit.
You’ve Filed, Now What?
For individuals who have declared bankruptcy, the recovery process is long and difficult. The first step comes when you and your court-appointed bankruptcy trustee meet with your creditors to inform them of the bankruptcy, at which time any nonexempt assets that you have must be liquidated. You will be allowed to keep your furniture, car, and personal belongings up to a certain value, but any nonexempt liquid assets, such as cash or certificates of deposit (CDs), must be turned over to your trustee. However, liquidating your assets is only the first of many issues that must be dealt with as the consequences of your bankruptcy unfold.
Getting a loan of any kind will be extremely difficult for the next couple of years. It may be possible to regain a better credit score and qualify for some types of loans after only a year, but the lenders that will take you on will probably be from finance companies that charge exorbitant rates of interest. In some cases it may not be possible to get credit at all for major purchases, such as a car or home.
A Chapter 7 bankruptcy will remain on your credit report for 10 years. If you file a Chapter 13 bankruptcy instead, the bankruptcy should disappear from your credit report after only seven years. With Chapter 7 your trustee uses the liquidated assets to pay off as much of your debt as possible, after which the rest is discharged. Chapter 13 requires that you pay back all of your debt within three to five years according to a set payment plan that must be approved by the court. If you are in a position to put forward a credible plan, Chapter 13 is often preferable, because it allows you to save your home from foreclosure.
Ultimately, there are six types of bankruptcy filings. To choose the one that best suits your financial position, it is advisable to consult with a lawyer.
Check with a lawyer to ensure that you file the type of bankruptcy that best suits your financial position.
How to Recover After Filing for Bankruptcy
Here are a few steps that you can take to help regain control of your situation.
Maintain a job and a home
It is vitally important that you get—and keep—a job as soon as possible, if you don’t have one already. Finding a good place to live ranks a close second, if this is an issue. Stable residential and employment histories are necessary because they show creditors that you are reliable.
A growing number of landlords are checking credit references as a means of screening out possible unreliable tenants. If you are not able to rent an apartment, you may have to room with a friend or relative until your credit improves.
Employers may also request credit scores and histories of their potential applicants as a measure of personal responsibility. A spell of bad luck can fuel a vicious cycle that may prevent you from getting a job that pays enough for you to pay off your debts. Do what you can to push forward anyway and find a job that can be the foundation of putting the bankruptcy behind you.
Pay your bills
It is imperative that you stay current on all of your monthly bills and other payments so that your post-bankruptcy credit record stays clean. There is absolutely no room for even the tiniest amount of backsliding in this regard. This means that you must be extremely watchful of every expenditure so that your expenses don't build beyond what you can afford to cover.
Keep a bank balance
Opening and maintaining a checking and/or savings account is also necessary. Having a history of charged-off bank accounts could hinder your ability to open a new checking account.
The good news is that many banks offer second-chance programs for people in this situation. Keeping a positive balance in all accounts at all times will show employers and creditors that you now have a reliable cash flow.
Start to rebuild your credit
During bankruptcy it’s important to start to build up what got torn down. To rebuild your credit you may need to obtain a credit card. Using it wisely will demonstrate to lenders that you can manage your money and are determined to slowly rebuild your flawed credit history.
If you find yourself racking up debt again, you should stop using your card immediately and start a repayment plan. If necessary, use a debit card or prepaid credit card until you can pay off your regular card. Keep in mind that the interest rate on any card for which you are eligible will likely be higher than on the average credit card.
Find help for car loans and mortgages
When the time comes to buy something larger with debt, such as a car or house, you may need to have another party, such as your parents, cosign the loan.
Without this, you may not be able to obtain financing at all. With it, you may be able to get something resembling decent terms on your loan, depending on the credit score of the cosigner. If credit is not available, you may simply have to wait until you can pay for a car with cash or consider a personal loan from your relatives and/or friends.
Also an issue if you're buying a car: After declaring bankruptcy, you may find that insurance companies are reluctant or unwilling to insure you. If your past credit history puts you in what insurers consider a high risk pool, there are companies that will provide car insurance for you—charging more, but you still need it to drive.
The Bottom Line
Although the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA) of 2005 made it more difficult for Americans to declare bankruptcy, the the need to take this step continues. As the pandemic unfolds, there will likely be more individuals and families going through bankruptcy.
Using your post-bankruptcy income and credit wisely is the key to rebuilding your rating and standing on your own two financial feet again. If you can prove to lenders and employers that your post-bankruptcy life is in order, then this obstacle, too, will pass. Remember, Mark Twain, Walt Disney, Elton John, and Henry Ford all went on to have prosperous futures—and if they could put their bankruptcy behind them, so can you.
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e8b7de6e62a4bf5f2c4e15da389bdae1 | https://www.investopedia.com/articles/pf/07/avoid_foreclosure.asp | Saving Your Home From Foreclosure | Saving Your Home From Foreclosure
Finally attaining the home of your dreams—or any home—doesn’t mean it will be safe from foreclosure. A crisis could come that puts you at risk for foreclosure, especially if your dream house entails big mortgage payments.
If your home is at risk of foreclosure, the problem should be addressed immediately—one wrong move could spell disaster. However, by taking the proper steps, this disaster can sometimes be averted.
Key Takeaways There are options you can take to prevent your lender from foreclosing on your home.If you can gather enough money to pay back your missed mortgage payments in one lump sum, then reinstatement of the mortgage is possible.You can negotiate a short refinance with your lender, in which some mortgage debt is forgiven, and the rest is restructured in a new loan.In the case of a sudden emergency that may soon be ameliorated, you can ask your lender to grant you a period of forbearance, during which mortgage payments are reduced or even suspended entirely.
How to Avoid Foreclosure
If your home is at risk of foreclosure, don’t start packing—take action. The following options for avoiding foreclosure should be easily available to anyone with a government-backed loan provider and built-in mortgage insurance, such as in an FHA loan.
Reinstatement
When you are behind on your mortgage payments, reinstatement lets you pay back the amount in lump-sum payment (which may include any interest and penalty charges) before a specific date.
Short Refinance
In a short refinance, the lender may agree to forgive some part of your debt and refinance the remaining debt into an entirely new loan.
Forbearance
Sometimes a short-term financial hitch, such as a medical emergency or a sudden, unexpected decrease in income, may not allow you to make mortgage payments on time. If your lender believes that you have a valid reason behind the missed payments, it may agree to help you out by granting you a forbearance.
Depending on your financial circumstances, your lender may consent to a repayment plan that temporarily lowers your payments—or even suspends them for a specified period. However, to secure this agreement you will have to assure your lender that you will resolutely abide by the new repayment plan.
The CARES Act directs that if a residential borrower is experiencing financial hardship due to COVID-19, they can be granted forbearance on your federally-backed mortgage loan for up to 180 days, with the option to extend for another 180 days (potentially relief for a total of 360 days). A moratorium on evictions and foreclosures was extended until at least March 31, 2021 by President Biden's executive order signed on Jan. 20, 2021.
Mortgage Modification
Loan modification allows you to refinance your mortgage loan or extend its term. The lender may settle for monthly mortgage payments that are within your financial means. However, to qualify for this alternative you need to persuade your lender that your monetary problems are only temporary and will soon be resolved.
Mortgage lending discrimination is illegal. If you think you've been discriminated against based on race, religion, sex, marital status, use of public assistance, national origin, disability, or age, there are steps you can take. One such step is to file a report to the Consumer Financial Protection Bureau or with the U.S. Department of Housing and Urban Development (HUD).
Refinance With a Hard Money Loan
Your lender may refuse to refinance your loan if it considers you to be a high-risk borrower. In this case, you can contact a private lender to refinance with a hard money loan to stop foreclosure. Such loans generally have astronomical interest rates and fees, but one could allow you to buy the time you need to avoid foreclosure.
Refinancing your mortgage with a private lender as a hard money loan should be a method of last resort, as the interest rates and fees are extremely high.
When Foreclosure Is Inevitable
If your situation makes foreclosure unavoidable, here are some tactics you can use to dampen the financial blow.
Pre-Foreclosure Sale
If you are absolutely convinced about your deteriorating finances, then the only option left for you is to sell your home for less than the amount required to pay the mortgage loan. You may be eligible for this alternative only if you default on your mortgage payments by a few months or as specified by your lender. Also, you may be required to sell your home in a specific amount of time.
If you can’t bear to move out, you could sell your house to a friend or an investor who will then lease the home to you. The best way to do this is to sign a lease (or contract) that includes an “option to purchase” clause, which gives you the right to buy back your home once your finances have improved. However, this alternative does have significant risks, as the investor can borrow against your property or even sell your home without your authorization while you are leasing it.
Deed in Lieu of Foreclosure
Another way out is to willingly give your property to the lender in return for pardoning your debt. You will qualify for a deed in lieu of foreclosure only if you are unable to sell your home before foreclosure. The only advantage of this option is that you are rescued from a foreclosure and the bad credit record that inevitably results from it.
Bankruptcy will usually not buy you enough time to catch up on your debts; more often than not, it merely postpones the inevitable.
Bankruptcy
Many people believe that filing for bankruptcy is an excellent solution to foreclosure. In reality, all bankruptcy can do is delay the foreclosure process and possibly buy you some time to catch up on your payments.
Once the bankruptcy-instated suspension is revoked, the lender can ask for a full payment, which may require that you apply for a refinancing loan. However, the chances of getting a refinance loan are almost zero at this point, because the bankruptcy declaration will have left you with a negative credit score.
The Bottom Line
As a homeowner, it is up to you to take all the necessary steps to save your house from foreclosure. The easiest way is to stay away from situations that cause it. Excessive debt, adjustable-rate or exotic mortgages, insufficient emergency resources, lack of insurance, and buying a home you can’t really afford will all increase your risk of foreclosure.
It is important to scrupulously research the best interest rates available and pick the mortgage term that is right for you. For example, 40-year mortgages will typically allow you to make lower monthly payments than traditional 30-year fixed mortgages. That said, the interest rates for these mortgages tend to be higher. Use an online mortgage calculator to best estimate your total mortgage costs and plan ahead.
Occasionally, financial setbacks can get in the way of making regular mortgage payments. When this happens, the only wise thing to do is to immediately inform your lender about the situation. In most cases, they will be willing to cooperate with you and help you catch up. Often lenders are not interested in foreclosing on your house except as a last resort, because of the costs and time involved in the process.
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5f59a96f3b32d253660331ddca3af03f | https://www.investopedia.com/articles/pf/07/bulk_buying.asp | Why Buying in Bulk Doesn't Always Save You Money | Why Buying in Bulk Doesn't Always Save You Money
On the surface, buying in bulk seems like a great way to save money. But is buying in bulk cheaper? When you buy a large amount of anything, the price of individual units tends to be lower. The more you buy, the less each unit actually costs you. Yet, although this seems like a sure way to get a deal, buying in bulk often costs people more than they know.
Paying More for More Than You Need
Imagine your favorite shampoo costs $12 per 20-ounce bottle. You find out that you can buy a 180-ounce bottle for a mere $45. What a deal! For about four times the price, you receive six times more shampoo. After doing the calculations, you decide to buy the larger bottle of shampoo. However, was this investment worth it?
As a side effect, you might end up using more shampoo because there is no longer any point in skimping. On the flip side, you could get sick of using the same shampoo and switch to a different brand before finishing off the larger bottle. Or, for perishable goods such as food, buying in bulk is not always cheaper if the food expires before you can eat it!
Buying in bulk saves money per unit, but consumers must be wary of the utility of the extra goods.
Although the per-unit price may be low, the overall purchase price is higher than the price of just buying what you need for the week or month. When people are in the store and find a year's supply of crackers for mere pennies a package, they often forget to consider whether they need or want that many crackers. Signs like "super deal" and "unbelievable savings" may cloud their thinking. The difference to your shopping budget if you buy a $45 bottle of shampoo versus a $12 one may mean that you need to put the groceries on your credit card. Ultimately, the higher price could have immediate financial implications, and may or may not pay off 12 months down the road.
Taking Up Space
Another factor that bulk-shopping enthusiasts may not consider is the cost of storage. While Americans have some of the largest refrigerators in the world, there is still a healthy market for freezers, dry storage bins, and other food storage devices when the fridge runs out of space. Bulk buying may force you to purchase more storage and pay the continuing cost of storing food, such as the electricity bill for a larger fridge and a freezer.
Breaking the Budget, Breaking the Scale
Bulk buying has health-related consequences as well as financial ones. Unfortunately, over-consumption is as American as apple pie. Buying bulk only encourages this. If you have a bulk-sized jar of mayonnaise in the fridge, naturally you will try to find more ways to use it up, especially as the expiration date nears. This may mean putting more mayonnaise in your sandwiches, salads, kids' lunches, the cat's food, and so on. While you may have justified the purchase of the mayonnaise and saved money per tablespoon, but would you have eaten so much mayonnaise had you purchased a smaller jar?
More pressing than the financial problem is what increased consumption does to the health of you and your family. While using extra shampoo doesn't exactly harm the environment in a way that is immediately noticeable, consuming more mayonnaise, peanut butter, cereal, frozen meals, and other popular items available at the bulk stores will almost certainly affect your health. Overconsumption stems from the primary financial drive of wanting to get as much as we can and use as much as we get.
The Bottom Line
The best way to reduce expenses is not by always buying more of a particular product to get a bulk discount, but by being judicious of what to buy in bulk and when to use less or substitute for a cheaper product. Bulk buying is often best described as something you don't need a lot of at a price you can't pass up. It is worth noting that bulk buying does make sense for many people, especially those with large households. However, the practice has become so widespread that people are often buying bulk based on a price point, rather than the eventual use they'll get out of a product.
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0be0dc47600d388d2aac151778be1b85 | https://www.investopedia.com/articles/pf/07/buy-condo.asp | An Introduction to Buying a Condominium | An Introduction to Buying a Condominium
When you’re looking to buy a home, there are plenty of choices available. One of them is a condominium—a multi-unit property that is divided and sold in individual units. Compared with a single-family dwelling, ownership in a condominium includes partial ownership in shared “common property.” This aspect of a condo represents unique challenges for buyers. If you’re considering buying a condo, read on to learn a little more about this type of property and what ownership entails.
What Is a Condominium?
In a condominium (commonly known as a condo), some parts—such as your residence—are owned privately, while others—such as common areas—are owned collectively by all of the condominium’s owners. A less technical way to think of a condo is as an apartment that you own.
Key Takeaways Condominiums come in many forms—townhouses, apartments, and even small homes within a larger development or neighborhood setting.An affordable condominium is a popular choice for a vacation home in beach locations such as Florida, Bermuda, or Hawaii, and high-property value locations, like New York City and Los Angeles. Before purchasing a condo, it is advisable to request and read all the rules of the condominium complex.Many condominiums offer amenities like swimming pools, clubhouses, tennis courts, and golf courses.
In practice, condos often take the form of an apartment or a similar shared complex, such as row townhouses. Still, theoretically, a condo could physically be any shared building.
Condos are especially popular in places with high property values—vacation hotspots and urban settings are both places where you can expect to find many. This is mainly because buying a single-family home can be prohibitively expensive in cities and towns where additional building space may be scarce. As such, condos can open homeownership to whole new groups of people.
Searching for the Right Condo
Looking for a condo involves the same process as shopping for a single-family home. If you have a general idea of what you’re interested in, going to a real estate agent can be a great way to find out about properties that you might not be able to find on your own.
If you’re ready to own your own place but can’t quite afford a whole house, a condominium could be a way to get into the real estate market.
If you’re more of a do-it-yourself person, you can search real estate websites and listings for condos in the area in which you are interested. If you have a specific building or complex in mind, many offer on-site sales offices, where you can learn more about the condominium and perhaps even view a show suite.
Beyond the Condo Sales Contract
It’s not just the sales contract that you have to think about when you’re buying a condo. There is also an agreement or declaration, that dictates the way the condominium operates and is governed. Before buying your condo, you should request and read the documents that apply to the management of the complex.
Here's what to notice: What are the hot issues for this complex? How big is the condominium’s reserve fund? How does management deal with owners’ requests and complaints? Does the condo board pose strict rules and guidelines on owners that would make you unhappy?
It is essential to get a sense of whether the condominium you are considering is well run, and whether the rules and restrictions would allow you to live the lifestyle you’re seeking in a condo community. It is also essential to find out whether the condo building or complex is experiencing any problems that could hurt the value of your share of ownership in the future.
Why Choose a Condo vs. an Apartment or House?
There are lots of reasons why a condo might be a better fit than an apartment or a single home, and money is undoubtedly one of them. According to the Real Estate Journal, condo prices tend to appreciate at a slower rate than single-family dwellings, making them a more affordable choice in markets where prices are on the rise. And compared to renting an apartment, because you own your condo, you can take advantage of tax deductions such as the interest on your mortgage.
Granted, it’s not all about the money. Condos also provide attractive lifestyle choices for many prospective buyers. They’re especially popular for retirees who want to be able to socialize or take advantage of services at communities that cater specifically to seniors. Living in a condominium may also free you from some of the usual homeownership chores, such as a yard and exterior maintenance. They may also have desirable shared amenities, such as pools, fitness rooms, or tennis courts.
Condos as Vacation Homes
Finally, condominiums can make owning a vacation home more affordable. In the United States, condos became popular as a more reasonable way to buy a little piece of paradise in places such as Florida and Hawaii. If you want to relax at the beach but cringe at the thought of purchasing a pricey house down in the sunshine state, condos offer a somewhat less expensive alternative.
A condo also has the benefit of having someone else watching your property when you're back at work in miles away from the beach. Depending on the rules and location, you may also be able to help pay for that vacation condo by renting it out when you're not there.
The Bottom Line
If you’re thinking about buying real estate—whether as an investor, a vacationer, or a year-round resident—condos are something that should be on the radar. This is especially true if you’re looking at an area where real estate is expensive. Condos aren’t inherently better or worse than any other type of residence, but depending on your situation, a condo could be the right choice for you as a home buyer.
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11402fd4d85f2ff2391343150b829b18 | https://www.investopedia.com/articles/pf/07/canadian_tax.asp | Tax-Saving Tips For Canadian Taxpayers | Tax-Saving Tips For Canadian Taxpayers
Taxes are a bane for just about everyone except accountants, but they are an inevitable fact of life. The rules are constantly changing and it can seem like the deck is stacked against the honest taxpayer. Don't despair though; there are still simple ways for Canadians to limit their tax exposure. In this article, we will look at some of them.
Key Takeaways Like most other places, if you live or earn income in Canada, you will have to pay income tax. Canadian tax law allows for several ways to reduce your taxes owed if you know the current rules and can take advantage of them. Contributing to a retirement plan, deducting interest, and small business credits can all help. Always check with a professional accountant when in doubt.
Borrow to Invest, Save to Buy
The days of debt-free living have pretty much come to an end and almost everyone in the country is carrying some type of debt. Surprisingly though, the right kind of debt can help make a small dent in your tax bill. A car loan or credit card debt incurred to buy that new sofa you've had your eye on, however, is not the right type of debt. A loan used to purchase an investment is.
The reason is that the interest on loans taken out for the purpose of investing is tax deductible. The interest on anything else you assume to debt to buy is not. From a tax perspective, you're better off using cash or savings for these discretionary purchases and then borrowing to invest rather than the converse. However, as far as your personal finances go, no debt is the best kind of debt.
Max Out Your RRSP
Registered retirement savings plans (RRSPs) are the government's weak apology for its tax-gouging ways. You may as well take advantage of the bone they throw you and extract the most value from this tool. When talking about borrowing to invest, maxing out your RRSP is usually a sensible approach provided that you are able to service the loan in a reasonable period of time.
Taxes and Investments
Some investments - such as stocks - are accorded preferential tax breaks on dividends and capital gains, whereas other fixed-income investments aren't. Depending on your tax bill and the rate of inflation, holding your money in fixed-income investments that are taxable may actually cost you money. If you are holding a tax-protected retirement portfolio and an income portfolio, consider keeping a smaller percentage of your fixed-income investments in the taxable portfolio.
Marriage Maneuvers
Income splitting with your spouse or contributing to his/her retirement account will help reduce your tax bill, especially if there is a large gap between your incomes. However, this will require professional assistance to structure contributions in a way that will withstand an audit.
Start a Business
Owning a business allows you to deduct expenses you incur to help you earn an income. These could include the business use of your car, home office, salaries paid to your kids, and any supplies you use to provide goods or services. This advice is often suggested as a way to reduce your taxes. While it is true that a side business can help you reduce your tax bill, it is not for everyone. For example, farmers enjoy some of the biggest tax breaks out there, but they rarely make enough money to truly enjoy the tax advantages. As with farming, creating a business that loses money will hurt your overall financial situation more than paying taxes does. If you have a business plan that suggests you'll generate a profit, go for it. If not, look for another strategy.
The Bottom Line
Keeping track of what write-offs apply to your situation can be difficult. For most people, finding the right accountant is the most important step in reducing your taxes. All of the aforementioned strategies are legal, but your accountant will be able to look at your finances and tell you which ones are viable. Look for an accountant through friends and colleagues whose tax profiles are similar to your own. Most importantly, keep up-to-date with your tax situation and keep an eye out for anything your account may have overlooked - accountants are still human. The more you understand about your own tax situation and the ways to reduce your exposure, the better prepared you will be to take full advantage of your accountant's expertise.
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31b5e28ec2ba122b6dd7116a392b5925 | https://www.investopedia.com/articles/pf/07/child_bank_account.asp | Opening Your Child's First Bank Account | Opening Your Child's First Bank Account
Most of us are well aware of the importance of creating budgets and plans for our finances. However, sometimes we forget that we also need to teach our children about planning and budgeting. There are many ways to create a saving and spending plan for your child to help steer them toward a sound financial future. It can start with opening a bank account for your kid.
Key Takeaways Opening up a savings account in your child's name may inspire them to save money as an adult.If you give your child an allowance, ask them to dedicate a specific percentage or amount each week into their bank account.Some banks will allow you and your child to structure the savings account into two sections, one for long-term savings goals and one for spending goals. A children's savings account may be a better option than opening a traditional checking account.Discuss with your children why it is essential to save and encourage them to save and spend plan with you.
Splitting the Pot
As your child starts to receive money—for example, from an allowance—it is time to sit down and show them how to make a saving and spending plan.
This used to be called "budgeting," but the word now has too many negative connotations. Regardless of the terminology, this plan is essential. You have to give your child the power to decide how much to save and spend. By providing your child this power, you will also confer the responsibility and excitement of making adult decisions. You can make suggestions and prepare some example plans, but the final choice should be left to your child.
If the allowance payment varies, you should use percentages instead of set amounts (save 25% of the allowance versus $4). By giving your child a choice of how much to save, you can meet this exercise's goal, which is to teach your child to make saving a habit.
Spending
It would help if you did not interfere in how your child uses his or her spending money. To a child, a few dollars often seems like a fortune. Don't interfere with your child's spending habits other than to point out that once it's gone, it's gone – you won't provide more money if your child spends his or her own too quickly. It's a difficult lesson, but children will do better if they learn it early.
Explaining the Importance of Saving
Children are masters of interrogative sentences; don't be surprised when your child asks you why he should save money. The ideal reply has two parts. One, you have to save money for the future. Two, you save money so you can meet your spending goals. When your child decides how much to save, you will then have to ask them how much of that will be for the future and how much for goals.
If your child is very young, you should encourage them to choose one spending goal rather than many. A piece of sports equipment, a toy, or some relatively inexpensive item will suffice. Your child will be able to see how X% of his or her money will go into savings, and X% of that will slowly accumulate to buy a chosen item shortly. This may encourage your child to increase his or her saving rate.
As your child ages, they may want to save for several different spending goals—a car, a computer, a stereo. That's fine—as long it all comes from the spending goal fraction of the savings account. The amount going to the future should remain constant. You can call it his house or college fund if you like, but nurturing habitual saving in your child is more important than his or her monetary progress. Once the plan is complete, and you both agree on it, the next step is to go to the bank.
Ask your bank if they offer savings accounts specifically for children because these types of accounts may come with lower fees than a traditional account.
Opening a Bank Account
You should visit your bank in advance to check what type of accounts are offered for children. You may be surprised by the incentives on juvenile accounts, i.e., bank accounts for kids, which banks view as PR expenditures to create the next generation of loyal customers.
After settling on a particular account, set up an appointment to attend with your child. Explain that a bank is a place you put your money until you need it. Your child should be old enough to have an understanding of interest—the money your bank pays you for holding on to your money—and you should explain that banks use that money for investing.
When you go together to the bank, let the bank associate sell your child on the account you have decided on. Your child will feel much more involved in the process. The account should be in your child's name, and all the mail should be addressed to your child. Receiving bank statements like mom and dad is a source of excitement for most children. Some banks will allow you and your child to structure the savings account. This means you can split the account into two separate accounts: one for the future and one for spending goals.
Get Organized
On the same day as you open the account, go shopping with your child and select a binder, a congratulatory present. You will use this to organize your child's bank statements. Starting with an organized record-keeping system will be valuable when your child gets older and has to grapple with taxes and accounting.
When the statements arrive, go through them together and explain the interest and any other numbers that may appear upon it. You can even check the math together to practice doing sums. On the same day as you regularly pay out your child's allowance, go together to deposit at the bank. This will help to reinforce the habit of saving before spending. It is also an excuse to spend time with your child. You can couple these trips with positive reinforcement, such as a walk in the park or stopping for ice cream.
The Bottom Line
Having a plan and tangible goals are as important to adults as it is to children. In helping your children chart out their saving and spending plans, you may find ways to improve or clarify your own (or start one—"do as I say and not as I do" doesn't work for long). Additionally, being well organized, especially concerning financial information, will remove many of the fears that keep people from investing later in life—particularly the misconception that it is too complicated.
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c1fdca9854cb5a4feb97d49b29041909 | https://www.investopedia.com/articles/pf/07/childinvestor.asp | How to Teach Your Child About Investing | How to Teach Your Child About Investing
Are you teaching your children about investing? As they become aware of money and other financial concepts, it is smart to familiarize them with investing and arm them with know-how and tools they can take with them into adult life.
Children mature at different rates, of course, so it may be a while before they're ready to tackle concepts like portfolio creation and asset allocation. However, the basics of investing can be taught when kids are quite young.
Long before your kids start checking company profiles on the Internet, you can explain the relationship between risk and reward. To illustrate these concepts, let's sketch a brief picture of two common investments: stocks and debt securities.
Key Takeaways Gradually familiarizing your child with how markets work will demystify the process of investing, making it feel more accessible to them when they're older. Start by teaching them the basics of risk vs. reward, stocks and bonds, profits and losses. Show them what stocks you own and explain why you chose to invest in those companies; have them join you in keeping an eye on the stock price and company news. Once your child feels comfortable enough with the concepts, let them pick out a stock of a company they know or like; if you can afford to buy a few shares, then do so; if not, help them set up a model portfolio. When your child is older, encourage them to invest money they've saved in a mix of stocks, bonds, and a savings account; you can help manage their portfolio, while still allowing them to take the lead.
Discuss Stocks and Bonds
Introduce the idea that, in contrast to the savings account your child may already have, stocks are a variable-risk, variable-return investment. On the whole, stocks are classified as high-risk—but along with that comes the potential for high returns. Explain that a stock's value can go up and down, depending on the growth and profitability of the company. But also make it clear that risk in stocks can't always be predicted—for instance, when corporate records are tampered with or CEOs lie. However, these events are outliers; overall, the stock market has risen consistently in the last hundred years, offering healthy returns.
A bond is a low-risk, low-return investment, or debt security. Typically, bonds pay a small amount over the prime interest rate and are backed by stable institutions (usually banks or governments). You can buy lower-rated bonds that offer better returns but they can default and you can't necessarily count on getting the income when expected. Given the complexity of these instruments, you may wish to start your child with stocks and explain that bonds become more important later in life.
Keep Your Child's Attention
If you own stocks, start by showing your child what you own. Interesting companies might get their attention—plane manufacturers like Boeing, sports gear specialists like Nike, technology companies like Apple; look at each company's investor relations page together to learn more about what the company makes, how much the company earned that year, and how many people work there. Then ask your child what company he or she would like to buy. Kids often have favorites even if they are not aware of them. Facebook and Disney, for example, are popular with most children.
Once you have introduced your kids to basic concepts, sit down and let them select a company. If you have the money, buy a few shares in the stock and then check the investment together at least once a week to show how it can rise or fall. Or, you can simply make a model online portfolio and track stocks for fun.
If you pick stocks with your children when they are young, they'll experience how markets have up-and-down cycles; this will prepare them for the reality of market fluctuations and help them make informed decisions when they grow up.
Let Your Child Invest
When your child is older, you can provide a more in-depth explanation of stocks and other investments. Eventually, you want to let a child buy their own stocks. They may have enough cash diligently saved up in a savings account by the time they are interested in investing. Don't put it all into bonds or the stock market, but invest a third in each and keep a third in savings. This will allow your child to compare the returns of different types of investments.
You have two options if your child doesn't have money to participate in the learning process. You can use your own cash to open a small brokerage account for your child to make investments, or you can build a model portfolio of stocks that your child wants to buy someday. In the latter case, you will need to find innovative ways to maintain their interest.
The Bottom Line
It's important to allow your child to make real decisions and take real risks. Money may be lost, but the purpose of the exercise is to familiarize them with investing, and part of that is learning that investments have advantages and disadvantages. Whatever the outcome, the experience of following their investments and gaining and losing money will be invaluable.
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105774ac19ff587bb838d112cc4bae32 | https://www.investopedia.com/articles/pf/07/college_savings.asp | Clearing up Tax Confusion for College Savings Accounts | Clearing up Tax Confusion for College Savings Accounts
Saving for a child's college education was once simpler and much more affordable in the past. There were also a lot fewer tax breaks to navigate. Over time, the tax rules have evolved, leading to a confusing array of tax-advantaged college savings accounts, tax credits, and other tax breaks available to families trying to fund a child's college education. Here we take a look at what the tax consequences are for various college savings plans.
Key Takeaways Every college savings plan has its limits and depends on the parents' income level. Parents can invest in bond programs or mutual funds through a 529 Plan or a Coverdell Education Savings Account. The Lifetime Learning Credit is a credit that provides a tax savings of up to $2,000 per year. Full-time employees are eligible for tax-free employer contributions for a certain portion of their educational costs. The tuition and fees deduction allows taxpayers to deduct a certain amount yearly if their income is below a certain level.
Tax-Advantaged College Savings Plans
The first tax-advantaged college savings opportunity was instituted back in 1990. The Education Savings Bond Program ensured that taxpayers would not pay taxes on interest earned on certain government bonds redeemed to pay for a child's tuition. Series EE Bonds and Series I Bonds qualify.
The bond must be in your name or the name of you and your spouse in order to qualify. This means bonds issued in your child's name are not eligible. Plus, you won't benefit from this tax break unless your 2020 modified adjusted gross income (MAGI) is less than $153,550 if married or $97,350 if single.
If you prefer to invest in mutual funds to save for a child's college education, you may also want to consider a 529 Plan or a Coverdell Education Savings Account (ESA). The Setting Every Community Up for Retirement Enhancement (SECURE) Act signed into law by President Donald Trump in December 2019 expands the use of 529 and ESA plans by allowing up to $10,000 to be used for student loan payments. Funds in these plans may also be used to cover the costs of an apprenticeship program, provided the program is approved by the U.S. Department of Labor.
Both 529 Plans and Coverdell Educational Savings Accounts offer tax-deferred growth as long as the money remains invested. But they aren't the same. Here's how these plans differ:
Maximum Annual Contribution: You can contribute up to $2,000 per year per child into an ESA. 529 plan beneficiaries can have a maximum account balance between $235,000 and $529,000, depending on the state. Tax-Free Distributions: Distributions from both plans that are used to pay for qualified education expenses are tax-free. But you can also make tax-free withdrawals from an ESA to pay for private kindergarten, elementary school, and high school. Income Limitation: For 2019, the amount of your ESA interest exclusion is gradually reduced if your MAGI is between $95,000 and $110,000—$120,000 and $220,000 if you file a joint return. You cannot exclude any interest if your MAGI is over the limits. With a 529 Plan, there are no income limitations.
This may have you wondering which opportunity makes the most sense for you. There isn't a simple answer. It all depends on your specific situation and how much you plan to save for your child's education.
With a number of different tax breaks available, coordinating opportunities to minimize the after-tax cost of sending a child to college is quite a challenge.
Tax Credits for College Tuition
A tax credit, known as the Lifetime Learning Credit, is equal to 20% of the first $10,000 of qualified educational expenses incurred each year providing you with a tax savings of up to $2,000 per year.
Like many other provisions, there is an income threshold for these tax breaks as well. For full credit, your MAGI for 2020 must be $69,000 or less or $138,000 or less if you file jointly. If your MAGI is between $59,000 and $69,000—between $118,000 and $138,000 if married filing jointly—you receive a reduced amount of the credit. If your MAGI is over $69,000 or $138,000 for joint filers, you cannot claim the credit.
Be careful not to overlook how each of these tax-saving strategies might impact the financial aid package your family ultimately receives.
More Tax Breaks
If you work full-time while taking classes, the government allows your employer to pay up to $5,250 toward your education each year including tuition, books, supplies, and equipment. Under the current rules, this tax-free benefit applies to undergraduate and graduate-level classes.
The Tuition and Fees Deduction allows a deduction of up to $4,000 annually in connection with your higher education expenses provided your income was less than $160,000 if married or $80,000 if single for 2020. It is reduced to $2,000 for single filers with a MAGI of $65,000 to $80,000 or $130,000 to $160,000 for married couples filing jointly. The deduction is eliminated for single filers with a MAGI over $80,000 or over $160,000 for anyone filing jointly.
Don't forget to consider the student loan interest deduction. Each year, you can deduct up to $2,500 of student loan interest paid. This deduction, which is also available to non-itemizers, begins to phase out for married couples who earn over $140,000 ($70,000 for single filers) and completely phases out at $170,000 ($85,000 for single) in 2020.
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f628b1cbc8f59bf015f4f8f69fd0714d | https://www.investopedia.com/articles/pf/07/credit-card-dispute.asp | How to Dispute a Credit Card Charge | How to Dispute a Credit Card Charge
What happens when the brand-new 4K television you brought home turns out to be a bust? Or the new fitness tracker you got for your spouse doesn't work? Or, when you've been double-charged for something you're sure you only came home with one of?
If you've made these purchases on a credit card—and these days, that's a near certainty—you're in luck. Thanks to the Fair Credit Billing Act, consumers have a good deal of protection for their credit card purchases. This law allows consumers to withhold payment on poor-quality, damaged merchandise or incorrectly billed items they bought with a credit card until the matter is resolved.
Read on as we show you how to dispute a credit card charge and actually come out on the winning side.
key takeaways The Fair Credit Billing Act protects consumers on credit card purchases, outlining procedures they and card issuers should follow.In a dispute, contact the merchant first.Next step is to contact the credit card issuer and formally dispute the charge within 60 days.Although the Act's rules limit disputes to purchases over $50 and within 100 miles, many card issuers waive these rules in the interest of good customer relations.
Go Back to the Merchant
Your first move is always to go back and attempt to resolve the problem with the merchant. If you give them a chance to address your complaint they very often will, especially if you approach them with politeness and courtesy. Most large retailers have customer service policies in place that err strongly on the side of being generous, at least within a certain period of time, and under "ordinary" circumstances.
The bottom line is if you act promptly and reasonably, you're likely to get the full benefit of the doubt. If you don't have luck with the first representative you speak with, ask to talk with the manager or supervisor on duty. Be sure to keep records of each interaction, the person you spoke with as well as the date and time, so you can refer back to them if needed.
Put Your Complaint in Writing
If the merchant won't budge during your discussion, it's time to put your complaint in writing. Write a short, detailed letter outlining your particular dispute, and address it to the merchant via certified mail. Before you send it, make a few copies, so you can save one for your records and send another copy to your credit card company, as proof of your efforts to resolve this dispute.
Next, you'll draft a letter to your credit card company to officially alert it of the disputed purchase amount. The Fair Credit Billing Act mandates that you do this in writing, within 60 days after the bill with the disputed charge was sent to you. In your letter, you'll need to include your account number, the closing date of the bill on which the disputed charge appears, a description of the disputed item and the reason you're withholding payment.
You should also enclose a copy of your complaint letter to the merchant, along with any other documentation that supports your position. This letter should also be sent via certified mail (return receipt requested). Be sure you send it to the "billing inquiries" address at your credit card company, and not the regular address for payments (since these are often two separate departments, and may well be in separate locations as well).
Usually, you can call your credit card issuer and ask to dispute a specific charge. They may mail or email you a form to fill out for details.
Maintain Your Other Payments
Even though you're disputing an item on your current bill, it's important to maintain your other obligations. If you've charged anything else on your card during this cycle, you'll need to send that payment and all interest to the regular address, otherwise, you'll incur interest and late-payment charges. What if the disputed item is the only charge on the card? Double-check with the card issuer to see if you'll be penalized in any way if you don't pay it.
At this point, you're just waiting to hear the result of your challenge. Many card companies will give the benefit of the doubt to their customers and issue a temporary credit until the dispute is resolved. This isn't required by law, however, so don't assume you will get this consideration. Meanwhile, the card issuer will get in touch with the merchant to find out their side of the story. Basically, if they end up siding with you, you will enjoy a full refund. If not, you'll have to pay for the disputed item, as well as any additional finance charges that may have accrued.
There are a few catches to the Fair Credit Billing Act. Technically, the sale must be for more than $50 and have taken place in your home state or within 100 miles of your billing address, which means orders placed on the internet (or phone) may be exempt. Withholding payment for web purchases depends on state law. However, few issuers enforce these rules on purchases, because most credit card companies are eager to hold onto your business, given the highly competitive nature of the industry these days. But, there's still always a chance that your claim could be denied on these grounds.
The Bottom Line
If you find yourself in the position of having to dispute a credit card charge, you may have more rights and advantages than you realize. The key is to act quickly and responsibly. Address the matter in a prompt and courteous fashion with the merchant in question, and if necessary, follow up with your credit card issuer. In most cases, the whole dispute can be resolved to your satisfaction within a matter of weeks.
If you fear actual fraud, call your card issuer straight away to put a stop on your card or cancel it outright.
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9cc5b8c8aec84974099bd1b9ec0b42ce | https://www.investopedia.com/articles/pf/07/credit-card-donts.asp | 6 Major Credit Card Mistakes | 6 Major Credit Card Mistakes
Credit cards can be a boon to consumers, providing many advantages and benefits. Because they're such a great alternative to cash, they're great if you need to make purchases when you find yourself in a pinch. Some cards offer perks like rewards like cash back or travel miles, while others give you some added protection for your purchases. If you play your cards right and pay your balances off each month, you'll never have to pay a dime in interest. Plus, being a conscientious credit card user can help boost your credit rating. However, these little pieces of plastic can also be a curse, especially if you're already swimming in debt or just don't know how to keep a handle on your finances.
Thousands of consumers have trouble getting their credit card balances under control. If you're among these consumers, don't despair. You'll make your debt more manageable once you choose to change your spending habits. Take a giant step in this direction by avoiding—or stop doing—these six major credit card mistakes.
Key Takeaways There are a series of common mistakes people make when they use their credit cards which can cause huge problems with their finances.Making minimum payments only and using cards for everyday purchases are two of the most common mistakes.The benefits of rewards can be small, while cash advances can be costly.Never pay your medical bills with your credit card and be sure you never ignore your debt.
Only Paying the Minimum Balance
It's tempting to send in minimum monthly payments—often $15 to $25—when you're under financial duress. Don't do it. High-interest rates charged by credit card companies will keep the bill growing every month. Instead, send the highest payment you can afford and reduce spending in other areas to focus on paying off the debt. It might be worth going without extras like the newest smartphone or latest fashion if it means you'll sleep easier at night, knowing you'll soon be debt free.
It may not feel like you're saving money when you increase credit card payments, but you are. Depending on the interest rate, you'll save an average of 10% to 29% per year in interest on any balance you pay off. For example, if you pay off an extra $1,000 this year, you'll come out $160 to $290 ahead, depending on the rate.
Money is probably already tight if you're already in debt, so freeing up extra cash will give you some breathing room for the long haul. Whether you use this money to accelerate debt payments, start an emergency fund or invest in retirement. The power of compound interest will start working in your favor instead of against you.
Using a Credit Card for Everyday Items
Another trap people often fall into is using their credit cards for regular, everyday purchases. Unless you follow a monthly budget and can easily pay your credit card balance in full each month, charging non-discretionary expenses on a credit card can be dangerous. By keeping common purchases like groceries and utility bills off of your credit card balance, you'll take a major step in getting spending under control.
Consider that a $3 gallon of milk bought with a credit card will eventually turn into a $30 gallon if you don't pay off the balance at the end of each month. There's no reason to incur interest charges on necessary items that you should buy directly with monthly income with cash, check or debit card.
Chasing Credit Card Rewards
Credit card rewards are usually worth far less than the extra interest you'll accrue if you can't pay off the money you spend to earn those bonuses. You may, for example, receive one point for each dollar you spend, but you'll probably need to redeem 5,000 points to get a $100 discount on a plane ticket. Since the interest charged on outstanding account balances often exceeds the typical 2% bonus, it may not be a worthwhile trade-off.
You should also avoid signing up for multiple credit cards, regardless of bonuses. If you already know you don't manage credit cards well, don't add temptation in the form of additional cards. It's also easier to miss a payment deadline when you have more cards than you can manage. Remember, a few late fees or interest payments will quickly obliterate those sign-up gifts or rewards.
You can use your cards more frequently once you have your debt paid off and know how to avoid new debt. As long as you pay your balance in full and on time each month, there is nothing wrong with using credit cards instead of carrying cash or to take advantage of rewards like cash back or frequent flier miles. Just make sure those purchases fit within your monthly budget.
Taking Cash Advances
Credit card companies employ tactics like sending checks in the mail, encouraging you to use them to pay bills or to treat yourself to something nice, but they rarely make it clear that these checks are treated just like cash advances. Taking a cash advance is dangerous because you start to accrue interest immediately, unlike regular credit card purchases. In addition, there's often no grace period and you'll be charged an automatic fee that can run as high as 4% on the amount of the advance. To add insult to injury, the credit card company may not consider the cash advance to be paid off until you've zeroed out the balance for your other purchases.
The best thing to do with these checks is to shred them as soon as you receive them, avoiding the temptation while preventing would-be identity thieves from snagging account numbers out of the trash. Many companies also send a personal identification number (PIN) shortly after you sign up for a card, hoping you'll use it to get cash from an ATM. Shred that paper, too.
Using a Credit Card to Pay Medical Bills
Medical bills can be overwhelmingly expensive, especially if you're uninsured. If you're having trouble paying your medical bills, negotiate an agreement with the hospital or other company to whom you owe money. Don't add to your bills and stress by adding exorbitant credit card interest rates onto them. You should also go through your medical bills a second or third time, making sure they are accurate and you understand all the charges.
Ignoring Your Debt
Some folks get so stressed out or embarrassed by credit card debt they stop opening their bills and pretend there's no problem. It's obviously a bad approach because, while you're ignoring the bills, the ticking time bomb of interest rates is adding to the debt. In addition, if you miss a payment or two, the interest rate may shoot higher under the terms of the card agreement.
You can call card companies if you feel overwhelmed and ask to renegotiate the terms of your agreement. You may be able to get the interest rate lowered, set up a payment plan, or get some of your debt forgiven. If your first call doesn't work, keep calling back because a different customer service representative may allow you to negotiate a better deal.
Your credit card issuer may be willing to negotiate the terms of your agreement.
Ignoring debt can also lower your credit score and spur debt collectors into action. With unsavory tactics often employed in this industry, you don't want to do anything that puts you on their radar.
Finally, don't let embarrassment prevent you from taking action. You may assume that everyone else has their finances under control, but many other consumers face similar debt problems.
Other Mistakes to Avoid
The mistakes listed above are some of among those most frequently made by consumers. But there are others.
Late Payments
Don't make late payments. Doing so will damage your credit score and will also incur late payment charges on your account. Your credit cards will likely have a regular due date every month—say, the 15th of each month—and it rarely deviates. So it's important to know when your bill is due. If you have trouble remembering when your payment is due, try adding a reminder on your phone or computer, or circling the dates on a calendar that's easily accessible.
Maxing Out the Credit Card Credit Line
If you don't have the money to make payments, you shouldn't be using the credit card—and you shouldn't be maxing it out. Remember, credit cards also charge over-limit fees, so if you fall behind on your payments, the interest will kick you over your limit and you'll have to pay more in fees.
Not Understanding Terms of the Account Agreement
Banks and credit cards supply the terms and conditions of specific cards at the time the application is completed and when the card is issued. It's important to know what these terms and conditions are before you use the card. Doing so will help you have a better handle on what's expected of you from the credit card issuer, and it will also help you manage your spending habits better.
The Bottom Line
Cleaning up credit card debt takes time and self-control, but the steps outlined here aren't difficult to follow. Credit cards become helpful and convenient financial tools once you overcome debt and learn to use them sensibly and responsibly. Avoiding these common mistakes can put you on the right path.
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099d428489b4afd3816d6b6b6e4ed558 | https://www.investopedia.com/articles/pf/07/cut-credit-debt.asp | Expert Tips for Cutting Credit Card Debt | Expert Tips for Cutting Credit Card Debt
Credit cards can be a huge convenience. But if you aren't careful, they can also be an easy way to get into serious financial trouble and end up with bad credit. Here are a few reasons you might want to cut down on your credit card debt and some simple steps for going about it.
Key Takeaways Credit card debt is expensive and having too much of it can hurt your credit score. To reduce your credit card debt, plan to pay more of your balance each month, ideally all of it. If you have several credit cards, try to pay off the one with the highest interest rate first.
Downsides of Credit Card Debt
There are a lot of good reasons to carry less credit card debt, or even none at all. Among them:
It's Costly
Credit card interest is very expensive compared with other forms of debt. In fact, card interest, on average, runs about twice or three times the interest rate for a home-equity loan or mortgage. It can also take a big bite out of your budget. Financial advisors generally say the average person shouldn't pay more than 10% of their net take-home pay on credit card and other consumer debt (not including mortgages), notes Howard S. Dvorkin, a certified public accountant and founder of Consolidated Credit Counseling Services. More than that and you may have a problem making other ends meet.
It's Risky
Lewis J. Altfest, a certified financial planner in New York whose clients tend to be professionals with large incomes, says credit card debt often represents a risk. It can also be an early warning sign of trouble ahead. "Too frequently, [financial planners] see abusive use of credit leading to financial difficulties," Altfest writes. "Sometimes people just get in too deep."
It Isn't Deductible
Unlike some other kinds of debt, credit card interest is not tax deductible. By contrast, the interest you pay on a home mortgage typically earns you a deduction.
It can Hurt Your Credit Score
One factor credit that bureaus use in computing your credit score is called your credit utilization ratio. That's how much money you currently owe, as a percentage of all the credit you have available to you. For example, if the limits on your credit cards total $15,000 and you owe $5,000, your credit utilization ratio is 33%. Generally speaking, a credit utilization ratio greater than 30% is considered a negative in credit scoring.
How to Attack Credit Card Debt
If you want to reduce your credit card debt, here are some of the steps you can take.
Pay More than the Minimum
Let's say you owe $5,000 on a credit card and are paying 15% interest. Your credit card company might allow you to make a modest minimum payment, such as 2% or your balance, or $100 a month. But just making that minimum payment will result in years of debt and many hundreds of dollars in added interest.
Assuming you make no new purchases on the card and pay that $100 minimum each month, how long will it take to pay off the $5,000 debt? The answer is 79 months, or more than six and a half years. years. You will also end up paying close to $2,900 in interest. That's a lot of money to pay for borrowing $5,000.
Pay Down Your Cards in Order
"Let's say you have four credit card debts," said Charles Hughes, a certified financial planner in Bayshore, N.Y. "Instead of making four equal payments on all of the cards, consider making the biggest payment on the card with the highest interest rate." After you've paid that card off, move on to the one with the next highest rate.
This technique is called the debt avalanche, and it's the most financially efficient choice. It contrasts with the other payoff strategy, the debt snowball, in which you completely pay off the smallest debt first (paying just minimally on the others). Then you use your extra money to methodically pay off the rest of your debts from smallest to largest. This gives the psychological benefit of reducing the number of debts you owe through a series of smaller victories, until the biggest one is the only one left.
One way to stop racking up credit card debt: Start using cash more often.
Avoid New Debts
Put your cards away for a while and try to make your daily purchases in cash. This could also be an opportunity to do a cash-flow analysis to figure out where your money has been going, Hughes notes. You will probably spot unnecessary spending that you can cut back on, and save all the more.
Transfer Your Balances
You may be able to transfer your balances from high-interest cards to lower-interest ones. Such offers often come with a 0% introductory interest rate for six to 12 months. Enticing as that may sound, there are some caveats. For one thing, transfer offers tend to require an up-front fee of 3% to 5% of the amount you're transferring or else a flat balance transfer fee. Even so, it could be worth it, especially if you use one of the best balance transfer cards available.
Consolidate Your Debts
You might also take out a personal loan or line of credit to consolidate your credit card balances (and other debts) at a lower interest rate. With such a strategy you could conceivably convert card debt on which you're paying 15% or more in interest to a loan with an annual percentage rate more in range of 4% to 8%. Just remember to bank what you save on interest rather than spending it to increase your debt, and be sure to compare different personal loans in order to find the best one for you.
You may also want to work with a debt relief or settlement company to help you reduce the amount of outstanding debt.
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4ef73c6baaaf0e0171fa1c4561b8e505 | https://www.investopedia.com/articles/pf/07/disposable_income.asp | How to Increase Your Disposable Income | How to Increase Your Disposable Income
Although it is not the only factor in deciding how wealthy an individual is, disposable income does have a significant influence. If you have little or no money after taxes and expenses, then it is hard to save and invest for the future. In this article, we'll look at four ways you can increase your disposable income.
1. Get a Raise – or a Second Job
There is no shortage of books and articles that give advice about getting more money out of your employer. Their counsel includes everything from dressing well to taking a pay cut in exchange for performance bonuses. One of the most highly touted techniques is to go for further training or education. This can cost you money now, but it will hopefully translate into higher wages and a more secure position in the company. (See also: Invest In Yourself With A College Education.)
Regardless of how you go about it, getting a raise is the most obvious way to increase your income. Along the same lines is the possibility of having another job on the side. Working two jobs in tandem can be physically and mentally draining, but it will bring more money in when you need it.
The problem with increasing your income through your job is that you expose yourself to increased income taxes. The loss resulting from entering a higher income bracket is not prohibitive, but it is discouraging. You are working harder and often longer hours, but the returns on your effort are diminishing as your income tax rate increases. Basically, you have to work harder just to add a little more to your pocket.
This is compounded by the fact that most people never really profit from the extra wages because their lifestyles adjust to absorb it. For example, you may notice that your taxes have increased so, in order to minimize your tax bill, you decide to move into a bigger house to take more advantage of the homeowner's deduction on the mortgage. Although you can technically afford it, the larger mortgage payment leaves you with the same disposable income as before.
2. Start a Business
Starting a business, even a small one, is a legitimate way to bolster your income. Much like a raise or second job, running a business will put more demands on your time and require more effort. The difference is that you will see more of the income from your labor because taxation for business owners is a small pinch when compared to the slap that the IRS gives to employees. Some of your business write-offs can even be claimed against other income sources, but you have to follow the rules carefully. (See also: Capital Gains Tax Cuts For Middle Income Investors.)
The major drawback of starting a business is that there is no guarantee of success or income like there is with a raise or a second job. Entrepreneurial ventures take a certain type of person, one with the motivation and the ability to handle the details involved in implementing an idea. The time, effort and nerves that it takes to run a business (that has no certainty of success) means that very few people will take this route.
3. Investment Income
Investment income is considered a form of passive income. That's a bit of a misnomer, because it does take active effort to create income from investing – you have to research investments, build and maintain your portfolio, etc. – but it is generally considered to take less effort than, let's say, shoveling concrete day in and day out. Investing income can come from stocks, bonds, real estate, or many other types of assets. The common theme is that they ideally produce a return on the money you put into them. (See also: A Guide To Portfolio Construction.)
Creating income through investing is a process of accumulation. Even if you consistently get a return on investments (ROI) of 20%, if you only have $1,000 in the investment, you will add a little less than $200 to your yearly income after any fees and taxes have been paid (and there is no guarantee of consistent returns of even 10%). Searching for stocks with a history of dividends, sometimes called income stocks, can help create some income now, but it will still not be as rapid in results as a second job.
As you put more money in, however, more money comes out in the form of returns. Investing is a great way to increase your disposable income in the long run, but it won't do wonders for your immediate situation unless you have a huge chunk of capital just sitting around. Investing takes patience, time and discipline (it is also subject to taxation). That said, it is one of the surest ways to gradually add to your disposable income without exerting yourself too much.
4. Spend Less
The best way to increase your disposable income is by spending less. Tightening your budget will take some effort in the form of sacrificing a few luxuries, but the increase to your disposable income will not require longer hours or incur any extra tax. The more after-tax dollars you hold onto, the easier it is to do things like investing to secure more income in the future.
You don't have to scour the classifieds or create a business model or subscribe to a bunch of financial magazines – you just have to shell out less than you currently are, and certainly less than you are currently making. Earning more may help you, but spending less is the only iron-clad solution to the problem of living paycheck to paycheck and never having enough. (See also: Enjoy Life Now And Still Save For Later.)
The Bottom Line
Of all the ways to increase your disposable income, the simplest one is by far the best. Spending less/saving more can be used in conjunction with any of the other strategies. It's also the only one that isn't going to affect your taxes or require more of your time. In the words of Benjamin Franklin, "Get what you can, and what you get hold: 'Tis the stone that will turn all your lead into gold. And when you have got the philosopher's stone, sure you will no longer complain of bad times."
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fef4c518b828b11503ce762491fa947a | https://www.investopedia.com/articles/pf/07/esops.asp | Is an ESOP Right for Your Business? | Is an ESOP Right for Your Business?
How much of your net worth is tied up in your business? If it represents a large percentage of your total net worth, you may have wondered how you can transfer this wealth to the next generation of entrepreneurs, while also attracting, rewarding, and retaining valuable employees.
Ownership of your company's stock can happen in a number of different ways:
You can give shares to them as a bonus. They can receive stock options. They can get stock through a profit-sharing plan. Employees can buy your company's stock directly, through employee stock ownership plans (ESOPs).
Employee Stock Ownership Plans (ESOPs) Are Growing in Popularity
According to the National Center for Employee Ownership, a trade group in Washington, D.C., the number of business owners implementing ESOPs has surged since 1975.
Year Number of Plans Number of Participants (in 000\'s) 2008 11,100 13,630 2007 10,800 12,710 2006 10,400 12,290 2005 9,225 10,150 2004 9,115 10,030 2003 8,875 9,600 2002 8,450 9,300 2001 8,050 8,885 2000 7,700 8,500 1999 7,600 8,000 1993 9,225 7,500 1990 8,080 5,000 1980 4,000 3,100 1975 1,600 250
An ESOP will let you implement a plan for employees to acquire some or all of your company's stock. Because an ESOP is a retirement plan, you and your employees will get tax benefits that are not available with other buy or sell strategies.
Key Takeaways While ownership of your company's stock can happen in a number of different ways, employee stock ownership plans (ESOPs) are a popular option that can provide you and your employees with special tax benefits. For example, discretionary, corporate annual cash contributions to the ESOP are deductible on up to 25% of the pay of plan participants. An ESOP can be appealing if you want to reward employees who have helped you build your business, and it can also be used to supplement your firm's 401(k) or another retirement plan.
Tax Incentives
Your company can reap some great federal income tax breaks with ESOPs, including:
Deductible ESOP contributions: Discretionary, corporate annual cash contributions to the ESOP are deductible on up to 25% of the pay of plan participants. Deductible principal and interest payments: Whenever the ESOP borrows money to buy your shares, your business can make tax-deductible contributions to the plan, to repay the loan. Contributions to repay principal are deductible on up to 25% of the plan participants' payroll; however, interest is always deductible. Tax-free earnings: ESOPs do not pay federal income tax. In addition, your employees won't pay income tax on stock put into their ESOP accounts, until they take distributions. If they take distributions prior to age 59.5, they'll have to pay a 10% penalty in addition to the income tax, but they can roll the money into an IRA or another qualified plan, and continue the tax deferral.
Furthermore, if you own a C-corporation and sell 30% or more of your stock to the ESOP, you can defer—or maybe even avoid—the capital gains tax.
However, you must reinvest the sales proceeds into stocks, bonds, or other securities of U.S. operating companies. Government bonds and mutual funds do not qualify.
Is an ESOP Right for You?
An ESOP can be appealing if you want to reward employees who have helped you build your business, and it can also be used to supplement your firm's 401(k) or another retirement plan.
You can ask yourself these questions:
Do you worry about someone else running your company? An ESOP only makes the rank-and-file employees the beneficiaries of a plan that holds stock in their names. Yes, they'll have voting rights, but a board of directors will still exist and managers will still manage. Is your company profitable? If so, an ESOP will be advantageous from a tax perspective, because you're currently paying taxes on earnings. If your company does not have a history of profitability, the trustee might object to the ESOP buying the stock. Which employees are you willing to include? Although there are some exceptions, generally all full-time employees over 21 must be able to participate in the plan.
How Do You Start an ESOP?
To set up an ESOP, you'll have to establish a trust to buy your stock. Then, each year you'll make tax-deductible contributions of company shares, cash for the ESOP to buy company shares, or both.
The ESOP trust will own the stock and allocate shares to individual employee's accounts. Allocations are based on the employee's pay or some more equal formula. As employees accumulate seniority with your company, they acquire an increasing right to the shares in their account; a process known as vesting.
Employees must be 100% vested within three to six years, depending on whether vesting is all at once (cliff vesting) or gradually.
Employees get the stock after they leave your company. At that point, the company must offer to buy the shares back, unless there is a public market for them. In non-publicly traded companies, the share price cannot exceed its fair market value, as set by an independent appraiser.
Frequently, companies must obtain financing to buy the owner's shares. In such cases, the ESOP borrows money based on the company's credit. The company then makes contributions to the plan, to repay the loan.
When an ESOP Is Not a Good Solution
Don't expect to make a killing on the stock you sell to an ESOP; it probably won't be as much as you might receive by selling the company outright or taking it public. The ESOP must pay no more than fair market value for your company's shares, and if your stock is not publicly-traded security, the value is determined by an independent valuation expert.
Valuations are based on a number of factors and may include a premium if the ESOP buys a controlling interest in your business. On the other hand, the value might be discounted when there is a lack of marketability because the stock is not publicly traded.
ESOPs do have a few drawbacks. For one, you can only use an ESOP in C- or S-corporations, not partnerships or most professional corporations. Also, because private companies must repurchase a departing employee's shares, you could face a major expense in the future, if a large number of workers quit or retire at the same time.
Furthermore, the cost of setting up an ESOP is substantial, perhaps $40,000 for the simplest of plans in small companies. Moreover, any time your company issues new shares, the stock of existing owners is diluted.
The Bottom Line
Despite the highs and the lows, the important point to remember is that ESOPs can help you establish a transition plan for your business by creating a market for your company's stock, allowing you to sell your business gradually instead of exiting suddenly, and providing an ownership culture within your company.
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6d47aa965ca3c35882b1e1881739b0e3 | https://www.investopedia.com/articles/pf/07/life_insurance_rider.asp | 8 Common Life Insurance Riders | 8 Common Life Insurance Riders
Riders are additional benefits that can be bought and added to a basic life insurance policy. They allow you to customize a policy and can provide several kinds of protection if you meet their conditions.
Buying a rider means paying extra, but generally the additional premium is low because relatively little underwriting is required. Here are eight common life insurance riders and what they cover.
Key Takeaways Riders are the extra benefits that a policyholder can buy to add on to a life insurance policy. The most common include guaranteed insurability, accidental death, waiver of premium, family income benefit, accelerated death benefit, child term, long-term care, and return of premium riders. In general, the extra premium paid for a rider is low because relatively little underwriting is required.
1. Guaranteed Insurability Rider
This rider allows you to purchase additional insurance coverage in the stated period without the need for further medical examination. A guaranteed insurability rider is most beneficial when there has been a significant change in your life circumstances, such as the birth of your child, marriage, or an increase in your income. If your health declines with age, you will be able to apply for extra coverage without giving any evidence of insurability. This type of rider may also provide a renewal of your base policy at the end of its term without medical checkups. Guaranteed insurability riders may end at a certain age.
Insurance coverage, premium rates, terms and conditions of riders may differ from one insurer to another, and when a claim for the benefits of a rider is made, it may result in the termination of the rider, while the original policy continues to provide insurance.
2. Accidental Death Rider
An accidental death rider pays out an additional amount of death benefit if the insured dies as the result of an accident. Normally, the additional benefit paid out on death due to an accident is equivalent to the face amount of the original policy, which doubles the benefit. In the event of death due to accidental bodily injury, the insured's family gets twice the amount of the policy. That's why this rider is called a double indemnity rider. If you are the sole provider for your family, an accidental death rider can be ideal because the double benefit will take good care of your surviving family's expenses.
Make sure you understand the restrictions on an accidental death rider, as many life insurance companies limit the meaning of the term "accident."
3. Waiver of Premium Rider
Under this rider, future premiums are waived if the insured becomes permanently disabled or loses their income as a result of injury or illness prior to a specified age. Disability of the main breadwinner can have a crippling effect on a family. In these circumstances, the rider exempts policyholders from paying the premium due on the base policy until they are ready to work again. A waiver of premium rider can be valuable, particularly when the premium on the policy is high. The definition of the term "totally disabled" may vary from one insurer to another, so be aware of the terms and conditions of your specific rider.
4. Family Income Benefit Rider
In case the insured dies, a family income benefit rider will provide a steady flow of income to family members. When buying this rider, you need to determine the number of years your family is going to receive the benefit. The merit of having this rider is obvious—in case of death, the surviving family will face fewer financial difficulties thanks to the regular monthly income from the rider.
Family income benefit riders are generally purchased by individuals who are the sole breadwinners of their family.
5. Accelerated Death Benefit Rider
Under an accelerated death benefit rider, an insured person can use the death benefits if diagnosed with a terminal illness that will considerably shorten their lifespan. On average, insurers advance a percentage of the death benefit of the base policy to the insured. Insurance companies may subtract the amount you receive, plus interest, from what your beneficiaries receive on your death. Most often a small premium or, in some cases, no premium is charged for this rider. Insurers have different definitions of "terminal illness," so check what the rider covers before purchasing it.
6. Child Term Rider
This rider provides a death benefit in case a child dies before a specified age. After the child reaches maturity, the term plan can be converted into permanent insurance with coverage up to five times the original amount without the need for medical exams.
7. Long-Term Care Rider
In the event the insured has to stay at a nursing home or receive home care, this rider offers monthly payments. Although long-term care insurance can be bought individually, insurance companies also offer riders that take care of your long-term care costs.
8. Return of Premium Rider
Under this rider, you pay a marginal premium and at the end of the term, your premiums are returned to you in full. In the event of death, your beneficiaries will receive the paid premium amount. Insurers sell return of premium riders with many variations so make sure you understand the phrasing of the rider before you buy.
The Bottom Line
Most insurers don't allow you to modify your insurance policy according to your individual needs, but riders can help customize coverage. Always be sure to read the fine print before you add a rider to a life insurance policy. If needed, sit down with an insurance advisor to evaluate the benefits of riders and then buy the one best suited to you and your family.
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1453b82d9aafa8d8026ac0d18c1da7e2 | https://www.investopedia.com/articles/pf/07/loan_types.asp | Understanding Different Loan Types | Understanding Different Loan Types
Borrowed money can be used for many purposes, from funding a new business to buying your fiancée an engagement ring. But with all of the different types of loans out there, which is best—and for which purpose? Below are the most common types of loans and how they work.
Key Takeaways Personal loans and credit cards come with high interest rates but do not require collateral.Home-equity loans have low interest rates, but the borrower’s home serves as collateral.Cash advances typically have very high interest rates plus transaction fees.
Personal Loans
Most banks, online and on Main Street, offer personal loans, and the proceeds may be used for virtually anything from buying a new 4K 3D smart TV to paying bills. This is an expensive way to get money, because the loan is unsecured, which means that the borrower doesn’t put up collateral that can be seized in case of default, as with a car loan or home mortgage. Typically, a personal loan can be obtained for a few hundred to a few thousand dollars, with repayment periods of two to five years.
Borrowers need some form of income verification and proof of assets worth at least as much as the amount being borrowed. The application is typically only a page or two in length, and the approval or denial is generally issued within a few days.
Best and Worst Rates
The average interest rate for a 24-month commercial bank loan was 10.21% in the fourth quarter of 2019, according to the Federal Reserve. But interest rates can be more than three times that amount: Avant's APRs range from 9.95% to 35.99%. The best rates can only be obtained by people with exceptional credit ratings and substantial assets. The worst must be endured by people who have no other choice.
A personal loan is probably the best way to go for those who need to borrow a relatively small amount of money and are certain they can repay it within a couple of years. A personal loan calculator can be a useful tool for determining what kind of interest rate is within your means.
Bank Loan vs. Bank Guarantee
A bank loan is not the same as a bank guarantee. A bank may issue a guarantee as surety to a third party on behalf of one of its customers. If the customer fails to fulfill the relevant contractual obligation with the third party, that party can demand payment from the bank.
The guarantee is typically an arrangement for a bank’s small-business clients. A corporation may accept a contractor’s bid, for example, on the condition that the contractor’s bank issues a guarantee of payment in the event that the contractor defaults on the contract.
A personal loan might be best for someone who needs to borrow a relatively small amount of money and is sure of their ability to repay it within a couple of years.
Credit Cards
Every time a consumer pays with a credit card, it is effectively equivalent to taking out a small personal loan. If the balance is paid in full immediately, no interest is charged. If some of the debt remains unpaid, interest is charged every month until it is paid off.
The average credit card interest rate carried a 16.88% APR at the end of the fourth quarter of 2019, according to a the Federal Reserve—down slightly from the 2019 second quarter rate of 17.14%, but almost exactly where it was (16.86%) at the end of the fourth quarter of 2018. Penalty rates, for consumers who miss a single payment, can get bumped even higher—for example, to 31.49% on at least two of HSBC's Mastercards.
Revolving Debt
The big difference between a credit card and a personal loan is that the card represents revolving debt. The card has a set credit limit, and its owner can repeatedly borrow money up to the limit and repay it over time.
Credit cards are extremely convenient, and they require self-discipline to avoid overindulging. Studies have shown that consumers are more willing to spend when they use plastic instead of cash. A short one-page application process makes it an even more convenient way to get $5,000 or $10,000 worth of credit.
Home-Equity Loans
People who own their own homes can borrow against the equity they have built up in them. That is, they can borrow up to the amount that they actually own. If half of the mortgage is paid off, they can borrow half of the value of the house, or if the house has increased in value by 50%, they can borrow that amount. In short, the difference between the home’s current fair market value and the amount still owed on the mortgage is the amount that can be borrowed.
Low Rates, Bigger Risks
One advantage of the home-equity loan is that the interest rate charged is far lower than for a personal loan. According to a survey conducted by ValuePenguin.com, the average interest rate for a 15-year fixed-rate home equity loan as of Feb. 5, 2020, was 5.82%. As a result of changes in the 2017 Tax Cuts and Jobs Act, interest on a home equity loan is now only tax deductible if the money borrowed is used to “buy, build, or substantially improve the taxpayer’s home that secures the loan” per the IRS.
The biggest potential downside is that the house is the collateral for the loan. The borrower can lose the house in case of default on the loan. The proceeds of a home equity loan can be used for any purpose, but they are often used to upgrade or expand the home.
A consumer considering a home-equity loan might keep in mind two lessons from the financial crisis of 2008-2009:
Home values can go down as well as up.Jobs are in jeopardy in an economic downturn.
Home-Equity Lines of Credit (HELOCs)
The home-equity line of credit (HELOC) works like a credit card but uses the home as collateral. A maximum amount of credit is extended to the borrower. A HELOC may be used, repaid, and reused for as long as the account stays open, which is typically 10 to 20 years.
Like a regular home-equity loan, the interest may be tax deductible. But unlike a regular home-equity loan, the interest rate is not set at the time the loan is approved. As the borrower may be accessing the money at any time over a period of years, the interest rate is typically variable. It may be pegged to an underlying index, such as the prime rate.
Good or Bad News
A variable interest rate can be good or bad news. During a period of rising rates, the interest charges on an outstanding balance will increase. A homeowner who borrows money to install a new kitchen and pays it off over a period of years, for instance, may get stuck paying much more in interest than expected, just because the prime rate went up.
There's another potential downside. The lines of credit available can be very large, and the introductory rates very attractive. It’s easy for consumers to get in over their heads.
Credit Card Cash Advances
Credit cards usually include a cash advance feature. Effectively, anyone who has a credit card has a revolving line of cash available at any automatic teller machine (ATM).
This is an extremely expensive way to borrow money. To take one example, the interest rate for a cash advance on the Fortiva credit card ranges from 25.74% to 36%, depending on your credit. Cash advances also come with a fee, typically equal to 3% to 5% of the advance amount or a $10 minimum. Worse yet, the cash advance goes onto the credit card balance, accruing interest from month to month until it is paid off.
Other Sources
Cash advances are occasionally available from other sources. Notably, tax-preparation companies may offer advances against an expected Internal Revenue Service (IRS) tax refund. However, unless there’s a dire emergency, there’s no reason to give up part of your tax refund just to get the money a little faster.
Small Business Loans
Small business loans are available through most banks and through the Small Business Administration (SBA). These are typically sought by people setting up new businesses or expanding established ones.
Such loans are granted only after the business owner has submitted a formal business plan for review. The terms of the loan usually include a personal guarantee, meaning that the business owner’s personal assets serve as collateral against default on repayment. Such loans usually are extended for periods of five to 25 years. Interest rates are sometimes negotiable.
The small business loan has proved indispensable for many, if not most, fledgling businesses. However, creating a business plan and getting it approved can be arduous. The SBA has a wealth of resources both online and locally to help get businesses launched.
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507fc54b030d77c3dfb0b7336ab67931 | https://www.investopedia.com/articles/pf/07/mcmansion.asp | McMansion: A Closer Look at the Big House Trend | McMansion: A Closer Look at the Big House Trend
From Australia to America, single-family houses have gotten bigger over the decades. A lot bigger. The Australian government reports that the average size of a new house increased by 40% between 1984 and 2003, going from 162.2 square meters (approximately 1,745 square feet) to 227.6 square meters (approximately 2,450 square feet). In America, the National Association of Home Builders reports that the average home size was 983 square feet in 1950, 1,500 square feet in 1970, and 2,349 square feet in 2004.
However, in Australia, the big house trend has abated since the 2007-08 global financial crisis crashed the housing market. According to a Nov. 2018 report by the Australian Bureau of Statistics, the average floor size of an Australian home (which includes houses and apartments) fell to a 22-year low. The average new Australian home comes in at 186.3 square meters (approximately 2,005 square feet), a decrease of 18% since 2003.
In contrast, the big house trend in the United States barely budged after the housing market collapse. The average floor size of a new single-family house built in the U.S. dipped from 2,528 square feet in 2008 to 2,408 square feet in 2010. But the downward trend didn't last long. In 2018, the average size of a new home in the U.S. increased to 2,623 square feet. In this article, we review why some Americans favor big homes, also known as McMansions, and some of the pros and cons of the big house trend.
Key Takeaways A "McMansion" is a colloquial term for a very large and sometimes ostentatious mass-produced house. In the United States, McMansions became popular during the housing boom prior to the 2008 subprime mortgage crisis. The big house trend continues to be popular in the U.S., with many homebuyers opting for upscale amenities and large interior spaces found in many new homes. Drawbacks to McMansions include their cookie-cutter appearance, closely-packed neighborhoods, and tiny lawns.
The Rise of the McMansions
Starting around the mid-1990s, the average square footage of newly built homes grew by leaps and bounds. By the time U.S. homeownership had peaked at 70% in 2004, a 3,000 square foot home was considered on the small side when it came to new construction. Anywhere from 5,000 to 8,000 square feet had become increasingly common. There were even homes in the 10,000+ range cropping up.
These giant new homes earned the nickname "McMansions" because they were often generic in style, packed in close together on postage-stamp-sized lots, and quickly mass-produced—much like the fast-food delivery style the name suggests. However, the derogatory nickname didn't hurt their popularity.
Not only were the houses getting larger, but everything inside them got bigger as well. In 2004, around 40% of new homes had nine-foot ceilings. The number of homes built with four or more bedrooms came in at just under 40%. Multiple heating, ventilation, and air-conditioning systems had become commonplace. And two- and three-zone heating systems were a standard feature. Furnishings also became super-sized. From professional-grade stoves and refrigerators to overstuffed, oversized sofas, consumers were buying everything bigger to fill their mini palaces.
What Drives the Big House Trend in the U.S.?
What makes people want to buy such a big house? Because they can! The rich and famous have always enjoyed lavish estates. From the Hollywood Hills to the Hamptons, those who have money have enjoyed the benefits that come with affluence. While those of lesser means may not be able to drop a few million bucks for a giant ranch in Montana or a gated community in Miami, they are surrounded by images of affluence in the media.
From the palaces featured in video games and movies to the celebrity house tours on many popular cable television shows, everybody can see how the rich among us live. Add in years of record-low interest rates and aggressive marketing of upscale homes by residential builders and the stage is set for the Joneses—and everybody else—to get their piece of the pie.
What You Get With a McMansion
McMansions are all about interior space. The rooms are big, the ceilings are high and the "wow" factor is, too. The amenities that convince people to go upscale include lots of windows, spacious foyers, huge staircases, three or four garages, gourmet kitchens, sunrooms, walk-in closets, and enormous master bedroom suites complete with whirlpool tubs and separate showers. Walk-in pantries in the kitchen, laundry rooms, media rooms, and home offices also make the list. Over-sized garage doors (to accommodate oversized vehicles) gas fireplaces, and large decks are also common must-have features.
What You Don't Get With a McMansion
The tradeoff for a luxurious interior often comes at the expense of the exterior. Cookie-cutter designs, tiny lawns, closely-packed neighbors, and garish designs that feature garages nearly as big as the homes (earning the dwellings the nickname "garage mahals") are all common features of the suburban McMansion. Expensive brick or stucco on the front of the house with vinyl siding on the sides and back are signature design features, putting an elegant face toward the street and less costly coverings elsewhere.
On the inside, open floor-plans that often include rarely-used formal living and dining rooms are par for the course. While grand looking, large windows, high ceilings, two-floor great rooms, and huge foyers often result in very inefficient—and expensive—heating and cooling. Furthermore, restrictive community associations often limit the ability to add personal touches to the front lawn.
McMansion Backlash
From Austin to Atlanta, angry neighbors, zoning boards, and politicians are fighting back against the "Hummer homes" that are cropping up in established neighborhoods when the wealthy crowd moves in. Starter homes and small ranchers are being demolished and replaced by faux estates on quarter-acre lots as affluent people move closer to the city but don't want to live in smaller, older houses often found within city limits. To critics, these new homes look out of place compared to the rest of the neighborhood and clash with the existing architectural styles of the other properties.
Tips to Follow If You Decide to Go Big
A home is likely to be the most expensive item you will ever purchase. If you are contemplating the move to a larger home, learn to pay attention to the details.
The Right Location
It starts with choosing the right location. Purchasing a property in a neighborhood with homes of similar size and style will not only help you avoid antagonizing your neighbors, but it will also make the property more attractive for resale.
Likewise, choosing a property that has some land around it goes a long way toward making the house look like it belongs where it sits. Even communities that are seeking to limit or ban the construction of big homes don't tend to have a problem when a builder puts a large home on an equally large plot of land.
Garage Placement
Just as the size of the lot plays into the aesthetics of the purchase, so does the placement of the garage. Side-entry garages minimize the impact of having three or four garage bays side by side, toning down the "garage mahal" look. If side entry is not an option, consider a recessed garage design. Having a huge garage that sticks out in front of the house is simply not as attractive as a more understated look—for your neighbors or future buyers.
Energy Efficiency and Quality Materials
If you are building a new home, you should consider energy-efficient building practices and designs for new construction. The right heating and cooling systems, lighting, windows, and insulation can make a big difference in the long-term cost of owning the home.
You'll also want to pay attention to the quality of the materials used to build the house. To save a few dollars, many big houses use top-quality material on the front and lower quality material elsewhere. A beautiful brick or stucco facade faces the street, but vinyl siding is used for the sides and back. It's often worthwhile to spend the extra money to make the house look complete.
The Bottom Line
Despite the critics and the rising cost of energy, the big house trend remains popular in the United States. There are some buyers moving toward smaller homes or tiny homes, but they are in the minority.
Those who can afford luxury have always been attracted to it and, if history offers any indication of the future, beautiful homes in ideal locations are always going to attract buyers. Furthermore, if you ever want to downsize in the future, your big house is likely to put a big check in your pocket.
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954c45b908d8f6236618101530599ce9 | https://www.investopedia.com/articles/pf/07/patient_investor.asp | Patience Is a Virtue for Traders | Patience Is a Virtue for Traders
Although the best investors and traders understand the importance of patience, it is one of the most difficult skills to learn as an investor and trader.
Dennis Gartman, an influential money manager and former publisher of The Gartman Letter, is purported to have espoused the value of patience: "Proper patience is needed throughout the lifecycle of the trade, at entry, while holding and exit." Here we take a deeper look at how to harness your patience in the stock market.
Key Takeaways When it comes to trading, the decision of when to buy a stock can sometimes be easier than knowing when is the appropriate time to sell a stock.Patience and discipline is a virtue that will benefit all traders, keeping emotion and snap judgments in check.Due diligence and quality research should inform your decisions about when to get in and out of trades, and allowing the price to catch up with the fundamentals can take some time.Identifying exit points is key, both to limit downside losses and to take profits before those opportunities disappear.
Waiting for Your Entry Point
You have done your homework and have identified the entry point for a promising stock. Now you are waiting in anticipation for the price to reach your entry point. Instead of pulling back, the price lunges upward. You panic, entering an order above your planned entry point in a rush to make sure you don't miss the trade. By doing this, you give up some of your potential profit, but more importantly, you actually violate the rules that caused you to enter the trade in the first place.
If you've ever let your emotions rule the day, you know that it can often lead to disappointing returns. In fact, impatient investors who violate their discipline may be headed down the path to ruin. Following a predetermined set of rules keeps the emotional side of trading and investing at bay.
Fishing for a Winner
Patient investing is similar to fishing. There are many fish in the sea and it isn't necessary to catch every fish that swims by in order to be successful. In fact, it's only necessary to catch those few that bite and fill up your net (or that meet your trading criteria).
It is important to remember that there are always many trading opportunities in the market, even in a tough market, so the difficulty is not so much in finding trading opportunities, but making sure the opportunities fit your trading rules. It is vital that you concern yourself with getting good entry points and making sure you have defined exit points along with stop losses without having to get in on every trade.
If the stock doesn't want to bite, or it fails to meet your criteria, then don't worry about it. Be patient. There will likely be another fish, or opportunity, right around the corner.
If you find that you have lost control and entered a stock before its time, it is usually best to exit the trade and wait for it to develop based on your predefined rules and not on your emotions. Take the costs associated with the trade as a lesson, learn from it, and move on.
Waiting for the right entry point is an essential characteristic of every successful trader. If you find yourself tempted to enter an order before its time, step away and go over the reasons you selected the entry point once more. Then remind yourself that following your discipline will contribute to your success.
Give the Position Time to Develop
One of the stocks you have been following hits your entry point and you pull the trigger. After entering the trade, you enter a good-till-canceled bracketed order with your target and trailing stop, which defines where you will take profit and where you will take a loss. Now you wait for the expected move to happen. As you watch the trade develop, it starts to move into a profitable position.
According to the original plan, this stock still has more room to run until it hits your defined target. But before you take the quick gain, the trade retreats and falls below your original entry point, but fails to hit your trailing stop. You panic and sell, generating a small loss. Just after you exit the trade, the price moves up again and reaches your target, only now you are out of the trade.
Sound familiar? It turns out that in some cases, your well-thought-out plan will be right, and you'll let a fear of a loss get in the way of the trade proceeding as expected.
Rest assured, this is a common trait among many traders. Exhibiting patience with a good trade setup is a difficult task. It requires confidence in your research and in your system. While no one is infallible, the best traders trust their discipline to make them successful. They do not waver from their trailing stop methodology by letting the trade play out. If it incurs a loss, they capture all the relevant information to assess what went right and what went wrong. If their discipline needs to change, then so be it.
But whatever you do, do not let your emotion take control—it will inevitably lead to losses.
That said, keep in mind that losses are part of trading. It is your discipline along with good entry points, trailing stops, and exit targets that lead to consistent profits and keep you from incurring unwarranted losses. Stay patient and let your process go to work.
If you are tempted to exit a trade prematurely, step away and go over the reasons why you originally set your stops and targets. Then remind yourself that it is discipline that makes a great trader.
Knowing When to Sell a Position
There are times when you follow your discipline faithfully, but despite your patience, the price of your stock barely moves. You have been patient and followed the rules—now what do you do?
In most cases, it is best to go back and re-examine your analysis of the trade. Take a fresh look and try to find what has changed. If something is different, does your new analysis change the original reason for entering the trade? If the rationale for the trade has changed, does your analysis call for you to avoid the stock at this price? If you should not be in the stock, sell it immediately.
On the other hand, if your analysis indicates that this stock meets all of your criteria to own and the entry point is very close then it makes sense to continue to hold your position.
In many cases, the price of your stock will approach your target, and being patient will work out well for you. Now comes the time when you need to close out your position. You can continue to be patient, waiting until the price hits your target or your trailing stop, or you can tighten up your stop to ensure that you capture a profit on the trade. In either case, it is time to reward your patience with a profitable trade.
While there is a little more discretion provided to selling, make sure that you make changes to targets and stops based on some pre-determined criteria. For example, you may decide that when a trade gets halfway between the entry and the target, you'll adjust the stop to the entry price.
The Bottom Line
In summary, so much of trading is psychological, making patience a great virtue for investors. Exhibiting patience when entering a trade and having patience while a trade develops are integral parts to successful trading and investing. However, allowing patience to turn into stubbornness is something you must always guard against; consistently exiting a trade according to predefined criteria is one of the best methods of improving your success as a trader.
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ee9baccad08a2a8bcf03b948d073db78 | https://www.investopedia.com/articles/pf/07/permanent_life_insurance_taxes.asp | Cut Your Tax Bill With Permanent Life Insurance | Cut Your Tax Bill With Permanent Life Insurance
Proper tax planning should do two things—reduce your taxes while you are alive, as well as after you die. Permanent life insurance gives you the potential to cover these two bases at once, where you can transfer your assets tax-free (income and estate) free to beneficiaries and also build up tax-deferred growth of cash inside the policy.
Key Takeaways Permanent life insurance can allow you to transfer assets to beneficiaries tax-free, both income, and estate taxes. These types of policies will become more important as individuals can rely less on Medicare and Social Security. If you think that income and estate taxes will skyrocket, permanent life insurance can help you transfer wealth into a shelter. Other ways to reduce your taxes include using irrevocable life insurance trusts, maxing out retirement accounts, or simply give it away now.
Your Beneficiaries
When people think about life insurance, they generally envision how it will help those they leave behind. So first, let's talk about what life insurance does for your family. It can let you pay for a child's future college education, provide a retirement fund for your spouse, or simply make sure your survivors have the money to live the lifestyle you want for them.
Life insurance gives you the ability to transfer a policy's death benefit income-tax-free to beneficiaries. No matter how big the death benefit is—$50,000 or $50 million —your beneficiaries won't pay a single cent of income tax on the money they get. What other investment does that?
For instance, beneficiaries can get walloped by the Internal Revenue Service (IRS) when they inherit individual retirement accounts (IRAs), tax-deferred annuities, and qualified retirement plans. They could end up losing up to $0.35 out of every dollar you leave them to federal income tax. This is not the case with life insurance. Also, life insurance guarantees that your heirs will get that money.
Benefits
The mounting federal deficit, the long-term healthcare crisis, and the uncertain future of Social Security and Medicare have put the government safety nets deep in the hole. And it's probably not going to get better during your lifetime.
But you can take comfort in knowing that the tax-deferred growth of cash inside a life insurance policy is not vulnerable to the whims of the people who run Social Security and Medicare. This is money that you could use to supplement your retirement income, pay for medical care, or whatever you wish—regardless of what the government does.
That's not all. If you are collecting Social Security income, you might not know that you could have to pay income tax on up to 85% of those benefits. Also, most taxable income, and even tax-free municipal bond interest, is counted when determining how much of your Social Security you can lose to the IRS. This is not the case with life insurance. Earnings that grow within a life insurance policy are one of the few items that will not increase the tax on your Social Security income.
Strategies
Irrevocable Life Insurance Trusts
If you and your spouse have a net worth of more than $4 million, take a look at an irrevocable life insurance trust (ILIT). You make a cash gift to the ILIT to purchase a permanent survivorship life insurance policy. The ILIT is the owner and beneficiary of the policy. When the survivor dies, your heirs will not have to pay estate and income taxes on the death benefits.
Give It Away Now
If you're of more modest means and would like to see your money working for your heirs while you're still alive, as well as increase the amount they'll receive when you die, then you might want to consider giving cash to them today.
For the greatest benefit, your heirs can use part of the gift to buy a life insurance policy on your life. Meanwhile, you'll be able to watch your loved ones enjoy the remainder of the money—right now.
What's more, you'll reduce your taxable estate by the amount of your gift. And, because your loved ones are the owners and beneficiaries of the policy, they won't have to worry about estate or income taxes on the death benefit when you die. They also won't have to worry about paying income taxes on the growth of the policy's cash value while you're living.
Solving Other Tax Problems
Asset Allocation
There are several versions of permanent life insurance. Some, such as universal life (UL), pay a fixed interest rate on the cash within the policy. Others, however, such as variable universal life (VUL), offer dozens of investment options. These might include a large-cap stock fund, an international stock fund, a bond fund, or even a real estate fund. The list is nearly endless.
The growth of the cash value in VUL is determined by the performance of the underlying portfolio(s) you. This becomes part of your total investment portfolio. Reallocations within the policy are not taxable. So when it comes time to rebalance your investments, you won't have to worry about paying income tax on profits you take as you make changes in the VUL.
Maxed-out Retirement Plans
If you contributed the maximum amount to your 401(k) and IRA this year, it's important to know there are no restrictions on how much you can put into permanent life insurance. Plus, you'll at least gain the advantage of tax-deferred growth, and you'll leverage the value of your estate.
Remember, however, that if you later take cash of out the policy, you'll have to pay taxes on it at your ordinary tax rate. So don't look at this as a substitute for a cash emergency fund. That said, the policy might have a loan provision that lets you borrow from your cash value and thus avoid the tax.
If you think that income and estate taxes will skyrocket, permanent life insurance can help you transfer wealth into a shelter that protects your assets from higher taxation.
Pennies on the Dollar
If income and estate taxes keep you awake at night, life insurance might be the answer. Permanent life insurance is one of the most powerful tax planning tools you can find. It offers several unique ways to address your estate tax and income tax liabilities while resolving those tax issues for pennies on the dollar. If you use this strategy, next tax season could seem like just another pleasant spring day.
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28eaeab54c84e6ced52c42c1981ecf5c | https://www.investopedia.com/articles/pf/07/property_tax_tips.asp | Tricks for Lowering Your Property Tax Bill | Tricks for Lowering Your Property Tax Bill
If you ask most homeowners about their property taxes, they'll likely tell you they pay too much. Property taxes are real estate taxes calculated by local governments and paid by homeowners. They are considered ad valorem, which means they are assessed according to the value of your property.
Revenue generated from property taxes is generally used to fund local projects and services such as fire departments, law enforcement, local public recreation, and education. Although these services benefit all residents, property taxes can be extremely burdensome for individual homeowners. They tend to rise steadily over time. Even after you pay off your mortgage, the tax bills keep coming. Some states have more favorable property tax levels, but there's generally always some kind of tax to pay for municipal services.
You will never be free from property taxes while you own your home, but there are a few simple tricks you can use to lower your property tax bill.
Key Takeaways Property taxes are calculated by multiplying your municipality's effective tax rate by the most recent assessment of your property.Make sure you review your tax card and look at comparable homes in your area for discrepancies.Don't build or make changes to your curbside just before an assessment as these steps may increase your value.Give the assessor a chance to walk through your home—with you—during your assessment.Look for local and state exemptions, and, if all else fails, file a tax appeal to lower your property tax bill.
Understand Your Tax Bill
If you feel you are paying too much, it's important to know how your municipality reaches that figure on your bill. Sadly, many homeowners pay property taxes but never quite understand how they are calculated. It can be confusing and challenging, especially because there may be a disconnect between how two neighboring towns calculate their property taxes.
Property taxes are calculated using two very important figures—the tax rate and the current market value of your property. The rate at which taxing authorities reset their tax rates is based on state law—some change them annually, while others do so in different increments, such as once every five years. Municipalities set their tax rates—also known as millage or mill rate—based on what they feel they need to pay for important services.
An assessor, hired by the local government, estimates the market value of your property—which includes both the land and structure—after which you receive an assessment. (In some jurisdictions, the assessed value is a percentage of the market value; in others it is the same as the market value.)
The assessor may come to your property, but in some cases, an assessor may complete property assessments remotely using software with updated tax rolls. Your local tax collector's office sends you your property tax bill, which is based on this assessment.
In order to come up with your tax bill, your tax office multiplies the tax rate by the assessed value. So, if your property is assessed at $300,000 and your local government sets your tax rate at 2.5%, your annual tax bill will be $7,500.
1:42 WATCH: How Are Property Taxes Calculated?
Ask for Your Property Tax Card
Few homeowners realize they can go down to the town hall and request a copy of their property tax cards from the local assessor's office. The tax card provides the homeowner with information the town has gathered about their property over time.
This card includes information about the size of the lot, the precise dimensions of the rooms, and the number and type of fixtures located within the home. Other information may include a section on special features or notations about any improvements made to the existing structure.
As you review this card, note any discrepancies, and raise these issues with the tax assessor. The assessor will either make the correction and/or conduct a re-evaluation. This tip sounds laughably simple, but mistakes are common. If you can find them, the township has an obligation to correct them.
Don't Build
Any structural changes to a home or property will increase your tax bill. A deck, a pool, a large shed, or any other permanent fixture added to your home is presumed to increase its value.
Homeowners should investigate how much of an increase a new addition means to their property tax bill before they begin construction. Call the local building and tax departments. They'll be able to give you a ballpark estimate.
Limit Curb Appeal
Tax assessors are given a strict set of guidelines to go by when it comes to the actual evaluation process. However, the assessment still contains a certain amount of subjectivity. This means more attractive homes often receive a higher assessed value than comparable houses that are less physically appealing.
Keep in mind, your property is essentially being compared to your neighbors' during the evaluation, as well as others in the general vicinity. While it may be difficult, resist the urge to primp your property before the assessor's arrival. You should be able to plan ahead because the assessor normally schedules a visit in advance. If possible, don't make any physical improvements or cosmetic alternations to the home—new countertops or stainless steel appliances—until after the assessor finishes the evaluation.
Research Thy Neighbors
As mentioned above, information about your home is available at the local town hall. What many individuals don't realize is that in many cases, information about other home assessments in the area is also available to the public.
It is important to review comparable homes in the area and general statistics about the town's evaluation results. You can often find discrepancies that could lower your taxes. For example, let's say you have a four-bedroom home with a one-car garage, and your home is assessed at $250,000. Your neighbor also owns a four-bedroom home, but this house sports a two-car garage, a 150-square-foot shed and a beautiful swimming pool. Despite this, your neighbor's home is valued at $235,000.
Was there a mistake? Unless your property has some other distinguishing characteristics that explain the discrepancy, the assessor probably made an error. With all of this in mind, if an error is found, it pays to bring it to the assessor's attention as soon as possible so you can get a reassessment if necessary.
Walk the Home with the Assessor
Many people allow the tax assessor to wander about their homes unguided during the evaluation process. This can be a mistake. Some assessors will only see the good points in the home such as the new fireplace or marble-topped counters in the kitchen. They'll overlook the fact that several appliances are out of date, or that some small cracks are appearing in the ceiling.
To prevent this from happening, be sure to walk the home with the assessor and point out the good points as well as the deficiencies. This will ensure you receive the fairest possible valuation for your home.
Allow the Assessor Access to Your Home
You do not have to allow the tax assessor into your home. However, what typically happens if you do not permit access to the interior is that the assessor assumes you've made certain improvements such as added fixtures or made exorbitant refurbishments. This could result in a bigger tax bill.
Many towns have a policy that if the homeowner does not grant full access to the property, the assessor will automatically assign the highest assessed value possible for that type of property—fair or not. At this point, it's up to the individual to dispute the evaluation with the town, which will be nearly impossible unless you grant access to the interior.
The lesson: Allow the assessor to access your home. If you took out permits for all improvements you've made to the property, you should be fine.
Look for Exemptions
Exemptions don't just apply to religious or government organizations. You may qualify for an exemption if you fall into certain categories. Some states and municipalities lower the tax burden for:
SeniorsVeteransPeople with certain abilitiesAgriculture properties
Check with your taxing authority to see if you qualify for an exemption.
Appeal Your Tax Bill
If you've done all you can and haven't managed to get your tax assessment office to see things your way, don't fret. You still have another option available: the tax appeal.
Filing a tax appeal may cost you a small filing fee, which is paid to have someone review your appeal. The tax appeal generally requires the help of a lawyer. Your attorney will likely charge you a fee—sometimes a portion of the savings on your tax bill if your appeal is approved. Your appeal should be filed in a timely manner, otherwise you're stuck with the bill you receive from your local tax office.
Your lawyer will go through the steps of the appeal and what information is required. In some cases, you may need to take photos and provide details on the current condition of your property. The board will then review this information, compare it to the most recent assessment and tax bill, and make a decision. You may hear something instantly, or it could take a few months for the reviewer to come up with a decision.
If the board approves your appeal, it will only lower the assessment on your home—not your effective tax rate. Although you will still be taxed at the same rate, it will result in a reduction on your tax bill.
Keep in mind, though, that the appeal process is not a guarantee that your bill will drop. It may remain the same or, in rare cases, it may increase if the reviewer feels your assessment is too low.
The Bottom Line
It can be hard to balance the desire for a beautiful home with the desire to pay as little tax as possible. However, there are some little things you can do to reduce your property tax burden without resorting to living in a dump. Avoid making any improvements right before your house is due to be assessed. Check out the neighbors—if they pay less tax than you but own a similar home, you may be in line for a tax reduction. You just have to ask for it.
The most important thing to remember is don't assume your tax bill is set in stone. A little homework and due diligence can help reduce the burden.
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c3a0a4d73f00ca25384100f5bff3dfec | https://www.investopedia.com/articles/pf/07/risk_tolerance.asp | Risk Tolerance | Risk Tolerance
Risk tolerance is a topic that is often discussed but rarely defined. It is not unusual to read a trade recommendation discussing alternatives or options based on different risk tolerances. But how does an individual investor determine his or her risk tolerance? How can understanding this concept help investors in diversifying their portfolios?
Key Takeaways Investors that are able to understand and calculate their risk tolerance and design a portfolio that reflects that tolerance benefit in the long run. Risk tolerance is often seen as reflecting age, with younger people with a longer time horizon seen as more risk-tolerant, and therefore more likely to invest in stocks and stock funds than fixed income. While age is a factor, don't automatically switch from stocks to bonds just cause you've turned 65; people are living longer and can remain aggressive investors for longer as well. Regardless of age, those with a higher net worth and more so-called liquid capital to spend can afford to have greater risk tolerance than those who are more cash-strapped. Other factors to consider in assessing risk tolerance include determining your priorities in terms of what you're saving and investing money for and being realistic about your investment experience.
Risk Tolerance by Time Frame
An often seen cliché is that of what we'll refer to as "age-based" risk tolerance. It is conventional wisdom that a younger investor has a long-term time horizon in terms of the need for investments and can take more risk. Following this logic, an older individual has a short investment horizon, especially once that individual is retired, and would have a low-risk tolerance. While this may be true in general, there are certainly a number of other considerations that come into play.
First, we need to consider the investment. When will funds be needed? If the time horizon is relatively short, risk tolerance should shift to be more conservative. For long-term investments, there is room for more aggressive investing.
Be careful, however, about blindly following conventional wisdom when it comes to risk tolerance and asset classes. For example, don't think that just because you are 65 that you must shift everything to conservative investments, such as certificates of deposit or Treasury bills. While this may be appropriate for some, it may not be appropriate for all—such as for an individual who has enough to retire and live off of the interest of his or her investments without touching the principal. With today's growing life expectancies and advancing medical science, the 65-year-old investor may still have a 20-year (or more) time horizon.
Risk Capital
Net worth and available risk capital should be important considerations when determining risk tolerance. Net worth is simply your assets minus your liabilities. Risk capital is money available to invest or trade that will not affect your lifestyle if lost. It should be defined as liquid capital or capital that can easily be converted into cash.
Therefore, an investor or trader with a high net worth can assume more risk. The smaller the percentage of your overall net worth the investment or trade makes up, the more aggressive the risk tolerance can be.
Unfortunately, those with little to no net worth or with limited risk capital are often drawn to riskier investments like futures or options because of the lure of quick, easy and large profits. The problem with this is that when you are "trading with the rent" it is difficult to have your head in the game. Also, when too much risk is assumed with too little capital, a trader can be forced out of a position too early.
On the other hand, if an undercapitalized trader using limited or defined risk instruments (such as long options) "goes bust," it may not take that trader long to recover. Contrast this with the high-net-worth trader who puts everything into one risky trade and loses—it will take this trader much longer to recover.
A high-net-worth individual likely has more money to risk and can, therefore, be more risk-tolerant than someone with less capital, but that person also has more to lose should the investment go bust.
Understand Your Investment Goals
Your investment objectives must also be considered when calculating how much risk can be assumed. If you are saving for a child's college education or your retirement, how much risk do you really want to take with those funds? Conversely, more risk could be taken if you are using true risk capital or disposable income to attempt to earn extra income.
Interestingly, some people seem quite alright with using retirement funds to trade higher-risk instruments. If you are doing this for the sole purpose of sheltering the trades from tax exposure, such as trading futures in an IRA, make sure you fully understand what you are doing. Such a strategy may be alright if you are experienced with trading futures, are using only a portion of your IRA funds for this purpose and are not risking your ability to retire on a single trade.
However, if you are applying your entire IRA to futures, have little or no net worth and are just trying to avoid tax exposure for that "sure thing" trade, you need to rethink the notion of taking on this much risk. Futures already receive favorable capital gains treatment; capital gains rates are lower than for regular income, and 60% of your gains in futures will be charged the lower of the two capital gains rates. With this in mind, why would a low net worth individual need to take that much risk with retirement funds? In other words, just because you can do something doesn't always mean you should.
Just because you can make riskier bets doesn't mean you should; if preservation of capital is the goal and you are newer to investing, be wary of taking on too much risk.
Investment Experience
When it comes to determining your risk tolerance, your level of investing experience must also be considered. Are you new to investing and trading? Have you been doing this for some time but are branching into a new area, like selling options? It is prudent to begin new ventures with some degree of caution, and trading or investing is no different. Get some experience under your belt before committing too much capital. Always remember the old cliché and strive for "preservation of capital." It only makes sense to take on the appropriate risk for your situation if the worst-case scenario will leave you able to live to fight another day.
Careful Consideration
There are many things to consider when determining the answer to a seemingly simple question, "What is my risk tolerance?" The answer will vary based on your age, experience, net worth, risk capital and the actual investment or trade being considered. Once you have thought this through, you will be able to apply this knowledge to a balanced and diversified program of investing and trading.
Spreading your risk around, even if it is all high risk, decreases your overall exposure to any single investment or trade. With appropriate diversification, the probability of total loss is greatly reduced. This comes back to the preservation of capital.
Knowing your risk tolerance goes far beyond being able to sleep at night or stressing over your trades. It is a complex process of analyzing your personal financial situation and balancing it against your goals and objectives. Ultimately, knowing your risk tolerance – and keeping to investments that fit within it – should keep you from complete financial ruin.
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b5a493bb586d66de7c70895849a79403 | https://www.investopedia.com/articles/pf/07/scottish_frugality.asp | Save Money the Scottish Way | Save Money the Scottish Way
The Scottish have long been famed for their frugality and practicality. Henry Duncan, a Scottish minister, founded the world's first commercial savings bank. Adam Smith, one of the most famous figures in economics, also hailed from Scotland.
It's no coincidence that many successful businesses today have among their portraits of former CEOs and founders, a painting of a side-burned Scot whose eyes suggest any spare change would have to be pried out of his cold, dead hands.
In this article, we will look at three ways you can give your budget a boost using some of the famed Scottish frugality.
1. Be Utilitarian
When William Wallace led the Scots against the English in the 13th and 14th centuries, the militiaman's weapon of choice was more likely to be a pitchfork or scythe than a spear or sword. Why? The average Scot used a pitchfork every day, but swords were expensive and rare.
In battle, a sharp pitchfork was just as fatal as a sword, so very few men needed swords. Many people would be well served just by learning this one lesson: buy what you need, and if your needs change, adapt. It's foolish to buy a sword if a pitchfork will do just as nicely.
Examples abound of people paying for more than what they need: a polished teak table to hold up a TV dinner; a brand new laptop to send email and print photos; an SUV to drive to the suburbs and back, or a huge house that is ruinous to maintain. The waste goes on and on.
Plan your purchases as you would plan a vacation. Know precisely what you need and how much you are willing to pay for it. Write it down and carry it like a talisman to ward off aggressive salespeople.
2. Buy Second Hand
Britain's economic emergence during the Industrial Revolution owed much to a single invention: the Watt Steam Engine. In 1763, James Watt, a Scotsman, got his hands on a broken, second-hand steam engine and modified it to be much more efficient. Within years, Watt went from refurbishing old models to creating his own line of powerful engines – engines that drove the factories that powered the industrial revolution. The lesson of buying second hand, while less dramatic than powering the industrial revolution, is that it can save you significant amounts of money.
Used goods were once the specialty of pawnshops – where you could get a near-new stereo for a 70% discount if you didn't mind the bullet holes and the dark stain on the left speaker. However, these goods have now become commonplace. Quality second-hand shops are popping up all over the place. These stores offer used models in good working condition at significant discounts compared to buying new. Garage sales, warehouse auctions and eBay auctions are also great places to search when you know what you want.
Another area where buying second-hand pays off is in cars. Because new cars generally plummet in value once they have been driven off the lot, a careful buyer can find a used car comparable to the showroom model at a huge discount. Japanese cars, in particular, seem to hit a certain price and stick there whether you own them for two years or five. This means if you find a decent used car, you may be able to sell it after a year or two for nearly the same price as you paid for it. Whether it is a car or a stereo, you can save yourself a lot of money by finding a used model with the same capacity.
3. Do It Yourself
When the Oxford English Dictionary was floundering on the edge of oblivion, the university brought in a Scotsman by the name of James Murray. Where the previous chief lexicographers delegated and did little, Murray rolled up his sleeves and began hammering away at the dictionary letter by letter. His do-it-yourself attitude saved the dictionary. He managed to keep expenses down and still produce results. This attitude will save you more money than you may realize.
You are the cheapest labor you can hire. When you pay someone to do a task such as mowing your lawn, painting your house or changing your oil, the service is costing you much more than the amount on the receipt. To understand what you are losing by not being hands-on, you have to look at how much income you have to earn to produce enough after-tax dollars to pay for a particular service.
For example, if you pay $1,000 to have someone landscape your yard, and you are in the 24% tax bracket, the job actually required around $1,315 of before-tax income. Getting out the shovel and doing it yourself is like adding $315 to your yearly income, let alone saving the $1,000.
The Bottom Line
The Scottish aren't the well-known misers they used to be. However, the work of Scots during the Industrial Revolution still stands as one of the greatest leaps forward by a country and its people. All that hard work would have meant nothing if it wasn't enforced by frugality.
You don't need to feast on haggis or wear a kilt, but if you bring some old-time Scottish frugality to your own budget, you might find you're pleased enough to at least try the haggis.
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a8ecd3409ad16d68328e7a4af31f6398 | https://www.investopedia.com/articles/pf/07/secondary_mortgage.asp | Behind the scenes of your mortgage | Behind the scenes of your mortgage
You may see your mortgage as the loan that helped you buy your home. But investors see a mortgage as a stream of future cash flows. These cash flows are bought, sold, stripped, tranched, and securitized in the secondary mortgage market. Because most mortgages end up for sale, the secondary mortgage market is extremely large and very liquid.
From the point of origination to the point at which a borrower's monthly payment ends up with an investor as part of a mortgage-backed security (MBS), asset-backed security (ABS), collateralized mortgage obligation (CMO) or collateralized debt obligation (CDO) payment, there are several different institutions that all carve out some percentage of the initial fees and/or monthly cash flows.
In this article, we'll show you how the secondary mortgage market works and introduce you to its major participants.
There are four main participants in this market: the mortgage originator, the aggregator, the securities dealer, and the investor.
1. The Mortgage Originator
The mortgage originator is the first company involved in the secondary mortgage market. Mortgage originators consist of retail banks, mortgage bankers and mortgage brokers. While banks use their traditional sources of funding to close loans, mortgage bankers typically use what is known as a warehouse line of credit to fund loans. Most banks, and nearly all mortgage bankers, quickly sell newly originated mortgages into the secondary market.
One distinction to note is that banks and mortgage bankers use their own funds to close mortgages and mortgage brokers do not. Rather, mortgage brokers act as independent agents for banks or mortgage bankers, putting them together with clients (borrowers).
However, depending on its size and sophistication, a mortgage originator might aggregate mortgages for a certain period of time before selling the whole package; it might also sell individual loans as they are originated. There is risk involved for an originator when it holds onto a mortgage after an interest rate has been quoted and locked in by a borrower. If the mortgage is not simultaneously sold into the secondary market at the time the borrower locks the interest rate, interest rates could change, which changes the value of the mortgage in the secondary market and, ultimately, the profit the originator makes on the mortgage.
Originators that aggregate mortgages before selling them often hedge their mortgage pipelines against interest rate shifts. There is a special type of transaction called a best efforts trade, designed for the sale of a single mortgage, which eliminates the need for the originator to hedge a mortgage. Smaller originators tend to use best efforts trades.
In general, mortgage originators make money through the fees that are charged to originate a mortgage and the difference between the interest rate given to a borrower and the premium a secondary market will pay for that interest rate.
2. The Aggregator
Aggregators are the next company in the line of secondary mortgage market participants. Aggregators are large mortgage originators with ties to Wall Street firms and government-sponsored enterprises (GSEs), like Fannie Mae and Freddie Mac. Aggregators purchase newly originated mortgages from smaller originators, and along with their own originations, form pools of mortgages that they either securitize into private-label mortgage-backed securities (by working with Wall Street firms) or form agency mortgage-backed securities (by working through GSEs).
Similar to originators, aggregators must hedge the mortgages in their pipelines from the time they commit to purchasing a mortgage, through the securitization process, and until the MBS is sold to a securities dealer. Hedging a mortgage pipeline is a complex task due to fallout and spread risk. Aggregators make profits by the difference in the price that they pay for mortgages and the price for which they can sell the MBS backed by those mortgages, contingent upon their hedge effectiveness.
3. Securities Dealers
After an MBS has been formed (and sometimes before it is formed, depending upon the type of the MBS), it is sold to a securities dealer. Most Wall Street brokerage firms have MBS trading desks. Dealers on these desks do all kinds of creative things with MBS and mortgage whole loans; the end goal is to sell them as securities to investors. Dealers frequently use MBSs to structure CMO, ABS, and CDOs. These deals can be structured to have different and somewhat definite prepayment characteristics and enhanced credit ratings compared to the underlying MBS or whole loans. Dealers make a spread in the price at which they buy and sell MBS, and look to make arbitrage profits in the way they structure the particular CMO, ABS, and CDO packages.
4. Investors
Investors are the end-users of mortgages. Foreign governments, pension funds, insurance companies, banks, GSEs and hedge funds are all big investors in mortgages. MBS, CMOs, ABS, and CDOs offer investors a wide range of potential yields based on varying credit quality and interest rate risks.
Foreign governments, pension funds, insurance companies and banks typically invest in highly rated mortgage products. Certain tranches of the various structured mortgage deals are sought after by these investors for their prepayment and interest rate risk profiles. Hedge funds are typically big investors in mortgage products with low credit ratings and structured mortgage products that have greater interest rate risk.
Of all the mortgage investors, the GSEs have the largest portfolios. The type of mortgage product they can invest in is largely regulated by the Office of Federal Housing Enterprise Oversight.
The Bottom Line
Few borrowers realize the extent to which their mortgage is sliced, diced, and traded. In a matter of weeks, maybe a month, from the time a mortgage is originated it can become part of a CMO, ABS, or CDO. The end-user of a mortgage might be a hedge fund that makes directional interest rate bets or uses leveraged positions to exploit small relational pricing irregularities, or it might be the central bank of a foreign country that likes the credit rating of an agency MBS.
On the other hand, it could be an insurance company based in Brussels attracted by the duration and convexity profile of a certain tranche in an ABS, CMO or CDO deal. The secondary mortgage market is huge, liquid and complex with several institutions all eager to consume a slice of the mortgage pie.
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c33c5ab380f0193628c946590b1643bc | https://www.investopedia.com/articles/pf/07/succession_planning.asp | How to Create a Business Succession Plan | How to Create a Business Succession Plan
For many small business owners, maintaining positive cash flow and a stable balance sheet can be an ongoing battle that consumes virtually all of their time. Even retirement often seems like a distant speck on the horizon, let alone plans to hand over the business. However, establishing a sound business succession plan is beneficial for most business owners and can be absolutely necessary for some.
For business owners that are at or near retirement, the issue of succession cannot be ignored. In this article, we will take you through the steps you'll want to take to create a successful succession plan.
Picking a Successor Isn't Easy
Many factors determine whether a succession plan is necessary, and sometimes the logical and easy choice will be to sell the business lock, stock, and barrel simply. However, many owners prefer the thought of their businesses continuing on even after they're gone.
Choosing a successor can be as easy as appointing a family member or assistant to take the owner's place. However, there may be several partners or family members from which the owner will have to choose — each with a number of strengths and weaknesses to be considered. In this case, a lasting resentment by those who were not chosen may happen, regardless of what choice is ultimately made. Partners who do not need or want a successor may simply sell their portion of the business to the other partners of the business in a buy-sell agreement.
How Much Is the Business Worth?
When business owners decide to cash-out (or if death makes the decision for them), a set dollar value for the business needs to be determined, or at least the exiting share of it. This can be done either through an appraisal by a certified public accountant (CPA) or by an arbitrary agreement between all partners involved. If the portion of the company consists solely of shares of publicly-traded stock, then the valuation of the owner's interest will be determined by the stock's current market value. (For more, read How to Write a Business Plan.)
Life Insurance: The Standard Transfer Vehicle
Once a set dollar value has been determined, life insurance is purchased on all partners in the business. In the event that a partner passes on before ending his relationship with their partners, the death benefit proceeds will then be used to buy out the deceased partner's share of the business and distribute it equally among the remaining partners.
There are two basic arrangements used for this. They are known as "cross-purchase agreements" and "entity-purchase agreements." While both ultimately serve the same purpose, they are used in different situations.
Cross-Purchase Agreements
These agreements are structured so that each partner buys and owns a policy on each of the other partners in the business. Each partner functions as both owner and beneficiary on the same policy, with each other partner being the insured. Therefore, when one partner dies, the face value of each policy on the deceased partner is paid out to the remaining partners, who will then use the policy proceeds to buy the deceased partner's share of the business at a previously agreed-upon price.
As an example, imagine that there are three partners who each own equal shares of a business worth $3 million, so each partner's share is valued at $1 million. The partners want to ensure that the business is passed on smoothly if one of them dies, so they enter into a cross-purchase agreement. The agreement requires that each partner take out a $500,000 policy on each of the other two partners. This way, when one of the partners dies, the other two partners will each be paid $500,000, which they must use to buy out the deceased partner's share of the business.
Entity-Purchase Agreements
The obvious limitation here is that, for a business with a large number of partners (five to ten partners or more), it becomes impractical for each partner to maintain separate policies on each of the others. There can also be substantial inequity between partners in terms of underwriting and, as a result, the cost of each policy.
There can even be problems when there are only two partners. Let's say one partner is 35 years old, and the other is 60 years old — there will be a huge disparity between the respective costs of the policies. In this instance, an entity-purchase agreement is often used instead.
The entity-purchase arrangement is much less complicated. In this type of agreement, the business itself purchases a single policy on each partner and becomes both the policy owner and beneficiary. Upon the death of any partner or owner, the business will use the policy proceeds to purchase the deceased person's share of the business accordingly. The cost of each policy is generally deductible for the business, and the business also "eats" all costs and underwrites the equity between partners.
3 Reasons to Have a Business Succession Plan
Creating and implementing a sound succession plan will provide several benefits to owners and partners:
It ensures an agreeable price for a partner's share of the business and eliminates the need for valuation upon death because the insured agreed to the price beforehand. The policy benefits will be immediately available to pay for the deceased's share of the business, with no liquidity or time constraints. This effectively prevents the possibility of an external takeover due to cash flow problems or the need to sell the business or other assets to cover the cost of the deceased's interest. A succession plan can greatly help in establishing a timely settlement of the deceased's estate.
The Bottom Line
Proper business succession planning requires careful preparation. Business owners seeking a smooth and equitable transition of their interests should seek a competent, experienced advisor to assist them in this business decision. (Business succession is just one retirement consideration. For more, see Getting Started on Your Estate Plan.)
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a998c14357bc39702429789c758f662f | https://www.investopedia.com/articles/pf/07/variable_universal.asp | Variable Life Vs. Variable Universal: What's the Difference? | Variable Life Vs. Variable Universal: What's the Difference?
Variable Life Insurance vs. Variable Universal Life (VUL) Insurance: An Overview
For investors that love to watch the market, variable life insurance products are interesting. These products allow for a portion of the premium to be allocated to the insurance company's investment fund, allowing tax-free profits to be generated for beneficiaries.
Investors looking for life insurance coverage have a number of options, from term to whole life, and many things in between. Life changes mean that insurance needs change too, where it’s important to re-evaluate your financial plan after major life events, such as marriage or a home purchase.
Key Takeaways A variable life insurance allows most of the premiums to be invested in an investment account. A variable universal life insurance policy combines the benefits of a variable policy with a universal—or whole life—policy. One of the key risks of both types of policies is the fluctuation in cash value and death benefits due to the performance of investments. A key benefit is that both are allowed to grow on a tax-deferred basis, Both are governed by securities law and require a prospectus.
Variable Life Insurance
In a variable life insurance policy, the bulk of the premium is invested in one or more separate investment accounts, with the opportunity to select from a wide range of investment options—fixed-income, stocks, mutual funds, bonds, and money market funds. What's more, the interest earned on the accounts increases with the account's cash value. Risk tolerance and investment objectives determine the amount of risk to be undertaken.
Normally, insurers have their own professional investment managers supervising the investments. Therefore, the overall asset performance of the investment is generally the main topic of concern.
Variable Universal Life (VUL) Insurance
Variable universal life (VUL) insurance, as the name suggests, is a policy that combines variable and universal life insurance (i.e., flexible variable life insurance). This is one of the more popular insurance policies because it gives its policyholders the option to invest as well as alter the insurance coverage with ease.
As with universal life insurance, a policyholder has the ability to decide the amount and the frequency of premium payment, although within specific limits. You may also make a lump sum payment within certain limits, or use your accrued cash value toward premium payments.
Key Differences
Risks
A variable life policy is quite risky because the cash value and death benefits can fluctuate in accordance with the performance of the investment portfolio. Therefore, if the underlying investments perform well, the death benefit and cash value may increase accordingly. If the investments perform worse than expected, the death benefit and cash value may decrease.
A variable life insurance policy does offer a guaranteed death benefit, which will not fall below a minimum amount even if the invested assets devalue significantly. This guaranteed death benefit requires higher premiums, however. The funding of the death benefit will be done by applying an assumed rate of interest, usually around 4%. If the fund performance exceeds or declines beyond this assumed rate of interest, the death benefit will go up or down accordingly.
VUL policies allow the policyholder to increase and decrease the death benefit as they please. An increase in the death benefit calls for evidence that of good health, while a decrease in the death benefit may have surrender charges. There are two options of death benefit: fixed death benefit and variable death benefit. The variable death benefit is equal to the cash value at the time of death, plus the face value of the insurance.
Unlike universal life insurance, this policy offers the freedom to invest in a preferred investment portfolio. The policyholder can be a conservative or aggressive investor. The investment options vary among insurers, but almost all VUL policies consist of investment in stocks, bonds, money market securities, mutual funds, and even the most conservative option of guaranteed fixed interest. Thus, there is a possibility that the underlying assets provide negative returns.
Taxes
As with permanent life policies, the cash value of a variable life insurance policy grows on a tax-deferred basis. Many insurers allow premium payments to be paid via the accumulated cash value, which means a reduction in premium payment. However, if the investments perform poorly, less money will be accessible from the cash value, and more money will have to be paid in order to keep the policy in force.
Meanwhile, because it is a permanent life policy, VUL provides tax-deferred cash value and loan withdrawals, within certain limits, against the cash value. Normally, policy loans are tax-free, but you need to confirm this with your insurance advisor, as the tax implications may differ from one state to another.
Governing Bodies
Because a variable life policy deals with security investment risks, it is considered a securities contract and is governed by prevailing securities law. It is obligatory to read the prospectus carefully before investing in a variable life insurance policy.
Like variable insurance, due to their inherent securities risk, VUL policies must be sold with a prospectus and are governed by securities laws. You must carefully read the prospectus before buying a VUL policy.
The Bottom Line
An individual’s insurance coverage needs may change over time, and variable life insurance products do a good job of factoring in these potential changes. Variable life, as well as VUL policies, form a perfect hedge against inflation. For some, control over investments through variable life offers a desired edge, while others may prefer VUL for its high level of flexibility and the policyholder's openmindedness toward market fluctuations.
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f06014effb3ccbe5ce021513741a0d04 | https://www.investopedia.com/articles/pf/08/affordable-college-education.asp | How to Fund a College Education | How to Fund a College Education
How can you afford to fund a college education when the prices just seem to keep rising—unlike many people's incomes. Paying for college is a challenge for almost every family. But that doesn't mean it can't be done, preferably by getting started early and knowing what you're up against.
For the 2019 to 2020 academic year, undergraduate tuition, fees, and room and board were estimated to be close to $21,950 for an in-state four-year public college. At a private non-profit four-year college they were $49,870, according to the College Board. This is a considerable increase from the figures in 1989-1990, when the costs in 2019 dollars were $9,730 for a public four-year college and $25,900 for a private one, the College Board reports. The average tuition for a private nonprofit four-year institution at that time was $15,160, in 2019 dollars. For the 2019 to 2020 school year, it's $36,880, which is an increase of 143%. Ivy League schools like Harvard cost considerably more.
Although the financial aspects are daunting, the following tips are designed to dissuade you from skipping college because you are worried about the expense. Here are some strategies for making higher education part of your overall budget.
1. Choose Your School Wisely
The data shows that in-state public schools—or a public school in a surrounding state that has reciprocity for reduced tuition—costs much less than an out-of-state public or private school. If you are not satisfied with the quality of the state schools where you live, consider moving to a state with a school that you prefer and establishing residency.
To establish residency, you will have to meet strict requirements that vary by state and sometimes even by the school, but this may be worth it for the savings. Most states require you to live in the state for at least one year to be eligible, but there could be other criteria to meet.
In California, for example, it is difficult for students who do not have a parent living in California to establish residency before their mid-20s. In addition to living in-state for 366 days immediately before requesting resident status, potential students must provide documentation demonstrating an intent to make California their permanent state of residence such as a driver's license, ownership of property, or steady employment and financial independence.
If you can wait it out and meet these criteria, then you can attend quality schools at in-state rates.
2. Research Scholarships and Grants
A money-saving strategy that does not require postponing college is to apply to schools where you have unique characteristics they seek. For example, you might have an ethnic background that a school is looking for, a compelling academic expertise, or play a sport or a musical instrument that makes you stand out. Schools that see you as a valuable addition due to an unusual skill—or have bequests that support students with your characteristics—may provide a scholarship. Also look for national-level grants, such as the Pell Grant, to see if you qualify to apply.
Another tactic is to work in a field where you may be paid to go to college. Some companies provide tuition reimbursement or support for advanced training. So does the military—and some of those benefits are also available to spouses and dependents of service members.
3. Think About the Cost of Living
Keep in mind that housing and other living costs will vary by location. If you choose to live off-campus, your living expenses are typically much less. Geographically, an apartment in New York City will be much pricier than an apartment in the Midwest, and the college where you obtain your undergraduate degree can sometimes influence where you will end up working and living after school.
Therefore, consider where you want to live after graduating and the cost of living in that location. If possible, it should be a place where you would want to live, where the cost of living is affordable, and where your school will be a recognizable name that will allow you to get more mileage from your diploma. Various branches of the University of California may be considered terrific schools in the West, but may not be held in the same high regard in New York.
4. Don't Get Just Any Job to Pay for School
Make your after-school and summer jobs count by going after high-paying work. To find high-paying work—particularly in the summer when you may be free during business hours—seek out office jobs through temp agencies. Temp agencies do most of the job hunting work for you, and the office jobs they offer tend to pay above minimum wage, provide work experience closer to the situations you'll encounter post-college, and may give you connections that will help you land a meaningful internship or your first salaried position. Also, despite what the name implies, you can find both short and long-term jobs through temp agencies.
If you cannot get a high-paying job, get a job that will keep your living expenses down. If you work at a bakery, for example, any unsold goods at the end of the day may be fair game for employees since the business cannot sell day-old bread. Another possibility is to find a campus job that offers perks. If you can get a job in your school's residential life office, you may be able to get a discount on housing during the school year or the summer.
If you are still in high school, start working now and save all your paychecks for college. Presumably, you are still living at home, which is low cost, and you probably do not have high living expenses eating into your earnings as you will later on. Check if your high school has a program that will allow you to leave school at noon every day to go to work during your senior year. This will increase your job options—including opening up the possibility of a higher paying job—and allow you to work more hours.
5. Be Flexible with Your Schedule
Some college programs, such as engineering, are more intense than others, making it quite challenging to work while in school. For these programs, consider attending school part-time so you can still work part-time. Even if your program is not overly demanding, attending school part-time can help you spread out tuition costs and free up more time to work. However, part-time students may not have the option of living on campus, which can make it more difficult to be involved in the social aspects of college. Also, if you have student loans that requires you to be in school at least half time, be careful to meet these requirements so you don't trigger early repayment of your loans.
Another option is to take a year or two off after high school to work full time so you can save up enough money to make school affordable. If you don't want to postpone college, you could take your classes during evenings and weekends and work full-time during the week. This strategy will mean that your degree will take more than four years to complete, but it can be easier to budget, and you will gain valuable work experience as you go.
6. Qualify as an Independent Student
With the high cost of education, some parents may not be able to make significant contributions to a child's higher education. If you are older and meet the requirements, you may qualify as an independent student as defined by the Higher Education Act, which has a different definition of "dependent" than the Internal Revenue Service (IRS). Being an "independent student" under the Higher Education Act means that you could be eligible for financial aid because the financial aid formulas applied to this group do not take parental contributions into account. The requirements to qualify as an independent student are the following:
24 years or older by December 31 of the award year Orphan or ward of the court Armed Forces veteran or serving actively Graduate or professional student Married Dependents other than a spouse Student for whom a financial aid administrator makes a documented determination of independence because of other unusual circumstances
The Bottom Line
Although you may have to make some sacrifices to further your education, such as starting school later or staying in-state, you can still have the experience you want and attain a degree that will lead to a financially successful and stable future.
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13d4d6f8e56fb8ccdcb54e27d1991934 | https://www.investopedia.com/articles/pf/08/asset-protection-business.asp | Asset Protection for the Business Owner | Asset Protection for the Business Owner
As a business owner, you probably realize that operating and owning a business can be fraught with pitfalls and risks. Turning a profit isn't enough; you must also protect your business from claims and lawsuits. Debts and mortgage obligations to third parties and vendors, claims for damages caused by your employees, product or professional liability, and consumer-protection issues are just some of the risks you must deal with. If handled improperly, these risks could result in the loss of both business and personal assets. Knowing what risks you face and how to minimize or avoid them gives you the chance to run your business successfully.
Importance of Asset Protection
The goal of a comprehensive asset-protection plan is to prevent or significantly reduce risk by insulating your business and personal assets from the claims of creditors. Unfortunately, most small-business owners are unaware of all the potential risks that can harm their business and the options available to protect themselves. An asset-protection plan employs legal strategies, put in place before a lawsuit or claim arises, that can deter a potential claimant or help prevent the seizure of your assets after a judgment. If you haven't already put your asset-protection plan in place, don't wait. The longer the plan has been in existence, the stronger it likely will be.
(Read "Will Insurance Keep Your Business Safe?" to learn how to guard against the loss of skilled workers.)
Strategies used in asset-protection planning include separate legal structures or arrangements, such as corporations, partnerships, and trusts. The structures that will work best for you depend, in large part, on the kinds of assets you own and the types of creditors most likely to pursue claims against you.
Internal and External Claims on Assets
Internal claims arise from creditors whose remedy is limited to assets of a particular entity, such as a corporation. For example, if you have a corporation that owns a piece of real estate and someone slips and falls on the property owned by the corporation, the injured party is limited to pursuing the corporation's assets (i.e., the real estate). This assumes you did not cause the injury.
External claims are not limited to the assets of the entity and can extend to your personal assets. For instance, if the same corporation owned a truck that you negligently drove into a crowd of pedestrians, the injured could not only sue the corporation but also you, and satisfy any judgment from corporate assets as well as your personal assets.
Knowing the type of claims that can be made will allow you to better plan and protect your property from seizure and your wages from garnishment. It is also important to understand which types of assets are more susceptible to claims.
Asset Types
So-called dangerous asset, by their very nature, creates a substantial risk of liability. Examples of dangerous assets include rental real estate, commercial property, business assets, such as tools and equipment, and motor vehicles. Safe assets, on the other hand, do not promote a high degree of inherent liability. Ownership of stocks, bonds, and individually owned bank accounts do not incorporate risk by their very existence.
Safe assets can generally be owned by you individually or by the same entity since they carry with them a low probability of risk. However, you do not want to commingle dangerous assets either with other dangerous assets or with safe assets. Keeping ownership of dangerous assets separate limits exposure of loss to the individual asset.
For example, a medical practice has an obvious, inherent risk of liability. But did you know that if you own the building in which the practice is operated, that property may also be considered a dangerous asset? If both the practice and building are owned by you or by the same entity, liability arising from either asset could stretch to and include the other, exposing both your livelihood and property to risk of loss.
(For further reading, check out "Don't Get Sued: 5 Tips to Protect Your Small Business")
Asset-Protection Strategies
Many different strategies have been developed over the years claiming to protect assets. Some of these plans use long-standing legal entities to carry out their intent, while others are nefarious or even illegal, and promote a money-making scam on the innocent and uneducated. Some of the more common legal vehicles used for asset protection include corporations, partnerships, and trusts.
(Read "The Biggest Stock Scams of All Time" to learn from others' mistakes.)
Corporations
Corporations are a form of business organization created in accordance with state law. Legal ownership of the corporation vests in its shareholders, as evidenced by shares of stock. Generally, each shareholder is entitled to elect a board of directors charged with the overall management of the corporation. The board of directors elects the officers (the president, secretary, and treasurer), who are authorized to conduct the day-to-day business of the corporation. Many states permit a single individual to serve as sole director and to hold all of the corporate offices.
There are several types of corporations that are used to protect assets: business or C corporation, S corporations, and limited liability companies (LLCs). The appeal of corporations as an asset-protection tool lies in the limited liability provided to its officers, directors, and shareholders (principals). Corporate principals have no personal liability for corporate debts, breaches of contract or personal injuries to third parties caused by the corporation, employees or agents. While the corporation may be liable or responsible, a creditor is limited to pursuing only corporate assets to satisfy a claim. The assets of the corporate principals are not susceptible to claim or seizure for corporate debts. This protection from personal liability distinguishes the corporation from other entities, such as partnerships or trusts.
One prominent exception to the limited liability of corporate principals relates to providers of personal services. Personal service liability includes work done for or on behalf of another by doctors, attorneys, accountants, and financial professionals. For example, a doctor who forms a corporation and works for it as an employee may still be liable for damages attributable to the treatment of a patient even though he was working for the corporation.
(For related reading, see "Cover Your Company With Liability Insurance.")
In addition, liability protection offered by a corporation will be available only if the corporation carries itself as a separate and distinct entity, apart from the individual shareholders or officers. If a corporation has no significant assets, a creditor can attempt to prove that the corporation is not acting as a separate and distinct business entity but is the alter ego of its officers or shareholders. This strategy is called piercing the corporate veil, and if successfully proven, it allows the creditor to reach beyond the corporation to the assets of its shareholders.
(For more, read "Should You Incorporate Your Business?")
S Corporations
An S corporation is similar to a C corporation except that it qualifies for a special IRS tax election to have corporate profits pass through the business and be taxed only at the shareholder level. While the liability protection afforded to C corporations generally applies to S corporations as well, there are additional qualifications the S corporation must meet as to the number and type of shareholders, how profits and losses may be allocated among shareholders, and the kinds of stock the company can issue to investors.
Limited Liability Corporations
Due to the added formalities imposed on S corporations, this entity evolved. An LLC affords similar liability protection to corporate principals as a C corporation and the same "pass-through" tax treatment of S corporations, but without the formalities and restrictions associated with those corporation structures.
General Partnership
A general partnership is an association of two or more persons carrying on a business activity together. This agreement can be written or oral. As an asset-protection tool, a general partnership is one of the least-useful arrangements because each partner is personally liable for all of the debts of the partnership, including debts incurred by other partners on behalf of the partnership. Any single partner can act on behalf of the other partners with or without their knowledge and consent.
This feature of unlimited liability contrasts with the limited liability of the owners of a corporation. Not only is a partner liable for contracts entered into by other partners, but each partner is also liable for the other partners' negligence. In addition, each partner is personally liable for the entire amount of any partnership obligation.
Limited Partnership
A limited partnership (LP) is authorized by state law and consists of one or more general partners and one or more limited partners. The same person can be both a general partner and a limited partner, as long as there are at least two legal persons or entities, such as a corporation, who are partners in the partnership. The general partner is responsible for the management of the affairs of the partnership and has unlimited personal liability for all partnership debts and obligations.
Limited partners have no personal liability for the debts and obligations of the partnership beyond their contributions to the partnership. Because of this protection, limited partners also have little control over the day-to-day management of the partnership. If a limited partner assumes an active role in management, that partner may lose his or her limited liability protection and be treated as a general partner. This restricted control over the partnership business diminishes the value of limited-partnership shares.
Trusts
A trust is an agreement between the person creating the trust (referred to as the settler, trustor or grantor) and the person responsible for managing the assets of the trust (the trustee). The trust provides that the grantor will transfer certain assets to the trustee, who will hold and manage the assets in trust for the benefit of another person, called the beneficiary. A trust created during the life of the grantor is called an inter-vivos trust or living trust, while a trust created at the death of the grantor through a will or living trust is referred to as a testamentary trust.
While trusts have been used in many different asset-protection strategies, there are two basic types of trusts: revocable and irrevocable. A revocable trust is one in which the grantor reserves the right to alter the trust by amendment, or to dissolve a part or all of the trust by revoking it. The grantor has no such rights with an irrevocable trust. It's this precise lack of control that makes the irrevocable trust a powerful asset-protection tool. You can't be sued for assets you no longer own or control.
(For further reading, see "Pick the Perfect Trust" and "Establishing a Revocable Living Trust.")
Best Asset-Protection Vehicles
Now that you're familiar with the most common asset-protection structures, let's consider which vehicles work best to protect particular types of assets.
If you have a professional practice or business, your risk of loss and liability for claims is particularly high, making this type of business a dangerous asset. Incorporating your business or practice was once considered the best way to insulate your personal assets from liability and seizure resulting from claims against your business. However, the limited liability company has quickly replaced the standard business or C corporation as the asset-protection entity of choice, as it offers a more convenient, flexible, efficient and less-expensive alternative to the C corporation while providing the same level of protection.
Because LLCs are creatures of individual state law, the filing requirements and protections they offer may differ from state to state. But, for the most part, state law essentially separates the owners of the LLC and their personal assets for liability arising out of LLC activities.
Nevertheless, in many states, certain types of business professionals cannot afford themselves all of the protections offered by the LLC. Professionals, such as doctors, lawyers, dentists, and psychiatrists, to name a few, can't shield themselves from liability with either an LLC or a corporation for claims directly arising from their actions or inaction.
If the business entity cannot protect you personally, consider sheltering your personal assets in other entities, such as a family limited partnership (FLP), a trust or an LLC. Then, even if you are sued personally, at least some of your personal assets are protected within one or a combination of these entities, discouraging creditors from pursuing them.
A final note for professional practice or business owners: It is still worth your while to incorporate either with a C corporation or an LLC. While these business entities may not protect you from malpractice claims, they will shelter you from the financial obligations of the corporation, unless you personally guarantee the debt. You also may be protected from most other claims of the business not directly related to your actions as a professional, such as claims of employees, suppliers, landlords or tenants.
Picking a General Partnership
The answer is almost always an unequivocal "no." As a co-partner, you are responsible for all partnership debts and acts of the partners regardless of your participation or knowledge. Being part of a general partnership greatly expands the exposure of your personal assets to claims arising from your business relationship.
If you are part of a general partnership, strongly consider protecting your personal property as described above. Without some protection, you could lose everything because of your mere association with the partnership and other partners.
The Bottom Line
Creating and implementing a comprehensive asset-protection plan involves almost every aspect of your business. The goal of the plan is to protect your business assets within the framework of your business operations. Protecting your business is both allowed and encouraged, using honest, legal concepts and entities where appropriate. Extending these goals to intentionally deceive other businesses or individuals is not asset-protection planning - it's a fraud.
Consider the services of an asset-protection professional, such as an attorney or financial advisor, in developing an asset-protection plan that works best for you.
For related reading, see "Build a Wall Around Your Assets."
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f46314182be6459a608c37bc4db593b1 | https://www.investopedia.com/articles/pf/08/avoid-atm-scams-atm-fraud.asp | 5 ATM Scams That Can Break the Bank | 5 ATM Scams That Can Break the Bank
Over the last two decades, automated teller machines (ATMs) have become as much a part of the landscape as the phone booths made famous by Superman. As a result of their ubiquity, people casually use these virtual cash dispensers without a second thought. The notion that something could go wrong never crosses their minds.
Unfortunately, things are not always as they seem at the ATM. Most ATM scams involve criminal theft of debit card numbers and personal identification numbers (PINs) from the innocent users of these machines. There are several variations of this confidence scheme, but all involve the unknowing cooperation of the cardholders themselves.
The first step in avoiding these schemes is to become aware of them. Let's explore the most common ways people get ripped off at ATMs.
Key Takeaways ATM scams can involve stealing your debit card number or personal identification number. Popular scams that thieves use include using a counterfeit device for access to the door to the ATM and using a false facade on the front of the machine. Some criminals can swipe data from free-standing ATMs using cracking programs. Other forms of ATM scams include good old fashioned stealing the entire ATM or placing a fake deposit receptacle at the ATM and putting an “out of order” sign on the machine.
1:50 5 ATM Scams That Can Break The Bank
1. Every Little Thing It Does Is Magic
The most common scheme begins when a bank customer swipes their debit card in the device that opens the door to the ATM vestibule typically found in a bank's inner doorway. Because most people are unaware of precisely what this magnetic reader should look like, criminals can place a counterfeit device that reads and copies card numbers on the outside door without being detected by customers.
Once the customer is inside, a hidden surveillance camera records PINs as customers enter them on the ATM keyboard. The result of this information gathering is the illegal creation of a duplicate card that thieves quickly use to withdraw all the funds in the connected bank accounts as quickly as possible.
Detection of this particular fraud is difficult for the average consumer as there are several dozen manufacturers of legitimate swiping devices. Attempting to distinguish a real one from a fake is almost impossible.
2. Don't Stand So Close to Me
Another method of trickery involves the attachment of a false facade over the ATM machine. Though the machine looks normal, in reality, the attachment will "eat" your card and display an error message. Your PIN is usually recorded by a hidden camera, or in some cases, by a "helpful" person standing nearby who suggests that you try to enter your PIN again. Of course, this person is actually a criminal, and moments after you leave, they will retrieve your card from the false front of the ATM and walk away with both your card and the access code.
3. Ghosts in the Machines
Freestanding ATMs are also subject to criminal activity. These devices are located in areas as varied as airport terminals and self-service gasoline pumps. In some situations, criminal hackers are able to capture account information by using WiFi scanners and cracking programs to download transaction data when the systems fail to be protected by high-level encryption software.
The most audacious of ATM scams is the installation of machines whose only purpose is to steal information. This criminal confidence scheme was once a popular activity of organized crime circles. Seemingly normal ATMs would be placed in small shops, bars, and other venues. The machines were never actually loaded with funds, but instead were there solely to entice users to swipe their cards and enter their PINs. After collecting this information, an error message would appear. These seemingly innocent devices provided criminals with a steady flow of stolen banking information. Because of their placement in high-traffic areas, users did not realize that all users were unsuccessful at withdrawing funds.
4. Making the Best of What's Around
An old-fashioned scam that still reaps profits for criminals is the placement of a deposit receptacle in an ATM vestibule with a sign over the automated machine stating it is out of order. Here, the felon's goal is to capture cash deposits that were intended for the more secure electronic banking machine. While it may seem obvious that depositing money in this insecure fashion is a bad idea, the comfort, and trust that people have when entering a financial institution often allows them to suspend their suspicions as they believe that there is no safer place than a bank.
5. Demolition Men
Finally, criminals who are too impatient to go through the complex process of stealing bank accounts and personal identification numbers will simply steal an entire ATM. Typically, this crime occurs in the overnight hours inside a business, such as a supermarket. The thieves will break-in, use the store's forklift (which is normally used for the benign purpose of moving cases of beer and soda) to rip the ATM off the floor and load it onto a waiting truck. As a fully loaded ATM can hold as many as 10,000 bills, the total amount of dollars stolen can be in the tens of thousands.
The Bottom Line
Don't let a simple transaction like withdrawing money from an ATM be a way for thieves to get the best of you. To avoid scams like these, listen to the cautionary voices in your head and be careful when something seems amiss. Even in what seems like normal circumstances, shield the keyboard with your other hand when entering your PIN—it's no fun to be driven to tears by a crime you could have prevented. And of course, if you spot a scam in action, don't apprehend the criminals yourself—let the police deal with that.
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a575773f9620d01db93cccf8b63f9a69 | https://www.investopedia.com/articles/pf/08/bad-investment-advice.asp | How Bad Investment Advice Can Cost You | How Bad Investment Advice Can Cost You
Many investors still rely on their financial advisors to provide guidance and to help them manage their investment portfolios. The advice they receive is as varied as the background, knowledge and experience of their advisors. Some of it is good, some of it is bad, and some is just plain ugly.
Investment decisions are made in a world of uncertainty, and making investment mistakes is to be expected. No one has a crystal ball, and investors should not expect their financial advisors to be right all of the time. That said, making an investment mistake based on sound judgment and wise counsel is one thing; making a mistake based on poor advice is another matter.
Bad investment advice is usually due to one of two reasons. The first is centered around an advisor that will repeatedly place their self-interest before that of the client. The second reason leading to bad advice is an advisor's lack of knowledge and failure to perform due diligence before making recommendations and taking action. Each type of bad advice has its own consequences for the client in the short term, but in the long term they will all result in poor performance or loss of money.
When an Advisor Chooses Self-Interest Over Your Interest
Most financial advisors are interested in doing the right thing for their clients, but some see their clients as profit centers, and their goal is to maximize their own revenue. Although they all like to see their clients do well, in the case of self-interested advisors, their own interests will come first.
This will typically result in a conflict of interest and and can lead to the following bad moves:
1. Excessive Trading
Churning is the unethical sales practice of excessively trading on a client's account. Active trading is similar, but not unethical, and only a fine line separates the two. Advisors whose primary focus is to generate commissions will almost always find reasons to actively trade a client's account at the client's expense. Excessive trading almost always means realizing more capital gains than is necessary, and the commission generated comes directly out of the client's pocket.
Advisors who excessively trade on their clients' accounts know that it is far easier to get clients to sell a security at a profit than it is to get them to sell a security at a loss (especially if it is their recommendation). The net result can be a portfolio where winners are sold too soon and the losses are allowed to mount. This is the opposite of one of Wall Street's proverbs, "cut your losses short and let your winners run."
(For more insight, read Understanding Dishonest Broker Tactics.)
2. Using Inappropriate Leverage
Using borrowed money to invest in stocks always looks good on paper. The investor never loses money because the rates of the return on the investments are always higher than the cost of borrowing. In real life, it does not always work out that way, but the use of leverage is very beneficial to the advisor. An investor who has $100,000 and then borrows an additional $100,000 will almost certainly pay more than double the fees and commissions to the advisor, while taking all the added risk.
The extra leverage increases the underlying volatility, which is good if the investment goes up, but bad if it drops. Let's suppose in the example above, the investor's stock portfolio drops by ten percent. The leverage has doubled the investor's loss to 20 percent, so the equity investment of $100,000 is now only worth $80,000.
Borrowing money can also cause an investor to lose control of their investments. As an example, an investor who borrows $100,000 against the equity of their home might be forced to sell the investments if the bank calls the loan. The extra leverage also increases the portfolio's overall risk.
(For more insight, read about Margin Trading.)
3. Putting a Client in High-Cost Investments
It is a truism that financial advisors looking to maximize the revenues from a client do not look for low-cost solutions. As an example, a client who seldom trades might be steered into a fee-based account, adding to the investor's overall cost but benefiting the advisor. An unscrupulous advisor might recommend a complicated structured investment product to unsophisticated investors because it will generate high commissions and trailer fees for the advisor.
Many of the products have built-in fees, so investors are not even aware of the charges. In the end, high fees can eventually erode the future performance of the portfolio while enriching the advisor.
4. Selling What Clients Want, Not What They Need
Mutual funds as well as many other investments are sold rather than bought. Rather than provide investment solutions that meet a client's objective, a self-interested advisor may sell what the client wants. The sales process is made easier and more efficient for the advisor by recommending investments to the client that the advisor knows the client will buy, even if they are not in the client's best interest.
As an example, a client concerned about market losses may buy expensive structured investment products, although a well-diversified portfolio would accomplish the same thing with lower costs and more upside. A client who is looking for a speculative investment that might double in price would be better off with something that provides lower risk. As a result, those investors who are sold products that appeal to their emotions might end up with investments that are, in the end, inappropriate. Their investments are not aligned to their long-term objectives, which might result in too much portfolio risk.
(For related reading, check out Mutual Trading Funds for Beginners.)
When an Advisor Lacks Investment Knowledge
Many people have the mistaken belief that financial advisors spend most of their day doing investment research and searching for money-making ideas for their clients. In reality, most advisors spend little time on investment research and more time on marketing, business development, client service and administration. Pressed for time, they might not do a thorough analysis of the investments they are recommending.
Knowledge and understanding of investing and the financial markets varies widely from advisor to advisor. Some are very knowledgeable and exceptionally competent when providing advice to their clients, and others are not. Some advisors might actually believe they are doing the right thing for their clients and not even realize that they are not.
This type of poor advice includes the following:
1. Not Fully Understanding Investments They Recommend
Some of today's financially engineered investment products are difficult for even the savviest financial advisors to fully understand. Relatively simple mutual funds or exchange-traded funds still require analysis to understand the possible risks and to ensure they will meet the client's objectives.
An advisor who is very busy or who does not have the highest financial acumen might not truly understand what they are recommending or its impact on the individual's portfolio. This lack of due diligence could result in concentration of risks of which neither the advisor nor the client is aware.
2. Overconfidence
Picking winners and outperforming the market is difficult even for the seasoned professionals managing funds, pensions, endowments, etc. Many financial advisors — a group not lacking in confidence — believe they have superior stock-picking skills. After a strong market advance, many advisors can become overconfident in their abilities — after all, most of the stocks they recommended saw price increases during that period. Mistaking a bull market for brains, they start recommending riskier investments with greater upside, or concentrating the investment in one sector or a few stocks. People who are overconfident only look at the upside potential, not the downside risk. The net result is that clients end up with riskier, more volatile portfolios that can turn down sharply when the advisor's luck runs out.
(For more on the psychology of investing, read Understanding Investor Behavior.)
3. Momentum Investing - Buying What's Hot
It is easy for financial advisors and their clients to get carried away in a hot market or a hot sector. The technology bubble and consequent burst of 1999-2002 demonstrated that even the most skeptical investors can get caught up in the euphoria surrounding a speculative bubble.
Advisors who are recommending only the hottest investments of the moment, such as bitcoin, to their clients are playing into clients' greed. Buying a surging security provides an illusion of easy money, but it can come with a cost. Momentum investing typically results in a portfolio that has considerable downside risk, with a potential for large losses when the markets turn.
4. Poorly Diversified Portfolio
A poorly constructed or diversified portfolio is the cumulative result of bad advice. A poorly diversified portfolio can take a number of different forms. It might be too concentrated in a few stocks or sectors, resulting in greater risk than is appropriate or necessary. Similarly, it could be over-diversified, resulting in, at best, mediocre performance after fees are deducted.
Often portfolios are too complicated to understand — this could mean that risks are not apparent. They may become difficult to manage and investment decisions cannot be made with confidence. At best, a poorly constructed portfolio will result in mediocre performance and, at worst, it could suffer a large drop in value.
(For more insight, see The Importance of Diversification.)
The Bottom Line
Bad advice frequently results in poor performance or loss of money for investors. When choosing an advisor (or evaluating the one you have), stay alert for clues that might indicate that the advisor is not working in your best interest or is not as competent as you would like. After all, it's your money. If you're not happy with how you're being advised to invest it, it could pay to take it elsewhere.
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dd07ae09364fcd830cd989458e408605 | https://www.investopedia.com/articles/pf/08/business-insurance-coverage.asp | Insurance Coverage: A Business Necessity | Insurance Coverage: A Business Necessity
Even when cash is scarce, or revenues down, small businesses shouldn't neglect their insurance needs. Businesses that are underinsured or without broad, proper, and adequate coverage are taking needless risks that could lead to serious financial problems, or even bankruptcy. In a crisis, a business that has no insurance or is underinsured can be totally destroyed.
Key Takeaways Small-business owners need to have broad, adequate insurance and should periodically review and update their coverage as their circumstances change.Policies available to small businesses include business owner's, product liability, professional malpractice, and commercial insurance.A homeowners policy can be an important complement to a business owner's policy, but it usually doesn't cover claims related to a business conducted in the residence.Minimum insurance requirements for a business are often imposed by the state in which it is located.
Insurance Basics
Insurance policies are contractual agreements between the insurer and the insured. The contract will detail such information as:
What is insuredThe cost of the insuranceThe conditions under which a claim may be madeThe terms of payment if the claim is honored
Most insurance policies have deductibles—the amount of money the insured must pay toward a claim before the insurance company pays anything. Usually, the higher the deductible, the lower the premium—or cost of the insurance. Premiums may be paid on a variety of schedules, including annually (the most common), quarterly, or monthly.
Policies will also indicate the period of time that they will be in force. In most cases, the insurance company, agent, or broker from whom the business owner bought the insurance will alert them when it needs to be renewed. But, just in case, it's worth noting the date on a calendar and renewing by the deadline, so there is no gap in coverage.
Types of Business Insurance Coverage
There are a number of types of insurance that business owners may want to consider. The appropriate choices will depend on the kind of business, its size, and its particular risks.
Business Owner's Insurance
A business owner insurance policy offers small and midsize companies broad protection against financial loss. If their property is damaged by fire or flooding, for example, the insurance company may pay the cost of repairs It might also cover the owner's legal liability for bodily injury to someone if the business is held accountable.
Exactly what business owner insurance covers will be specified in the policy. An all-risk policy, which covers every eventuality except for specifically cited exclusions, offers more protection than a named-perils policy, which only covers the risks it names.
Among the risks that may be covered in a business owner's policy are:
FireFlooding (for instance, when a pipe bursts; for natural disasters, you'll need to get flood insurance )Other sources of property damageTheftBodily injuryBusiness interruption for specified reasons
Product Liability Insurance
This type of insurance, obtained at additional cost, may be a necessity if you sell a product that has the potential to injure a user. Even if you did not design, manufacture, or distribute the product, if you sell it and it injures someone, you may have legal liability that should be covered.
Commercial Insurance
A commercial insurance policy may be required if your business is larger and more complex than a simple single-owner or partnership retail operation, or is a service-oriented business or professional practice. (A professional practice may also require malpractice insurance, which is covered below.)
Businesses that may require a commercial insurance policy include manufacturers, restaurants, and commercial real estate operators. A commercial policy is typically more expensive than a business owner policy because the risks are correspondingly higher and potentially more costly to the insurance company.
Professional Malpractice Insurance
Professions that give advice and/or provide services may require professional malpractice insurance to protect themselves from substantial liability in the event of a lawsuit.
MedicineDentistryLawAccountingAdvertisingFinancial planningOccupational therapyComputer analysisJournalismPsychotherapyReal estate
Insurers calculate premiums for malpractice insurance based on actuarial data for risk, dollar damages, and other relevant factors. Prices vary widely depending on the profession, its subspecialties, and the specific services or advice offered. Neurosurgery, for example, is a profession that carries a high premium for malpractice insurance, while a single-owner, private-practice accountancy would normally pay a smaller premium.
Homeowners Insurance
Home-based businesses that are run from a private residence need to have a comprehensive homeowners policy as a complement to business owner's insurance.
Coverage typically includes:
Home or personal-property damage caused by fire or stormsMedical costs of occupants' injuries caused by fire, storms, wind, and lightningMedical and legal expenses of other persons accidentally injured in the insured homeLoss or theft of specified personal property, either in or away from the insured home
However, a homeowners policy doesn't cover claims related to a business conducted in the residence. For example, if a customer or delivery person is injured on the premises, any claim arising from that injury would not be covered by the homeowners policy.
Under certain circumstances, if you have a home-operated business in which risks are minimal, you can ask to have a low-cost rider or endorsement added to your homeowners policy to cover damage to your business assets. However, some insurers will not let you cover your business if your customers, employees, or vendors visit your home. Coverage also may not apply to costly equipment or inventory used or stored on the premises, or if hazardous or combustible materials are used or stored there.
Just as it's a mistake be uninsured or underinsured, being overinsured can be a costly waste of money for a business.
The Dollar Amount of Coverage
The dollar amount of coverage for property damage or loss should be consistent with the replacement cost of the properties involved, including your home if applicable. Liability coverage is more difficult to calculate, so it's useful to consult with a knowlegeable agent or broker, especially one who is familiar with your type of business.
Some states also impose minimum insurance requirements for businesses. Your agent, broker, or state insurance department can provide the details.
The Bottom Line
If you run a business, you should discuss your insurance needs in detail with a knowledgeable insurance agent or broker and be completely candid in describing the business so that whatever coverage you buy will be adequate. Make sure you know what's covered and what isn't—and review your coverage periodically as your business evolves. Once you know exactly what kind of policy or policies you need, you can compare prices from different insurance companies and look for the best value.
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88d38716c7203432d17c37cacc273341 | https://www.investopedia.com/articles/pf/08/buy-sell-online.asp | Shopping Online: Convenience, Bargains, and a Few Scams | Shopping Online: Convenience, Bargains, and a Few Scams
Online buying and selling have become important parts of many people's lives. Virtual stores allow people to shop from the comfort of their homes without the pressure of a salesperson. Online marketplaces provide a new and more convenient venue for exchanging virtually all types of goods and services.
Both businesses and customers have embraced online sales as a cheaper and more convenient way to shop. Still, just like anything associated with the Internet, there are benefits and dangers associated with shopping online. Read on to learn how to protect yourself while you use this handy resource.
Key Takeaways Due to the high cost of college, students and parents rely on the Internet to acquire and sell textbooks at affordable prices.Online shopping is a large section of the retail industry.Most brick-and-mortar stores offer online shopping via their websites. Many stores offer a virtual customer service experience to their customers. Buying and selling online can be very convenient and fun, but make sure to protect your financial information when shopping online.
How Does Online Buying Work?
Shopping online is just like heading out to the store. You can often buy the same products online as available in a brick-and-mortar store and can sometimes score better sales.
Finding a Product
When you shop online, you have to start by searching for a product. This can be done by visiting a store's website, or if you are not aware of any store that has the particular item you are looking for, or you'd like to compare prices between stores, you can always search for the items with a search engine and compare the results.
On major retail websites, companies will have pictures, descriptions, and prices. If a company or individual does not have the means to create a website, some sites like Amazon and Etsy make it possible for them to display products or build their own online stores for a monthly fee.
Other websites like eBay provide an auction format in which sellers can display items for a minimum price, and buyers can bid on these items until the listing ends or the seller chooses to award it to a buyer. Most stores also have placed virtual customer service centers on their websites, so you can either call, email, or chat with a live customer service representative if you have questions.
Buying and Receiving the Product
After selecting a product, the webpage usually has a "checkout" option. When you check out, you are often given a list of shipping and payment options. Shipping options include standard, expedited, and/or overnight shipping. Depending on the shipping company and your location, standard shipping usually takes seven to 21 business days, and expedited shipping can take anywhere from two to six business days.
There are typically various payment options available:
E-Check
This payment option is just like paying directly from your bank account. If you choose to pay by electronic check, you must enter your routing and account numbers. Once this is done, the amount is taken directly from your bank account.
Credit Card
When you pay by credit card, instead of swiping your card as you would at a brick-and-mortar store, you type the required credit card information into the provided fields. Required information includes your credit card number, expiration date, type of card (Visa, MasterCard, etc.), and verification/security number, usually the last three digits on the back of the card above the signature.
Payment Vendors
Payment vendors or payment processing companies, such as PayPal, are e-commerce businesses that provide payment exchange services. They allow people to transfer money to one another without sharing financial information safely. Before you purchase through a payment vendor, you'll need to set up an account first to verify your credit card and/or financial institution information.
Advantages of Online Trading
There are a lot of benefits gained from buying and selling online. These include:
Convenience: It is very convenient to shop from where you are located.Cost Savings: With ever-increasing gas prices, shopping online saves you the cost of driving to stores, as well as parking fees. You will also save time by avoiding standing in line, particularly around the holidays, when stores are busy and packed with customers.Variety: The Internet provides sellers with unlimited shelf space, so they are more likely to offer a wider variety of products than they would in brick-and-mortar stores.No Pressure: No salesperson is hovering around and pressuring you to purchase in a virtual or online store.Easy Comparison: Shopping online eliminates the need to wander from store to store comparing prices.
Disadvantages of Online Trading
There are also disadvantages to buying and selling online. These include:
Increased Risk of Identity Theft
When paying for your goods online, it can be straightforward for someone to intercept sensitive information, such as credit card numbers, home address, phone, and other account numbers.
Vendor Fraud
If the vendor/seller is fraudulent, he or she might accept your payment and either refuse to send you your item or send you the wrong or a defective product. Trying to rectify an incorrect order with a vendor through the Internet can be a hassle.
U.S. consumers can report fraud, abuse, and incidents of identity theft with the Federal Trade Commission (FTC).
Protecting Yourself While Shopping Online
Overall, the advantages of shopping online outweigh the disadvantages. That said, it is important to note that while they might be smaller in number, the disadvantages can be a major hardship.
While shopping online, it is essential to protect yourself and your information. Here are some tips that can help you take care of yourself:
Invest in Technology
It is a great idea to install antivirus and anti-phishing programs on your computer. An antivirus program will protect your computer from viruses. An anti-phishing program will attempt to protect you via cybersecurity from illegitimate sites that are designed to look like legitimate sites but actually collect your personal information for illegal activities.
Be Careful
Vendors do not have the right to ask for certain information. If a website requests your Social Security number, it is probably a scam. You will need to research the company requesting the information or exit that site as quickly as possible.
Research
If you are searching for an item using search engines, and you encounter a store or a website you have not heard about, make sure you check the bottom of the pages for an SSL logo.
SSL is a standard security technology for establishing an encrypted link between a web server and a browser. To be able to create an SSL connection, a web server requires an SSL certificate.
Shipping Check
Always read shipping policies posted on the seller's website or beneath the product listing. Some sellers allow you to return an item within a specific period of time, while other vendors never accept returns.
The Bottom Line
Buying and selling online can be very convenient and rewarding, but you always have to protect yourself. If a deal looks too good to be true, it usually is. If you don't feel 100% secure on a particular site, leave it, and find something else. Also, make sure that your computer is well protected before you begin any transaction that involves sensitive information. Many scams on the Internet can negatively affect your credit score and cost you money, so be proactive in your research to get the most out of shopping online.
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3ffcd48f24ad7fa807710765f7915ab6 | https://www.investopedia.com/articles/pf/08/close-credit-card.asp | Should You Close Your Credit Card? | Should You Close Your Credit Card?
With rising living costs and ever-higher credit card interest rates, you may decide you can improve your financial well-being and limit your debt by closing credit cards. Before you do that, though, it’s important to understand the impact that closing a credit card will have on your credit score, including what will happen to any credit history associated with the closed card. Often, there may be smarter ways to achieve your goal of lower costs and less debt.
Why People Close Credit Cards
Here are some of the most common issues that prompt people to close a credit card:
Excessive spending: If you feel you are spending too much money, you may figure the best way to regain control and resist the allure of seemingly painless spending with plastic is to close the credit card account. Inactive cards: If you’re no longer using a card, you may think it’s best to close the account, especially if you’re paying an annual fee on the card.Protection against identity theft: Some people may close a credit card account with the goal of reducing the chance that their identity will be stolen. High interest rates: You may close the account to avoid them.Carrying a high balance: As a form of damage control, some people decide to close a credit card when they have a high balance on it.
How a Closed Card Affects Your Credit Score
Closing a credit card account is not always the only – or the best – way to solve these financial issues. That’s because closing an account may affect your credit score – and not in a good way – depending on your credit history and the current state of your balance relative to your credit limit, also known as your credit utilization ratio. Here’s how:
Credit History
If you have a terrible history on a card, the temptation to close an account may be high. The Fair Credit Reporting Act mandates that negative history remain no longer than seven years – or 10 years for a bankruptcy. You close the account, your thinking goes, and in seven years the negative information will be erased. But that’s true if you keep the account open, too – and work on turning that bad account into a good one by paying off debt and making each monthly payment on time. By closing the account, you’ll increase your balance/limit ratio, causing further damage to your credit score.
Balance/Limit Ratio
Your balance/limit ratio, or your credit utilization ratio, is simply your credit card balance divided by your credit limit. (If your balance is $200 and your credit limit $1,000, your credit utilization ratio is 20%.) This ratio is important because creditors and lenders look at it when considering extending additional credit to you or giving you a loan. They like to see that you are making wise use of the credit you currently have.
In fact, how much of your available credit you are using is the basis for 30% of your credit score. When assessing your balance/limit ratio, creditors want to see a low balance in comparison with your limit. (FICO suggests that you keep your balance/limit ratio as low as possible.) As your balance/limit ratio increases, your credit score decreases because you are seen as being at greater risk of overextending yourself financially.
Reasons for Keeping a Credit Card Open
So before closing a credit card account, take a good look at your credit report and assess how closing the credit card will affect your credit score. Sometimes there are good reasons to keep an account open. For instance:
The card shows a good history of payment: A good payment history helps increase your credit score, so if you have maintained a solid record of on-time payments on an account, leave that card open. This is especially important if you have a poor history with other cards or forms of credit.You’ve had the card awhile: Length of credit history is another important factor in calculating your credit score – longer credit history can mean a higher score. If the card in question is one of your older ones, removing it will lower the average age of your credit so your credit score may be better off if you leave the account open.You only have one credit source: One part of your credit score takes into account the different types of credit you own. If you have no other cards or loans, it is not a good idea to close your only credit card.
Instead of Closing a Card, Consider This
Here is what you might do instead, in five different scenarios.
When You Want to Rein in Spending
Instead of closing the account, you may be better off cutting up the card to resist further spending rather than closing the account. That way, you can avoid a possible hit to your credit rating, which could jeopardize future financial needs.
When You Have an Inactive Card
If the card has no annual fee, you may want to keep it open, especially if you’ve had it for a while, so that its history remains part of your credit report. Keeping it open can also help your credit score in another way – by improving your credit utilization ratio. If you have three open credit cards with a combined $6,000 credit limit and a combined $2,400 balance, for example, you have a 40% credit utilization ratio ($2,400/$6,000). By keeping open an inactive credit card with a $1,000 credit limit and a $0 balance, your balance/limit ratio becomes a more appealing 34% ($2,400/$7000). If you are paying an annual fee on a card you never use, it may make sense to close it. But first, call the credit card company and ask that it be changed to a no-fee card. Often, they will work with you, not wanting to lose a customer. That way, you’ll avoid any impact on your credit score.
When You Need to Manage High Unpaid Balances
If you close a credit card that has a credit balance, your available credit or credit limit on that card is reduced to zero, making it appear that you have maxed out the card. A maxed-out card – even a card that only appears to be maxed out – will have a negative impact on your credit score because it will increase your credit utilization ratio. If you’re worried about accumulating more charges on an already high balance, once again it may be better to cut up the card than close it.
When Your Card Has a High Interest Rate
Keep in mind that if you still have an unpaid balance on a credit card with a high interest rate, closing the card will not stop the accumulation of interest on the unpaid balance. A better solution may be to call your credit card company to ask for a lower interest rate, especially if you’ve had the card awhile and your credit rating has improved since you got it. You also can work toward paying off your entire balance each month. Think of it this way: If you never carry a balance from month to month, it doesn’t matter what your interest rate is. Your annual interest charges will still be zero.
When You Are Dealing With Identity Theft
There are more effective ways to protect your identity than closing down a credit card account.
The Bottom Line
Remember, whatever your reasons for closing a credit card, there are often smarter alternatives that will leave your credit rating intact and keep you on a path toward sound financial health. Be informed about the actions that can affect your credit score and act accordingly. Visit AnnualCreditReport.com and get the free credit report that you’re entitled to by law once a year from each of the three credit reporting bureaus. Obtaining your credit score is not usually free, although several banks now give cardholders free access to their FICO scores. Also, when you order your score in conjunction with your free annual credit report, the cost is often lower.
By being an informed consumer, you improve your financial health and become a more attractive applicant to new lenders and creditors the next time you need to borrow money.
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8f177344558a54fd75c3007c01934a31 | https://www.investopedia.com/articles/pf/08/cost-car-ownership.asp | The True Cost of Owning a Car | The True Cost of Owning a Car
Everyone knows cars are expensive. In addition to the cost of acquisition, there's maintenance, insurance, and the average gas cost per year, which seems to continually increase. We all know that those costs add up, but few of us know exactly how much it really costs to own a car. Let's take a look.
Key Takeaways Buying a car can be expensive, but owning a car will still cost you even if you only buy a cheap clunker. Insurance, registration, and emissions tests are all fees that many states require drivers to get. In addition, there are ongoing and routine costs such as gasoline, replacement parts, and repairs.
Government Estimates
According to Consumer Expenditures in 2019 by the U.S. Department of Labor's U.S. Bureau of Labor Statistics, the average vehicle costs $9,576 per year to own and operate. The breakdown of the figure comes to $4,054 for purchasing the vehicle, $1,968 in gasoline and motor oil expenses, and $3,554 in other vehicle-related costs.
Statistics From the American Automobile Association
The American Automobile Association (AAA) also compiles statistics on the cost of driving and has been doing so since 1950. In its 2018 Your Driving Costs survey, it summarizes the cost of gasoline, maintenance, insurance, license and registration, loan finance charges, and depreciation costs for a variety of vehicles.
2018 Model 10,000 Miles per Year 15,000 Miles per Year 20,000 Miles per Year Small Sedan 55 cents 42.3 cents 37.1 cents Medium Sedan 71.6 cents 54.4 cents 47.1 cents Large Sedan 82.2 cents 62.6 cents 54.4 cents 4WD SUV 82 cents 63 cents 55.2 cents Minivan 80.2 cents 60.9 cents 52.7 cents
According to AAA, the average person spends $8,849 per year for the privilege of driving. The numbers also don't include the cost of parking.
Minimize Your Costs
Regardless of how much you spend on your car each year, less is always better. Although eliminating all spending on transportation isn't practical or possible for most people, there are steps that can be taken to keep your costs low.
For starters, if you don't drive much, leasing a vehicle may be right for you.
If public transportation goes to the places that you need to be, you should seriously consider its merits. Not only does somebody else do the driving, but taking public transportation can often reduce your monthly transportation expenditures by a significant amount. Buses, trains, subways, and vanpools all provide relatively inexpensive alternatives to driving yourself to work, and you don't have to pay for their maintenance.
Carpools are another great option. Just because you own a car doesn't mean you always need to drive it. Taking turns with a friend can save you money on the average gas cost per year and save wear and tear on your vehicle.
If you work odd shifts or can't access public transportation, you might have no choice but to own and use your own vehicle. If that's the case, think small. Remember those numbers you looked at earlier? Driving a small sedan is likely to cost in the neighborhood of 50.5 cents per mile versus 81.5 cents for a gas-guzzling SUV, which amounts to a 30% savings per year! It's also a good move for the environment and, since you have to breathe the air too, a good move for your health.
Similarly, don't pay for an eight-cylinder engine when four cylinders will work just fine. Unless you're hauling heavy loads on a routine basis, the extra cost of a bigger engine results in more money spent on gasoline.
Whatever you are driving, make a conscious effort to drive it less frequently. Walking or biking to local destinations is good for your health and good for your budget. When you do drive, consolidate your trips. Go to the shopping center, the bank and the dry cleaner all in the same trip instead of making three separate trips.
Conclusion
Regardless of how you get from place to place, pay attention to how much you are spending. This includes ancillary costs, such as car insurance and regular maintenance. By keeping an eye on your expenses, you can keep more money in your pocket.
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49d47204d12c44af0c649965b7ec0280 | https://www.investopedia.com/articles/pf/08/credit-scams-online.asp | Credit Scams to Watch Out For | Credit Scams to Watch Out For
At least once a month, there is a story in the news involving various credit scams and their victims. If it happens to you, repairing the damage can be very time-consuming and inconvenient, so it's important to avoid credit scams before you become a victim. This article will outline some of the more common scams and what you can do to protect yourself.
Key Takeaways Credit scams are very common and require consumer awareness and diligence to avoid becoming a vicim.Fraud can involve simply losing money but many scams are designed to steal consumers' identities.Common sense is often the best defense - never respond to anyone representing themselves as an authority over the phone or online that demand payment - especially by gift card.If you suspect fraud or believe you are a victim of a scam you can file a complaint with the Federal Trade Commission.
Credit Repair Scams
Advertisements in newspapers and on TV talk about credit repair services that promise, for a fee, to erase bad credit history or repair bad credit. The problem with the promises made by these credit-repair companies is that no one can legally remove negative credit information from a credit file. Most of the time, these companies collect thousands of dollars from people and simply vanish with the money. The only legitimate way to repair bad credit is by repaying any debt owed.
If you can't afford to pay off all your debt, contact your creditors and ask about setting up a payment plan for your debt. If you have problems setting up a payment plan with your creditors, contact a credit counseling organization. You can get a free copy of your credit report each year from each of the credit bureaus at http://www.annualcreditreport.com/. If there are any errors on any of your credit reports, contact the consumer reporting companies (Experian, Transunion and Equifax) directly. Alternatively, if you don't have the time to reach out to the three credit agencies and are willing to pay a fee, any one of the best credit repair companies can do so on your behalf.
Advance-Fee Loan
An advance-fee loan scam typically involves a lender making false promises to arrange low interest. The lender often asks for upfront fees from applicants to arrange these bogus loans. Sometimes, the lender collects information from applicants and applies for a legitimate loan. Later, the lender tells the applicant that the loan was declined and he or she disappears with the applicant's money and identity.
No one with poor credit can get low interest loans from legitimate lending institutions. Because they are unsure about the chances of getting their money back, creditors are wary about issuing low interest loans to applicants with poor credit. In general, the only way to get a loan if you have poor credit is with higher interest rates.
Credit Insurance Scams
Credit insurance is offered by loan and credit card companies. The purpose of the insurance is to protect debtors who cannot pay off their loans or lines of credit due to death, disability, unemployment or health-related emergencies.
There are fraudulent companies that offer credit insurance at a lower premium loan institutions would typically offer. The problem is that these fraudulent organizations collect premiums and never fulfill their obligation when the client is legitimately unable to pay off a loan. To protect yourself, make sure that you thoroughly research a company and that when you sign loan papers you make sure that credit insurance is optional and that a cancellation policy exists.
Unauthorized Billings
Individuals can set up automatic payment schedules with different companies so that various bills are deducted from bank accounts or collected from credit cards. This method of bill payment is very convenient and also very risky. Many situations have occurred in which the companies increase monthly charges or introduce new charges without notifying their clients. You have to be very diligent when it comes to bills and credit card statements. Taking some time to carefully crosscheck statements against known expenses might be a bit inconvenient, but it will help you notice any discrepancies sooner, which might go a long way in successfully disputing those payments.
Identity Theft
Identity theft occurs when someone illegally obtains sensitive information, like credit card numbers and Social Security numbers (SSN), and proceeds to take out loans, apply for credit cards, or make purchases. When the scam artist defaults on a loan, the real owner of the identity is contacted by creditors and held responsible for the loans. To avoid being a victim of identity theft, it is important to take good care of personal information. Some preventive measures include:
Review credit reports at least once a year. The three consumer reporting agencies are required by law to give you a free copy of your credit report once a year. Just go to http://www.annualcreditreport.com/ to start the process.Shred all documents that contain information like account numbers and Social Security numbers. Buying a shredder does not cost a lot and it will save you a lot of trouble.Consider utilizing one of the best credit monitoring services to watch for suspicious activity on your credit reports. Several of these services also offer identity protection tools.If you are already a victim of identity theft, you can find instructions for filing disputes by going to the Federal Trade Commission website.
File Segregation
File segregation is a scheme that offers a new credit identity to someone who has bankruptcy on their credit record. Usually, the scammer offers the victim a new Social Security number or Employer Identification Number (typically used by businesses) and instructs the victim to fill out loan documents using the new numbers. What the scammer does not tell the victim is that obtaining a new credit identity is illegal and punishable by law.
The scam artist lures victims by saying that having declared bankruptcy makes it impossible to obtain loans and credit cards for up to 10 years. While a bankruptcy will indeed remain on your credit report for 10 years, you continue to have the possibility of obtaining loans. Different legitimate creditors have different criteria for choosing clients and they might offer a loan to at a slight higher interest rate than normal to someone who has declared bankruptcy.
Phishing
Phishing is a fraudulent process of attempting to acquire sensitive information, such as usernames, passwords and credit card details, by posing as a trustworthy organization in an email or by duplicating legitimate websites and luring unsuspecting victims into entering their sensitive information. Here are some protective measures you can take:
Beware of websites that pop up from an email, asking for sensitive information.Most banks and credit institutions have legitimate websites. If you must conduct business with them online, go directly to the website by typing it in and don't follow any links you are unsure of.
Phishing and spoofing scams often pop up around tax season and can involve fraudsters claiming to be from the IRS and demanding payment for unpaid taxes - often in the form of sending a gift card. The IRS has stated that they do not initiate contact with taxpayers by phone, email or social media and only communicate through the U.S. Mail.
If you are already a victim of phishing or you suspect that a website you visited is fraudulent, contact the genuine company and freeze your accounts if you have to. Also, make sure to change your passwords to all your online accounts.
Work-At-Home Schemes
Some fraudulent websites offer the secret of success or a laundry list of legitimate work-at-home jobs. Sometimes, a company offers a position in the company and a "get rich quick" promise. Often, the company requests fees and specifies that the fees be paid online with a credit card. The company then steals the credit information and uses it for fraudulent purposes. If you need a list of work-at-home opportunities, there are websites that offer them free of charge. One fact that you must always remember is that no legitimate company will charge a fee for hiring you.
Online Dating Schemes
As weird as it sounds, fraudulent activities are also perpetrated by online dating sites. The FTC has estimated that consumers lost over $200 million to online dating schemes in 2019. These sites usually ask for a fee for their services, and in addition to collecting fees, they steal information about the user of their services. Legitimate and fraudulent dating websites exist, so always conduct a thorough investigation before choosing one and paying for these online services.
Lottery Scams
This scam occurs when a consumer receives an email message notifying him or her of a lottery or contest that he or she may not recall entering. The email often requires the consumer to pay a minimal fee by using a credit card in order to access the winnings. The scam artist collects the fee and credit card number and disappears. No legitimate lottery operation will ask a winner for a fee or for information such as a credit card or bank account number.
Be Careful
Recovering from the effects of a credit scam can be slow and very tedious. As the saying goes, an ounce of prevention is worth a pound of cure, so always be sure to protect yourself and any sensitive information. For more information about various credit scams, how to protect yourself from them and what to do if you are a victim of a credit scam, visit the Federal Trade Commission website. You can also file a complaint with the FTC online or by phone .
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106584243ac2e148b49ae5a70b73e2fd | https://www.investopedia.com/articles/pf/08/deal-with-debt-collectors.asp | Outfox the Debt Collector's Hounds | Outfox the Debt Collector's Hounds
Debt collectors have two subtle weapons at their disposal: fear and ignorance. Many people dread the midnight phone calls or the embarrassing workplace confrontations, not realizing that these old standby threats are just that – threats. As you'll learn, these practices and other tricks of the debt collection trade are actually illegal. Being pursued by debt collectors can be scary, but it doesn't have to be if you understand your rights and the limitations put on collection agencies. Read on to learn how to handle the initial contact, how to properly communicate with a collection agency, what your rights are and what constitutes abusive behavior on the part of a debt collector.
Handling Debt Collection Phone Calls
Your first line of defense is knowing what to say and what to avoid saying in any communication with a debt collector. Don't let a collector that contacts you by phone catch you off guard: put the ball back in the collector's court by asking the caller these key questions:
The caller's name. The name of the collection agency that the collector is calling on behalf of. An address at which you can contact the collection agency. The name of the creditor. The amount the collector claims you owe.
Make sure to get as much information about the caller as possible while avoiding answering any questions or giving out information about yourself. It's always wise to avoid discussing your finances with an unknown caller, no matter how authoritative they may seem.
During this initial contact, make sure to avoid saying anything that could be considered an admission that the debt is yours. Some debts that collectors claim you owe might not be legitimate because of identity theft, billing errors or an expired statute of limitations. Not only should you avoid forking over money that you aren't legally obligated to pay, but paying the debt could have a severely negative effect on your credit score.
End the conversation by asking the caller to send you a letter stating what they claim you owe. The caller should already have your address; if the person does not, don't give it out. The fact that the person doesn't have your address could mean there's foul play. Getting all of the information in writing allows you to verify whether you owe the debt and, if you do, that the amount is correct. To further protect yourself, from the first time you are contacted by a debt collector, you should start a file to keep a detailed log of any phone calls and copies of all correspondence.
Handling Debt Collection Letters
If the collector's initial contact is by letter, the details of the debt should be stated in the letter. If the letter is vague, write (don't call) to get the details. Include a copy of the letter you received and don't provide any information about yourself in the letter that the collector does not already have.
When following up with the collection agency's initial contact, send your letter with a service that requires signature confirmation of delivery. Communicating by mail allows you to keep a detailed and accurate record of your interactions with the agency, and with signature confirmation, they can't later deny having received your letter. In your letter, notify the debt collector that all or part of the debt is being disputed and make sure to mail the letter within 30 days of the agency's initial contact. Stating that the debt is disputed will give you time to verify the debt. If you need help with this process, visit the Privacy Rights Clearinghouse website to learn how to write an effective letter to a debt collector.
Make it clear to the collector that you know your rights; the collection agency might be more likely to treat you fairly (in the case of a legitimate debt) or leave you alone (in the case of a bogus one) if they know you are not an easy target.
What Happens Next?
At this point, you have told the debt collector by phone or by mail that you want a written explanation of the debt you are accused of owing. Upon receipt of your request, the collector must provide you with written verification of the debt (or a copy of a judgment against you) and the name and address of the original creditor, if different from that of the current debt collector.
After you have disputed the debt in writing, debt collection activity must cease until you have received a copy of the debt verification or judgment and the name and address of the original creditor.
The next section will discuss your rights and what constitutes abusive behavior from a collection agency.
Know Your Rights
As this process unfolds, make sure you know that consumers have considerable rights under the Fair Debt Collection Practices Act (FDCPA). This act was created by The Federal Trade Commission (FTC) to eliminate abusive, deceptive and unfair debt collection practices. The act specifically lays out other guidelines that debt collectors are legally required to abide by.
The following list highlights your rights. This is just a partial list – for a complete list, consult the text of the FDCPA (PDF). Also, individual state laws may offer you even greater protection from debt collectors than the FDCPA.
The debt collector must state, upon first contact with you, if that contact is verbal: "that the debt collector is attempting to collect a debt and that any information obtained will be for that purpose." If you hire an attorney, the debt collection agency must communicate only with your attorney, not directly with you, unless the attorney does not reply to the debt collector or gives the debt collector permission to contact you. The debt collector is allowed to contact other people, such as your friends, relatives, or neighbors in an attempt to acquire "location information," such as your home address and phone number and your employer's address and phone number. Debt collectors must identify themselves when contacting a third party, but cannot tell anyone they contact that you owe any debt.
Identifying Abusive Debt Collection Practices
The FDCPA also enables consumers to identify abusive debt collection practices by providing a list of behaviors that debt collectors may not engage in. Here are some of the most important guidelines:
Debt collectors may not contact you before 8 a.m. or after 9 p.m. in your time zone. Debt collectors may not contact you at work if you inform them that your employer prohibits you from receiving such communication. (Though your employee handbook probably does not specifically address debt collection activities in the workplace, your company probably does not want you handling personal business during work hours.) Debt collectors must comply with your written request to stop contacting you. After that, they can only further communicate with you to tell you that they are terminating their collection efforts or that they intend to seek a specified legal remedy against you. Debt collectors may not harass or abuse you. Specifically, they may not threaten violence, use obscene language, publish a list of consumers "who allegedly refuse to pay debts," cause your phone to ring excessively, or engage you in phone conversation repeatedly "with intent to annoy, abuse, or harass any person at the called number." They also may not call without identifying themselves or using a fake name. Debt collectors may not attempt to shame you into paying by implying that you have committed a crime. Debt collectors may not communicate with you by postcard and they may not include anything on the envelope of a letter to indicate that they are a debt collection agency. The idea here is that your financial information should be kept private – a postal employee, family member or roommate who happens to see your mail shouldn't be privy to this information. Debt collectors may not tell you that they are employed by a consumer reporting agency (because they are not).
Reporting Debt Collection Abuse
Under the FDCPA, a debt collection agency's only real defense for bad behavior is being able to prove that they made an error. If you need to file a subsequent complaint or a lawsuit, this documentation will be indispensable.
If you don't want to deal with the hassle of filing a lawsuit or you're not sure if the debt collector has broken the law but suspect foul play, there is still something you can do. Take action against shady debt collection practices by filing a complaint with the FTC and with your state attorney general. In your complaint, include a detailed description of the abusive behavior and, ideally, cite the law or laws that the debt collection agency has violated. One individual complaint may not seem to make much difference, but if enough consumers take action it can lead to new legislation with greater consumer protection.
The Bottom Line
Effectively protecting your best interests when dealing with debt collectors really boils down to two things: familiarizing yourself with the Fair Debt Collection Practices Act and getting everything in writing. While knowing how to handle the situation won't make it any more fun, it will at least make it less scary and give you the confidence to stand up for yourself if you learn that the debt being collected isn't legitimate or if you are treated abusively by collectors.
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d06223f77206fb59664134a4d1fc6fee | https://www.investopedia.com/articles/pf/08/financial-intervention.asp | Conduct A Financial Intervention | Conduct A Financial Intervention
When most people think of an "intervention" they imagine a group of friends and family gathered to together to demand that a loved one seek treatment for alcohol or drug abuse. The person, overwhelmed by the outpouring of love and concern, often agrees to receive the life-saving treatment.Many people do not realize that the principles used to intervene in the life of an alcoholic or drug addict can also be applied to someone whose financial decisions are becoming destructive and beyond control. A loving confrontation by a small group of people can help someone gain control of problems such as compulsive spending, excessive financial risk-taking and failure to make necessary plans for the future. All it takes is a little courage, a little planning and a lot of love. (For more, read Get Emotional Spending Under Control, A Pre-Retirement Checkup and Five Retirement-Wrecking Moves.)
When Is Intervention Needed?There are two primary reasons that interventions take place, regardless of whether the problem is drugs or finances. First, a loved one has lost the ability to make healthy decisions and is on a path to self-destruction. Second, the strain a destructive lifestyle has on close friends and family members is beginning to take its toll.
The most common reason for a financial intervention is compulsive and out-of-control spending, which are two very similar but simultaneously different things. Compulsive spenders literally cannot control themselves from making purchases, typically due to some type sort of pathological disorder. Oftentimes, these individuals have garages and closets full of unopened and unused purchases accumulated over many years.
Out of control spenders, on the other hand, may makes purchases because they finding shopping stimulating, they believe it will help them find inclusion or show affection, or have faulty beliefs about what their purchases will accomplish. The biggest result of all this behavior is mountains of consumer debt that can make meeting daily expenses financially impossible. (For related reading, see Digging Out Of Personal Debt.)
Another common reason for a financial intervention is a high level of risk-taking behavior. These individuals may gamble excessive amounts of money on obviously risky propositions, often demonstrating a belief that "they're due to hit it big." They often borrow large amounts, whether from a bookie or a margin account at a brokerage firm, in an attempt to "just get back to even."
Of course, there are times where severe financial problems are symptomatic of another root problem. This always needs to be evaluated so that precious time and energy are not wasted doing an intervention for something that won't fix the core problem. This is often the case with drug addicts who have done a good job otherwise concealing their problem, aside from the fact that they are burning through cash and often borrowing or stealing money.
The Purpose of an InterventionOne of the biggest misconceptions about a financial intervention is that it's an attempt to demand a change in behavior. If the intervention takes this tone, the person will usually feel judged, rejected, and misunderstood and will usually shut down, withdraw from reason, and retreat to arguing. These types of interventions are most often unsuccessful.
In reality, a financial intervention is an admission by a group of people that they have been powerless in their attempts to stop destructive behavior. They have individually expressed concern, confronted, and even threatened the individual, only to fail miserably in igniting change in the person's behavior. Thus, because of this helplessness, they've made a decision as a group to stop making the problem worse through their enabling behavior. More importantly, they want to provide access to outside help if the person is willing to accept it.
These individual realizations, group decisions, and the offer to help are all delivered in the midst of expressing a deep love or appreciation for the person. The need for change is expressed not in anger or disgust, but in sadness and loss. For someone struggling with destructive financial behavior, it can be a life-changing thing to have a room full of the most important people in your life tell you how much you mean to them and how worried they are about you.
It's within this context of being loved and accepted, instead of being shamed and rejected, that interventions succeed in their final objective - to offer outside help. Because family and friends either lack the knowledgeable or are too closely involved to truly help, the involvement of a therapist, debt counselor or financial planner is crucial.How to Conduct a Financial Intervention
If you determine that someone is in need of a financial intervention, your first question is whether you should employ a professional interventionist. The advantage is that such a person will help streamline and organize the process, providing valuable resources along the way. The disadvantage, of course, is the cost of hiring someone. As a rule of thumb, the more serious the problem, the more you'll want to consider professional help. It's likely that a 24-year-old with $20,000 in credit card debt doesn't require a professional interventionist. However, a 50-year-old with $100,000 in gambling losses and a history of compulsive gambling probably does. (Six Major Credit Card Mistakes explains how to manage credit card debt responsibly and how to maintain a healthy credit score and control debt.)
A financial intervention should include three to eight people that matter most to the person struggling with negative financial behavior. These individuals will hold the most sway in breaking through someone's shell of denial and resistance to outside help. People who are strongly disliked the person who needs help should be excluded simply because their presence may cause a retreat into defensiveness or anger.
The chosen group of people should gather at a private location while one person finds an excuse to go to that location with the person being helped. The subject of the intervention is naturally going to be surprised, frightened and perhaps angry about what is going on. With this in mind, it is important to elect one spokesperson from the group who will do most of the talking.
This spokesperson will explain the reason for the gathering. He or she should emphasize that this is not about beating someone up, but about addressing a specific problem. The subject will then be informed that each person will briefly say what he or she needs to say, that there will be an opportunity to respond at the end and that the whole thing won't take more the an hour.
At this point, each person in the group is going to read an "impact letter" about the person and the problem. The letter should be no more than two pages and should answer the following:
Why specifically this person matters to them How the problem has affected themselves and others A love-based plea to accept help
Ideally, no one besides the group spokesperson says anything besides what is in their letters until afterward.
After all the letters have been read, the spokesperson shares the two ways in which the group is going to help from this point forward. First, the group is unwilling to continue to enable the person in making financially poor decisions. This may mean that they will not, for example, loan the person money, accept extravagant gifts or engage in discussions about penny stocks with the person for which the intervention is being held. Whatever the old system is, the individuals in the group stick together in their mission to stop being part of the problem.
Second, the spokesperson is going to inform the subject of the type of outside help that has been arranged and ask the subject of the intervention whether he or she will accept this help. Anticipating a positive response, the group should already have the first appointment set a couple of hours after the intervention.
Closing ThoughtsMany successful financial interventions result in the person saying "no" to the offer for help, only to come back and seek it weeks, months or even years later. However, this only happens when family and friends stick to their guns and refuse to help the person continue in destructive patterns after the intervention. Through those loving refusals, individuals with a problem are eventually forced to deal with the reality of their choices. It's then, if the offer of help still stands, that they often accept it.
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c95e7e02baae666d0583087b5382612e | https://www.investopedia.com/articles/pf/08/fine-art.asp | Fine Art Can Be a Fine Investment | Fine Art Can Be a Fine Investment
The fine art market continues to boom. It seems that every day, another auction record is set for "the highest price ever paid [fill in artist's name here]." So what does that mean for the painting you bought to match your sofa a few years back? It may increase in worth, or it may be as salable as your kid's pasta-filled craft project.
Key Takeaways High-end copies of original work are known as giclées, where the rarity of a work of art is what gives it value—as many experts see giclées as gimmicks. Then there's prints and posters, which are generally easily distinguished from an artist's original piece with the naked eye. Nonetheless, many people who buy paintings don't end up selling them later on, and that fact can skew pricing samples for art. Your best shot at a decent payout will be a fine art auction house, which will typically charge as around 5-25% of your sale price for auctioning your piece—where do-it-yourself sites tend to draw less money. Art is a long-term investment, and while the art market can be stable or show large returns on investment during boom times, it is one asset that can easily plummet in value during seasons of recession.
So how do you tell? Well, as with any investment, you need to do your research and go beyond your comfort zone. The art market is fickle, and there are no guarantees of profitability, but with a little legwork and forethought, you can fill your home with images that may prove worthy assets down the line. Consider these tips for choosing fine art and identifying the Michelangelo from the macaroni.
Original Ideas: Paintings and Giclées
You walk into a gallery and fall in love with a $5,000 painting, but you can't justify the price tag. The gallery owner shows you a selection of the same artist's work for a humble $500, explaining that the pieces are giclées. A giclée is a machine-made print, a reproduction printed on fine paper or canvas with color and clarity that can rival the original. But it's still a copy.
The rarity of a work of art is what gives it value, so an original will always be worth more than a reproduction. While a giclée may come labeled with superlatives like "museum quality" or "archival" and the seller may hawk a certificate of authenticity, it will never be as valuable as an original. Some artists and appraisers even view giclées as a gimmick for novice artists and neophyte collectors.
Still, there's no denying that a giclée puts fine art within reach for many art enthusiasts, and while a certificate doesn't lend much value to the reproduction, a fresh signature and especially a remarque (an original drawing made by the artist in the margin of the giclée) could bump up future value.
You may hear stories of giclées being proudly exhibited at such noble institutions as the British Museum and the Metropolitan Museum of Art, but the pieces held in these collections are limited edition Iris prints of digital images or digital manipulations—such as "Nest and Trees" by Kiki Smith at the Met. They are not reproductions of original paintings.
Museums do, however, sell giclée versions of masterpieces to generate income. These giclées, though pleasing to your eye and soul, won't pull in any future income for you.
Doing the Loupe de Loupe: Prints and Posters
In the mid-19th century, Currier & Ives brought art into the homes of America with their mass-produced prints. During the first half of the 20th century, a quarter of U.S. households were decorated with prints by artist Maxfield Parrish ("Ectasy," one of his most popular, illustrates this article).
These images are the predecessors of the posters sold in malls and museum shops today. Posters, like giclées, give you access to a masterpiece, but a poster is not the same as a fine art print, which can be in the form of a hand-pulled silkscreen, lithograph or block print.
You can often distinguish an artist's print from a poster with the naked eye, though in some cases, you may need a loupe or magnifying glass. The process of offset printing leaves a tiny dot matrix on the paper: Think of a comic book or a Roy Lichtenstein painting with its exaggerated dots of color.
Several factors determine the value of fine art—the size of the edition (that is, the number of prints the artist makes of one work), the significance of the work, the condition of the print, and whether it is signed and numbered by the artist.
In the prints market, it is a rarity that bestows value. A low run of limited edition prints is more valuable than a mass-produced image. Even an earlier pull of a print—say No.10 of 100 (rather than No. 80 of 100)—can mean better value.
Cruising Cruise Art Auctions
A cruise art auction is precisely as it sounds: it's a sea cruise that displays and sells fine art. With name-brand artist prints, drawings, and paintings that come hyped with certificates of authenticity, the cruise auction can seem like a boon to the aspiring art investor. The artwork changes each day as lots are sold off, and written appraisals suggest pieces are offered at a fraction of their value. You might feel like you've stumbled into a floating investment paradise.
The artwork at these auctions might be genuine, but that doesn't necessarily make for a good investment. Cruise auctions work on the principle that buyers believe authenticity equals high value. Unfortunately, authenticity does not guarantee the rarity of a piece or its importance in the art world. The critical guideline for buying art cannot be repeated too often: rare art is valuable art.
But how can you know whether your auction find is a rare commodity? Do your research. Hit the internet café on your ship before you plunk down the plastic. You can google the artist and the specific artwork to get some history and check sites such as artfacts.net or eBay to get a representative sample for pricing.
Selling Your Art Investment
Many people who buy paintings don't end up selling them later on, and that fact can skew pricing samples for art. When a painting is auctioned, it's often because the owner of the work thinks the piece will attract a handsome price. Auction prices reflect over 40% of art resales, and some experts estimate that only 0.5% of paintings bought are ever resold.
If you have a true find hanging on your wall, and you're ready to part with it, your best shot at a decent payout will be a fine art auction house, which will typically charge as around 5-25% of your sale price for auctioning your piece. The do-it-yourself internet auction sites usually draw far less coin.
Still, art is a long-term investment, and while the art market can be stable or even show gigantic returns on investment during boom times, it is one asset that can easily plummet in value during seasons of recession.
Final Tips for Investing in the Arts
Gallery owners will tell you that buying art is an emotional decision, but don't fall for that line if you are thinking of it as an investment. Research any living artists who catch your eye. Learn about their education, their commissions, and their exhibits.
Visit museums, galleries, and art institutions in your area regularly so you can recognize potential movers and shakers in your region. If you're considering a piece by a renowned artist, get an appraisal. Look for quality, and don't buy anything in bad condition. With a little effort, you may befriend the next Rothko or unearth a lost masterpiece that's worth a million.
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d6bc6dbd791c8ba2bcbf041e51c45c2d | https://www.investopedia.com/articles/pf/08/ideal-net-worth.asp | What's Your Net Worth Telling You? | What's Your Net Worth Telling You?
Imagine you just landed in an unfamiliar city and now have to drive a rental car to your hotel. Do you want a car with GPS navigation, or would you rather wing it? Seriously, how hard can it be to find your way around Hong Kong?
A net worth calculation is like GPS for your retirement savings. It tells you where you are now and which way you need to go to get to your destination.
Key Takeaways Calculating net worth involves adding up all of your assets and subtracting out your debts.There's no hard rule for determining your "right" net worth, but you should know if it's headed in the right direction, toward a comfortable future.If it's not, it's time to cut your spending, reduce your debt, or both.
Below, you can determine your current net worth. Then you can find out how you can use this calculation to keep your retirement plans moving in the right direction.
How to Calculate Your Net Worth
Net worth is simply the total dollar value of all assets minus all liabilities. It's a benchmark for measuring financial health that is applied to companies as well as individuals. The formula is a simple one:
Net Worth=Assets−Liabilities\begin{aligned} &\text{Net Worth} = \text{Assets} - \text{Liabilities} \\ \end{aligned}Net Worth=Assets−Liabilities
That's just two columns of numbers, and here's what goes into each column.
Assets
You have both liquid assets and illiquid assets. Liquid assets are investments or possessions that can be turned into cash relatively quickly with little or no loss of value. Bank accounts, certificates of deposit, stocks, bonds, mutual funds, and similar investments fall into this category.
Illiquid assets are investments or possessions that are difficult to convert into cash quickly. If you own your own home, it's an illiquid asset, as are any other real estate holdings, the balance in a retirement savings plan, and partnerships in businesses. They are not easy to convert to cash. Most personal property, such as furniture, vehicles, and clothing, should be left out. They may have cost a lot to acquire but are likely to be worth little in a resale. Investment-quality art or collectibles might be considered assets.
Determining Liabilities
The other side of the ledger lists your debts. Credit card balances, car loans, home mortgages, outstanding student debt, and business loans all fall into this category. Any personal loans count, too.
Add up all of your assets, subtract the total of your liabilities, and you've got your current net worth.
Where Do You Stand?
You may be interested in comparing your net worth with the figures in the chart below of median and mean net worth of all Americans by age group, compiled from a survey for the Federal Reserve. The median is the middle number. Half have less net worth, and half have a greater net worth. The mean number is the average net worth.
Don't place too much importance on your net worth total in comparison with these numbers. This is national data with no demographic breakdown. For instance, living in the Northeast versus the South nearly doubles net worth. People in the Northeast generally earn more and pay more to keep roughly the same standard of living.
Age of Head of Household Median Mean 18-24 $4,395 $93,983 25-29 $8,972 $39,566 30-34 $29,125 $95,236 35-39 $40,667 $257,582 40-44 $87,843 $316,661 45-49 $105,717 $599,194 50-54 $137,867 $838,703 55-59 $168,044 $1,150,037 60-64 $224,775 $1,180,378 65-69 $209,575 $1,056,484 70-74 $233,614 $1,062,428 75-79 $242,700 $1,097,415 80+ $270,904 $1,039,818 Figure 1. Household net worth in 2016, data from the Federal Reserve's SCF
Also, note the big differences in mean and median net worth in each age category. Remember that the mean number is the average number. A relatively few very affluent people can skew the average. That may be why the mean net worth of Americans ages 18 to 24 tops $90,000. At least in this age group, the median of $4,395 may more accurately reflect the net worth of young Americans.
The Ideal Number
How much should you be worth? Every person has a unique lifestyle and individual expectations, so there is no one-size-fits-all, universally agreed-upon number. That said, Thomas Stanley and William Danko, authors of The Millionaire Next Door, have offered this formula as a rule of thumb:
Net Worth=Age×Pretax Income10\begin{aligned} &\text{Net Worth} = \frac{ \text{Age} \times \text{Pretax Income} }{ 10 } \\ \end{aligned}Net Worth=10Age×Pretax Income
Your pretax income multiplied by your age, then divided by 10, equals your net assets.
Using this formula with a basic salary of $25,000, we get the following results:
Age Income Net Worth 20 $25,000 $50,000 25 $25,000 $62,500 30 $25,000 $75,000 50 $25,000 $125,000 60 $25,000 $150,000 Figure 2. Net worth, income constant
The numbers in the middle-age ranges look feasible, but the formula doesn't work for people just starting out in life. Few 20-year-olds have racked up $50,000.
Then again, most professionals, if all goes well, see a steady increase in salary over the years. Below, the same formula is used but higher income levels for upper age ranges are entered. The results are dramatically different:
Age Income Net Worth 20 $25,000 $50,000 25 $35,000 $87,500 30 $50,000 $150,000 50 $55,000 $275,000 60 $75,000 $450,000 Figure 3. Net worth with increasing income
The net worth estimates are still unrealistic for very young workers, and they're not great for people approaching their retirement years. Still, the numbers may provide a benchmark for consideration. If you are doing better than the benchmark, you are at least moving in the right direction.
One formula suggests that your net worth at age 70 should be 20 times your annual spending.
Interestingly, under the scenario in which income rises with age, the net worth estimate delivers results similar to those generated by a formula devised by David John Marotta, a widely-quoted financial advisory.
Marotta recommends following a savings plan that will result in a net worth that is 20 times annual spending by age 72. Under this plan, the older you get, the more you save. Since most people earn more as they grow older, that is not unrealistic.
Age Income Savings vs. Annual Spending Annual Spending Net Worth* 30 $25,000 1x $15,000 $15,000 35 $35,000 2x $20,000 $40,000 42 $50,000 4x $35,000 $140,000 51 $55,000 8x $40,000 $320,000 66 $75,000 16x $50,000 $800,000 Figure 4. Ideal net worth and spending targets. *Net Worth = Savings Amount x Annual Spending
Building Net Worth
Formulas and averages can provide some insight into the issue of net worth, but absolute truths are harder to reach. At the most basic level, a positive net worth is better than a negative net worth, and a higher net worth is better than a lower net worth.
If your net worth is negative, strive to get it to a positive number. You're spending more than you earn. Cutting your spending is the first step toward turning the situation around. Paying off debts is the next.
Even if your net worth is low, you can strive to build your net worth through saving and investing, a little at a time. Focus on maximizing the amount you save and minimizing the amount you spend.
If your net worth is high, keep building on the momentum. You're working towards a real improvement in lifestyle: enough money to live well during your retirement years.
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6b090d30ed2a28ff81d3267996f5796b | https://www.investopedia.com/articles/pf/08/invest-reduce-debt.asp | Should I Pay off Debt or Invest Extra Cash? | Should I Pay off Debt or Invest Extra Cash?
People who find themselves with extra cash can face a dilemma. Should they use the money to pay off—or at least, substantially pay down—that pile of debt they've accumulated, or it is more advantageous to put the money to work in investments that will grow for the future? Either choice can make sense, depending on the circumstances.
Key Takeaways Investing and paying down debt are both good uses for any spare cash you might have.Investing makes sense if you can earn more on your investments than your debts are costing you in terms of interest.Paying off high-interest debt is likely to provide a better return on your money than almost any investment.If you decide to pay down debt, start with your debts with the highest interest rates and work down from there.
Investing vs. Debt Repayment: Key Differences
Investing is a way to set money aside for the future, ideally in an investment vehicle, such as stocks, bonds, or mutual funds, that will grow in value over time. Debt, on the other hand, represents money you've already spent and that a lender is charging you interest on. Left unpaid, that debt will grow and grow, with interest charges adding to your balance and incurring interest charges of their own.
The Case for Investing
As a general rule, if you can earn more interest on your money by investing it than your debts are costing you, it makes sense to invest. For example, if you have a mortgage with an interest rate of 5% and a stock market index fund that is returning 10% a year, you'll come out ahead by investing your extra cash in the index fund.
(On the other hand, if you have credit card debt at 20%, you'd be better off putting your extra cash toward paying that debt rather than investing it in the index fund.)
Unfortunately, it isn't always that straightforward. Investments can be volatile. That index fund might be up 10% this year but down 10% next year. While there are investments that pay a guaranteed interest rate, such as bank CDs and U.S. Treasury bills, they tend to have low rates of return that rarely exceed the interest rates that credit card companies and other lenders charge.
Another factor is more psychological. That's your risk tolerance. If you are comfortable taking the gamble that your investments will bob up and down with the markets, sometimes rising in value and sometimes losing value, you are a better candidate for investing than someone who would lie awake nights worrying about what the market might do tomorrow.
The Case for Paying Down Debt
There are several good arguments for choosing to pay down debt rather than investing. The first, as mentioned above, is that you might come out ahead if your debt carries a relatively high interest rate. That's especially true with credit card debt. The average interest rate on credit cards tracked in Investopedia's credit card database was recently 19.62%. There are few investments that can match that rate of return.
Another solid reason to pay down debt involves your credit score—a number that can be very important if you want to borrow money in the future, such as for a mortgage or a car loan. Having a low credit score can mean paying higher interest rates, if you can get a loan at all. Your credit score can even affect other aspects of your life, such as the premiums you'll pay for insurance, whether a landlord will rent to you, and whether an employer will hire you.
Credit scores are based on a number of factors. In the case of the most widely used one, the FICO score, your credit utilization ratio—the amount of credit you are currently using compared to how much credit you have available to you—accounts for a significant portion of your score. So, for example, someone whose credit cards are all maxed out is likely to have a considerably lower score than someone whose credit cards have been paid off or at least paid down to a more reasonable level.
Paying off debt, particularly if you have a lot of it, can be a smart move for that reason alone.
As with investing, psychology comes into play here, too. If you're losing sleep over your debts, you could be better off repaying them—even if you might get a better return on your money by investing.
The Case for Doing Both
Paying down debt vs. investing doesn't have to be an either/or decision. You can, and sometimes should, do both. For example, if you don't already have an emergency fund you might want to use some of your money to create one, while using the rest to pay down your debts. A good place to keep your emergency fund is a low-risk and highly liquid (that is, easily and quickly accessible) investment, such as a money market mutual fund.
How to Pay off Debts
If you've decided to use your spare cash to pay off your debts, the next question is how to go about it. If you have enough money to cover everything you owe, the answer is pretty simple: just pay it off. However, if you don't have that much cash to spare, you will need to prioritize.
Generally speaking, you'll get out of debt faster if you start by paying off your debt with the highest interest rate first and working your way down from there. For example, if you have balances on two credit cards, one that's charging you 20% and the other charging 15%, tackle the 20% one first.
In the case of credit card debt you may also have another option: transfer your balances to a card with a lower interest rate and then pay them off. Some balance transfer credit cards offer promotional periods of six to 18 months, when they charge 0% interest, which can help you pay your balance down faster since you won't be incurring additional interest. Investopedia publishes regularly updated ratings of the best balance transfer credit cards.
Still another option is a debt consolidation loan from a bank or other lender. The way that works is, you borrow enough money from the lender to pay off your other debts. Now you just have one debt to worry about, ideally with a lower interest rate than your prior debts. You can then use your extra money to begin paying that loan off. Investopedia also publishes ratings of the best debt consolidation loans.
If You're Really Deep in Debt
If your spare cash won't begin to make a dent in your debt, you may need to consider some more drastic measures. First, if you're having trouble making even the minimum monthly payments on your credit cards or other loans, contact your lender. It may be willing reduce your minimum payment or the interest rate on your debt.
Another option is hiring a reputable debt relief company to handle negotiations for you. This is an area that's rife with scams, so make sure you know who you're dealing with. As the Federal Trade Commission notes, "These operations often charge cash-strapped consumers a large up-front fee, but then fail to help them settle or lower their debts—if they provide any service at all." Investopedia publishes annual ratings of the best debt relief companies.
The Bottom Line
Having some extra cash is an enviable situation to be in. Whether to invest that money or use it to pay down your debts is a question only you can decide. But either use is better than simply spending it. Whichever course you take you decide to take, you'll be in a better financial situation than you were before.
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a08d17305414947694dea3744196d0d3 | https://www.investopedia.com/articles/pf/08/joint-tenancy.asp | Joint Tenancy: Benefits and Pitfalls | Joint Tenancy: Benefits and Pitfalls
Joint tenancy is an arrangement that allows beneficiaries to access your account without having to go to court. Couples and business partners can take title to each other's bank accounts, brokerage accounts, real estate, and personal property as joint tenants with rights of survivorship (JTWROS).
Key Takeaways Some of the main benefits of joint tenancy include avoiding probate courts, sharing responsibility, and maintaining continuity. The primary pitfalls are the need for agreement, the potential for assets to be frozen, and loss of control over the distribution of assets after death. Tenancy in common is an alternative to joint tenancy that avoids some of its drawbacks.
Joint Tenancy With Survivorship
Joint tenancy with rights of survivorship (JTWROS) is a type of account that is owned by at least two people. In this arrangement, tenants have an equal right to the account's assets. They are also afforded survivorship rights in the event of the death of another account holder.
In simple terms, it means that when one partner or spouse dies, the other receives all of the money or property. That is why many married couples and business partners choose this option. However, there are some things you should consider before entering joint tenancy. Below, we'll take a look at the advantages and disadvantages of this arrangement.
Avoid Probate With JTWROS
When a person dies, a probate court will review the deceased's will. The court's purpose is to decide whether the will is valid and legally binding. The probate court also determines what liabilities and assets the deceased may have. After a thorough review, the court distributes any remaining assets to heirs.
If an individual dies without a will, the process becomes more complicated. Without a will, the probate court does not have any written evidence of how the deceased would like the assets distributed.
The downside to the probate process is that it can take a substantial amount of time to sort through the estate. That means it will take even longer for beneficiaries to receive their inheritance.
JTWROS automatically transfers ownership to a spouse or business partner upon the death of the first partner, so it avoids probate. That is an enormous advantage for those who need the funds immediately.
Equal Responsibility
When a married couple or business partners own an asset that is titled JTWROS, it means all individuals are responsible for that asset. In other words, they all enjoy the positive attributes and share in the liabilities equally. That also means no partners can incur debts on the asset without also indebting themselves.
For example, if a couple are planning to divorce, one spouse cannot obtain a loan against the couple's home and leave the debt with the other. The moment one party takes out the loan, they are equally responsible for its repayment. Similarly, a spouse pending a divorce may not lease a portion of the property without sharing the proceeds with the other.
Continuity of Joint Tenancy
When someone dies, their assets are often frozen until the probate court decides essential issues. The court must determine whether the assets are encumbered. Then, they figure out how to distribute the remaining assets to heirs. This process can be a problem for a surviving spouse who has outstanding debts or large fixed expenses.
However, by owning an asset as a joint tenant, the surviving spouse or business partner may use the property in any fashion that they see fit. The joint tenant may hold it, sell it, or mortgage it. In fact, the law states that immediately upon the death of one tenant, ownership is transferred to the survivor. Joint tenancy is particularly useful for passing on a family business without disruption when the intended heirs are partners.
Joint tenancy can help to maintain continuity in a business when a partner dies.
Relationship Problems With JTWROS
Having two people own the entire asset is a disadvantage in an unstable relationship, regardless of whether the relationship is personal or professional. If a couple is having marital problems or business partners disagree, no party can sell or encumber the asset without the consent of all parties. This restriction is intended to prevent abuses. However, the need to get agreement from all parties can make it difficult to take necessary actions.
Frozen Bank Accounts
The probate court may also freeze the account of joint tenants in some situations. For example, the court might freeze an account if the deceased is deeply in debt. Action is more likely if there is a risk that a surviving partner might liquidate the account to avoid paying the obligations.
An account can also be frozen if there is a dispute over whether a surviving spouse or business partner actually contributed to it. As a general rule, acting in good faith reduces the probability that an account will be frozen.
Losing Control of Assets
Another potential pitfall of joint tenancy is the loss of control over the final distribution of assets. When surviving partners assume control over the joint asset, they can sell it or bequeath it to someone else. In other words, the deceased does not decide on the ultimate disposition of the asset after death.
Tenancy in Common: An Alternative to Joint Tenancy
The main alternative to joint tenancy is a tenancy in common. Some of the benefits of tenancy in common are:
The Asset Is Divvied Up
Each owner is assigned fractional ownership, which may or may not be an equal portion. Additionally, each party can legally sell their own share without another party's approval or consent.
The Asset Will Pass to Heirs
Unlike with JTWROS, ownership of the asset will not automatically transfer to the surviving account owner upon the first owner's death. In fact, the asset will pass according to provisions made in the will of the deceased. Typically, most tenants leave the asset to their heirs. However, it could still pass to the other account owner if there is such a provision in the will.
Assets Can Be Accessed
If one owner becomes disabled or dies, the other owner should still be able to access their share of the assets. That means that they can sell a portion of the asset without waiting for a probate court decision.
The Bottom Line
Both JTWROS and tenancy in common have attractive features. Individuals should evaluate their situations to determine which option is more favorable before setting up either arrangement.
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d0bf08827d5ee68225df03357b080384 | https://www.investopedia.com/articles/pf/08/make-money-in-business.asp | How to Run a Successful Small Business | How to Run a Successful Small Business
To succeed in business today, you need to be flexible and have good planning and organizational skills. Many people start a business thinking that they’ll turn on their computers or open their doors and start making money, only to find that making money in a business is much more difficult than they thought.
You can avoid this in your business ventures by taking your time and planning out all the necessary steps you need to achieve success. Whatever type of business you want to start, using the following nine tips can help you be successful in your venture.
Key Takeaways Starting a business requires analytical thinking, determined organization, and detailed record-keeping. It’s important to be aware of your competition and either appropriate or improve upon their successful tactics. You’ll almost certainly end up working harder for yourself than you would for someone else, so prepare to make sacrifices in your personal life when establishing your business. Providing good service to your customers is crucial to gaining their loyalty and retaining their business.
1:41 9 Tips For Growing A Successful Business
1. Get Organized
To achieve business success you need to be organized. It will help you complete tasks and stay on top of things to be done. A good way to be organized is to create a to-do list each day. As you complete each item, check it off your list. This will ensure that you’re not forgetting anything and completing all the tasks that are essential to the survival of your business.
2. Keep Detailed Records
All successful businesses keep detailed records. By doing so, you’ll know where the business stands financially and what potential challenges you could be facing. Just knowing this gives you time to create strategies to overcome those challenges.
3. Analyze Your Competition
Competition breeds the best results. To be successful, you can’t be afraid to study and learn from your competitors. After all, they may be doing something right that you can implement in your business to make more money.
4. Understand the Risks and Rewards
The key to being successful is taking calculated risks to help your business grow. A good question to ask is “What’s the downside?” If you can answer this question, then you know what the worst-case scenario is. This knowledge will allow you to take the kinds of calculated risks that can generate tremendous rewards.
Understanding risks and rewards includes being smart about the timing of starting your business. For example, has the severe economic dislocation caused by the coronavirus pandemic provided you with an opportunity (say, manufacturing and selling face masks) or an impediment (opening a new restaurant during a time of social distancing and limited seating allowed)?
5. Be Creative
Always be looking for ways to improve your business and make it stand out from the competition. Recognize that you don’t know everything and be open to new ideas and different approaches to your business.
6. Stay Focused
The old saying “Rome wasn’t built in a day” applies here. Just because you open a business doesn’t mean you’re going to immediately start making money. It takes time to let people know who you are, so stay focused on achieving your short-term goals.
7. Prepare to Make Sacrifices
The lead-up to starting a business is hard work, but after you open your doors, your work has just begun. In many cases you have to put in more time than you would if you were working for someone else, which may mean spending less time with family and friends to be successful.
8. Provide Great Service
There are many successful businesses that forget that providing great customer service is important. If you provide better service for your customers, they’ll be more inclined to come to you the next time they need something instead of going to your competition.
9. Be Consistent
Consistency is a key component to making money in business. You have to keep doing what is necessary to be successful day in and day out. This will create long-term positive habits that will help you make money in the long run.
The Bottom Line
According to 2019 data from the U.S. Bureau of Labor Statistics, approximately 20% of new businesses fail during the first two years of being open, 45% during the first five years, and 65% during the first 10 years. Only 25% of new businesses make it to 15 years or more. If you want to be among that 25%, rigorous attention to these nine tips is the smart way to get there.
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6ec696f61e8e21a0d48e36baa3660371 | https://www.investopedia.com/articles/pf/08/negotiate-credit-card-apr.asp | Cut Credit Card Bills by Negotiating a Lower Rate | Cut Credit Card Bills by Negotiating a Lower Rate
One of the great misconceptions about credit card debt is that the cards themselves are bad. The truth is, they're really not. Rather, it's the effect of double-digit interest rates that make them so toxic to our personal finances. The exponential growth of the account balance quickly causes purchases we thought we'd easily pay off over a few months to grow into something that seems like it will take years to knock out.
Luckily, ridiculous interest rates don't have to be part of your credit card experience. Like many things in life, they are negotiable for those who know who to talk to and what strings to pull. If you can do a little bit of work to get inside your credit card company's head and are willing to spend 15–20 minutes on the phone, there's at least a 50% chance you can save yourself a few thousand dollars over the next year.
Key Takeaways Customers can negotiate with credit card companies for lower interest rates.Seeking to negotiate a credit card rate can be a good solution in a variety of situations.Requesting a lower rate should not affect your credit score or credit account.
Why Try to Get Your Rate Lowered?
You're probably reading this article because you've decided to step up and do battle with your credit card debt. With this in mind, it's crucial to realize that even a small cut in your credit card's annual percentage rate (APR) can shorten the amount of time it takes for you to become debt free.
Consider a credit card with a $10,000 balance that is being charged 25% annually. All else being equal, that credit card balance will cost you $2,500 in interest over the coming year. If you could get your interest rate on that credit card lowered from 25% to 15%, this would lead to an annual savings of $1,000, which you could put toward paying down your debt. A lower interest rate can make a huge difference in how long it takes to become debt free.
While this prospect may sound too good to be true, it isn't. The people who can get the right person at the credit card company on the phone often receive a substantial reduction in APR. Even better, there is no risk in asking. Unlike some other balance-reduction techniques, like debt settlement, simply requesting a reduction in your APR does not show up on your credit report, nor does it require hiring a professional to help.
Understanding Your Credit Card Company
When you owe a large sum of money to a credit card company, it is easy to begin to fear talking to them. Perhaps people think they're going to get yelled at, shamed about the situation, or possibly penalized. The reality is that credit card companies are in business to make a profit, and their biggest profit is made from charging interest to people with unpaid balances. The bigger the balance, the more money the credit card company is able to make. In other words, if you are carrying a large balance, you are one of their best customers. The credit card company should love you and want you to stick around to keep paying interest. This positioning is something you can use in your favor.
Most credit card companies don't want to lose you or your balance, especially if you are paying a rate that's double or triple the historical rate of return in the stock market. In fact, many credit card companies will go to great lengths to keep you happy and keep you spending, lest they go out of business. This fact is your most important piece of leverage when it comes to getting your APR lowered.
How to Make the Pitch for a Lower Rate
The process of getting your credit card rate lowered only involves a few steps, shouldn't take more than 15–20 minutes, and doesn't require any advanced negotiating skills. It just takes getting the right information in your hands and the right person on the phone.
1. Assess Your Situation
Every customer’s situation can be different. First, assess your own situation and have a goal for improving it. If you have a solid credit score, you can potentially collect some competitive offers on your interest rate. In other words, show your credit card company that you're serious about taking your balance—its source of profit—elsewhere. You can probably collect a stack of competitive offers simply by letting your junk mail pile up for a week. In that stack, you'll find plenty of balance transfer offers from other credit card companies offering temporarily lowered rates for transferring your balance. You can also spend a few minutes checking the major credit card companies' websites for their balance transfer rates. Ideally, you want to find three to four offers for a long-term rate around 10%. Some offers may also be offered temporarily, like for 12 months or less.
If you are seeking to negotiate your rate as a last resort before bankruptcy or debt settlement, you can let them know that as well. Many people in troubled situations may also be inquiring about closing the account altogether because it is too expensive to maintain.
2. Ask the Right Person
Next, grab your credit card, flip it over, and call the customer service number on the back. Then, keep hitting zero or whatever it takes to talk to a live person.
Be reasonable with the representative about your concerns. If you have found numerous other offers you are eligible for then let them know. Tell the representative that you've received numerous offers for a much lower interest rate from other credit card companies, but that you don't want to have to move your balance to another company.
If you are calling for assistance as a last resort. You can potentially let them know you are inquiring about closing your account but would rather try to negotiate. Lowering your interest rates as an alternative to other debt settlement solutions can be very helpful when your debt has become overwhelming. Many credit card companies are willing to offer a deal if you are thinking about leaving.
Whatever your situation, you don’t necessarily have to take no for an answer. If a customer service representative says that a lower rate isn't possible, ask to speak to their supervisor. If you are refused, ask for the representative's full name and customer service identification number—this usually places a little fear in the person, and they will want to hand you off as soon as possible.
When you get the customer service manager, which is probably the person you've wanted to talk to from the start, you'll again want to make your pitch. Be even sweeter this time. Be sure to tell the agent how much you've enjoyed having your account with the company and how much you'd like to keep it there. Also explain your case. There's at least a 50% chance, if not better, that your request will be granted. Even if your company won't match a competitor's rate, it may still agree to some rate reduction. Any reduction in the rate will save you money and the more of a reduction that can be agreed on, the better.
Many people are surprised how easy it can be to get a rate reduction.
What to Do after a Decision
If you are able to get your rate lowered, it's time to supercharge your journey to eliminate debt. First, try to get the credit card company's agreement to lower your rate, as well as the related fine print, in writing. Plenty of people get a promise of some kind from a customer service rep only to discover that the rates have not been changed. Additionally, a credit card company's agreement to lower rates can be loaded with conditions that will raise your rate as high or even higher than before if you fail to pay your bill on time or keep your balance under the credit limit.
Second, make sure the money you save on interest goes toward reducing your credit card or other debt. This isn't the time to go on a shopping spree or blow off some steam in Miami with the extra money you're saving. Continue making the same size of payments you were making before your rate was reduced.
If your credit card company says no, then this will take you down a different path. Ask them about their procedures for rate reductions. Also see if there is a time period for consideration or reconsideration. Ultimately, if better rates and/or terms are offered somewhere else then it may be best to take advantage of them, potentially through balance transfer promotions.
The Bottom Line
Remember that in the end, your balance is usually a valuable asset to a credit card company. Without its customers, the company loses the ability to earn a very attractive rate of return. By expressing, in a non-confrontational but direct manner, that you'd like the company's help to keep you as a customer, there's a good chance it will grant your request and lower your rate. Because there's nothing to lose but a little bit of your time, everyone with a substantial credit card balance should give these techniques a shot.
Alternatively, if your credit card company refuses to budge, you can always turn to that pile of balance transfer offers you made at the start. So long as they are among the best balance transfer cards currently available, switching to a new card could be your ticket to a lower interest rate.
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54fdc01c2fff50d4c3f8ab3f695d2f75 | https://www.investopedia.com/articles/pf/08/overdraft-protection.asp | When Good People Write Bad Checks | When Good People Write Bad Checks
If you've ever overdrawn your checking account, you know how painful those overdraft fees can be. How can you avoid paying exorbitant fees when you overspend? Banks offer a few types of overdraft protection that can keep you fee-free but don't think they're all created equal. Here's what you need to know to make sure that your overdraft plan isn't overblown.
Key Takeaways Overdraft protection is a service your bank provides when your account dips below $0.A common form of overdraft protection is a revolving credit limit attached to your bank account.Other types of overdraft protection include linked accounts or overdraft lines of credit.
Protect Yourself
Overdrafts happen. You don’t have to be a deadbeat to write a check or buy something with a debit card only to find that you're using the wrong account, your recent deposit hasn't gone through yet, or you simply misjudged the amount of money in your checking account.
The best way to avoid overdraft fees is simple: Avoid overdrawing your account. These days, online banking has made avoiding overdrafts easier than ever. You can get an email or phone alert whenever you cross a low-balance threshold. You can then transfer funds before a pending transaction puts you below the $0 mark. If you're not tech-savvy, a old check register helps to keep tabs on spending.
If you do overdraw your account, there are steps to keep things from spiraling out of control.
What Is Overdraft Protection?
Overdraft protection is a service your bank provides that pays for things after your account goes below $0. Any checks you write against your account won't bounce and your debit transactions will still go through. Overdraft protection began as a discretion banks extended as a courtesy to preferred customers when they didn't have enough funds to cover their transactions. This service eventually evolved into a lucrative financial service offered to just about anyone.
Types of Overdraft Protection
The most common form of overdraft protection is based on your credit score. The bank runs a credit check to determine a suitable credit limit. Like a credit card, the credit line is revolving. You can use any amount up to the limit. In essence, the facility is a short-term loan. If you dip below $0 you won't need to worry about your mortgage payment bouncing because you wrote a big check to cover an unexpected dishwasher repair.
Like any credit product, overdraft protection is at the discretion of the bank. This means the bank can approve and cancel the service at any time. If you fail to repay the balance and continuously maintain a negative account, the bank may decide to close the credit line and collect the balance. In most cases, interest continues to accrue.
While overdraft protection can provide some peace of mind in an emergency, it's important to remember that it is a fee-based service. Most banks charge you a regular monthly fee and because it's considered a short-term loan, they usually charge interest. Keep in mind, you are responsible for any negative balance, which means you have to bring the account current.
Weigh out the benefits of having overdraft versus the fees you'll end up paying for using the service.
Linked Savings Accounts
There is a way to avoid overdraft fees and still give yourself worry-free banking. Talk to your bank about linking your checking and savings accounts together. When you overspend with your checking account, the bank will cover the shortfall from your linked savings account. This is often the best type of overdraft protection because you avoid paying high overdraft fees and interest.
Your savings account needs a decent balance for this to work. And although there aren't any overdraft fees involved, you may incur a transfer or withdrawal fee every time it kicks in. These charges are fairly typical for savings accounts. It's a good idea to check with your financial institution about its transfer procedures and fees.
Overdraft Line of Credit
A similar kind of protection is the overdraft line of credit. Instead of having a savings account linked to your checking account, the bank links a line of credit or a credit card. The obvious downside to using an overdraft line of credit is the fact that you’re using credit to fuel your purchases. If the linked credit is a credit card, you can also count on paying the cash advance rate for the money you use. These facilities are not as popular though.
Credit Score Implications
Overdraft protection can affect your credit score. If you have bounce protection and don’t bring your account back to good standing soon enough, you can bet your credit score will take a hit. If you use an overdraft line of credit or linked credit card, keep in mind the potential negative consequences of having that extra money on your card, especially if you have a tough time repaying the balance.
Criticism of Overdraft Protection
Overdraft protection is a very controversial financial product. That's because banks are often able to skirt usury laws with overdraft fees, even though many people feel that overdraft protection is a loan. Loans are governed by the Truth in Lending Act (TILA) of 1968. But because overdraft protection is considered a fee-based service rather than a loan, it's not covered. This means you could be paying a hefty premium for the right to overdraw your account. You’ll see that some kinds of overdraft protection services can be a lot like payday loans. So while you may be able to rely on it from time to time, it should be used as an insurance policy in emergency cases only and not for everyday use.
The Bottom Line
If you are hit with overdraft fees for linked-account or bounce protection, the easiest way to avoid having to pay is to call your bank and ask. If you’ve been a customer in good standing for a while and this is your first or second time overdrawing, it’s likely your bank will let you off the hook.
Of course, the best choice is to not overdraw your account at all, but this is obviously not the easiest answer for many people. Overdraft protection is a huge moneymaker for banks these days, and they know it. If you are going to overdraw your account, it pays to have decided in advance which kind of overdraft protection is the most beneficial for you.
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a571ac153306b5352c6aa57a741656af | https://www.investopedia.com/articles/pf/08/picking-lawyer.asp | How To Pick The Right Lawyer | How To Pick The Right Lawyer
Whether you are drafting a will or a trust, buying or selling real estate or getting a divorce, it is important to select the best attorney possible. Read on to find out what tips you can use to make sure that you are picking the right lawyer for you. They often have asymmetric information compared to you, as they are experts with a specific skillset.
Where to Look
In addition to the phone book, internet search, and a friend that might recommend a lawyer, there are several other sources for finding a qualified attorney. Some unions offer representation as does the AARP (sometimes at a discount to its members). In addition, members of the military are often entitled to certain representation, as are certain individuals covered by umbrella and home insurance policies. Finally, the American Bar Association can also help you find a suitable attorney that is licensed in your state.
Retain an Honest Lawyer
Many attorneys offer an initial consultation free of charge. Take advantage of this. Use the meeting to determine whether the attorney is honest and forthcoming. Instinctively, some people have the ability to determine an individual's character within a few minutes of interacting with the person; however, there are a few personality traits that can also tip you off.
For example, is the lawyer looking you in the eye when speaking with you, or are they looking at the ground? Also, ask what kind of cases have they litigated in the past. If you are looking for a settlement, they should be able to give you award amounts for cases similar to yours.
If a lawyer sounds unusually optimistic and doesn't tell you any of the risks or downplays the costs associated with the case, that is a red flag.
Prior to entering into any official relationship, it is important to feel secure in the knowledge that your lawyer is an honest individual. It would be equally disturbing to find out that the attorney representing you is hurting your case because of their questionable reputation. Reviews matter.
They Must be Thorough
The initial meeting or conversation with the attorney can also help you to determine whether they are oriented and will be responsive to your needs. Be sure to ask the attorney if it's OK to call them throughout the case to discuss any concerns you may have. If they balk at the idea, it may indicate that you'll have trouble relaying your thoughts and obtaining answers to your questions once the case is up and running.
Other questions that should be asked include:
Will I be given periodic updates on the status of the case in writing or by phone? Will the attorney be the main point of contact, or will communications be delegated to a paralegal?
There is nothing worse than having an attorney who won't respond to your inquiries or hear your concerns. To that end, be sure to retain an attorney who is communicative.
Find a Lawyer in Your Price Range
Finding the right attorney for you means finding one whose services you can afford. With that in mind, all individuals should inquire about costs at the outset of the initial meeting.
Try to obtain an estimate of what the case will cost to litigate in writing. Then, again in writing, try to secure a contract that will spell out the maximum costs associated with trying your case. This will prevent any unwanted surprises.
If you are working on a percentage base, some lawyers will negotiate with you prior to signing an agreement. A little wiggle room shows they are savvy. However, too much and they appear desperate, and may not believe in their abilities.
Seek Those With Experience
While it is important to have an attorney that you can trust, it is equally important that they have extensive experience in the area of law for which you require their services.
For example, you should use an attorney with estate planning experience to draft your will, a divorce attorney to draft divorce papers and a trial lawyer to defend you in a criminal case. General practitioners are good for basic real estate transactions, or other non-complex matter, but their lack of detailed knowledge and experience in a given field can hurt your case.
Consider the Size of the Firm
There are advantages to hiring a lawyer from a small firm. In most cases, you receive personalized, prompt attention. In addition, the lawyer representing you will probably have a fairly large amount of time to dedicate to your case. This may not be the situation at large firms, where attorneys must often juggle numerous cases and may have many responsibilities to the firm and its partners that could draw their attention away from your needs.
However, large firms also have advantages. After all, many judges and opposing attorneys respect and/or fear large reputable firms for the cases they've won, and their ability to influence judgments. Large firms also typically have greater resources in terms of money and staffing to research your case and to craft strategy.
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ead50075e695e136f7757b90d1c1923b | https://www.investopedia.com/articles/pf/08/planning-for-business.asp | New Year Planning for Business Owners | New Year Planning for Business Owners
Every new year, business owners should take the time to sit down and do a little planning, just to make sure that they'll be able to keep their company afloat and on the right track. Doing so will help ensure the business will have the necessary tools to maintain (and meet) its financial and operational goals, and that the firm's employees will be happy with their working environment.
Read on for some tips to help make the planning process run smoothly for you and your business.
Key Takeaways If you own a business, each year you should do some financial housekeeping to make sure the new year will run smoothly.Make sure that your insurance policies and employee benefits are on track and not set to lapse, to avoid unpleasant surprises.Evaluate your staffing, vendors, and marketing efforts as well to be sure your up-to-date with your competitors.
1. Consider Your Digital Footprint
Let's face it, it's a dog-eat-dog world out there—especially in the digital age. But that doesn't mean that you can't be a good competitor. Sometimes it's as simple as reevaluating how you're marketing your business. If you want to compete, especially with the big names, you have to make sure you have a presence online. It may be as simple as creating your own website. Doing so can cost you next to nothing, or can be a worthwhile expense—provided you have the budget and can afford it.
And never discount the benefits of social media. Try setting up a Facebook or Instagram page for your business, or even a Twitter handle. If you're unsure of how or where to start, there are services that can help set up your social media presence for a cost. You can also hire them to help you maintain them if that's not your expertise and you don't have a staffer with those skills.
Blogging and vlogging are also great ways to get your business name out there. This will, obviously, require a time commitment but can be well worth it, especially if you work in a niche industry. If you run a bakery or are a personal finance expert, you can provide your clients (and prospective clients) with an insight into your business by uploading photos, recipes, tips, and advice.
2. Vendors
It should go without saying that every business owner should periodically review vendors and suppliers to make certain they are giving competitive prices and delivering quality service. The beginning of the year may be the best time to review vendors.
In many cases, suppliers may have just completed their budgets for the current fiscal year, and they are looking to pin down business and cut deals to ensure they achieve their annual financial objectives.
With that in mind, owners should ask themselves the following questions:
Are current vendors charging competitive rates?Are current vendors providing good service and adapting to the business's changing needs?Are there any new vendors or suppliers who deserve a chance or from whom the business might obtain a quote?Does it make sense to try out a new vendor, even if it means giving him or her a small order?Would trying out a new vendor provide the business with leverage over an existing vendor?
Again, business owners will need to answer these questions in order to know whether they are getting good deals. Getting the best deals enables the business to keep its costs low, which improves the bottom line. Again, the first few months of the year are an opportune time to do this.
3. Equipment
Manufacturing companies and many service-related businesses depend on machinery, supplies and a variety of other equipment (from vehicles to assembly devices) to operate. However, many business owners are so caught up in the day-to-day activities that go with running the business that they sometimes forget to do periodic equipment checks and make sure they have what they need to grow the enterprise.
The first quarter is a good time to evaluate a company's equipment needs and to determine whether any capital investments need to be made. That's because identifying the business's equipment needs early on in the year can help the enterprise make its annual numbers. It can also help the business owner plan for future cash needs.
The following are questions that all business owners should ask themselves regarding equipment needs:
Does the business have the equipment necessary to succeed and profit over the long haul?If not, can the equipment last another year, and can the business sustain itself using the existing equipment?What will new equipment cost, and where can quotes for the equipment be obtained?Does the company have the cash on hand or the ability to finance such purchases, or will the money need to come from future operational cash flow?Are there any expenses that could be cut in order to offset and help justify such expenditures?
4. Employees
Staffing needs should also be considered. It's good to recognize any deficiencies early on in the fiscal year so that appropriate adjustments can be made. Also, keep in mind that finding, hiring and training the "right person" can take a lot of time, so it's a good idea to get moving as early as possible.
Furthermore, it's important to realize that many workers tend to ponder their own futures at the end of the year. They start thinking about whether they intend to stay with the company or moving on.
5. Insurance
While the old adage says that the best defense is a good offense, sometimes the best offense is a good defense. Simply, insurance coverage is a business necessity.
At the beginning of the year, new rates for health insurance, business liability insurance, automobile insurance, umbrella policies and other types of insurance tend to come into effect, so it's a great time to go quote shopping.
All business owners should ask themselves the following questions about insurance:
Is the company adequately covered in terms of liability and/or does it have adequate fire and health insurance?Are insurance companies running multi-policy deals at the beginning of the year in order to garner your business?Are there any new insurance carriers that might be able to provide a competitive quote? Has the company taken on any new assets or business interests that haven't been accounted for and protected by existing policies?
6. Retirement Plans
Businesses looking to set up 401(k), simplified employee pension (SEP) or other retirement plans should do so as early as possible during the year. Setting up a plan early on can permit employees to take full advantage of their annual allowed pretax contributions. Theoretically, the more time the money is growing on a tax-deferred basis, the larger the nest egg they may accumulate.
Reviewing the plans, selecting an investment firm, and actually setting up a plan doesn't happen overnight. Again, getting an early jump on these efforts makes sense.
Questions business owners should ask when setting up retirement plans:
What will the cost be to administer the plan?How many employees might benefit and want to take advantage of the plan?How much will the company need to contribute to the plan?Are there any advantages to setting up one type of plan over another based on costs, the firm's size and employees' retirement needs?
The Bottom Line
By definition, business owners should continually evaluate their businesses and make adjustments accordingly. However, from a number of perspectives—such as insurance, retirement planning, staffing, vendor and equipment needs—the New Year is a particularly opportune time to sit down and plan.
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374ac8c60679d11153b8270f22895564 | https://www.investopedia.com/articles/pf/08/private-health-insurance.asp | Buying Private Health Insurance | Buying Private Health Insurance
If your employer doesn't offer you health insurance as part of an employee benefits program, you may be looking at purchasing your own health insurance through a private health insurance company. When your employer offers you the option to enroll in an employer-sponsored health insurance plan, they will typically cover part of your insurance premiums.
A premium is the amount of money an individual or business pays to an insurance company; health insurance premiums are typically paid monthly. If you need to insure yourself, you'll be paying the full cost of the premiums. Because of this, it is common to be concerned about how much it will cost to purchase health insurance for yourself. However, there are different options and different prices available to you based on the level of coverage you need.
When purchasing your own insurance, the process is more complicated than simply selecting a company plan and having the premium payments come straight out of your paycheck every month. Here are some tips to help guide you through the process of purchasing your own health insurance.
Key Takeaways You may need to purchase individual healthcare coverage if you just turned 26, are unemployed or self-employed, work part-time, are starting a business that will have employees, or if you have recently retired.If you do not have the option of enrolling in an employer-sponsored health insurance plan, a good source for gaining insurance coverage is through the Health Insurance Marketplace that was created in 2014 by the Affordable Care Act (ACA).If you are retired, you also have the option of enrolling in Medicare, Medigap, or Medicare Advantage, if you are eligible.
How Buying Private Health Insurance Works
Some Americans gain insurance by enrolling in a group health insurance plan through their employers. Medicare and Medicaid also provide health care coverage to a population of Americans.
Medicare is a federal health insurance program for people who are 65 or older. Certain young people with disabilities and people with end-stage renal disease may also qualify for Medicare. Medicaid is a public assistance healthcare program for low-income Americans regardless of their age.
You cannot purchase private health insurance directly from the state or federal government. If your company does not offer an employer-sponsored plan, and if you are not eligible for Medicare or Medicaid, individuals and families have the option of purchasing insurance policies from private insurance companies or through the Health Insurance Marketplace.
Scenarios When You Might Need Private Health Insurance
There are certain circumstances that make it more likely that you will need to purchase your own health insurance plan:
A Young Adult 26 Years of Age or Older
Under provisions of the Affordable Care Act (ACA), young people can be covered as dependents by their parents' health insurance policy until they turn 26 years old. After that, they must seek out their own insurance policy.
Unemployed
If you lose your job, you may be eligible to maintain coverage through your employer's health insurance plan through a program called the Consolidated Omnibus Budget Reconciliation Act (COBRA). COBRA allows eligible employees and their dependents the option to continue health insurance coverage when an employee loses their job or experiences a reduction of work hours.
While coverage through COBRA can be maintained for up to 36 months (under certain circumstances), the cost of enrolling in COBRA is very high. This is because the formerly employed person pays the entire cost of the insurance. Typically, employers pay a portion of healthcare premiums on behalf of their employees.
A Part-Time Employee
Part-time jobs rarely offer health benefits. A part-time job is any position that requires employees to work a lower number of hours than would be considered full-time by their employer, or 40 hours per week. If you work part-time, you usually must enroll in your own health insurance.
Self-Employed
A self-employed person may work for themselves as a freelancer or own their own business. A self-employed person may be eligible for health insurance if they are married and can be insured through their spouse's plan. If not, they must provide their own health insurance.
A Business Owner Who Has Employees
If you start a business and you have employees, you might be required to offer them health insurance. Even if it's not required, you might decide to offer health insurance in order to be a competitive employer who can attract qualified job candidates. In this situation, you will be required to purchase a business health insurance plan, also known as a group plan.
If You Retire (or Your Spouse/Parent Retires)
When you retire, you will likely no longer be eligible for employer-sponsored health insurance. If you are under 65 and not disabled, you will need to purchase individual private health insurance until you turn 65 and can apply for Medicare. Many retirees choose to purchase private Medigap or Medicare Advantage plans in addition to
Medicare as a way of guaranteeing more comprehensive coverage. Some retired people may also decide to completely replace Medicare coverage with private Medigap or Medicare Advantage plans.
It is important to note that Medicare, Medigap, and Medicare Advantage plans are only for the individual—your spouse, partner, and any dependents cannot be insured through your Medicare plan. This means that if your family was previously insured through your employer's plan, and you retire, your family members may need to enroll in an individual insurance plan.
Dropped By Your Existing Insurer
Although the ACA prevents insurers from canceling your coverage–or denying you coverage due to a pre-existing condition or because you made a mistake on your application—there are other circumstances when your coverage may be canceled. It's also possible that your insurance may become so expensive you can’t afford it.
Why You Should Purchase Health Insurance
If you find yourself in one of the above situations and lack health insurance coverage, it's important to enroll in an individual plan as soon as possible. Starting with the 2019 plan year, there is no longer a fine for not having health insurance.
For plan years through 2018, if you chose not to buy health insurance, you could face a fee when you filed your federal taxes. This fee was called the Individual Shared Responsibility Payment, but it is no longer effective.
Even though you will not be charged a fee, you cannot predict when an accident will occur that will require medical attention. Even a small broken bone can have negative financial consequences if you're uninsured. Without insurance, medical care can be prohibitively expensive.
If you purchase insurance through the Health Insurance Marketplace, you may be eligible for income-based premium tax credits or cost-sharing reductions. The Health Insurance Marketplace is a platform that offers insurance plans to individuals, families, or small businesses.
The Affordable Care Act of 2010 established the marketplace as a means to achieve maximum compliance with the mandate that all Americans be enrolled in health insurance. Many states offer their own marketplaces, while the federal government manages an exchange open to residents of other states.
While you may not be able to afford the same kind of plan an employer would offer you, any amount of coverage is more advantageous than being uninsured. In the event of a major accident or the unfortunate onset of a long-term illness, you will be better prepared.
Even though you will not be charged a fee, you cannot predict when an accident will occur that will require medical attention.
Choosing the Best Insurance Plan For You
There are several different kinds of health insurance plans, and each of these plans has a number of unique features.
Health Maintenance Organization (HMO)
A health maintenance organization (HMO) is a company that's organizational structure allows them to provide insurance coverage for their subscribers through a specific network of healthcare providers.
Typical features of an HMO include paying for insurance coverage for a monthly or annual fee. Premiums tend to be lower for HMOs because health providers have patients directed at them, but the disadvantage is that subscribers are limited to accessing a network of doctors and other healthcare providers who are contracted with the HMO.
Preferred Provider Organization (PPO)
A preferred provider organization (PPO) is a type of insurance plan in which medical professionals and facilities provide services to subscribed clients at reduced rates. Healthcare providers that are part of this network are called preferred providers, or in-network providers. Subscribers of a PPO plan have the option of seeing healthcare providers outside of this network of providers (out-of-network providers) but the rates for seeing these providers are more expensive.
Exclusive Provider Organization (EPO)
An exclusive provider organization (EPO) is a hybrid of the HMO and a PPO plan. With an EPO, you can only receive services from providers within a certain network. However, exceptions can be made for emergency care.
Another characteristic of an EPO plan is that you may be required to choose a primary care physician (PCP)–a general practitioner that will provide preventative care and also treat you for minor illnesses. In addition, with an EMO plan, you usually do not need to get a referral from your PCP in order to see a specialist physician.
High-Deductible Health Plan (HDHP)
A high-deductible health plan (HDHP) has a couple of key characteristics. First, it has a higher annual deductible than other insurance plans. A deductible is the portion of an insurance claim that the subscriber covers themselves. Second, high-deductible health plans typically have lower monthly premiums.
This type of plan is ideal for young or typically healthy people who don’t expect to demand healthcare services unless they experience a medical emergency or an unexpected accident. The last defining feature of a high-deductible health plan is that it offers access to a tax-advantaged Health Savings Account (HSA).
An HSA is an account that subscribers can contribute funds to that can later be used for medical costs that their high deductible health plan doesn’t cover. The advantage of these accounts is that the funds are not subject to federal income taxes at the time of the deposit.
Consumer-Driven Health Plan (CHDP)
Consumer-driven health plans (CDHPs) are a type of high-deductible health plan. A portion of services that subscribers receive is paid for with pre-tax dollars. Like other high-deductible healthcare plans, consumer-driven health plans have higher annual deductibles than other health insurance plans but the subscriber pays lower premiums each month.
Point-of-Service (POS) Plan
A point of service (POS) plan provides different benefits to subscribers based on whether or not they use preferred providers (in-network providers) or providers outside of the preferred network (out-of-network providers). A POS plan includes features of both HMO plans and PPO plans.
Short-Term Insurance Policy
A short-term insurance policy is a type of insurance coverage that lasts for a short period of time, typically for three months. However, term lengths vary by state, and in some U.S. states, you may be eligible for a short-term plan for up to 12 months.
Short-term health insurance is also called temporary health insurance or term health insurance. It can be a temporary solution to help fill gaps in insurance coverage if you are between jobs, waiting for other coverage to begin, if you are waiting to become eligible to Medicare coverage, or if you need to enroll in health insurance but it is outside of the designated open enrollment period.
Under a short-term insurance plan, your spouse and other eligible dependents may also be covered. However, one important caveat of a short-term insurance plan is that in some cases, pre-existing conditions can disqualify you from coverage. The definition of a pre-existing condition varies depending on the state you live in, but it is usually defined as something you have been diagnosed with or received treatment for within the last two to five years.
Catastrophic Coverage
Catastrophic health insurance is a type of insurance plan that is typically only available to adults ages 30 or younger. In order to qualify for catastrophic coverage, you must receive a hardship exemption from the government. Catastrophic health insurance typically has lower premiums than other health insurance plans.
These types of plans are intended for people who cannot afford to spend very much money every month on insurance premiums but who don't want to be without insurance in the event of a catastrophic accident. While catastrophic health insurance plans may have low monthly premiums, they typically have the highest possible deductibles.
Once you've decided on the type of plan that is best for you, you'll need to determine how much you can afford to pay as a deductible. Remember, a deductible is the defined amount you pay for covered healthcare services before your insurance plan starts to pay. What can you afford to pay in out-of-pocket medical expenses each year? With most health insurance plans, the higher your deductible is, the lower your monthly premium will be. If your monthly cash flow is low, you might have to opt for a higher deductible.
Another key consideration when selecting an insurance plan is the plan's out-of-pocket maximum. After you've spent this amount on deductibles and medical services through co-payments and co-insurance, your health plan will pay the entire cost of covered benefits.
How Much Does Private Health Insurance Cost?
While many people are scared by the prospect of purchasing their own insurance, versus enrolling in an employer-sponsored plan, some studies have shown that it can end up being more affordable at times than employer-sponsored plans.
For example, a study from the Kaiser Family Foundation found that the average monthly premium for an employer-sponsored insurance plan for individual coverage in 2019 was $603. It was $1,725 for family coverage.
Conversely, according to the Kaiser Family Foundation, if you were to purchase your own insurance outside of an employer-sponsored plan, the average cost of individual health insurance was $440. For families, the average monthly premium was $1,168.
In addition, if you end up purchasing coverage through the Health Insurance Marketplace, you may qualify for a Cost-Sharing Reduction subsidy and Advanced Premium Tax Credits. These can lower the amount you pay for premiums, as well as lowering your deductible, and any co-payments and co-insurance you are responsible for.
Where to Go to Buy Private Health Insurance
You have several options when it comes to buying private health insurance.
Medicare.gov
If you are (or are soon to be) retired, you can begin on the website for Medicare. It is recommended that you see what the standard Medicare plan covers and then look at options for ways to supplement Medicare through Medigap and Medicare Advantage policies. When considering Medigap or Medicare Advantage coverage, it’s important to understand how both work types of coverage work in conjunction with standard Medicare coverage.
Healthcare.gov
As a result of the Affordable Care Act (ACA), the Health Insurance Marketplace was created in 2014. You can visit the Health Insurance Marketplace website to find out more about the options for health insurance coverage that your state offers. You can also determine if you qualify for any cost-saving measures and how to apply.
The Health Insurance Marketplace has a specific open enrollment period. Typically, it is between November 1 and December 15 of a given year, although certain events may lead to the open enrollment period being extended or reopened.
On Jan. 28, President Joe Biden signed an executive order to implement a “Special Enrollment Period”, reopening the federal insurance marketplace (healthcare.gov), between February 15 and May 15.
The website also includes information about private plans that are available for purchase outside of the Marketplace. However, if you purchase a plan outside the ACA's Marketplace, whether during open enrollment or not, you will not be eligible for any subsidies available under the ACA.
Under certain circumstances, an individual may be eligible to purchase a healthcare plan through the exchange even if it is outside of the specified open enrollment period. This is called a "Special Enrollment Period." You may be eligible for a Special Enrollment Period if you experience a household change, including getting married or divorced, having (or adopting) a child, a death in your family, moving, losing your health insurance, being in a national catastrophe, or experiencing a disability.
Private Health Insurance Companies
You can also visit the websites of major health insurance companies in your geographic region and browse available options based on the type of coverage you prefer and the deductible you can afford to pay. The types of plans available and the premiums will vary based on the state you live in. It's important to note that the plan price quoted on the website is the lowest available price for that plan and assumes that you are in excellent health. You won't know what you'll really pay per month until you apply and provide the insurance company with your medical history.
Pricing and the type of coverage can also vary significantly based on the health insurance company. Because of this, it can be difficult to truly compare the plans to determine which company has the best combination of rates and coverage. It can be a good idea to identify which plans offer the most of the features that you require and are within your price range, and then to read consumer reviews of those plans.
If you're choosing a family plan or you are an employer who is choosing a plan that you'll provide to your employees, you'll also want to consider the needs of others who will be covered under the plan.
Key Factors for Choosing a Plan
Health insurance plans offer a variety of different features. While it may be hard to find a plan that offers everything you desire, consider which of the following features are the most medically and financially necessary. Here are some questions to consider when you are researching plans:
Does the plan offer prescription drug coverage? Does it only cover generic versions of prescription drugs? What is the co-payment (also referred to as the co-pay) on generics and on name-brand drugs? Check the medicines you're already taking, if any.What is the office visit co-payment, and does the plan have instituted a maximum number of office visits that it will cover per year?What is the co-payment for specialized services, such as x-rays, lab tests, and surgery? For an emergency room visit?Do you want a plan that allows you to add-on vision and dental coverage?Do you need pregnancy benefits?Do you already have a doctor you like? If so, you might want to find a plan that includes your doctor in its insurance company's provider network.Do lifetime and annual maximum benefits apply? The ACA effectively eliminated lifetime and annual maximums for essential medical services, but this does not include, for example, dental and vision coverage.Does the plan offer free or discounted services for preventive care, such as an annual checkup? Most plans under the ACA provide free coverage for most preventative care services. Short-term insurance plans and catastrophic coverage may not.Does the plan cover specialty services such as physical therapy, chiropractic, and acupuncture visits?What hospitals are included in the network?For PPOs, what is the cost for out-of-network services, should you want or need them? Can you afford this?
The Bottom Line
Getting your own health insurance policy may not be as easy as getting signed up with an employer's plan. However, once you figure out what you need and become familiar with the terminology used to describe health insurance plans, your research may become easier. With the number of options available, you can probably find a plan that meets your needs—and your budget.
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f3bcccb0d949f151571b39d72955fda4 | https://www.investopedia.com/articles/pf/08/recession-proof-your-life.asp | 7 Ways to Recession-Proof Your Life | 7 Ways to Recession-Proof Your Life
Do you worry about how a potential recession or economic slowdown might affect you and your finances? Assuming that you have some time to prepare, you can put your fears to rest because there are many everyday habits the average person can implement to protect themselves ahead of time from the sting of a recession, or even make it so its effects aren't felt at all. As the recession hits, these tools can help you get through it in one piece financially.
Key Takeaways There are habits individuals can develop that will protect them ahead of time even if an economic slowdown or recession takes hold. In terms of income, having an emergency fund, strong credit, multiple sources of income, and living within your means are all important. In terms of investments, individuals need to think long-term and diversify holdings, as well as be realistic about how much risk they can handle.
Have an Emergency Fund
If you have plenty of cash lying around in a high-interest, Federal Deposit Insurance Corporation (FDIC)-insured account, not only will your money retain its full value in times of market turmoil, it will also be extremely liquid, giving you easy access to funds if you lose your job or are forced to take a pay cut.
Also, if you have your own cash, you will be less dependent on borrowing to cover unexpected costs or the loss of a job. Credit availability tends to dry up quickly when a recession hits. Once these things happen, use your emergency fund to cover necessary expenses, but keep your budget tight on discretionary spending in favor of making that emergency fund last and restoring it ASAP.
Live Within Your Means
If you make it a habit to live within your means each and every day during the good times, you are less likely to go into debt when gas or food prices go up and more likely to adjust your spending in other areas to compensate. Debt begets more debt when you can't pay it off right away – if you think gas prices are high, wait until you're paying 29.99% annual percentage rate (APR) on them by fueling up on credit card.
To take this principle to the next level, if you have a spouse and are a two-income family, see how close you can get to living off of only one spouse's income. In good times, this tactic will allow you to save incredible amounts of money – how quickly could you pay off your mortgage or how much earlier could you retire if you had an extra $40,000 a year to save?
In bad times, if one spouse gets laid off, you'll be OK because you'll already be used to living on one income. Adding to your savings will stop temporarily, but your day-to-day frugal spending life style can continue as normal.
Have Additional Income
Even if you have a great full-time job, it's not a bad idea to have a source of extra income on the side, whether it's some consulting work or selling collectibles on eBay. With job security so nonexistent these days, more jobs mean more job security. Diversifying your streams of income is at least as important as diversifying your investments.
Once a recession hits, if you lose one stream of income, at least you still have the other one. You may not be making as much money as you were before, but every little bit helps. You may even come out the other end of the recession with a growing new business as the economy turns up.
Invest for the Long-Term
So what if a drop in the market brings your investments down 15%? If you don't sell, you won't lose anything. The market is cyclical, and in the long run, you'll have plenty of opportunities to sell high. In fact, if you buy when the market's down, you might thank yourself later.
That being said, as you near retirement age, you should make sure you have enough money in liquid, low-risk investments to retire on time and give the stock portion of your portfolio time to recover. Remember, you don't need all of your retirement money at 65—just a portion of it. It might be a bear market when you're 65, but it could be a bull by the time you're 70.
Be Real About Risk Tolerance
Yes, investing gurus say that people in certain age brackets should have their portfolios allocated a certain way, but if you can't sleep at night when your investments are down 15% for the year and the year isn't even over, you may need to change your asset allocation. Investments are supposed to provide you with a sense of financial security, not a sense of panic.
But wait—don't sell anything while the market is down, or you'll set those paper losses in stone. When market conditions improve is the time to trade in some of your stocks for bonds, or trade in some of your risky small-cap stocks for less volatile blue-chip stocks.
If you have extra cash available and want to adjust your asset allocation while the market is down, you may even be able to profit from infusing money into temporarily low-priced stocks with long-term value. Buy low so that you can sell stocks high later or hold on to them for the long run.
Be careful not to overestimate your risk tolerance, as that will cause you to make poor investment decisions. Even if you're at an age where you're "supposed to" have 80% in stocks and 20% in bonds, you'll never see the returns that investment advisors intend if you sell when the market is down. These asset allocation suggestions are meant for people who can hang on for the ride.
Diversify Your Investments
If you don't have all of your money in one place, your paper losses should be mitigated, making it less difficult emotionally to ride out the dips in the market. If you own a home and have a savings account, you've already got a start: you have some money in real estate and some money in cash.
In particular, try to build a portfolio of investment pairs that aren't strongly correlated, meaning that when one is up, the other is down, and vice versa (like stocks and bonds). This also means that you should consider asset classes and stocks in businesses that are unrelated to your primary occupation or income stream.
Implementing these financial strategies won't only serve you well during a slowdown—they'll serve you well no matter what's going on in the market.
Keep Your Credit Score High
When credit markets tighten, if anyone is going to get approved for a mortgage, credit card or another type of loan, it will be those with excellent credit. Things, like paying your bills on time, keeping your oldest credit cards open, and keeping your ratio of debt-to-available-credit low, will help keep your credit score high.
When times are tough, maintain communications with your creditors to keep them happy by making arrangements to keep your accounts in good standing. Many lenders and businesses would rather see you continue to be a customer than have to write off your account as bad debt.
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418564e1db6aa01a4ac898b944976ee1 | https://www.investopedia.com/articles/pf/08/renting-vacation-home.asp | Tips for Renting a Vacation House | Tips for Renting a Vacation House
If you're looking to rent a vacation home but don't know where to start, you're not alone. Finding the perfect holiday getaway isn't easy, but there are ways to set yourself apart from the herd and guarantee you get the residence you want without breaking your budget.
As with most endeavors, planning ahead and being organized are the keys. This article will break down the process into nine easy to follow steps that you should take to secure the home you want at a great price.
1. Start Your Search Early
Avoid some of the stress and excessive costs that can go with trying to secure a vacation home, particularly during peak season and on short notice, by thinking, researching and planning at least six months (but preferably a year) in advance. While this may seem excessive, keep in mind that vacation rentals – at least, the good ones—usually book up fast.
If you're not sure where to start, your first goal should be to nail down your destination and the approximate timing of your trip. Once you've made these decisions, a real estate agent who specializes in your area can be helpful in finding a vacation home rental. Consider contacting popular brokerages that have a large presence or looking for individual agents that are known and respected in the area you are visiting.
Also, online local newspapers can be a great resource (some rentals don't go through a real estate agent), and so can websites that specialize in vacation rentals. For example, VacationRentals.com provides details on rentals in all 50 states and numerous countries throughout the world. VacationRealty.com is another site that can help you secure a vacation home near the amenities you desire. Craigslist also advertises vacation rentals.
2. Consult Multiple Sources
It's very important to consult a variety of sources when vacation-house hunting. By shopping around and talking to many different people, you'll not only learn more about the area you are visiting, but you may also find yourself a better deal. Leave your options open by talking to several real estate agents and consulting multiple websites.
If you don't live too far from your vacation destination, you might consider driving around the neighborhoods where you are looking to rent to see if there are any homes advertising for the season. While these strategies can be a lot of work, finding rentals in this manner may be cheaper in the long run because no brokerage fee will be involved.
Although the owner is responsible for paying this fee, the cost will typically be factored into the home's rental price.
3. Read the Whole Contract
Unfortunately, people are often so happy that they landed the vacation home they wanted and so eager to start having fun that they overlook the importance of the contract. But, this document should not be ignored. It explains what expenses you are on the hook for. It will outline not only your payment schedule but also your liability in case of damages or if extra cleaning is needed.
Make sure you understand who pays for:
Utility billsInternetPhone serviceCableCleaning/housekeepingPropane/gas—if outdoor grilling is available
Keep in mind that the costs involved in air conditioning or heating a vacation rental can be sizable, so be sure to factor those into your budget if the owner has not already included them in the rent. You should also be aware of the landlord's policies regarding pets and subleasing. Vacation rental resources website HomeAway has several sample contracts and invoices to peruse so you can get a feel for what to expect.
It's important to get a checklist of what's included in the rental. For example, are beach chairs and a grill part of the deal? If they are, that could save you money. If not, you will need to factor that cost into your budget (or consider bargaining for them; more on that in a bit).
As a general rule, before signing a vacation rental contract, you should consider having it looked over by a competent and licensed attorney that you trust, preferably one that specializes in real estate. This should certainly be done if you are unclear about any aspect of the contract. While attorneys can be expensive, spending a couple of hundred dollars for a review of the contract makes sense if it's going to put your mind at ease and allow you to fully enjoy your vacation.
4. You Can Always Negotiate
Almost every cost of a vacation home rental is negotiable, from the amount of the deposit to the weekly or monthly rent. If the person renting the home out is unwilling to budge on either of these items, see if they'll throw in an extra day's or week's rental at a slightly lower price. If the property isn't booked and you know it, this can be a great leverage point when negotiating.
5. Don't Forget the Deposit
Seasonal rentals may require a large upfront security deposit. Don't forget to factor this into your budget. Also, be aware of the process by which your deposit will be returned. Understand what conditions must be met (i.e., if the home must be clean and all rental payments made) in order for you to get your deposit back. This will help prevent arguments at the end of the rental agreement period.
6. Ask about Housekeeping
Some rentals have a cleaning service come in on the last day and the cost is billed to the person renting the home. Others may have cleaners come by periodically. Find out what the housekeeping schedule is and who is responsible for the bill. Also, find out what condition the property must be in for your full deposit to be refunded.
7. Photograph On Day One
To ensure that any existing damage is documented and that you aren't blamed for something you haven't done, photograph or record a property tour on the day you arrive. Make sure you note any problem areas.
Do the same thing on your last day. If there is an argument before a mediator or a judge, later on, this documentation may come in handy. It may even convince the owner not to take you to court in the first place.
8. Get A Contact Number
It's great that you've gotten the keys to your vacation home and that you're ready to enjoy your time off, but make sure to get the owner or landlord's phone number just in case there is a problem like a burst pipe or a loss of electricity. You'll be glad you did!
9. Walk Through Before Check Out
Before checking out, walk through the premises, preferably with the owner or landlord. Make sure that he or she sees no problem with the condition of the property. This can prevent nasty surprises or unexpected bills. It can also buy you time to fix a problem if one is uncovered.
The Bottom Line
Renting a vacation home doesn't have to be stressful. Thorough and advanced planning can make your holiday more enjoyable and help ensure that you'll be able to book the home you desire at a price you can afford. With these nine steps, you should be able to ensure that your summer shack doesn't turn your vacation into shambles.
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9c34c8b010667716530019a38923705e | https://www.investopedia.com/articles/pf/08/social-security-tax.asp | Avoid the Social Security Tax Trap | Avoid the Social Security Tax Trap
In the good old days, Social Security was tax-free. But times have changed, and now many taxpayers can expect to see at least a portion of their Social Security income make its way onto the taxable income line of their 1040s.
People who convert their traditional IRAs to Roth IRAs often fall into this hidden trap. If they exceed the funding limit, the extra income pushes them beyond the income threshold level, and then they are stuck paying tax on thousands of dollars in Social Security income that they thought was tax-free.
Below, we'll explore why and how Social Security benefits become taxable and provide some tips to help you dig your way out of the trap.
Key Takeaways Social Security income benefits can be taxed up to 85%, depending on the beneficiary's total annual income. Please bear in mind that 13 states also tax Social Security income. The ideal way to keep your Social Security benefits free from income tax is to make sure your total combined income is less than the thresholds to pay tax. Reducing taxation can also be done by optimizing the savings in retirement accounts and the order in which you tap them for income.
Income Thresholds
There are two separate income thresholds for filers that will determine whether they have to pay tax on their Social Security benefits. Here is a breakdown of the categories:
Taxable Social Security Income Filing Status Income Percentage of Social Security That Is Taxable Single, Head of Household, Qualifying Widower, and Married Filing Separately (where the spouses lived apart the entire year) Below $25,000 All Social Security income is tax free. Same $25,000 to $34, 000 Up to 50% of Social Security income may be taxable. Same More than $34,000 Up to 85% of Social Security income may be taxable. Married Filing Jointly Below $32,000 All Social Security income is tax free. Same $32,000 to $44,000 Up to 50% of Social Security income may be taxable. Same More than $44,000 Up to 85% of Social Security income may be taxable.
Calculating Your Income Level
Filers in either of the first two categories must compute their provisional income—also known as modified adjusted gross income (MAGI)—by adding together tax-exempt interest (such as from municipal bonds), 50% of the year's Social Security income, as well as any miscellaneous tax-free fringe benefits and exclusions to their adjusted gross income and then subtracting adjustments to income (other than education-related and domestic activities deductions).
Example 1
Jim Lorman is single. He earned $19,500 for the year and received $2,000 of interest income and $1,500 from gambling winnings. He also receives $10,000 in Social Security income. ($19,500 + $2,000 + $1,500 + $5,000 = $28,000)
Jim's provisional income will come to $28,000. He may thus have to pay taxes on up to 50% of his Social Security benefits.
Example 2
Henry and Sharon Hill have joint earned income of $48,000, plus $4,000 of interest and $3,000 of dividends. Their Social Security benefits come to $20,000:
$48,000 + $4,000 + $3,000 + $10,000 = $65,000
Their MAGI is thus $65,000. They may have to pay tax on up to 85% of their Social Security benefits.
You can use IRS Publication Form 915 to estimate the amount of taxable Social Security income you will have. Qualified plan participants who also contributed to a deductible IRA must use the worksheets found in IRS Publication Form 590 instead. For those who filed as Married Filing Separately and lived at any time with their spouse during the year, IRS publication 915 states that up to 85% of your Social Security may be taxable regardless of the sum.
How to Lower Your Social Security Taxes
There are several remedies available for those who are taxed on their Social Security benefits. Perhaps the most obvious solution is to reduce or eliminate the interest and dividends that are used in the provisional income formula. In both of the examples shown above, the taxpayers would have reduced their Social Security tax if they hadn't had declarable investment revenues on top of their other income.
The solution could thus be to convert the reportable investment income into tax-deferred income, such as from an annuity, which will not show up on the 1040 until it is withdrawn. If you have $200,000 in certificates of deposit (CDs) earning 3%, which translates into $6,000 a year, that will be counted as provisional income. But the same $200,000 growing inside an annuity, with the interest reinvested back into the annuity, will effectively yield a reportable interest of $0 when computing provisional income.
Generally, annuities become taxable income when they are taken as distributions depending on the account type. Virtually any investor who is not spending all of the interest paid from a CD or other taxable instrument can thus benefit from moving at least a portion of his or her assets into a tax-deferred investment or account.
Earmarking Retirement Accounts
Another possible remedy could be to simply work a little less, especially if you are at or near the threshold of having your benefits taxed. In the first example listed above, if Jim were to move his taxable investments into an annuity and earn $1,000 less, he would have virtually no taxable benefits. Shifting investments from taxable accounts into a traditional or Roth IRA will also accomplish the same objective, provided funding limits have not been surpassed.
IRA Contribution Limits
The IRS has established contribution limits for contributing new money into an IRA. The annual contribution limit to both a traditional IRA and a Roth IRA is $6,000 per year for 2020 and 2021. Individuals aged 50 and over can deposit a catch-up contribution in the amount of $1,000. The contribution limit for a 401(k) is $19,500 per year for 2020 and 2021. If you are 50 or older, you can contribute an additional $6,500 as a catch-up contribution.
IRA Distributions
A leading way is to withdraw funds early—or "make distributions," in the retirement parlance—from your tax-sheltered retirement accounts, such as IRAs and 401(k)s. Keep in mind that you can make distributions penalty-free after age 59½. That means you avoid paying the penalty for making these withdrawals too early. If you withdraw your IRA funds before the age of 59½, in most situations, you'll pay a 10% penalty on top of having to pay income taxes on the distribution.
Since any withdrawals are taxable, they must, of course, be planned carefully with the other taxes you will have to pay on income for the year. The goal is to pay less in tax by making more withdrawals during this pre-Social Security period than you would after you begin to draw benefits. That requires considering the total tax bite from withdrawals, Social Security benefits, and any other sources.
Be mindful, too, that at age 72, you need to take required minimum distributions (RMDs) from these accounts, so you need to plan the funds for those mandatory withdrawals.
The age for RMDs used to be 70½, but following the passage of the Setting Every Community Up For Retirement Enhancement (SECURE) Act in December 2019, it was raised to 72.
The Bottom Line
There are many rules concerning the taxability of Social Security benefits, and this article attempts to cover only the major rules and issues related to this topic. For more information on this topic, visit the IRS website and download IRS publication 915 or consult your tax advisor.
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104af86c57a30737de44c300560a385e | https://www.investopedia.com/articles/pf/08/speding-holiday.asp | 8 Tips to Help You Control Holiday Spending | 8 Tips to Help You Control Holiday Spending
Think you can't get through the holidays without spending a fortune? It can be easy to go overboard on holiday shopping, but with a little bit of planning and budgeting, it is possible to celebrate without spending all of your cash or maxing out your credit cards. Use these eight practical tips to ensure you stay on budget for the new year, rather than getting wrapped up in holiday spending.
Key Takeaways Sticking to a budget is a good way to keep yourself out of debt during any time of year. Despite the financial setbacks related to the COVID-19 pandemic, consumers plan to spend more in 2020 than they did in 2019.Controlling your holiday spending is an essential aspect of a healthy financial life.Alternative gifts, such as volunteering or handmade goods, are ways to save money during the holiday season.
1. Set Holiday Spending Limits
Despite the financial setbacks related to the COVID-19 pandemic, consumers plan to spend more during the 2020 holiday season than they did in 2019. The National Retail Federation (NRF) predicts that during November and December sales will increase 3.6% to 5.2% over 2019, totaling between $755.3 billion and $766.7 billion.
Give your credit card and your mind a holiday by limiting what you buy to what can safely come out of your bank account. Use this opportunity to create or get your budget into fighting shape, and use it to decide how much money you can afford to spend.
Holiday budgeting is a way to set limits on your purchases and still enjoy the season. It can help to set up a budget and limits that you will stick to—without caving in and racking up the credit.
The money you can reasonably spend on gifts is money that isn't going to bills. That said, if you want to have a little more to spend, this doesn't have to be just the money left over at the end of the month. You can also use the money that you would normally spend elsewhere, such as on your morning latte. As long as you are using cash (not cash advances from credit cards) without spending your rent money, you are doing great.
Remember to be realistic about what you are willing to sacrifice. You may spend your monthly clothing budget on holiday gifts, then come up empty when you need new snow boots.
2. Make Your Own 'Naughty or Nice' List
Santa has to buy presents for the whole world, but you don't. If your shopping list includes more than five people outside of your immediate family, cut down on the number of people on your present list.
Then, bake some cookies to give to all the people you snipped from your original gift list. This will ensure you spread the holiday cheer and keep you from looking like Scrooge.
3. Be Realistic About Your Budget
Your older brother paid off his student loans five years ago, and he always gets you the fanciest presents. However, if you are in a different place in your financial life, you shouldn't follow suit.
If you have any doubts as to whether those on your list will appreciate the less expensive presents you buy them, think back to what your friends and family gave to you when their budgets were tighter. There's no doubt that you'll both be better friends in the new year if you're not creating debt loads for each other this year.
$998 The average amount Americans plan to spend on gifts, food, and decorations in 2020 holiday season, according to the National Retail Federation (NRF).
4. Become a Coupon and Coupon Code Collector
Sales aren't the only way to get great deals on the gifts you want for your friends or family. Before you shop online, perform a quick web search for coupon codes for your favorite online stores.
Before you shop in local stores, comb through the coupons you received in your mailbox. While you search through the flyers, make sure to comparison shop for the item you're interested in. Savings can happen just by keeping your eyes peeled for deals.
5. Give the Gift of Your Time
Mom and dad (or other far-away family and friends) might love nothing more than a visit from you, although in 2020 that may not be the most practical idea due to the pandemic. Another idea? Writing up a "free night of babysitting" card for your family members with young children, or "good for a home-cooked meal" certificate for your widowed aunt that can be used when the time is right.
6. Build Better Spending Habits
Get over the how-am-I-going-to-pay-off-my-credit-cards-next-month anxiety by giving yourself the gift of developing new-and-improved spending habits.
For example, for every dollar you spend on gifts, you could find a way to remove that dollar from your regular spending. Around the holidays, you can use those savings to buy presents, but next month—and the rest of the year—what you save can go into your savings account.
7. Provide Personalized Gifts
A small, thoughtful gift is worth more than an expensive gift that someone may never use. Avoid impulses to shop at trendy stores and start the holiday by taking a moment to think about what those on your list could really use.
For example, if your sister loves to bake but can't get the hang of homemade pie crusts, you could buy her a simple pastry-making tool for less than $10 and include a copy of a fool-proof recipe.
8. Organize Group Volunteering vs. Holiday Parties
Your friends probably struggle with overspending as much as you do over the holidays. Give them the relief of forgoing buying gifts for you by organizing a group volunteer day instead. It's possible to volunteer virtually, too—which may be the best choice until the pandemic cools down. You'll come out of the day feeling proud of your efforts rather than suffering from buyer's remorse, and anyone can benefit from volunteering.
Non-profit VolunteerMatch has a massive online database that you can search to find volunteering opportunities (in-person and virtual) for a wide variety of causes and organizations throughout the United States.
The Bottom Line
Don't let your debt become the Grinch that robs the fun from your holiday season. Base your gift buying on sentiment rather than dollar value and avoid giving yourself a year-round debt headache. If you can follow these tips, when your holiday bank and credit card statements arrive in the New Year, you'll find yourself singing "Joy to the World" all over again.
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9edfbc8a0b50428d4caefb0937496410 | https://www.investopedia.com/articles/pf/08/stop-paying-bills-late.asp | Procrastinator’s Guide to Bill Payment | Procrastinator’s Guide to Bill Payment
Paying your bills on time is an important aspect of taking control of your financial life. Knowing when your bills are due and making a habit of paying them by the deadline can reduce your stress, save you money, boost your credit score, and enable you to get lower-interest credit in the future.
Taking control of bills can also help you keep your checking account balanced by making sure that bill pay-by dates are coordinated with your paycheck or other income sources.
But how do you start making on-time bill paying a habit? It’s easier than you may think.
Top 10 Ways to Prevent Late Payments
We’ve come up with a list of tips to help you stop paying your bills late. Let’s take a look.
Sign Up for Auto Pay
Most of your regularly recurring bills—utilities, mortgage, car loan, etc.—provide you with the option of having the amount you owe automatically deducted from a designated bank account. Make it easy by making it automatic.
Use Financial Software With Automatic Bill-Paying Reminders
Both Microsoft Money and Quicken have features that can prompt you days or weeks in advance of your bill due dates.
Consolidate Bills
Say you get your internet access, phone service, and cable TV from the same provider. Instead of paying three separate monthly bills, why not see if you can consolidate your billing to pay for all of the services you receive in one monthly statement? You’ll be less likely to miss a due date that way.
Schedule Bill-Paying Time
Carve out time on your calendar to pay bills on a regular basis in the same way that you schedule a time for the gym or work meetings. By setting aside a regular time to pay your bills, you’ll create a habit that will make you much less likely to miss a due date.
Key Takeaways If you don't pay your bills on time, you could damage your credit. There are strategies to help you pay your bills promptly, including setting up automatic payments and consolidating your bills. Late fees of up to $35 per bill can add up over time. Paying bills on time and keeping your checking account balanced may relieve financial stress.
Create a Bill-Paying Location
Stuffing a bill into your purse or briefcase or throwing it on the kitchen counter when you come in from work are good ways to forget—and miss—the payment due date. Find a convenient place where you can keep and pay your bills.
Stock it with all the items you need for the process, including a computer and internet access (if you pay bills online and/or use financial software), your checkbook, stamps, pens, envelopes, and a filing system to keep track of your paid statements. Then when it’s time to pay your bills, you’ll have a comfortable, convenient place to do so.
Organize Paper Bills
Your bills should be arranged according to the due date. Create a habit of noting the due date for a bill as soon as you open it (circling or highlighting it) and then put the date on your calendar. You may want a desk filing system where you can store bills according to due dates, so you have an immediate visual reminder of which bills need to be paid next.
Give Your Payment Time to Arrive
Check your statement or contact your creditors to find out how many days in advance they recommend sending in payment. It’s important to know how long it will take for your creditor to actually receive and process payment, especially if you are sending it in near a holiday or weekend. You want to meet or beat the deadline, not mail the check a day or two late.
Learn Your Billing Cycle
Review several months’ worth of paid bill statements and list bills in the order that they are typically due. Most likely you’ll notice that your due dates are in one of two groups—ones due earlier in the month (e.g., the 5th) and those due later in the month (e.g., the 20th).
As soon as you receive your paycheck, pay the bills that are due prior to your next paycheck. If you don’t have enough money in your account to regularly pay all of the bills due before your next paycheck, contact your creditors to change a couple of your payment due dates.
By law, the late fee on a credit card can’t be more than the sum you neglected to pay.
Sign Up to Receive Bills or Bill Reminders Via Email
Use email to your advantage. Check to see if your creditors provide online bill payment reminder features, or go paperless and have your bills sent to you electronically via email. When you receive the bill or reminder, use it as a prompt to log into your bank account and pay the bill, ensuring that you don’t miss the due date.
Use Your Phone to Pay
Many creditors allow account holders to pay their bills by phone, for free or a small fee. If you regularly pay bills late, consider paying by phone instead. It’s more than likely that the fee charged for phone payment service will be less than the late fee.
Pay Your Bills in Advance
Can you pay your bills before they are due? Yes. If you have a really hard time making your payments on time, you might want to consider prepaying your bills to avoid those punishing late fees. Many creditors will allow you to pay your bills in advance, effectively creating a credit.
If you have irregular income, or if you find that you have some surplus cash, consider prepaying one or more of your recurring bills. That way you won’t have to worry about payment due dates for a few months. Just keep an eye on your monthly statements to know when you need to begin paying again.
Raise Your Credit Score
There are several reasons why paying your bills on time matters. For starters, it helps you establish a good credit record and can boost your credit score. When you pay your bills on time, creditors report your good payment habits to the three main credit bureaus: Experian, TransUnion, and Equifax. The more consistently you pay your bills on time, the higher your credit score is likely to be.
Prospective creditors use your credit report and credit score to determine whether to approve your application, how much credit to extend (such as for a mortgage loan or line of credit), and how much interest to charge. The better your record and the higher your score, the more likely your future applications for credit are to be approved—and at a lower interest rate.
Better Interest Rates
Not only will paying your bills on time help your credit score; it will also save you money. In addition to getting lower interest rates on your credit accounts, when you pay your bills on time you will not be charged a late fee or penalty, which can go as high as $35.
You also won’t have to worry about triggering an interest rate hike. Check the fine print, particularly on your credit card agreements, and you will likely find that the company reserves the right to hike your interest rate considerably (for example, from 2.9% to more than 20%) for making even one late payment. And if the interest on your account is calculated daily, the sooner you make your payment the less interest you’ll have to pay.
The Bottom Line
Paying your bills on time can reduce your financial stress. You’ll have no more wondering about whether you’ve paid a bill if you have enough money to cover the amount due (because you have other bills due as well) or how much you’ll have to pay in late-payment fees.
And when you pay your bills on time, it will also be simpler to keep your checking account balanced because you should try never to write a check if you can't cover the amount. When bills are paid and accounts are balanced, you can rest easy knowing that your financial house is in order.
To get started, try executing just one or two tips, then incorporate a few more as you make bill paying a habit and a priority. You’ll feel more confident about your ability to manage your finances and save money at the same time.
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3616f89de49ee169240ae1eff01f1913 | https://www.investopedia.com/articles/pf/08/stop-scams.asp | Stop Scams in Their Tracks | Stop Scams in Their Tracks
Scammers trick millions of people a year. According to a report from the Federal Trade Commission (FTC), U.S. consumers filed roughly 1.7 million fraud complaints, 892,000 “other” complaints, and 651,000 complaints of identity theft during 2019 (the most recent data available). Of the 1.7 million fraud complaints, 23% reported that money was lost, to the tune of $1.9 billion overall. That's an increase of $293 million over what was reported in 2018.
What may be surprising in the digital age is that the most common method fraudsters used to contact victims was the telephone (74%), followed by websites (9%), email (8%), consumer-initiated contact (5%), mail (3%), and other (2%). People ages 60 to 69 filed the most fraud reports (20%) and reported the biggest losses ($223 million).
Scams are nothing new, and criminals are only getting more sophisticated. That means it's more critical than ever to protect yourself against fraudsters who would try to get your personal information and money. Here are some tips to help you avoid scams—and what to do if you are defrauded.
Key Takeaways Millions of people each year fall victim to scams, accounting for billions of dollars in losses.Imposter scams top the list of fraud categories; they represented $667 million in losses during 2019, with a median loss of $700 per victim.While scams are widespread, there are ways to protect yourself against fraudsters and keep your money and identity safe.
Types of Scams
While the telephone is the most common way for criminals to contact consumers, the internet provides plenty of opportunities for scammers. The Federal Bureau of Investigation (FBI) says some of the most common online risks are:
Email account compromise (EAC) ccams—Criminals send a message that appears to come from a known source, making a legitimate request. A vendor that your company works with might appear to send an invoice with an updated mailing address, for example, or a home buyer gets a message from their title company with instructions on how to wire a down payment.Identity theft—Someone steals personal information, such as your Social Security number, to commit fraud or theft.Ransomware—Malicious software, also called malware, keeps you from accessing your computer files, systems, or networks until you pay a ransom.Spoofing—A scammer disguises an email address, a sender’s name, a phone number, or a website address to make you believe you’re interacting with a trusted source.Phishing—Phishing schemes direct you to fake websites that might look nearly identical to the real thing and ask you to enter sensitive information such as passwords, credit card numbers, and personal identification numbers (PINs). Similar variations include vishing (scams happen over the phone, voice mail, or VoIP), smishing (via SMS messages), and pharming (malicious code is installed on your computer).
The FBI does not send emails to private citizens about cyber scams. If you receive an email that claims to be from the FBI director or other top official, it’s likely a scam.
According to the FTC report, more people filed claims about identity theft—20.3% of all reports—than any other type of complaint in 2019. Following closely behind at 20.2% of all claims were imposter scams (a subset of fraud reports). Claims for telephone and mobile services rounded out the top three reports with 6%. Here’s a rundown of the leading types of fraud, identity theft, and “other” scams, along with details about the number of reports and total losses.
Image source: Federal Trade Commission.
What You Can Do to Avoid Fraud
Despite the prevalence and sophistication of scams, there are ways to lower your chances of being a fraudster’s next mark. Here are some tips on how to do just that.
Be careful what you download
Never open an email attachment from someone you don’t know and always use caution with attachments that have been forwarded to you—even if you know the sender. If it looks suspicious or is something your friend or colleague is unlikely to send, be wary. When in doubt, contact the person directly to confirm they sent the attachment or link—before you open or click on anything.
Be careful how you pay
Never give your credit card number over the phone unless you initiated the call. Before you submit your card details online, make sure the website and payment page are legitimate.
Unfortunately, you can be on a real e-commerce website and get directed to a fake checkout page if the website has been hacked. Pay attention to the website design: It should match the brand’s style, colors, and logo. Also, any web page that prompts you to enter personal or financial details (including your credit card number) should start with https:// (the “s” stands for “secure”) and have a green lock icon.
Credit cards have built-in fraud protection, so they’re usually the safest way to pay for something. If you pay for something with a wire transfer, reloadable card (such as MoneyPak or Reloadit), or gift card (such as iTunes or Google Play), you won’t have much recourse. Remember that government offices and reputable companies will never ask you to use these payment methods.
Don’t click on unsolicited messages
Never click on anything in an unsolicited email. Instead, hover your mouse—without clicking it—over the text, links, and images to reveal the real destination (more on that below). Keep in mind that just because a link says “Sign Into Microsoft Outlook” doesn't mean that’s where you’ll be directed.
Don’t send money or give out personal information in response to an unsolicited text, phone call, or email. Remember that companies will never contact you to ask for your username or password. Always log onto the official website instead of linking to it from an unsolicited email or text.
If you weren’t expecting a message, look up the company’s phone number and call it directly to ask if the request is legitimate (don’t dial the number included in the message).
Make sure URLs are legit
You can hover your mouse over text, links, and images to see where they point. When you do so, pay close attention to the “root domain”—aka the real address behind a link. That’s the part of the URL that comes between the second-to-last dot and the first slash (the “second-to-last-dot rule”). Why is that important? It’s the only part of a URL that a scammer can’t change.
So while https://www.microsoft.com/ is a valid address, https://www.microsoft.com.scam.co/ is not (this link would take you to the scam.co website). Keep in mind that images, design, text, and logos can all be manipulated to trick you, so check the URLs of the links (without clicking, of course) and the source of the email to find out if the message is legitimate.
Check out email addresses
To check the source of the email, click the “Reply” button and see what appears in the “To” field (don’t send the message, of course). If the email is supposed to be from Microsoft Account Team, but the address shows up as something like department-service123_microsoft@outlook.com (sneaky) or qrx%xoiwerj j56@ioaetmicrosoft584.com (obviously fake), it’s not legit.
Secure yourself online
If a website you frequent offers two-factor authentication (2FA), use it. Always use strong, unique passwords, and store them with a trustworthy password manager. Finally, install reputable internet security software, update it regularly, and allow it to monitor your device continually.
Where to Report Scams
There are many different types of scams, so it can be hard to figure out whom you should contact. Start by changing your passwords and contacting your state consumer protection office. If you lost money (or other personal belongings), reach out to your local police department too. Contact your bank or credit card provider to see if it can help and consider freezing your credit so nobody can open a new line of credit in your name.
The FTC is the primary agency that collects scam reports. Use the FTC complaint assistant or phone 877-382-4357 (9 a.m. to 8 p.m. ET) to report any of the following scams.
Computer support scamsDemands for you to send money (check, wire transfers, gift cards)EmailsFake checksImposter scamsPhone callsPrize, grant, and sweepstakes offersStudent loan and scholarship scams
Report identity theft
Report identity theft online at IdentityTheft.gov or by phone at 877-438-4338 (9 a.m. to 8 p.m. ET).
Report online scams
Report fake websites, emails, malware, and other internet scams to the FBI’s Internet Crime Complaint Center (IC3).
Sign up for free scam alerts from the FTC. You’ll get the latest tips and advice about scams in your inbox.
Report international scams
If you believe you’ve been the victim of an international scam, report it through econsumer.gov. The report helps international consumer protection offices identify trends and prevent scams.
Report IRS and Social Security imposter scams
Some scammers pretend to work for the Social Security Administration (SSA) or the Internal Revenue Service (IRS). Here are some red flags to watch out for:
RobocallsThreats of arrest or lawsuitsDemands for paymentsThreats that your Social Security number or benefits will be canceled
Report Social Security imposters online through the SSA’s inspector general or by phone at 800-269-0271 (10 a.m. to 4 p.m. ET).
Report IRS imposters online at the Treasury Inspector General for Tax Administration (TIGTA) or by phone at 800-366-4484.
Report disaster and emergency scams
Submit complaints of fraud, waste, abuse, or mismanagement related to any man-made or natural disaster (including those related to the coronavirus) online through the Department of Justice’s National Center for Disaster Fraud (NCDF) complaint website or by phone at 866-720-5721.
The Bottom Line
Anyone can be a mark—a target for someone’s scam. Still, you can lower the risk of falling prey to scammers by using some common sense and following these tips from the FBI and FTC. If you are swindled, report it right away.
Keep in mind that scammers often target people who may be easier to defraud—namely, older adults and vulnerable individuals. If you have a family member or friend who is at risk, check in with them frequently, share tips for avoiding scams, and discuss the current scams and what to watch out for.
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6d933b3f893e43f161502a064bdf0240 | https://www.investopedia.com/articles/pf/08/term_life.asp | 5 Life Insurance Questions You Should Ask | 5 Life Insurance Questions You Should Ask
If you're in the market for life insurance, you might have been tempted by those ads claiming, "For just a few dollars a day, you can protect your family with $1 million in life insurance!" It sounds like a great deal, doesn't it? These ads typically refer to term life insurance. As its name implies, term life insurance provides protection for a limited amount of time or term, such as 10, 20, or 30 years.
The concept is fairly simple: If you die while your policy is active, your family will receive a death benefit. But the many types of term insurance and options can be confusing. Is term life insurance likely to pay off for you? Start by asking yourself the following five questions.
Key Takeaways Nobody really wants to talk about life insurance; it sounds expensive and brings to mind our own mortality. Nevertheless, having the proper life insurance in place can bring peace of mind, knowing that your loved ones and beneficiaries will be taken care of financially when you die. Depending on your lifestyle, family structure, and financial position, different types of life insurance coverages exist that can be customized to meet your particular needs.
1. Why Do I Want Life Insurance?
Before you buy any kind of life insurance, think about why you're buying it. Are you protecting your family in case of early death? Have you taken on additional debt that requires you to provide coverage? Are you looking to leave an inheritance or a gift to a charity?
If you want insurance to potentially cover financial obligations you'll have for a very long time—possibly for the rest of your life—you may want to consider permanent life insurance. If you're in a cash crunch and have immediate obligations to your family, business partners or lenders, term insurance can provide you with a short-term solution.
2. What Type of Coverage Is Available?
Most people will have access to at least one of the two types of term insurance policies: group or individual.
Group Life Insurance
Most companies offer their employees some form of term life insurance as an employee benefit. This is called group term insurance because you're getting protection as part of a larger group. Usually, it's deducted right from your paycheck, and the only requirement for coverage is to complete a brief questionnaire with details of your health history. Here are some of the advantages of group term insurance:
It's convenient. You can usually sign up for a policy when you take a new job and enroll in your company's benefits program. You may also have an opportunity to sign up during the annual enrollment period at your company when you can sign up for other benefits, such as medical or dental insurance or an employer-sponsored retirement plan. No medical exam required. Most group plans don't require a physical exam. A statement of good health, along with a medical history, is usually all that's required to secure coverage. Automatic payments. Through payroll deduction, you'll hardly feel the financial hit of paying premiums every month.
Individual Life Insurance
As its name implies, an individual policy is one in which you apply for coverage on your own. You, or a family member, will own the actual policy. To obtain an individual policy, you'll probably have to undergo a medical exam of some sort, provide a detailed medical history, and give the insurance company permission to look into your medical records and perform a background check on any driving offenses or criminal activities. This might sound a little invasive, but there are some great benefits to owning an individual life insurance policy.
It's portable. If you take a new job at a different company, you don't have to worry about losing your life insurance protection. Level premiums. Generally, individual policies can be structured to have level premiums for the duration of the policy. Flexibility. If you ever want to upgrade or convert your term policy to a permanent policy, you might have more options available with an individual policy than you would with a group plan.
3. What If I Don't Die?
Ironically, some people who buy term life insurance get upset when they find out that if they don't die, they don't get anything back. If this is a concern for you, it's important to get an understanding of what will happen to your policy as you near the end of the term.
As you near the end of your policy term, you may have the option of keeping your policy. If you do, and you have been paying level premiums, you can expect a hefty jump in your premium. So, if you are still healthy at that point in your life and you want to keep the coverage, it may be best to apply for a new policy.
Perhaps you only wanted your policy to cover you as long as you had a mortgage, or until your children's college education was paid for. If that's the case and you have no other obligations to protect, you might want to let the coverage expire.
4. How Can I Upgrade My Current Policy?
Most term policies come with a "conversion privilege." This allows you to essentially trade in your old term policy for a new permanent policy and continue paying premiums, which may be higher. This is a great feature that provides future flexibility, but because some policies have limitations, you should familiarize yourself with the conversion rules of any policy you're considering.
The conversion privilege might have a time limitation on it. For example, you may have to convert it before you hit a certain age. Other policies allow conversion during the entire term of the policy. The most generous term policies allow you to convert to any type of permanent policy available, such as whole life, universal life or variable universal life. Some term policies may force you to convert to one type, and some companies may not offer all types, which can limit your options.
5. Where Do I Buy a Policy?
A number of online companies offer term insurance policies. These distributors typically focus on finding the policy with the lowest cost based on the personal information you provide.
For a more personalized experience, you might consider finding a professional. An insurance agent will help you understand the different types of insurance and should be able to answer any questions you might have. You can find one by visiting any of the major company websites or combing through your local phone book, but probably the best way to find a representative is to ask for a referral from a friend or business associate.
Finally, for group coverage, you can check with your employer. If you're self-employed, you may have access to a group plan through a professional association, or you may even be able to put a group plan in place for yourself and your employees.
The Bottom Line
After going through these five questions, you will be able to decide for yourself if that million-dollar coverage offered in the ad is really what you need to provide for you and your family. If it's not, don't be afraid to pass it by—there are hundreds of policies waiting to provide you with the peace of mind you're looking for.
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acc1c961977a75f1577bd6747d07df30 | https://www.investopedia.com/articles/pf/08/timeshare.asp | Timeshares: Dream Vacation or Money Pit? | Timeshares: Dream Vacation or Money Pit?
Timeshare Ownership Concept
Timeshares are based on the concept of fractional ownership in a property. For example, if you purchase one week at a timeshare condominium each year, you own 1/52nd portion of the unit. If you purchase one month, you own 1/12th of the unit. Other buyers purchase the remaining fractions.
There are two general schemes:
Deeded: You purchase an ownership interest in the property. Non-Deeded: You lease the right to use the property for a specific amount of time each year for a preset number of years.
Key Takeaways A timeshare is a form of fractional ownership in a property, typically in a resort or vacation destination. While timeshares can be an exciting and perhaps cost-effective way to travel on a regular basis, they often have both up-front and on-going costs that must be weighed. Timeshares should not be considered investments, since the vast majority of timeshare contracts lose value in the secondary market and they do not generate income for owners.
Timeshare Considerations
From there, the various ownership structures become more complex. You can purchase a fixed week, which means that you own the right to use the unit during the same week each year, or you can purchase a floating week, which generally gives you the right to use the property during a predetermined period of time. Some properties operate on a point system. These are often referred to as "vacation clubs." With these, you purchase a specific number of points that can be redeemed at a variety of destinations. Some plans let you "bank" unused points.
Cost varies by:
Unit size Location Deed Brand Time period purchased (e.g., December versus August at a ski resort)
Timeshare properties can often feature larger and more luxurious accommodations than standard hotels and are generally located in desirable places.
Words of Caution
When you are standing in a beautiful condominium overlooking the perfect beach and sparkling blue water, it is easy to succumb to the sales pitch. Remember, timeshare salespeople are in the business of selling. But just because they tell you that you are getting a great deal, it doesn't mean that you really are. Before you buy, take some time to research the property and talk to other timeshare owners. Don't make your decision in haste and never let the salespeople rush you.
Trading May Not Be Easy
Points-based systems come with no guarantees. Just because the salesperson tells you it's easy to trade your week for another week or your property for another property, doesn't mean it really will be easy. If you own a week in Hawaii, would you be willing to trade it for a trip to the blistering hot Las Vegas desert in August? If you wouldn't, chances are no one else will either. It's also important to remember that everybody wants to travel to the same places and in the same weeks that you do. The desirability factor aside, trading often results in an additional fee.
Fees and Charges
In addition to the monthly loan payment, which comes with a high-interest rate when financed through the timeshare company, the annual maintenance fee will also set you back a few hundred dollars a year. Also, if the property needs a new roof or a new sewage line, a "one-time" assessment will be levied. Some properties also charge miscellaneous fees, such as a publication fee if you want to view other properties that may be available for trade, and additional fees if they help you sell your property.
Management
While a lifetime of vacations sounds great, will the management company that sold you the timeshare be around three decades from now? If you are considering a timeshare in a foreign country, you must also understand the laws and know what the result will be if the timeshare management company closes.
Enjoyment
Another major consideration is your health. That condo on the ski slopes may look great today, but five years from now when you are a caring for a baby or are suffering from a herniated disk, your days on the slopes may be over, but the bills for the timeshare will continue. Consider that your desire to hop on a plane may wane as fuel costs rise, airport security becomes more onerous and the aging process makes you less tolerant of travel.
What a Timeshare Is Not
A timeshare is not an investment. Investments are designed to appreciate in value, generate income or do both. A timeshare is unlikely to do either, despite what the salesperson says. The huge volume of used timeshares on the market, the appeal of buying new versus used, and the marketing muscle of the firms selling new timeshares all work against the idea that you will make a profit reselling your used timeshare. Thus, selling for a profit is an uphill battle considering you need to convince someone to pay more for a used unit and factor in all the fees you paid over the years.
The very nature of the sales process should be a hint about the reality of the issue. Have you ever heard of a mutual fund, municipal bond or any other investment that offered you a free weekend in Miami just for giving the product a try? A timeshare is not an investment, it's a vacation. It's also an illiquid asset that is likely to lose value over time. Ultimately, timeshares are like swimming pools, if you buy one, do so because you love the idea of owning it, not because you expect to make a profit.
If you do take the plunge, remember that you are buying a repeatable vacation. Just as spending $3,000 on a trip to an exotic beach is not an investment, neither is spending $10,000 plus maintenance fees on a timeshare.
How to Buy a Timeshare
If you have found a vacation destination that you absolutely love and want to return to every year and have decided that a timeshare is a perfect way to achieve your goal, go ahead and buy one. But buy it used. Current owners that are tired of the maintenance costs, tired of the destination, or have grown frustrated with their efforts to trade their slot so that they can visit a different destination may be willing to give their timeshares away at a fraction of the original cost. Just search "timeshare resale" and you'll see dozens of offers that will let you choose less expensive timeshares in locations from Florida to Saint Martin.
Buying used gives you all the benefits of ownership at the fraction of the cost. Even if you choose a more expensive unit, you can save money by financing your purchase with a personal loan, which should offer you an interest rate that is considerably lower than the rate the timeshare company charged the original owner.
Look Before You Leap
Like any major purchase, the decision to buy into a timeshare requires careful consideration. It involves a large amount of money up front and considerable recurring costs. You should ask plenty of questions and take your time making a decision. And as the Federal Trade Commission (FTC) says in its Consumer Information: "The value of these options is in their use as vacation destinations, not as investments."
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ff5ac93dae488f6cf5c9c3ed794cf503 | https://www.investopedia.com/articles/pf/08/trust-basics.asp | Pick the Perfect Trust | Pick the Perfect Trust
A well-crafted estate plan ensures that a person's assets will be smoothly passed on to his or her chosen beneficiaries, after one passes away. The absence of an estate plan can lead to family conflict, higher tax burdens, and exorbitant probate costs. While a simple will is an essential component to the estate planning process, sophisticated plans should also include the use of one or more trusts.
This article outlines the most common types of trusts, coupled with their defining characteristics and benefits.
Key Takeaways A well-crafted estate plan invariably involves pairing a simple will with the creation of a thoughtfully-designed trust, to ensure a benefactor's assets are seamlessly transferred to his or her loved ones. Trusts may be broadly defined as "revocable", which means they may be amended during a grantors living years, and "irrevocable", which means they cannot be altered or revoked. Trust entities generally pays separate taxes, and therefore must obtain a federal identification number and file an annual return.
Basic Characteristics of Trusts
A trust is an account managed by a person or organization, for the benefit of another. A trust contains the following elements:
Grantor: Sometimes called a settler or trustor, a grantor refers to the individual who creates the trust and has the legal authority to transfer property into it. Trustee: This is an individual or organization who administers property or assets for the benefit of a third party, by temporarily holding onto the property, but without taking direct ownership of it. Trustees have the fiduciary responsibility to operate in the best interests of the grantor and the beneficiaries, and must faithfully execute the mandates outlined in the trust document. Therefore, it is critically important to appoint only reliable people to this position. Beneficiary: This is the party who benefits from the trust. There may be several beneficiaries to the same trust--each of whom may be entitled to a different amounts of the assets. Property: This refers to the asset held in the trust, and may include cash, securities, real estate, jewelry, automobiles, and artwork. Sometimes called the "principal" or the "corpus", such property can be transferred into the trust while the grantor is still alive, via a living trust. Alternatively, assets may be transferred into a testamentary trust after the grantor dies, as per the mandate of a will. Revocable trust: This type of trust may be altered as many times as desired, during a grantor's living years. Irrevocable trust: This type of trust can never be altered, amended, or revoked. Taxes: Generally speaking, each trust pays separate taxes, and therefore must obtain a federal identification number and file an annual return. Some living trusts use the grantor's tax identification number.
Common Types of Trusts
Here are the most common types of trusts:
Livings TrustsA living trust is usually created by the grantor, during the grantor's lifetime, through a transfer of property to a trustee. The grantor generally retains the power to change or revoke the trust. But after the grantor dies, this trust becomes irrevocable and may no longer be changed. With these vehicles, trustees must follow the rules delineated in the creation documents, relating to the distribution of property and the payment of taxes.
Living trusts offer the following advantages:
Healthcare/end-of-life provisions desired by the grantor Protection against incapacity of grantors and beneficiaries The elimination or reduction of probate delays and expenses Easy succession of trustees Immediate access to income and principal by beneficiaries Privacy during situations where the state requires the filing of an inventory of assets
Living trust have the following limitations:
Titling of Property: In some cases, a piece of real estate property should be excluded from a trust. For example, in states like Florida, primary residences are shielded from creditors by way of a "homestead exemption", but If the primary residence is placed in trust, the homeowner may surrender that creditor protection. In such instances, a pour-over will can be used to coordinate the transfer of assets into a trust, after the grantor dies. Creditor Claims: A living trust generally does not provide protection from claims made by creditors, because the grantor of the trust is considered to be the owner of the trust's assets, due to the fact that the grantor may revoke the trust at any time. Taxes: All income earned by the trust is taxable to the grantor's personal tax return, as though the property had never been transferred to the trust.
Testamentary TrustsA testamentary trust, sometimes called a "trust under will", is created by a will after the grantor dies. This type of trust can accomplish the following estate planning goals:
Preserving assets for children from a previous marriage Protecting a spouse's financial future by providing lifetime income Ensuring that beneficiaries with special needs will be taken care of Gifting to charities
Irrevocable Life Insurance TrustAn irrevocable life insurance trust (ILIT) is an integral part of a wealthy family's estate plan. The federal government currently affords individuals a $11.7 million estate tax exemption. But any portion of the estate above that amount may be taxed as high as 45%. So, for estates containing more than the $11.7 million applicable exclusion, life insurance can be an invaluable tool in the estate planning kit. ILITs provides the grantor a flexible planning approach and a tax savings technique by enabling the exclusion of life insurance proceeds from both the estate of the first spouse to die and from the estate of the surviving spouse.
The ILIT is funded with a life insurance policy, where the trust becomes both the owner and the beneficiary of the policy, but the grantor's heirs can remain beneficiaries of the trust itself. For this plan to be valid, the grantor must live three years from the time of the policy transfer, or else the policy proceeds will not be excluded from the grantor's estate.
Charitable Remainder TrustA charitable remainder trust (CRT) is an effective estate planning tool available to anyone holding appreciated assets with a low basis, such as stocks or real estate. Funding this trust with appreciated assets lets donors sell the assets without incurring capital gains tax.
Qualified Domestic TrustThis special trust lets non-citizen spouses benefit from the marital deduction normally afforded to other married couples.
The Bottom Line
Estate planning is a complex process demanding professional oversight, in order to ensure that your loved ones are cared for after your death. A trusts can go a long way in effectively carrying out your wishes.
[Important: A living trust is often referred to as "inter-vivos".]
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6acfe15e6295804c9b37b55d0c204718 | https://www.investopedia.com/articles/pf/08/twenty-five-dollar-investment.asp | Is Investing $25 a Month Worth It? | Is Investing $25 a Month Worth It?
Whenever you move money from your checking account to another account, whether it's an individual retirement account (IRA), or opening a mutual fund, or a savings account, you're making an essential step toward a financially secure future.
But what if you only have $25 a month to invest? Can you still secure your financial future? Or is it better to put it into a savings account until it's large enough to counteract fees?
Here's how to evaluate the costs involved in small investments.
Translate Fees Into a Percentage
Saving $25 a month will total $300 in a year, not including any interest. A $40 fee on an investment account equals more than 13.33% of your investment. Thus, this $25 investment would have to earn more than $40 in a year just for you to break even—that is, if an account fee were taken out at year's end, you would have to earn a 27% return on your money. Why 27% instead of 13%? Because your cash grows steadily, and you earn interest on the amount you have in your account.
If you are carrying a high load of debt, it may be more important to pay it down or off before you contribute to an investment fund.
For example, after one month, you've invested $25, after two months, you've invested $50, and so on. As your account grows, the principal on which the investment earns interest grows.
Therefore, whether a fee is charged for buying stocks or mutual funds, maintaining or opening an IRA, or a savings account where your savings aren't higher than the minimum balance, you have to consider whether the fee offsets the benefits of your investment.
How to Calculate a Fee's Impact
The easiest way to figure out if your fee is too high for your investment is to calculate how much money is necessary in interest or profit earned to offset fees.
For instance, if you invest $25 per month, $3 equals 1% of your yearly total of $300 invested. Divide any fee by $3 to figure out the percentage you would have to earn to overcome the cost of having the account.
If you are investing a different amount, multiply your monthly investment by 12. Then, divide the result by 100. This calculation tells you what 1% of your investment is.
Key Takeaways Making monthly contributions to a retirement account is essential to creating a secure future. If you contribute $25 a month into a fund with low fees, it may be worth the investment. Take to the time learn whether or not investment fees connected to your investment account offsets the benefit of your $25 deposit. If you pay off your high-interest debts or a mortgage, you may free up cash to invest more than $25 a month.
Investing Directly With Mutual Fund Companies
Cut the fees you incur by setting up an investment account directly with a mutual fund company. You can contact mutual fund companies through their websites or by phone and avoid the fees charged by brokerage firms or financial advisors. This is a good choice when you don't have much money to manage.
A pitfall of investing small amounts through this investment avenue is that you are subject to losses—similar to investing in stocks.
When you do this, your principal can decrease, or even be lost, based on how the stocks or bonds in your diversified fund rise and fall.
Make sure the amount you invest regularly isn't money you will need in the next two or three years.
Paying off Debt
An alternative to traditional investment avenues is to invest in decreasing your debt load. For instance, you could add $25 to the minimum monthly payments you currently make on your credit card, which charges you a 12.9% interest rate. By doing this, you save roughly $3.23 per year for every $25 you pay off.
When your debt is gone, you'll be able to put more money into long-term investments, and you won't have to worry about a small fee eating up all your profits because your earnings will more than make up for the fee charged by the institution.
Decreasing Your Mortgage Balance
If your home is tied to a 30-year, $150,000 mortgage loan with a fixed interest rate of 6%, sending in an extra $25 per month with your mortgage payment will cut approximately two years off your mortgage repayment term. There are two reasons for this:
You're paying down your principal. Every $25 you pay off, that's $25 less you owe on your mortgage. The amount of interest you pay on the amount of principal you pay off is eliminated for the rest of the term of the loan.
For example, if you started a 30-year loan at 6% with 150,000 and made a one-time additional payment of $25 in the second month of the mortgage, you would save 107.25 in interest over the life of the loan.
As a bonus, you're essentially saving for retirement by helping to ensure that you won't have to make mortgage payments after you retire if you stay in the same home.
The Bottom Line
Putting aside $25 a month to invest in a savings account, mutual fund, or individual retirement account is a worthwhile venture. However, pay extra attention to make sure profits counteract fees.
Also, consider alternatives, such as reducing your credit card debt or amount owed on your mortgage, which will allow you to invest larger amounts in the future.
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5906447fc8e62acf0f32fd55082fa6f9 | https://www.investopedia.com/articles/pf/08/what-to-expect-insurance-application.asp | What to Expect When Applying for Life Insurance | What to Expect When Applying for Life Insurance
Life insurance can help ensure that your dependents have the resources they need to replace your income should you die. But how do you go about purchasing coverage? And what can you do to get the best possible rate? Understanding the process for obtaining life insurance can help you get the coverage you need at a price you can afford.
Key Takeaways Most life insurance policies will require that you answer medical questions and submit to a medical exam."No-exam" policies exist, but they usually cost more and have a lower face value.It's important that you tell the truth during the application process, or your beneficiaries may be denied a death benefit.
Determining Your Life Insurance Coverage Needs
There are two main categories of life insurance: permanent life insurance, which provides coverage for your entire life, and term life insurance, which provides coverage for a set period of time. A local insurance broker can help you understand more about your options.
One you have decided to purchase life insurance, you'll need to determine your coverage amount by considering how much your beneficiaries will need after you die, and how much you already have covered through personal assets or group term insurance (such as a policy offered by your employer).
The amount of life insurance coverage you will need depends on several factors, including the age of your dependents, your spouse's earning ability, any debt you may have, and your combined financial resources.
Medical Questions on the Life Insurance Application
You will need to apply for life insurance. The application will ask for basic information such as your name, address and employer. It will also ask for the following personal information:
HeightWeightDate of birthLifestyle habits (i.e., smoking, drinking, exercise)Financial information, including your annual income and net worth
While it may be tempting to lie about your weight or other health issues, it's important to tell the truth. If the company discovers you lied about a health condition or lifestyle, it can increase your premium, cancel your policy and/or deny a beneficiary's claim to the death benefit.
Some insurance companies will accept your answers to health-related questions, such as which medications you take or any surgeries you've had, on the application. These no-exam life insurance—such as guaranteed issue life insurance and simplified issue life insurance—are usually more expensive and have a lower face value than insurance that requires a medical exam.
The Life Insurance Medical Exam
Most companies and policies require an in-person medical exam. A life insurance agent will arrange for a paramedical (a licensed healthcare professional contracted by the insurance company) to meet you at your home, office, or a clinic selected by the insurance company.
During the exam, the paramedical will likely:
Take your medical history (including medical conditions, surgeries and any prescription medications)Ask about your immediate family's medical historyTake your blood pressureListen to your heartbeatCheck your height and weightDraw a blood sampleGet a urine sampleAsk about lifestyle habits that could affect your health (e.g. exercise, smoking, drinking, recreational drug use, frequent travel, high-risk hobbies)
There may be additional tests you need to undergo depending on your age, the type of policy you want, and the amount of coverage you're applying for. Additional tests could include an EKG, a chest X-ray, and/or a treadmill test.
Next, an underwriter at the insurance company will review your application and medical exam results. They may order medical records from your physician to learn more about any medical conditions you may have and any treatment received. This information helps them determine what risk you represent to the company financially and how much to charge you for coverage.
If you lie about a medical condition, the insurance company may not only deny you coverage but may also "red-flag" you, meaning other insurers will know you were denied coverage because you lied.
Once your application and medical exam have been reviewed, the company will either approve or deny your request to purchase coverage. That process can take days or weeks, depending on whether you submitted a complete application, how long it takes to receive lab results, if the company requests information from your physician, and so on.
If Your Coverage Is Denied
If you "fail" the medical exam and the insurance company declines to cover you—or if it offers to cover you at a higher rate due to the results of your exam—you have a few options. You can pursue group term life insurance through your employer, which often doesn't require a medical exam, ask your insurance broker if there is a company that will work with your medical status, or try for a no-exam policy. If you are offered a policy but aren't happy with the rate, you can purchase it for now and then ask to be re-evaluated at a future date (and aim to improve your health during that time). And, of course, you can enquire with more than one insurance company to try and find the best possible life insurance policy for your circumstances.
Ways to Reduce Your Life Insurance Premium
While you can't do anything about two of the three main factors affecting your insurance premium (age and family medical history), there are steps you can take regarding the third: lifestyle. You could lower your insurance premium if you:
Quit smoking. As a non-smoker you are likely to live longer, meaning the life insurance company will have more years to collect your premium payments before having to possibly pay out on the policy when you die.Lose weight. Weight loss often leads to lower cholesterol levels, lower blood pressure, and a lower risk of developing chronic diseases like diabetes. All of these improvements to your health can make you a better insurance risk.Reduce or eliminate your alcohol intake. Drinking can pose a potential health risk. Life insurance companies will check your application, driving record, and medical exam to get a picture of your drinking habits. Drinking less alcohol, or stopping entirely, makes you less of a risk for the company and therefore you'll likely be rewarded with a lower premium.Improve your driving. Insurance companies can hike your premium if you have multiple moving violations.
Other non-lifestyle-related ways to reduce your premium include:
Switching from permanent to term life insurance. Depending on your age and how long you expect to need life insurance coverage, you may want to consider switching to a term policy. Check the cancellation policy on your current coverage before making a change.Switching insurers. You may be able to get similar or better coverage for less money.Eliminating riders. Riders are optional policy provisions that pay additional money to you or your beneficiaries. Types of riders include:Accidental death benefit rider—pays your beneficiaries if your death was the result of an accidentChildren's term life insurance rider—pays if a child covered under your life insurance policy diesWaiver of premium rider—pays your policy premium if you become permanently and totally disabledLiving benefits rider—pays a portion of your death benefit payment in advance if you are diagnosed with a terminal illness or if you require long-term care or nursing home servicesPayor rider—waives premiums if you die or become disabled before a covered dependent child reaches a certain ageLooking for "no-load" or "low-load" policies. These policies are often less expensive because insurance agents charge a flat fee rather than a steep commission.Asking about payment discounts. You may get a discount for paying your bill in full annually rather than paying monthly. Insurers may also give a discount for having your payment automatically withdrawn from your checking account.Reviewing your credit report. Insurance companies can review your credit report when determining your premium. Paying your bills on time, which is noted on your report, assures the company you are likely to pay your premium on time and in full.Choosing a company that has experience covering people with your condition. If you have a medical condition, a broker can help find a company that is likely to work with you and may provide a better rate.Reviewing your Medical Information Bureau file. Insurers share information on applicants' medical conditions through the Medical Information Bureau (MIB). Request a free copy of your file from the MIB website and review it; incorrect information could negatively affect your premium.
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0eddd5a37f50437eadbdcb8c1925aec7 | https://www.investopedia.com/articles/pf/09/avoid-five-recession-risks.asp | 5 Things You Shouldn't Do During a Recession | 5 Things You Shouldn't Do During a Recession
In a sluggish economy or an outright recession, it is best to watch your spending and not take undue risks that could put your financial goals in jeopardy. What happens to the economy during a recession can negatively impact your personal finances and wealth. However, by being prepared and taking a few simple steps to reduce your risks, you can improve your chances of weathering the financial decline. Below are some of the financial risks everyone should avoid taking during a recession.
Key Takeaways When the economy is in a recession, financial risks increase, including the risk of default, business failure, and bankruptcy. Avoid increasing, and if possible reduce, your exposure to these financial risks. For example, you'll want to avoid becoming a cosigner on a loan, taking out an adjustable-rate mortgage, and taking on new debt—all of which can increase your financial risk during a recession. If you're an employee, you'll want to do everything you can to safeguard your job, such as performing top-notch work and improving your productivity. If you're a business owner, you might need to postpone spending on capital improvements and taking on new debt until the recovery has begun.
Becoming a Cosigner
Cosigning a loan can be a very risky thing to do even in flush economic times. If the individual taking the loan does not make the scheduled payments, the cosigner could be responsible to make them instead. During an economic downturn, the risks associated with cosigning a note are even greater, since the person taking out the loan has a higher chance of losing their job—not to mention the cosigner's own elevated risk of ending up unemployed.
Cosigning potentially leaves you on the hook for the life of a loan. Consider other ways to help the borrower if you can.
That said, you may find it necessary to cosign for a family member or close friend regardless of what is happening in the economy. In such cases, it pays to have some money set aside as a cushion. Or, instead of cosigning, it may even be preferable to assist with a down payment or other types of assistance rather than leaving yourself on the hook for a cosigned loan on an ongoing basis.
Taking out an Adjustable-Rate Mortgage
When purchasing a home, you may choose to take out an adjustable-rate mortgage (ARM). In some cases, this move makes sense (as long as interest rates are low, the monthly payment will stay low as well). Interest rates usually fall early in a recession, then later rise as the economy recovers. This means that the adjustable rate for a loan taken out during a recession is nearly certain to rise.
While interest rates usually fall early in a recession, credit requirements are often strict, making it challenging for some borrowers to qualify for the best interest rates and loans.
But consider the worst-case scenario: You lose your job and interest rates rise as the recession starts to abate. Your monthly payments could go up, making it extremely difficult to keep up with the payments. Late payments and non-payment can, in turn, have an adverse impact on your credit rating, making it more difficult to obtain a loan in the future.
Instead, assuming you have decent credit, a recession may be a good time to lock in a lower fixed rate on a mortgage refinance, if you qualify. However, be cautious about taking on new debt until you see signs the economy is recovering.
Taking on New Debt
Taking on new debt—such as a car loan, home loan, or student debt—need not be a problem in good times when you can make enough money to cover monthly payments and still save for retirement. But when the economy takes a turn for the worse, risks increase, including the risk that you will be laid off. If that happens, you may have to take a job—or jobs—that pay less than your previous salary, which could eat into your ability to pay your debt.
In short, if you are considering adding debt to your financial equation, understand that this could complicate your financial situation if you are laid off or have your income cut for some reason. Taking on new debt in a recessionary environment is risky and should be approached with caution. In the worst-case scenario, it could even contribute to bankruptcy. Pay cash if you can, or wait on big new purchases.
Taking Your Job for Granted
During an economic slowdown, it is important to understand that even large corporations can come under financial pressure, leading them to reduce expenses any way they can. That could mean scaling back on operating expenses, cutting dividends, or shedding jobs.
Because jobs become so vulnerable during a recession, employees should do all they can to make sure their employer has a favorable opinion of them. Coming to work early, staying late, and doing top-notch work at all times is no guarantee that your job will be safe, but doing those things does increase your chances of staying on the payroll. From an employer’s perspective, it makes more sense to cut marginal workers rather than reduce hours or wages for their more productive employees. Make sure that you are not a marginal worker.
Taking Risks With Investments
This tip applies to business owners. While you should always be thinking about the future and investing in growing your business, an economic slowdown may not be the best time to make risky bets. Early on in a recession is not the time to stick your neck out. Later, as soon as the economy starts to show signs of sustainable recovery, is the time to start thinking big when prices for capital purchases and labor costs for new hiring are low.
Especially avoid investment projects that would require you to take on new debt to finance.
For example, taking on a new loan to add physical floor space or to increase inventory may sound appealing—particularly since interest rates are likely to be low during a recession. But if business slows down—another side effect of recessions—you may not have enough leftover at the end of the month to pay interest and principal on time. Wait until interest rates just start to tick upward and leading economic indicators for your market or industry turn up
The Bottom Line
There's no need to live a monk's existence during an economic slowdown, but you should pay extra attention to spending and be wary of taking any unnecessary risks. Even in the midst of a significant economic downturn, there are many positive steps you can take to improve your situation and recession-proof your life. These include implementing a realistic budget, establishing an emergency fund, and generating additional sources of income.
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ccde3cee6f4b18777d582b7ca6dd23fb | https://www.investopedia.com/articles/pf/09/business-startup-costs.asp | Business Startup Costs: It’s in the Details | Business Startup Costs: It’s in the Details
There's more to a business than furnishings and office space. Especially in the early stages, startup costs require careful planning and meticulous accounting. Many new businesses neglect this process, relying instead on a flood of customers to keep the operation afloat, usually with abysmal results.
Key Takeaways Startup costs are the expenses incurred during the process of creating a new business. Pre-opening startup costs include a business plan, research expenses, borrowing costs, and expenses for technology.Post-opening startup costs include advertising, promotion, and employee expenses.Different types of business structures—like sole proprietorships, partnerships, and corporations—have different startup costs, so be aware of the different costs associated with your new business.
Startup costs are the expenses incurred during the process of creating a new business. All businesses are different, so they require different types of startup costs. Online businesses have different needs than brick-and-mortars; coffee shops have different requirements than bookstores. However, a few expenses are common to most business types.
Understanding Common Business Startup Costs
The Business Plan
Essential to the startup effort is creating a business plan—a detailed map of the new business. A business plan forces consideration of the different startup costs. Underestimating expenses falsely increases expected net profit, a situation that does not bode well for any small business owner.
Research Expenses
Careful research of the industry and consumer makeup must be conducted before starting a business. Some business owners choose to hire market research firms to aid them in the assessment process.
For business owners who choose to follow this route, the expense of hiring these experts must be included in the business plan.
Borrowing Costs
Starting up any kind of business requires an infusion of capital. There are two ways to acquire capital for a business: equity financing and debt financing. Usually, equity financing entails the issuance of stock, but this does not apply to most small businesses, which are proprietorships.
For small business owners, the most likely source of financing is debt in the form of a small business loan. Business owners can often get loans from banks, savings institutions, and the U.S. Small Business Administration (SBA). Like any other loan, business loans are accompanied by interest payments. These payments must be planned for when starting a business, as the cost of default is very high.
Insurance, License, and Permit Fees
Many businesses are expected to submit to health inspections and authorizations to obtain certain business licenses and permits. Some businesses might require basic licenses while others need industry-specific permits.
Carrying insurance to cover your employees, customers, business assets, and yourself can help protect your personal assets from any liabilities that may arise.
Technological Expenses
Technological expenses include the cost of a website, information systems, and software, including accounting and payroll software, for a business. Some small business owners choose to outsource these functions to other companies to save on payroll and benefits.
Equipment and Supplies
Every business requires some form of equipment and basic supplies. Before adding equipment expenses to the list of startup costs, a decision has to be made to lease or buy.
The state of your finances will play a major part in this decision. If you have enough money to buy equipment, unavoidable expenses may make leasing, with the intention to buy at a later date, a viable option. However, it is important to remember that, regardless of the cash position, a lease may not always be best, depending upon the type of equipment and terms of the lease.
Advertising and Promotion
A new company or startup business is unlikely to succeed without promoting itself. However, promoting a business entails much more than placing ads in a local newspaper.
It also includes marketing—everything a company does to attract clients to the business. Marketing has become such a science that any advantage is beneficial, so external dedicated marketing companies are most often hired.
Employee Expenses
Businesses planning to hire employees must plan for wages, salaries, and benefits, also known as the cost of labor.
Failure to compensate employees adequately can end in low morale, mutiny, and bad publicity, all of which can be disastrous to a company.
Additional Startup Cost Considerations
Have some extra money set aside for any overlooked or unexpected expenses. Most companies fail because they lack the cash to deal with unexpected problems during the business season.
It is important to note that the startup costs for a sole proprietorship differ from the startup costs for a partnership or corporation. Some additional costs a partnership might incur include the legal cost of drafting a partnership agreement and state registration fees.
Other costs that may apply more to a corporation include fees for filing articles of incorporation, bylaws, and terms of original stock certificates.
Launching a new business can be invigorating. However, getting caught up in the excitement and neglecting the details can lead to failure. Above anything else, observe and consult with others who have traveled this road before—you never know where you might learn the business advice that helps your particular business succeed.
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45b870dcb52ec08b67619079d2ef6f69 | https://www.investopedia.com/articles/pf/09/deciphering-benefits-at-new-job.asp | Employee Benefits: How to Know What to Choose | Employee Benefits: How to Know What to Choose
We've all been there. It's the first day of your new job, and someone hands you a stack of forms to fill out. You need to make all kinds of important employee benefit choices right now, so how in the world do you know which ones to make?
Understanding how the most common employee benefits work will help you choose the right options and avoid mistakes.
Key Takeaways: For a 401(k), it is best to contribute as much as you can right away in order to build wealth. For medical insurance, an HMO allows you to go to specific doctors contracted with your insurance company while a PPO gives more flexibility in doctors but may have more out-of-pocket expenses. Consider life insurance if you have a family to support and disability insurance even if you don't. It’s a good idea to revisit your benefit choices when your life circumstances change.
401(k) Plans
Many employers offer their employees a 401(k) plan, which provides a tax-advantaged way to save for retirement. The IRS allows you to contribute up to a set maximum, which changes from year to year. Many experts agree that it is best to contribute as much as you can afford right away instead of going back and trying to catch up later when you are already accustomed to a bigger budget. In the future, you'll be glad that you did.
Mutual funds are the most common investment choice in a 401(k) and you will have to decide how you want your contributions to be invested. You can go back and change this later if you decide on a different strategy. If you really do not understand mutual funds and the choices offered, check to see if there is a fund based on your life stage or age.
One example of this are target-date funds (also known as life-cycle funds). These are mutual funds that adjust risk as you age. If you are younger, you can handle more risk because over time the market will balance out in your favor.
You will probably have the choice of money market funds as well as stock and bond mutual funds. If you don't have a life-stage mutual fund choice, remember that a younger person would probably do well to be in a more risky stock-based fund as compared to a money market or bond mutual fund, which would be better for those nearing retirement.
Many employers match employee contributions up to a certain amount, based on how much you contribute annually. Not taking advantage of an employer match is the equivalent of leaving "free money" on the table.
Health Insurance
You may have to choose between a Health Maintenance Organization (HMO) and a Preferred Provider Option (PPO) for medical insurance. An HMO allows you to go to doctors that are contracted with a specific insurance company. If you have a specific doctor you like to use, ask to see the list of doctors on that plan or go to the HMO website to find a list of its providers. HMOs can cost less, but you may have to be flexible about which doctor you see and hospitals you use.
A PPO is not quite as strictly organized as an HMO. The doctors still have relationships with the insurance company, but you can see a doctor that may not be on the PPO's list and still receive partially covered services. You may have to accept more out-of-pocket expenses to do so, but there are fewer restrictions.
When deciding on whether to accept a dental plan, think about your past history with required dental work. If you rarely have dental issues, it may be more expensive to have the insurance than to just pay for your dental work out of pocket. The same is true with a vision plan. Look at what the services cover and estimate out how much you think you would use them. Some services may be offered through a Multiple Employer Welfare Arrangement (MEWA), where a small business may group with other small businesses to provide benefits to their employees.
Be sure to check how soon your benefits become effective. Health insurance or 401(k) benefits may not start immediately.
Life and Disability Insurance
Employer-provided life insurance is meant to compensate your survivors for your lost wages and income should you die while employed in your new job. If you are single and not supporting anyone else, you may not require life insurance. If you have a family to support, you need to think about how much they would need to survive in the event of your death.
Disability insurance, on the other hand, may be more important for you personally regardless of marital status. If you were to become disabled, you would receive a payout in place of income. It could supply the support your family—or just you—needs while you mend.
Other Employee Benefits
You may be wondering how your company benefits compare to those offered by other companies. Benefits can vary widely from company to company. The most common are listed above. You might also be offered some of the following:
Health savings account Flexible spending account Eldercare benefits Employee discounts Wellness benefits Counseling programs Pension plan Flexible time benefits
If you are offered a benefit that you do not understand, companies usually have websites set up to explain what they offer. If not, check with human resources or the benefits administrator.
Withholding Taxes
In addition to providing benefits, many companies withhold taxes for you and you'll need to fill out a form for that too. They know how much to take out based on your completed IRS W-4 Form. On this form, you will need to fill in your name, address, Social Security number, and how many allowances you want to claim.
You are considered one allowance. If you are married, then you can add another allowance, and if you have children they count as allowances, etc. The more allowances you list, the less your employer will take out of your check.
Making Changes to Employee Benefits
Many companies allow you to change your choices periodically. Often, your 401(k) contribution amount and investment choices can be changed on a fairly regular basis, but the medical and life insurance choices may be set up so that you can only change them once or year.
Check with your benefits administrator if you think you need to make some changes. Making inappropriate choices can be a costly mistake, especially with your 401(k). Also, revisit your benefit choices on occasion as your life circumstances change.
The Consolidated Omnibus Budget Reconciliation Act (COBRA) allows many employees to stay on their employers' group health plans after leaving a job. It is important that you file right away for coverage as there is a time limit. Also, COBRA is a temporary solution that generally only covers you up to 18 months after you leave.
The Bottom Line
Many people make mistakes and inappropriate choices when filling out their benefits forms. Fortunately, you can still go back and make changes down the road.
Younger employees may not require nearly as many insurance choices as an older employee. Younger employees also have an opportunity to build a substantial retirement nest egg.
Regardless of age, it's always a good idea to reevaluate your benefit choices when your life circumstances change.
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526ee06de16e1ad3eb9538720c0e0572 | https://www.investopedia.com/articles/pf/09/financial-responsibility.asp | The Basics of Financial Responsibility | The Basics of Financial Responsibility
What does it mean to be financially responsible? It's a complex question with a complex answer, but at its core is a simple truth: To be financially responsible, you need to live within your means. And to live within your means, you must spend less than you make.
Credit Cards and Debt
If you're really looking to be financially responsible, just being able to make your minimum monthly credit card payment doesn't cut it. In fact, the fact that you aren't able to pay your balance in full shows that you already spend more than you earn. Responsible use of credit means paying the balance on your account in full each month.
Also, credit cards should be used for convenience, not to make ends meet. Credit cards are handy because they eliminate the need to carry cash. Plus, you can generate reward points. Credit cards can be very helpful in an emergency. That said, if an emergency does force you to carry a balance on your card, living in a financially responsible manner means curbing your spending until that balance is paid off.
Consider the Interest
The same logic applies to all recurring payments that involve paying interest. Think about it: Paying interest on anything means that you are spending more on that item than the purchase price. Does that sound like the most responsible choice or just the most convenient?
When the interest payments are factored into the purchase price, you are spending more to obtain the item than even the item's manufacturer thought it was worth. As such, avoiding paying interest on anything should be a major objective.
Of course, when it comes to the cost of housing and personal transportation, avoiding interest is impossible for most of us. In such situations, minimizing the amount you spend in interest each month is the most responsible action.
Acting in Your Own Best Interest
For many people, cutting down on interest and borrowing is easier said than done, but in practice, it really comes down to knowing the difference between necessities and luxuries. For example, you might need a car, but you don't need a top-of-the-line model and, unless you can afford to pay for it in cash, you shouldn't be driving one.
Likewise, you might need a place to live, but you don't need a mansion. And while most of us must have a mortgage in order to afford a home, purchasing a home in a financially responsible manner means that you should purchase one that won't break the bank. In financial terms, this means it shouldn't cost more than two or 2.5- times your yearly income. Another healthy estimate is that your monthly mortgage payment should not cost more than 30% of your monthly take-home pay.
In addition to avoiding overspending on your home purchase, you should make a down payment that is large enough to eliminate the requirement of having to pay for private mortgage insurance (PMI). If you can't afford to meet these purchasing guidelines, rent until you can afford to buy.
Paying Yourself First—Saving
Spending every dime that you earn is simply irresponsible unless you have a massive trust fund that is so flush with cash that you will never outlive the earnings. For most people, especially those of us hoping to retire someday, saving is an activity that must be taken seriously. A great way to do this is when you get your paycheck – and before you pay your bills – pay yourself first. A good goal to save is 10%.
When it comes to saving, investing in the stock market might be the most profitable choice available. Sure, investing involves risk, but taking calculated risks is sometimes a necessity. The responsible way to go about it is to have a plan.
Start by examining asset allocation strategies to learn how to choose the right mix of securities for your investing strategy. From there, contribute to your employer-sponsored savings plan if such a plan is available. Most employers offer to match your contributions up to a certain percentage, so by contributing at least enough to get the match, you earn a guaranteed return on your investment.
If your finances permit, maximize your tax-deferred savings opportunities by contributing the full amount that the plan allows. After you've started investing, monitor the progress that you are making toward your goals and rebalance your portfolio as necessary to remain on track.
Emergency Fund
Financial responsibility means being prepared for the unexpected. Most experts agree that you need to be able to support yourself financially for at least six months without an income. If you are married and used to living on dual paychecks, this means being able to pay the necessary bills such as the mortgage, food and utilities on one income – or even neither income. If a missed paycheck would ruin you financially, it's time to create a financial escape hatch to prevent this.
Don't Keep Up with the Joneses
Financial responsibly means doing what you have to do to take care of your needs and the needs of your family. To make this happen, your focus should be internal. The neighbors aren't paying your bills, so their spending habits shouldn't dictate yours or set the bar for your standard of living.
Budgeting
Having a budget is one of the core pillars of financial responsibility. You should know where your money is going. Business owners know the importance of understanding their cash flows and balance sheets; as a result, no successful business exists without a budget. Neither should you.
A Very Personal Definition
Does being financially responsible mean that you have to scrimp and save? Maybe, but only if that is what it takes to stay out of debt. On the other hand, if you are the Sultan of Brunei, you may easily be able to afford a jet, a mega-yacht, a mansion in the South of France and a few palaces. Although those of us with lesser means might frown on this extravagance, it shouldn't be confused with a lack of financial responsibility. After all, there's nothing irresponsible about buying things you can afford to pay for.
Arriving at "Responsible"
Ultimately, financial responsibility means living within your means, regardless of the level of those means. So take a close look at your financial situation, evaluate your earning and spending habits, and make the necessary adjustments to put yourself on responsible financial footing.
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a415941af448322841a6e6016c8dfcb4 | https://www.investopedia.com/articles/pf/09/help-family-members-trouble.asp | 8 Ways to Help Family Members in Financial Trouble | 8 Ways to Help Family Members in Financial Trouble
During times of hardship, one of the first places many people turn for help is to their loved one and family members. Often people fall into financial difficulties if they experience the sudden loss of a job or are impacted by expensive medical bills. Many well-meaning family members have found themselves sucked into the financial abyss by the problems of a loved one.
Let's take a look at a few options you can consider to help your family members in financial trouble without hurting yourself in the process.
Key Takeaways When a loved one is struggling financially, take a pause before deciding to help and consider whether the problem is temporary or pervasive, and whether they have a plan for avoiding the same pitfalls in the future.If you do decide to help, make sure you have a clear agreement between you and the person about the form of help, such as loan or gift, and any terms for repayment.If you want to give the person something outright, consider giving them cash, paying one of their bills directly, or providing them with non-cash assistance, like gift cards, or certain resources they need.Consider providing them with a job, if you're able to, or help them to create a bill-paying plan or to access local resources like career counseling or training programs.If you want to help them with a loan, consider whether you want to make a personal loan or to co-sign a loan they are seeking from a bank or other financial institution.
1. Give a Cash Gift
If your loved one is having a short-term cash flow problem, you may want to give an outright financial gift. Decide how much you can afford to give, without putting yourself in financial jeopardy, and then either give the maximum amount you can afford all at once (and let your loved one know that's the case) or perhaps give smaller gifts on a periodic or regular basis until the situation is resolved. Make sure it's clearly understood that the money is a gift, not a loan to be repaid, so you don't create an awkward situation for the gift recipient.
If you're considering giving them a substantial sum of money, you'll need to keep an eye on the annual gift tax exclusion set each year by the Internal Revenue Service (IRS).
2. Make a Personal Loan
Your family member may approach you and ask for a short-term loan. Talk frankly, clearly write out the terms of the loan on paper, and have both parties sign it. This will help ensure each party is clear on the financial arrangement they're entering into. Some loan details you'll want to include are:
The amount of the loanWhether the loan will be a lump-sum payment, or if it will be divided and paid out in installments upon meeting certain conditions (e.g., securing another job or paying down existing debt)The interest rate you will charge for making the loan and how it will be calculated (compound or simple interest)Payment due dates (including the date of full repayment or final installment due)A recourse if the borrower doesn't make loan payments on time or in full (e.g., increasing interest charges, ceasing any further loan payments, or taking legal action)
If you are going to lend more than $10,000 and/or you're going to charge an interest rate that is substantially different than the going rate for most borrowers, you may want to talk to a tax professional. There can be unique tax implications for low-interest loans among family members.
3. Co-sign a Loan
Your loved one may be interested in obtaining a loan or line of credit (LOC) to help with short-term financial needs, but what if his or her credit requires getting a co-signer? Would you be willing to co-sign on a loan or LOC from a bank, credit union or online lender?
Before simply saying "yes" and essentially lending a family member your good credit, it's important to realize there are legal and financial implications to co-signing on a loan. The most critical thing to understand is that you are legally binding yourself to repay the loan if the other borrower fails to do so. The lender can take legal action against you and require that you pay the full amount, even if you had an agreement between you and your family member that you would not have to make payments.
This delinquent loan will also now affect your personal credit. So if your sister/brother/uncle fails to make payments on the loan on time and in full, the lender can report the negative account activity to the credit bureaus to file on your credit report which, in turn, can lower your credit score.
Co-signing a loan is serious business. The fact that your family member needs a loan co-signer means the lender considers them too great of a risk for the bank to take alone. If the bank isn't sure they'll repay the loan, what guarantees do you have that they will? It may also mean that you could have more difficulty getting a loan for yourself down the road since you are technically taking on this loan and its payment as well.
Before co-signing for a loan, make sure you:
Ask for a copy of your family member's credit report, credit score and monthly budget so you'll have an accurate picture of his or her finances and ability to repay the loan.Meet with the lender in person (if possible) and be sure you understand all the terms of the loan.Get copies of all documents related to the loan, including the repayment schedule.Ask the lender to notify you in writing if your family member misses a payment or makes a late payment. Finding out about potential repayment problems sooner rather than later can help you take quick action and protect your own credit score.
When helping out a loved one in financial distress, there is a risk of getting sucked into a loop of loans and payments; to avoid this, make sure the terms and structure of the loan or gift are clearly defined in advance.
4. Create a Bill-Paying Plan
Often, people in a financial crisis simply aren't aware where their money is going. If you have experience using a budget to manage your own money, you may be able to help your family in creating and using a budget as well. To break the ice, you may want to offer to show them your budget and your bill-paying system and explain how it helps you make financial decisions.
As you work together to help them get a handle on their financial situation, the process will point out places where they can cut back on expenses or try to increase their income to better meet their financial obligations.
5. Provide Employment
If you're not comfortable making a loan or giving a cash gift, consider hiring your family member to assist with needed tasks at an agreed-upon rate. This side job may go a long way toward helping them earn the money they need to pay their bills and help you finish up any jobs that you've been putting off. Treat the arrangement like you would any other employee – spell out clearly the work that needs to be done, the deadlines and the rate of pay. Be sure to include a provision about how you'll deal with poor or incomplete work.
If you don't have cash you're able to give or loan to your financially-strapped family member, realize that your time, patience and ability to help them brainstorm and problem solve are also valuable assets you can provide.
6. Give Non-Cash Assistance
If you're uncomfortable or unwilling to give your family member cash, consider giving non-cash financial assistance, such as gift cards or gift certificates. You'll have more control over what your money will be used for, and you can easily buy gift cards in varying amounts at most stores.
7. Prepay Bills
You may want to consider prepaying one or more regular bills your loved one receives (rent/mortgage, utility bills, or insurance premiums) to help them during their current financial crunch. Offering to do something, such as making their car payment, may help them avoid a short-term crisis and give them the little extra time they need to work out of their situation.
8. Help Find Local Resources
You simply may not wish or be able to provide your family member with financial assistance or hands-on help. But you can still play a key role by helping them find local professionals that can steer them in the right direction, such as:
Career counselor and employment agenciesWelfare agencies and similar servicesCredit and debt counselorsLenders who can provide short-term solutions
The Bottom Line
The most important step is sitting down with your loved one and asking specifically what help they need to work their way out of their current situation. From there you'll have a better idea of the type of information and assistance they need. For example, if they need to make more money, you could help them look for jobs and update their resume. If they need help repaying credit card debt, you could call local credit counseling agencies to learn what services they offer, how much it costs, and how it could benefit your family member.
Family members and money aren't always a good mix. But, in tough economic times or when faced with unexpected emergencies, your loved ones may truly need your financial assistance. Before you commit to helping, be sure to think through what you can and can't afford to do. Remember, if your own resources are limited, there are meaningful, effective and creative ways to help your family members.
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0522d812da8d7268e140b013eedb0fba | https://www.investopedia.com/articles/pf/09/inaccurate-tax-return.asp | Inaccurate Tax Return, Now What? | Inaccurate Tax Return, Now What?
Use caution when selecting your tax preparer. Some aren't always accurate and, according to the Internal Revenue Service (IRS), you are responsible for what's on the return. This means you may have to pay additional taxes and interest or face a penalty.
Fixing inaccurate returns involves additional paperwork but you can avoid this hassle to by picking a good tax preparer and double checking the return for mistakes. We'll show you how to get it right the first time around.
Fixing an Inaccurate Tax Return
If you hire a professional to help with your taxes, don't assume that your return will be error free. So, what can be done if the IRS finds a mistake? One form can help you fix a return when the filing status, income, deductions or credits are incorrect. It's called, the Amended U.S. Individual Tax Return, otherwise known as Form 1040X.
Use the 1040X, to correct the following:
10401040NR
This form is available on the IRS website and requests must be filed on paper and mailed to your IRS servicing center for processing. Before sending it to your service center for processing, don't forget to include copies of any schedules that have been changed, and any Form W-2s that were left out.
You must file the form within three years after the date you sent your original return in order to get a credit or a refund, or file it within two years after the date you paid the tax, whichever is later. Wait until you have received your original refund if you are filing to claim another one. If you have to pay more tax for a current year, file and pay that tax by April 15 to avoid a penalty and interest charges. If April 15 falls on a weekend, you will need to do it on the next business day. Also, make sure to check with your state tax agency to find out if your state tax liability is affected. You are now able to obtain the status of your amended return online or via a toll-free number.
Bad tax preparers often wrongfully inflate personal and business expenses, falsify deductions, claim inappropriate credits or exemptions for clients, or manipulate income figures. The IRS addresses these abuses with Form 3949-A. You should file this form if you suspect an individual or company is not complying with tax laws. Send the form or letter to: Internal Revenue Service, Fresno, CA93888. Identifying yourself isn't necessary, but the IRS finds it helpful when you do; and, if you decide to give your identity, it's kept confidential.
Finding a Qualified Tax Preparer
Good preparers have your best interest in mind and follow the rules. They will request records and receipts, and will ask questions that help them determine your total income and qualifications for exemptions, deductions and other items. The IRS suggests when seeking out a tax preparer that you do the following:
Ask about the fees and look out for those who promise a larger refund than their competitors.Make sure that you will be able to contact the preparer after the return is filed, and that they respond to you in a timely manner.Check out the preparer's history by contacting the Better Business Bureau (BBB) and the state's board of accountancy for Certified Public Accountants (CPA), or the state's bar association for attorneys.Find out the preparer's credentials. Do they meet the state's licensing or registration requirements? Is the preparer an enrolled agent, CPA, or attorney?
Avoiding Common Mistakes
Even if you think your selected tax preparer is great, be sure to review the return for any errors. The IRS often sees the following mistakes:
Wrong filing statusIncorrect use of forms or schedules.Improper filing for the earned income credit (EIC).Claiming ineligible dependentsNot paying and reporting domestic payroll taxesNot reporting income because it wasn't included on a Form W-2Not filing a return when a refund is dueNot checking liability for the alternative minimum tax (AMT)
The National Association of Tax Professionals (NATP) advises keeping an eye out for the following items:
The return is signed in the proper place.If filing jointly, that your spouse has also signed the return.Copy B of all Forms W-2 are attached as well as any Form 1099 that report tax withholding.The return is mailed to the proper address.Social Security numbers are accurate.The check is payable for money owed to the "United States Treasury Service" and not the IRS.Tax tables are double-checked as well as all calculations.A copy is made for your records.Enough postage is on the envelope and your full return address is given.
The NATP also suggests using registered mail, especially if money is owed.
The Bottom Line
Dealing with the IRS about your tax return problems - and paying additional charges for reckless mistakes - can often be avoided. Choose the right preparer and make sure to go over the instructions and tax return with them to get rid of those common mistakes. Also, tax software programs have been simplified for individuals to prepare the tax return on their own. Visit the Internal Revenue Service's frequently asked questions if you run into any problems.
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59cb0c1b50c44de2fd63c391b4c6f19a | https://www.investopedia.com/articles/pf/09/marriage-killing-money-issues.asp | Top 6 Marriage-Killing Money Issues | Top 6 Marriage-Killing Money Issues
Arguments about money hamper many marriages. If you consider that about a third of adults with partners report that money is a big source of conflict in their relationships, it's no wonder that financial problems are a leading cause of divorce. What you may not know is that the challenges can actually start even before you say "I do."
To help pave the road to better marital finances and relationships, here's an accounting of the most common financial issues married couples contend with.
Key Takeaways If you’re committed to a relationship, you and your partner owe each other a calm, honest conversation about each other’s finances, habits, goals, and anxieties.This where the ego, anxieties about control, and notions of marital roles will have to be checked. When working together, couples can achieve more than singles.If debt is an issue, couples can employ various tools and strategies to start paying off debt and get on a better financial footing.Having kids changes everything; ideally, couples should communicate their expectations and ideas about how to raise and pay for them well before they’re born.Couples who have trouble talking about money can seek out the help of a financial adviser or planner for unbiased advice.
1. What's Mine, Yours, Ours
Sometimes, when each spouse works and they can't agree on financial issues or find the time to talk about them, they decide to split the bills down the middle or allocate them out in some other fair and equitable manner. Once the bills are covered, each spouse can spend what they have left as they see fit. It sounds like a reasonable plan, but the process often builds resentment over the individual purchases made. It also divides spending power, eliminating much of the financial value of marriage, as well as the ability to plan for long-term goals, such as buying a home or securing your retirement. And it can lead to such relationship-ruining behavior as financial infidelity, when one spouse hides money from the other.
Bill splitting also pushes down the road any planning and consensus-building about how financial burdens will be handled if one spouse loses a job; decides to cut back on hours or take a pay cut to try out a new career; leaves the workforce to raise children, go back to school, or care for a parent; or if there's any other situation in which one partner may have to carry the other. Couples owe it to themselves to have a conversation about such contingencies well before any of them happens.
2. Debt
From school loans to car loans, credit cards to gambling habits, most people come to the altar with financial baggage. If one partner has more debt than the other—or if one partner is debt free—the sparks can start to fly when discussions about income, spending, and debt servicing come up.
People in such situations may take some solace in knowing that debts brought into a marriage stay with the person who incurred them and are not extended to a spouse. It won't hurt a credit rating, which is linked to Social Security numbers and tracked individually. That said, in most states (ones that operate under what is called common law) debts incurred after marriage (jointly) are owed by both spouses. Debts incurred individually are still owed by the individual, with the exception of child care, housing, and food, which are all joint debt no matter what.
Note that there are nine states in which all property (and debts) are shared after marriage regardless of individual or joint account status. They are: Arizona, California, Nevada, Idaho, Washington, New Mexico, Texas, Louisiana, and Wisconsin. In these states you are not liable for most of your spouse's debt that was incurred before marriage, but any debt incurred after the wedding is automatically shared—even when applied for individually.
3. Personality
Personality can play a big role in discussions and habits about money. Even if both partners are debt free, the age-old conflict between spenders and savers can play out in multiple ways. It is important to know what your money personality is, as well as that of your partner, and to discuss these differences openly.
Briefly, some people are natural savers who may be viewed as cheapskates and risk-averse, some are big spenders and like to make a statement, and others take pleasure in shopping and buying. Others rack up debt—often mindlessly—while some are natural investors who delay satisfaction for future self-sufficiency. Many of us may display more than one of these characteristics at given times, but will usually revert to one main type. Whichever profile you and your spouse most resemble, it's best to recognize bad habits and address and moderate them.
1:26 Marriage-Killing Money Issues
4. Power Play
Power plays often occur in one of these four scenarios: when one partner has a paid job and the other doesn't; when both partners would like to be working but one is unemployed; when one spouse earns considerably more than the other; or when one partner comes from a family that has money and the other doesn't. When these situations are present, the money earner (or the one who makes or has the most money) often wants to dictate the couple's spending priorities. Although there may be some rationale behind this idea, it is still important that both partners cooperate as a team. Keep in mind that while a joint account offers greater transparency and access, it is not in itself a solution to an unbalanced power/money dynamic in a marriage.
5. Children
To have or not to have? That's usually the first question. Nowadays, it costs $233,610, on average, to raise a child to age 18, according to the U.S. Department of Agriculture. (If projected inflation costs are factored in, the cost rises to $284,570.) Food, clothing, shelter, little league, ballet, designer jeans, prom gowns, pickup trucks, and college are all part of a long list of child-related expenses. These don't include expenses for offspring who have already left the nest. That's assuming your kids will leave the nest. Some kids never do.
Of course, having kids isn't just about the cost. If one partner cuts their hours, works from home, or leaves a career to raise children, couples should address how that changes marriage dynamics, assumptions about retirement, lifestyle, and more.
$233,610 The cost of raising a child to age 18 in the United States.
6. Extended Family
Co-managing finances and respecting the goals, needs, and expectations a spouse has regarding the extended family can be especially tricky.
Take, for example, her mom—she wants a vacation in Vegas. His parents need a new car. Her deadbeat brother can't make the rent. His sister's husband lost his job. Now one spouse is writing a check and the other wants to know why that money wasn't used to address needs at home or fund a vacation for "us."
This works the other way too. His mom will pay to fly him home for the holidays. Her mom will fund a new car since the one she's driving is a Honda, not a Lexus. Her mom buys the grandkids extravagant gifts and his mom can't afford to match that kind of spending. The joys of a family often extend right into your wallet (pardon the sarcasm).
How to Handle Money Issues in a Marriage
If you've read this far you'll probably not be surprised that the best way to handle such marriage stressors is with communication and honesty in conveying expectations, hopes, goals, and anxieties. Couples should also practice empathy, have the maturity to check their egos, and abandon any predilection for control. Yes, that's a lot easier said than done. And, no, there is no silver bullet. Some people may never get it right; that doesn't mean they are bad or they can't achieve some success by employing certain tools and techniques to address the symptoms.
Deal with debt
For many couples, dealing with debt is often the first issue on the agenda. Knowing what you're about to get yourself into can help you decide how to deal with it. Given this fact, both partners should have an honest, nonjudgmental discussion about possible bad spending or financial habits that should be addressed and avoided. Couples should also perform an accounting of debts and apply one of the several common payoff strategies, such as paying off the higher-interest debt first or paying off the smallest loans first (a.k.a. the debt snowball method).
Sign a prenup (or postnup)
If you just can't come to an agreement but your heart won't let you walk away, a prenuptial agreement may be an option. Just be aware that one partner may find that prenup insulting. The best practice would be to first have a conversation about the financial anxiety that makes one partner think a prenup is the best solution. If this is a second marriage for both partners, for example, they may have financial assets that they want to pass on to their respective children.
If you've already said "I do," and you want more than vows to protect yourself, you may want to create a pain-free postnuptial agreement (or marital contract). This marital contract can underline your love for each other, though it can be a hard sell and can wind up undermining marital trust if not used as intended or framed the right way.
Know your financial personality
Personality, as noted above, is another aspect of your relationship that will play a major role in your financial plans and your marital bliss or lack thereof. Pay attention while you are dating, and be honest about who you are. Talking about your views and feelings can help put both partners at ease, or at least let them know what to expect.
Check your ego
The power play issue can get ugly quickly. Few things build resentment faster than being made to feel inferior. If you've got the cash, you need to be sensitive about how you present spending decisions. If you don't have the money, you need to be prepared for the stress and tension that are almost inevitable, even in good marriages. This subject comes up with increasing frequency when couples wait until later in life to marry.
Debt that your spouse incurred before your wedding stays with them as far as credit reporting goes (though you might feel the bite of that debt yourself).
Studies have shown that people with more power are more likely to act selfishly, impulsively, and aggressively, and approach others with less empathy. Each partner in a marriage should ask themselves whether their behavior works toward the goal of a more kind, appreciative, and equitable relationship or not.
One solution that has demonstrated success is for the higher-earning spouse to delegate all spending decisions to the lower-earning spouse. It takes a certain personality to be able to make the decision to give up power, but if you can do it, it may be a sound path to peace.
Address family matters
As Tolstoy wrote in "Anna Karenina," "All happy families are alike; each unhappy family is unhappy in its own way." Extended family can be a huge challenge and no single piece of advice will properly address every situation and the emotions inevitably attached to them. Even if you are on the winning side of the argument, the loser can extract a penalty that outweighs the win. Living with a resentful, angry, frustrated spouse can be a miserable experience. Having a policy agreed upon in advance (such as asking for consent) can help stave off trouble. And defaulting to being understanding will smooth over any small transgressions. Of course, the best policy is "never a borrower or a lender be."
Passing Along Good Habits
If children are in your future, start teaching them about money when they are young. Preparing them for a financially responsible future reduces the odds of them dipping into your wallet as adults and knocking your savings plan off track. Use allowance and goals to teach your children about earning, saving, and spending money.
The Upside of Getting It Right
Challenges aside, getting married can have serious financial advantages. It is a great way to double your income without doubling your expenses. If you can synchronize your goals, you reach them much more quickly than you could by working alone. And keep in mind that, even if you get it right 99% of the time, it still means you'll argue about money issues now and then.
The Bottom Line
Good (and sometimes painfully honest) communication before and after tying the knot can dull the blow of bad financial news and lead to honest exchanges about each partner's money anxieties, habits, skeletons in the closet, and expectations. If you're thinking about entering into what you hope is a lifelong relationship, you and your partner owe each other such a discussion.
Lack of communication is the source of many marital issues. This space is where the hard work of marriage often lives. Like common health problems, financial anxieties—if not addressed—can become far bigger problems with much more difficult solutions. The best way to be sure you and your spouse are on the same page with your joint finances is to talk about them regularly, honestly, and without judgment. Don't do it when you're mad, tired, or intoxicated. Some couples may even find it helpful to schedule a time once a month, once a quarter, or once a year to check in on short- and long-term goals. They may even want to enlist the help of a financial advisor or planner for impartial advice.
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4f957d513ca8cd3bcf374bd2669f83d7 | https://www.investopedia.com/articles/pf/09/to-lend-or-not-to-lend.asp | Should You Make a Personal Loan to Family? | Should You Make a Personal Loan to Family?
Lending and borrowing money from a bank follows certain procedural guidelines that have evolved over centuries. Meanwhile, personal lending — that is making loans to or taking loans from friends and family — has been going on for just as long, but firm guidelines haven't developed because each situation is unique.
There is, however, a way to make family loans safer and more secure for all parties involved.
Why A Personal Loan May Not Be a Good Idea
There are strong reasons against making a personal loan to family or friends. The biggest has to do with your own personal finances. Most people aren't really liquid enough to risk losing that money, and by assuming that all the money loaned will be lost, you'll quickly realize what size of loan you can reasonably make. If you're dipping into a retirement account, emergency fund or other necessary fund to make the loan, it's not a loan you should be making.
Family conflict, tax problems and complacency (especially complacency) are some of the other things to worry about. If your family or friends come to you for loans simply because you lend at a low (or no) rate, then you are hurting your own finances to subsidize theirs.
A loan from a bank or credit union will help them build a good credit score, as well as financial responsibility. On the other side of the coin, when interest rates begin eating away at a borrower's income, the bad habit of living outside of their means may be broken.
The Difference Between a Loan and a Gift
The reasons against personal loans often evaporate in the face of emotional considerations, when one of your loved ones "needs the money." In this case, you have to make a clear distinction between a gift and a loan. A gift has no expectation of repayment, while a loan should be paid back in full, including any interest, and must be documented in writing. Giving a gift is a personal choice based mostly on emotion, while making a loan has to be done in a logical manner.
Before Saying Yes to the Loan
Before you give them the keys to the safety deposit box, however, you're entitled to ask some questions:
What Is the Money For?
Regardless of whether the loan is large or small, you have a right to know how it will be used. If the reason doesn't sit well with you (for a vacation, rather than a mortgage payment), kindly point your prospective debtor to the nearest bank.
How Long Will It Take to Pay Back?
If the loan is a bridge loan to the next paycheck, you may feel comfortable with a zero-interest, no terms handshake. If the loan is of a significant size or will take more than a month to pay off, get it in writing. Memories of the original agreement usually fade over time, so you will need documentation.
What's the Borrower's Current Financial Situation?
Although this is often overlooked, you have a responsibility to yourself and the other party to make sure that he or she is in a decent financial situation before loaning money. It can be uncomfortable, but remember that the borrower came to you for money, not the other way around.
Think like a bank and, if their situation is too dire, then say no.
This doesn't mean you shouldn't help. Maybe you can offer to help pay for a financial planner rather than give a loan. Lenders of personal loans often realize after it's too late that they've poured cash into a leaky boat. This leads to meddling after the fact. Since you no longer have bargaining power when the deal is done, nothing can be gained but resentment.
Establish the Terms of the Loan
Verbal contracts hardly ever end well. Problems crop up even with small, short-term loans. For example, if the payment comes two months late and you had to put all your groceries on a credit card, then you actually lost money because of the loan — money you'll never get back — because there were no terms. Writing up contracts for even the smallest loans will discourage people from constantly coming to you unless it's truly warranted.
Both parties should work together on the terms before signing. A personal loan calculator could be useful during negotiations, as it can help both parties visualize the terms of the loan and decide upon monthly payments, a term length, and an interest rate that everyone is satisfied with.
The following are some necessary aspects of any solid loan.
Interest Rate
The Internal Revenue Service (IRS) can be nasty when it comes to no-interest personal loans, especially large ones. Charging near the market interest rate will replace the interest you're losing by pulling that money out of a savings account or money market fund for the duration of the loan.
Repayment Schedule
This should outline the size and date of each payment. It should also state what happens in the case of a missed payment. You may choose not to have any penalties for late payments, but that can result in the loan payments taking the lowest priority in the monthly budget — and possibly being bumped in favor of less-than-necessary expenses like a night out on the town.
Conditions of the Loan
Clear conditions need to be written up in the case of the death of either the lender or debtor. With family members, this is especially important because of the dispersion of the estate. If one child has received a $10,000 loan, and the estate pays $30,000 to each child regardless, then you've just turned your wake into a family feud. You may want to add additional conditions according to the situation. For example, if you're lending to help someone buy a home, you can secure the loan to the property.
After getting the loan in writing, it's worth running it through a legal and/or financial professional. Your lawyer or accountant will probably have some good advice on conditions and may act as a third party for the signing. Small loans, especially those for less than $500, may not be worth the cost of notarizing the contract, but large loans should be part of the legal record.
The Bottom Line
Personal loans can be a nightmare, if either of the parties fail to approach it seriously. If you don't feel up to going through all of aforementioned steps, but still want to make the loan, there is an alternative. Third-party companies have sprouted up to act as intermediaries in personal lending. For a fee, they will handle the contracts and set up automatic payment withdrawals. Some even report to credit agencies, and in the process can help the debtor build up a good score (providing more incentive to avoid a missed payment). This adds a fee burden to the debtor's loan, but it is better than going forward with a poorly thought-out arrangement.
If all goes well, you will be able to close out the loan, having helped a loved one, without harming yourself. In the worst-case scenario, you've only loaned money you were prepared to lose and, if you choose, you have a legal document to back up a claim.
(For more information on other types of loans that may be available, take a look at Different Needs, Different Loans.)
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1c27c4e1a401ffc5ba08ec42b103c7d8 | https://www.investopedia.com/articles/pf/09/what-to-consider-before-marrying.asp | 5 (Financial) Things to Consider Before Later-in-Life Marriage | 5 (Financial) Things to Consider Before Later-in-Life Marriage
When two people marry later in life, there are more items to sort through than just wedding gifts. Marriage between two people with longer histories involves important decisions concerning finances, children, assets, housing, retirement, and more. Here are five topics you will want to take up with your intended spouse right away to ensure your best financial interests as individuals and as a couple are protected in your new union.
Key Takeaways Older couples who plan to marry should discuss finances, children, assets, housing, retirement, and more before their wedding. When combining finances, it's best to be open about everything from your degree of indebtedness to investment strategies and retirement plans. Be sure to update your tax information, determine your filing status, and update your name and benefit status with the Social Security Administration (SSA). Complete estate planning to see that your families' financial needs are met after you die, and update beneficiary information for wills, life insurance policies, and the like. Consider creating a prenuptial agreement to ensure that your financial assets are protected in the event of a divorce and to clarify property division when one of you dies.
1. Combining Finances After Marriage
Older couples have had more time to become accustomed to their own personal habits and money management styles. They've also had more time to accumulate significant assets. This can make it a little harder to merge finances, especially when one partner is a spender and the other is more thrifty—or when one partner has considerably more resources than the other.
If either partner has young children from a previous relationship, this will also introduce a set of issues to discuss, such as the payment or receipt of child support and possibly alimony. Even when there are adult children, there are issues of inheritance to clarify.
Some smart planning can help you ease this transition. Here is advice from the Financial Planning Association and the American Institute of Certified Public Accountants that you can use, preferably before walking down the aisle:
Discuss each other's credit histories by reviewing credit reports and scores together. Determine each partner's indebtedness and comfort level with debt. Reach an agreement about how to share paychecks, savings, and bill payments. Set up one joint banking account and an individual account for each partner (or whichever arrangement works best for both of you). Determine who will be the primary breadwinner or if you will both be contributing more or less equally. Discuss investment strategies and styles, such as whether you are aggressive or conservative. Figure out what level of savings you'll want to have as a couple. Discuss what you envision for retirement if you are not yet retired. Talk about where you plan to live—now and in the future. If children from a previous marriage are in the picture, discuss how you will handle everyday child expenses and school/college tuition. Prepare a formal agreement with any ex-spouses about the children.
2. Updating Tax Filing Information
The Internal Revenue Service (IRS) advises newlyweds to ensure that the names on their tax returns match the names registered with the Social Security Administration (SSA). If not, any tax refund could be delayed.
Also, consider whether it makes more sense financially to file a joint tax return or to file as "married filing separately." Make sure each of you straightens out any tax issues with a previous spouse before remarrying. If your spouse dies and you remarry before the end of that tax year, you can file a joint return with your new spouse.
3. Estate Planning with a New Spouse
Estate planning is imperative. This organization of your property is a means to see that your families' financial needs and goals are met after you die. This planning is especially important when children from previous relationships are involved because it ensures they will receive what is rightfully theirs. Keep in mind that state laws regarding estates vary.
Make sure to update your respective powers of attorney, including your medical powers of attorney or healthcare proxies. Additionally, you may want to change your beneficiaries for the following items:
Wills Life insurance policies Retirement accounts Investment funds Any other financial accounts
Many financial planners, estate planners, and accountants also advise considering prenuptial agreements when you marry or remarry later in life. In a marriage, property and income usually become community property, even if held in one person’s name. A prenuptial agreement is a written contract (to which both parties voluntarily agree) that outlines the terms and conditions associated with dividing up financial assets and responsibilities if the marriage dissolves. A prenup is especially important if you and your intended have large income or resource disparities.
The agreement should be discussed with a lawyer before the marriage (since state laws don't always recognize postnuptial agreements). In a remarriage, the prenuptial agreement can help determine what will be left for each of your respective families to inherit if you divorce or when you die. However, a prenup cannot touch child support, visitation rights, or custody. Additionally, since a prenup is a financial tool, it cannot be used for nonfinancial matters. You can’t make your spouse promise to make lasagna every Friday night, for instance. And you can’t use a prenup to designate who will change their name or to make agreements about children.
A prenup can stop your spouse from challenging your will or any existing trusts. Whether or not a trust is affected will depend on who the beneficiary or beneficiaries are and how the trust was set up, such as whether it was within the context of a divorce agreement or a child support agreement, which could make the trust less flexible. Some trusts, such as a qualified terminable interest property trust (QTIP), offer both support for your spouse after your death and protections for your first family. A QTIP provides income for your spouse but ensures that when your spouse dies, the assets inherited from you will go to the children from your first marriage or other heirs you choose rather than to your spouse's heirs.
Finally, AARP advises those marrying later in life to have separate wills rather than a joint will. Having separate wills eases potential complications with the future distribution of property, especially considering that life circumstances can change throughout the years you are married.
Many of the same details that go into drafting a prenup are required for an estate plan; so, it is a good way to ensure you are providing for your spouse and managing your children’s inheritance at the same time.
4. Updating Names With the Social Security Administration
Newlyweds should contact the SSA when a name change occurs to make sure earnings are properly reported. If marriage occurs after full retirement age and your Social Security benefit is less than half of your new spouse's, you can receive the Social Security benefit on your record plus an additional amount to bring you up to half of your new spouse's benefit. This will generally occur one year into the marriage.
Widows' or widowers' benefits aren't available to a spouse who remarries before age 60. If you remarry after age 60 (or after 50 if you're disabled), you will still receive benefits based on your former spouse's income history.
5. Reviewing Medicaid Benefits
Marriage can affect benefits paid by Medicaid, a health benefits program for low-income individuals. Medicaid is based mainly on household income, so a person receiving Medicaid benefits who marries someone with a higher income could lose coverage. Check the eligibility rules for your state to learn how marriage could impact your benefits.
The Bottom Line
Marriage can affect every aspect of your financial life. Sit down as a couple to learn more about each of your present financial situations and future goals and then talk to an attorney. Consider keeping most assets and property separate to minimize complications, especially when you have heirs.
If you didn’t make a prenup but are thinking that it would have been a good idea, you can still create a postnuptial agreement. While a postnup may be considered less valid than a prenuptial agreement, some legal documentation is better than none. Most important, don't end your discussion at the aisle; maintain ongoing discussions about finances throughout your married life, for richer or for poorer.
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801c29604b79827a37f7e26f9f6834a4 | https://www.investopedia.com/articles/pf/10/credit-card-debit-card.asp | 10 Reasons to Use Your Credit Card | 10 Reasons to Use Your Credit Card
Responsible Credit Card Uses
Personal finance experts spend a lot of energy trying to prevent us from using credit cards—and with good reason. Many of us use credit cards irresponsibly and end up in debt. However, contrary to popular belief, if you can use the plastic responsibly, you're actually much better off paying with a credit card than with a debit card and keeping cash transactions to a minimum. Let's examine why your trusty credit card comes out on top, and certain credit card uses and strategies to employ.
1. One-Time Bonuses
There's nothing like an initial bonus opportunity when getting a new credit card. Often times, applicants with good credit or excellent credit can get approved for credit cards that offer bonuses worth $150 or more (sometimes much more) in exchange for spending a certain amount (anywhere from $500 to several thousands of dollars) in the first several months the account is open.
Other cards entice applicants with bonus reward points or miles that can be redeemed for travel, gifts cards, merchandise, statement credits, or checks (more on those below). In contrast, a standard debit card that comes with a bank checking account generally offers no initial bonus or ongoing opportunity to earn rewards.
2. Cash Back
The cash-back credit card was first popularized in the United States by Discover, and the idea was simple: Use the card and get 1% of your purchases rebated in the form of cash back. Today, the concept has grown and matured. Now, some cards now offer 2%, 3% or even as much as 6% cash back on selected purchases, though such lucrative offers involve quarterly or annual spending caps. The best cash-back cards are those that charge minimal fees and interest, while offering a high rewards rate.
Some cards, like the Fidelity Rewards card, offer a high 2% rate of cash back rewards on all spending but you must deposit your cash directly into a Fidelity investment account.
1:50 10 Reasons To Use Your Credit Card
3. Rewards Points
Credit cards are set up to allow cardholders to earn one or more points per dollar in spending. Many reward credit cards provide bonus points for certain categories of spending like restaurants, groceries or gasoline. When certain earnings thresholds are reached, points can be redeemed for travel, gift cards from retailers and restaurants, or for merchandise items through the credit card company's online rewards portal.
Your credit card rewards options are almost endless. Get a co-branded card offered in partnership with a hotel chain, clothing retailer or even a nonprofit organization like AARP, and you can leverage your everyday spending to earn valuable rewards day in and day out. The trick is to find the card that best fits with your spending patterns. Doing the inverse—altering your spending patterns to fit with a particular card—can be counterproductive. But if you're already spending money on a regular basis with a certain retailer or have an affinity for a certain hotel, why not use the card that will encourage your continued patronage by offering you enhanced rewards, discounts and perks?
4. Frequent-Flyer Miles
This perk predates almost all the rest. Back in the early 1980s, American Airlines began offering their consumers a novel way to earn frequent-flyer miles even when they weren't flying, by forming a partnership with credit card giant, Citibank. Now, all domestic and international airlines have at least one credit card offered, in a similar partnership, by major credit card issuers.
Cardholders generally earn miles at a rate of one mile per dollar in net purchases, or sometimes one mile per two dollars spent for lower-end cards that have no annual fee. How valuable this reward actually is, depends on the type of airline ticket you purchase with your points or miles. Many frequent flyer cards are made immensely more valuable by their mileage-based introductory bonuses. These are often enough to put you 50–100% of the way toward an award flight after meeting the card's initial spending requirement.
5. Safety
Paying with a credit card makes it easier to avoid losses from fraud. When your debit card is used by a thief, the money is missing from your account instantly. Legitimate expenses for which you've scheduled online payments or mailed checks may bounce, triggering insufficient funds fees and affecting your credit. Even if not your fault, these late or missed payments can lower your credit score. It can take time for fraudulent transactions to be reversed and money restored to your account while the bank investigates.
By contrast, when your credit card is used fraudulently, you aren't out any money—you just notify your credit card company of the fraud and don't pay for the transactions you didn't make while the credit card company resolves the matter.
Credit card networks like Visa and Mastercard provide zero liability coverage for unauthorized purchases as a way to encourage usage of their cards over cash or check.
Help with purchase refunds Credit card companies can also help resolve refund issues when consumers are unable to resolve merchant disputes on their own.
6. Keeping Vendors Honest
Say you hire a tile setter to set some flooring in your entryway. Workers spend the weekend cutting, measuring, grouting, placing the spacers and tiles and letting the whole thing set. They then charge you $4,000 for their troubles.
You draw upon your savings account and write a check. But what do you do when, 72 hours later, the tile starts to shift and the grout still hasn't set? Your entryway is now a complete mess, and that vein in your forehead won't stop throbbing.
You can take up the issue with your state licensing board, but that process could take months and the contractor still has your money. That's why, if you can, you should pay for a big-ticket item like this with a credit card. The issuer has an incentive to discourage fraud among its vendors, and if there is a problem, they have a mechanism to try to resolve it. More important, if you dispute the charge, the card issuer withholds the funds from the tile setter, and not only will you get your money back, you might even get help finding a new contractor.
7. Grace Period
When you make a debit card purchase, your money is gone right away. When you make a credit card purchase, your money remains in your checking account until you pay your credit card bill.
Hanging on to your funds for this extra time can be helpful in two ways. First, the time value of money, however infinitesimal, will save you money. Delaying eventual payment makes your purchase a tiny bit cheaper than it would be otherwise. Beyond that, by paying with a credit card versus your debit card, cash, or check, your cash will spend more time in your bank account. And if you pay your credit card from an interest-bearing checking account, you will earn money during the grace period. The extra cash will eventually add up to a meaningful amount.
Second, when you consistently pay with a credit card you don't have to watch your bank account balance as closely.
8. Insurance
Most credit cards automatically come with a number of consumer protections that people don't even realize they have, such as rental car insurance (though often secondary to your personal auto insurance), travel insurance, and product warranties that may exceed the manufacturer's warranty.
9. Universal Acceptance
Certain purchases are difficult to make with a debit card. When you want to rent a car or stay in a hotel room, you'll almost certainly have an easier time if you have a credit card. Rental car companies and hotels want customers to pay with credit cards because it makes it easier to charge customers for any damage they cause to a room or a car. Another reason is that, unless you have prepaid for your rental or hotel stay, the merchant doesn't know the final amount of your transaction. The merchant, therefore, needs to block out a certain amount of your available credit line to protect themselves from potential charges they didn't anticipate.
So if you want to pay for one of these items with a debit card, the company may insist on putting a hold of several hundred dollars on your account. Also, when you're traveling in a foreign country, merchants won't always accept your debit card—even when it has a major bank logo on it.
10. Building Credit
If you have no credit or are trying to improve your credit score, using a credit card responsibly will help because credit card companies will report your payment activity to the credit bureaus. However, debit card use doesn't appear anywhere on your credit report, so it can't help you build or improve your credit. Even if you need to deposit some funds to get a secured credit card, this can help you build your credit history and eventually qualify for unsecured cards or larger loans.
When Not to Use a Credit Card
Paying with credit cards isn't always better than paying with cash. Retailers honor credit cards because they want to make it easy for you to shop there. But the merchants still have to pay the major credit card companies a portion of every sale in the form of a transaction fee. Since a cash sale means more to the retailer's bottom line than an equivalent credit sale, some retailers give discounts for the privilege of immediately taking your cash. On a big item, like a furniture set, for instance, the difference could be substantial. However, you'll forego the consumer protections offered by credit cards.
There are other reasons when paying with credit isn't better, and they have to do with you and your spending habits. Using a credit card may not be right for you if:
You can't pay your credit card balance in full and on time: If this tends to happen, stick with the debit card (or cash) to avoid falling into credit card debt and incurring interest charges. You tend to spend more than you can afford: Paying with debit will limit you to spending money already earned. You can only get a credit card with a low credit limit and you have a hard time staying under the balance: Exceeding your credit limit results in costly fees, and doing this can also put a dent in your credit score.
The Bottom Line
Credit cards are best enjoyed by the disciplined, who can remain cognizant of their ability to pay the monthly bill (preferably in full) on or before the due date. If you already know how to use a credit card responsibly, shift as many of your purchases as possible to your credit card, and don't use your debit card for anything other than ATM access. If you do, the combination of rewards, buyer protection, and the value of cash-in-hand will put you ahead of those who pay with a debit card, check, or cash.
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d7b5a8e3bca519e6613724c8f2815848 | https://www.investopedia.com/articles/pf/10/credit-score-factors.asp | The 5 Biggest Factors That Affect Your Credit | The 5 Biggest Factors That Affect Your Credit
A credit score is a number that lenders use to determine the risk of loaning money to a given borrower.
Credit card companies, auto dealers, and mortgage bankers are three types of lenders that will check your credit score before deciding how much they are willing to loan you and at what interest rate. Insurance companies and landlords may also look at your credit score to see how financially responsible you are before issuing an insurance policy or renting out an apartment.
Here are the five biggest things that affect your score, how they affect your credit, and what it means when you apply for a loan.
1:32 The 5 Biggest Factors That Affect Your Credit
What Counts Toward Your Score
Your credit score shows whether or not you have a history of financial stability and responsible credit management. The score can range from 300 to 850. Based on the information in your credit file, major credit agencies compile this score, also known as the FICO score. Here are the elements that make up your score and how much weight each aspect carries.
Key Takeaways Payment history, debt-to-credit ratio, length of credit history, new credit, and the amount of credit you have all play a role in your credit report and credit score. Landlords may request a copy of your credit history or credit score before renting you an apartment. Your FICO score only shows lenders your history of hard inquiries, plus any new lines of credit you opened within a year. Experts suggest that you should never close credit card accounts even after paying them off in full because an account's long history (if it's strong) will boost your credit score.
1. Payment History: 35%
There is one key question lenders have on their minds when they give someone money: “Will I get it back?”
The most important component of your credit score looks at whether you can be trusted to repay funds that are loaned to you. This component of your score considers the following factors:
Have you paid your bills on time for each account on your credit report? Paying late has a negative effect on your score. If you've paid late, how late were you—30 days, 60 days, or 90+ days? The later you are, the worse it is for your score. Have any of your accounts been sent to collections? This is a red flag to potential lenders that you might not pay them back. Do you have any charge-offs, debt settlements, bankruptcies, foreclosures, lawsuits, wage garnishments or attachments, liens, or public judgments against you? These items of public record constitute the most dangerous marks to have on your credit report from a lender's perspective. The time since the last negative event and the frequency of missed payments affect the credit score deduction. Someone who missed several credit card payments five years ago, for example, will be seen as less of a risk than a person who missed one big payment this year.
2. Amounts Owed: 30%
So you might make all your payments on time, but what if you’re about to reach a breaking point?
FICO scoring considers your credit utilization ratio, which measures how much debt you have compared to your available credit limits. This second-most important component looks at the following factors:
How much of your total available credit have you used? Don’t assume you have to have a $0 balance on your accounts to score high marks here. Less is better, but owing a little bit can be better than owing nothing at all because lenders want to see that if you borrow money, you are responsible and financially stable enough to pay it back. How much do you owe on specific types of accounts, such as a mortgage, auto loans, credit cards, and installment accounts? Credit scoring software likes to see that you have a mix of different types of credit and that you manage them all responsibly. How much do you owe in total and how much do you owe compared to the original amount on installment accounts? Again, less is better. Someone who has a balance of $50 on a credit card with a $500 limit, for instance, will seem more responsible than someone who owes $8,000 on a credit card with a $10,000 limit.
3. Length of Credit History: 15%
Your credit score also takes into account how long you have been using credit. For how many years have you had obligations? How old is your oldest account and what is the average age of all your accounts?
Long credit history is helpful (if it's not marred by late payments and other negative items), but a short history can be fine too as long as you've made your payments on time and don't owe too much.
This is why personal finance experts always recommend leaving credit card accounts open, even if you don’t use them anymore. The account’s age by itself will help boost your score. Close your oldest account and you could see your overall score decline.
4. New Credit: 10%
Your FICO score considers how many new accounts you have. It looks at how many new accounts you have applied for recently and when the last time you opened a new account was.
Whenever you apply for a new line of credit, lenders typically do a hard inquiry (also called a hard pull), which is the process of checking your credit information during the underwriting procedure. This is different from a soft inquiry, like retrieving your own credit information.
Hard pulls can cause a small and temporary decline in your credit score. Why? The score assumes that, if you've opened several accounts recently and the percentage of these accounts is high compared to the total number, you could be a greater credit risk. Why? Because people tend to do so when they are experiencing cash flow problems or planning to take on lots of new debt.
5. Types of Credit in Use: 10%
The final thing the FICO formula considers in determining your credit score is whether you have a mix of different types of credit, such as credit cards, store accounts, installment loans, and mortgages. It also looks at how many total accounts you have. Since this is a small component of your score, don't worry if you don't have accounts in each of these categories, and don't open new accounts just to increase your mix of credit types.
What Isn't in Your Score
The following information is not considered in determining your credit score, according to FICO:
Marital status Age (though FICO says some other types of scores may consider this) Race, color, religion, national origin Receipt of public assistance Salary Occupation, employment history, and employer (though lenders and other scores may consider this) Where you live Child/family support obligations Any information not found in your credit report Participation in a credit counseling program
Example of Why Lenders Look at Your Debt
When you apply for a mortgage, for example, the lender will look at your total existing monthly debt obligations as part of determining how much mortgage you can afford. If you have recently opened several new credit card accounts, this might indicate that you are planning to go on a spending spree in the near future, meaning that you might not be able to afford the monthly mortgage payment the lender has estimated you are capable of making.
Lenders can't determine what to lend you based on something you might do, but they can use your credit score to gauge how much of a credit risk you might be.
FICO scores only take into account your history of hard inquiries and new lines of credit for the past 12 months, so try to minimize how many times you apply for and open new lines of credit within a year. However, rate-shopping and multiple inquiries related to auto and mortgage lenders will generally be counted as a single inquiry since the assumption is that consumers are rate-shopping—not planning to buy multiple cars or homes. Even so, keeping the search under 30 days can help you avoid dings to your score.
What It Means When You Apply for a Loan
Following the guidelines below will help you maintain a good score or improve your credit score:
Watch your credit utilization ratio. Keep credit card balances below 15%–25% of your total available credit. Pay your accounts on time and if you have to be late, don't be more than 30 days late. Don't open lots of new accounts all at once or even within a 12-month period. Check your credit score about six months in advance if you plan to make a major purchase, like buying a house or a car, that will require you to take out a loan. This will give you time to correct any possible errors and, if necessary, improve your score. If you have a bad credit score and flaws in your credit history, don't despair. Just start making better choices and you'll see gradual improvements in your score as the negative items in your history become older.
The Bottom Line
While your credit score is extremely important in getting approved for loans and getting the best interest rates, you don't need to obsess over the scoring guidelines to have the kind of score that lenders want to see. In general, if you manage your credit responsibly, your score will shine.
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f2650f9789c543492a60edd1b89cd036 | https://www.investopedia.com/articles/pf/10/middle-class.asp | 6 Signs That You've Made It to the Middle Class | 6 Signs That You've Made It to the Middle Class
Not so long ago, most people viewed the hallmarks of success as something along the lines of a house, a white picket fence, two weeks vacation, two children, and the ability to send those kids to college.
Today, the middle class is a vanishing breed, according to nearly every survey and statistic on the topic. Despite all of the attention to the subject, defining "middle class" remains a challenge, as everyone wants to be in the middle regardless of their income. Instead of focusing on the dollars, let's take a look at the six lifestyle benchmarks that define middle-class status.
Key Takeaways There is no official financial standard that defines the middle class, but there are certain benchmarks that seem to attest to that classification.Owning a home and car, as well as being able to pay for your children to go to college are among the milestones.Being able to tuck away enough money for your retirement is significant, as is the ability to obtain healthcare for yourself and your family.Having enough disposable income to take your family on vacation is another benchmark.
1:51 6 Signs That You’ve Made It To Middle Class
Do You Consider Yourself Middle Class?
A wide variety of numbers have been thrown around in an effort to define the middle class. Add to this that how Americans view middle class, in terms of income, varies widely.
According to Northwestern Mutual’s 2018 Planning and Progress Study, 68% of Americans identify themselves as middle class. A majority (78%) believe that annual incomes under $100,000 qualify as middle class, 52% believe the range is between $50,000 to $99,999, and 26% less than $50,000.
While the middle class losing ground has been widely reported, the economic impact of the COVID-19 crisis has, of course, made everything worse for all kinds of households with differing income levels and lifestyles.
6 Signs You Are Middle Class
While there is no official financial standard, the middle class as defined by the the Middle Class Task Force formed under the Obama Administration characterized this segment of the U.S. population in terms of six financial aspirations that still hold true. We can view them as benchmarks. If you can check off each of these six points, you are likely at least a member of the middle class:
1. Home Ownership
Owning a home remains the American dream. The step up from renting to owning signifies prosperity and achievement. With median home price ranges differing by so much in different cities across the United States, the ability to achieve this goal varies significantly by geographical location.
2. Owning a Car
Owning a car provides freedom of movement and the luxury of avoiding the limited schedules and cramped quarters offered by mass transportation options, such as buses and subways. Here again, the cost of cars varies widely, as does the kind of automobile required. For one driver, a used Hyundai will do the trick. For another, a new BMW signifies the achievement of this goal.
3. A College Education for the Kids
Helping children get ahead in life is a primary goal for middle-class families. Paying for a college education for children can cost anywhere from the low tens of thousands of dollars to hundreds of thousands. The university or college those children attend has a significant impact on the price tag.
4. Retirement Security
Retirement is a goal nearly everyone wants to achieve. It demonstrates success and provides a reward for decades of hard work. Once again, definitions make a difference. The amount of savings required to support your later years will vary significantly depending on whether you contemplate a staff of 10 at your villa in the South of France or a townhouse in Peoria, Ill.
5. Healthcare Coverage
The ability to obtain healthcare is an important goal for middle-class wage earners and their families. The high and rising cost of medical care and prescription drugs make healthcare coverage an ever-increasing need; going without it can have serious negative financial implications in the event of a severe illness or injury.
6. Family Vacation
The family vacation is a middle-class staple. Vacations demonstrate that a family has disposable income and has been successful enough to take time away from work to focus on leisure.
Karl Marx referred to the middle class as part of the bourgeoisie when he described capitalism.
What Happened to the Dream?
About half (52%) of the U.S. population is part of the middle class, according to a report published by the Pew Research Center in September 2018. However, even that slim majority reflects a longer-term trend of a shrinking middle class compared to previous decades.
Globalization and technological advances began to reverse the growth of the middle class. The manufacturing base in the United States changed, as good-paying jobs in factories and heavy industries went overseas to lower-paying markets and labor unions lost much of their ability to bargain for high wages and good benefits.
Later, white-collar jobs from accounting and data entry to reading medical images and answering telephones in call centers were also sent offshore. Many jobs that remained in the U.S. were eliminated by computers and other technological advancements that increased productivity.
To achieve or maintain a middle-class lifestyle, many households became two-income families. Achieving middle-class goals became more difficult as employers eliminated their defined-benefit plans, the cost of college education continued to rise, and the cost of healthcare jumped.
How to Get There
Although there are significant challenges to obtaining middle-class status, there are some proactive steps that can help make the dream a reality. Budgeting is one of the most obvious. Understanding where your money goes each month can help you determine the exact makeup of the benchmarks you are trying to match. It can also help you control spending: Will a Hyundai. not a BMW, be sufficient?
Planning is another crucial step. Are the kids going to a state university or a private college? Are scholarships an option? Some savvy families find the money for college by participating in programs that can aid families with the costs related to sending a child to university.
Working is another one of the requirements. A second job or a side business might be what it takes to boost your income and achieve some of your goals. Putting your money to work is also an important consideration. Investing has helped build wealth for generations.
Even if you don't have the means to invest for current income, you can take a few dollars from each paycheck and save for your retirement.
The Bottom Line
There is no official financial standard for what constitutes middle class. For most it's more about a standard of living—including owning a home, being able to afford to pay for a college education for your kids, and having enough disposable income to take a family vacation.
While numerous studies have outlined the decline of the middle class, for now (at least), this demographic still includes about half of the households in the U.S.
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f4cc6a62788d13535bca2cd122820c62 | https://www.investopedia.com/articles/pf/10/mindless-money-wasters.asp | Top 6 Mindless Money Wasters | Top 6 Mindless Money Wasters
Despite the benefits of putting some money away, most people take a passing interest in actually doing it. If you'd like to make regular saving a part of your life, read on to find out how to conquer the first step: finding that extra money.
You can begin by paying attention to these top money wasting activities.
1. Convenience Stores
Many people don't think about the markup they pay for convenience store items. Here's a hint: it's huge. This is because, unlike grocery stores, convenience stores don't purchase food in large quantities, and also because they make you pay more for the convenience they provide. So, unless it's an emergency situation, avoid shopping at convenience stores.
The premium you pay for convenience is not worth the assumed convenience you get. For example, a bottle of Coke at a convenience store might cost you around two dollars, while you can go to Amazon and buy a 12-pack for $16. If you tend to pull over for a drink, buy a 12-pack and keep it in your car. If you visit convenience stores often, the annual savings of cutting out these visits can be tremendous.
2. Cell Phone Plans
Take the time to check your monthly cell phone bill – you may be paying more than you need to. If you are using fewer minutes than your monthly plan allows, switch to a lower-rate plan. If you are using more minutes than your monthly allotment, then upgrade to a higher minute plan.
Before making any changes to your plan, sit down with a list of your cell phone company's offerings and compare and determine which plan provides the most value based on your needs. You should also scan through your cell phone plan for added features like text messaging and mobile internet. If you aren't really using these features, get rid of them – they're costing you money each month!
3. Soft Drinks
This one is a sneaky money waster. Not only does ordering beverages along with a restaurant meal boost your total expenses, but soft drinks also have one of the highest markups of any restaurant item, and thus provide lower value for your money.
Consider a typical family of four that eats out twice a week at fast casual restaurants. Assuming an average price of $1.50 for a fountain soft drink, that totals $12 a week, $48 a month, $624 a year. Just cutting out this one item from your meal could mean significant savings that could go into something much more productive, such as a retirement savings plan. If you invest $624 at a 9% rate of return year every year, you would have almost $32,000 at the end of 20 years. So dine out, but opt for water!
4. Unnecessary Bank Fees
Many people unknowingly pay a lot to their banks in the form of fees. If you don't know what fees your accounts are subject to, spend a few minutes finding out. Some banks charge ATM fees for using another bank's ATM, for example. These can be as high as $3! This amounts to a 15% one-time fee for a $20 withdrawal. The key with this type of fee is simply knowing about it. You would be better off using a credit card to make the purchase.
Go back and examine the rules governing your checking and savings accounts. Also consider consolidating bank accounts, as often one account with a larger minimum can eliminate numerous fees that might otherwise exist.
5. Magazines
If you're the type of person who likes to occasionally pick up your favorite magazine from the local grocery store or newsstand, consider getting an annual subscription. Even if you don't want the magazine every month, the cost of a couple of issues at the newsstand is enough to cover the entire annual subscription.
6. Annual Credit Card Fees
Unless you have a poor credit history, there is no reason to pay annual credit card fees. A host of Visa, MasterCard and Discover cards have no annual fee, yet many people pay $100 or more a year for the privilege of holding a premium credit card. Unless you're a wealthy, exclusive holder of an elite-level credit card with exclusive perks, most people should not be paying annual credit card fees.
And speaking of credit cards, make sure you make a payment on time every month, even if it's the minimum. Many credit cards charge high monthly late fees, charges which accrue interest along with your existing balance.
Be Proactive
Spend a couple of hours and go over the above categories along with any other regular habits you may have accumulated over the years. The time will be well spent as it could mean hundreds of dollars of recurring annual savings.
The Bottom Line
Shopping at convenience stores, wasting money on magazines, and high credit card and bank fees are easy ways to waste money. Taking some time to go over your spending habits could be well worth your time.
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013e5c3a1e7d35d2806564f1b8ad4174 | https://www.investopedia.com/articles/pf/11/benefits-and-drawbacks-of-internet-banks.asp | Internet Banks: Pros and Cons | Internet Banks: Pros and Cons
Figuring out where to bank starts with a decision about the type of institution you want. Do you prefer a bank with brick-and-mortar branches and its own automated teller machines (ATMs) or an online-only alternative that gives you a purely online or mobile banking experience?
Traditional and online banks—also known as direct banks—both offer you access to your account online, and the ability to transfer money or perform other tasks with a few clicks of your cursor or taps on your phone screen. They're both subject to the same laws and regulations—online-only accounts are guaranteed by the Federal Deposit Insurance Corporation (FDIC) just like the accounts held at traditional banks. Security is the same overall, with both types employing such measures as encryption to protect your funds and identity.
But even if both types have become close cousins in some ways, important distinctions remain. Direct banks leverage their lower costs to offer better interest rates and, often, lower fees. Brick-and-mortar institutions offer a convenient array of options for deposits and other transactions including offering the option for face-to-face service at a bank branch when you need it. If you're on the fence about internet banks, this article may help you. It outlines the main pros and cons of this part of the banking industry.
Key Takeaways Before choosing an online bank, it's important to decide what features are most important to you. The lack of overhead gives internet banks advantages over traditional banks, including fewer or lower fees and accounts with higher APYs. Internet banks lack personal relationships, no proprietary ATMs, and more limited services.
Online Banking: A Quick History
As the commercialization of the internet evolved in the early 1990s, traditional brick-and-mortar banks began looking for ways to deliver online services to their customers. Though limited at first, the success of these early efforts led many banks to expand their internet presence through improved websites featuring the ability to open new accounts, download forms, and process loan applications.
This led to the birth and rise of internet-only banks. These institutions offer online banking and other financial services without a network of branch offices. The first fully-functional direct bank insured by the FDIC was the Security First Network Bank, which began operations on Oct. 18, 1995. Security First and those that followed were able to offer higher interest rates on deposit accounts and reduced service fees all because of the lower costs due to a lack of overhead.
As the choice in virtual banks grew, so did customers' enthusiasm for banking online. More than 60% of account holders do at least some of their banking on the internet, according to the latest report on banking behavior from the FDIC.
Pros of Internet Banks
Despite the rising virtual presence of traditional banks, online-only competitors still offer some clear advantages for consumers.
Better Rates, Lower Fees
The lack of significant infrastructure and overhead costs allow direct banks to pay higher interest rates or annual percentage yields (APYs) on savings. The most generous of them offer as much as 1% to 2% more than you'll earn on accounts at a traditional bank—a gap that can really add up with a high balance. While some direct banks with especially generous APYs offer only savings accounts, most of them offer other options including high-yield savings accounts, certificates of deposit (CDs), and no-penalty CDs for early withdrawal.
You're less likely to be dinged with a wide range of fees at a direct bank including those associated with keeping an account open with a low balance, making direct deposits, or paying by check or debit card. Accounts at direct banks are more likely to carry no minimum balance or service fees.
Better Online Experiences
Traditional banks are investing heavily in improving their virtual presence and service, including launching apps and upgrading websites. But overall, direct banks appear to retain an edge when it comes to the online banking experience.
A 2018 Bain and Company survey of retail banking customers found traditional banks lagged behind direct banks in the areas that mattered most to customers, including the quality of the banking experience and the speed and simplicity of transactions.
1% to 2% The gap between the interest rates earned by accounts in traditional banks and internet-only banks.
Cons of Internet Banks
Banking with an online institution also has its share of drawbacks and inconveniences.
No Personal Relationships
A traditional bank provides the opportunity to get to know the staff at your local branch. That can be an advantage if and when you need additional financial services, such as a loan, or when you have to make changes to your banking arrangements. A bank manager usually has some discretion in changing the terms of your account if your personal circumstances change, or in reversing a mandatory fee or service charge.
Less Flexibility With Transactions
In-person contact with a banking staffer isn't only about getting to know you and your finances. For some transactions and problems, it's invaluable to head to a bank branch.
Take, for example, depositing funds—the most basic of banking transactions. Depositing a check is possible with a direct bank by using its banking app to capture both the front and back of the check. However, depositing cash is downright cumbersome at many online banks. So, it's worth checking the bank’s policy if this is something you plan to do frequently. International transactions may also be more difficult, or even impossible, with some direct banks.
The Absence of Their Own ATMs
Since they lack their own banking machines, online banks rely on having customers use one or more ATM networks such as those from AllPoint and Cirrus. While these systems offer access to tens of thousands of machines across the country—even around the world—it's worth checking the available machines near where you live and work.
Check, too, for any fees you may rack up for ATM use. While many direct banks offer free access to network ATMs or will refund any monthly charges you incur, there are sometimes limits on the number of free ATM transactions you can make in a given month.
More Limited Services
Some direct banks may not offer all the comprehensive financial services that traditional banks offer, such as insurance and brokerage accounts. Traditional banks sometimes offer special services to loyal customers, such as preferred rates and investment advice at no extra charge.
In addition, routine services such as notarization and bank signature guarantee are not available online. These services are required for many financial and legal transactions.
The Bottom Line
Traditional and online-only banks both have their advantages. Basically, you have to decide whether a brick-and-mortar institution's services and personal touch outweigh the often higher costs, in terms of lower interest rates and more numerous fees, of banking there.
It's also worth considering dividing your business between one of each. True, this arrangement may not be practical for you, and the fees for holding multiple accounts may be an issue. But having accounts at both a traditional bank and an online bank can facilitate the best of both worlds—higher interest rates, along with access to in-person help with transactions and problems when you need it.
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9f730278c21c30eb44961170525a0736 | https://www.investopedia.com/articles/pf/12/employess-investors.asp | Employees Vs. Investors | Employees Vs. Investors
The vast majority of us work for somebody else. We rely on our employers to provide a paycheck in exchange for our services. To us, our employers are assets, providing the single largest source of income most of us will ever have.To our employers, we are a liability. The costs associated with employees are by far the largest expense for most publically-traded corporations. In addition to salaries, there are taxs, healthcare benefits, liability insurance, real estate costs, furniture, supplies, 401(k) matches and pension costs.
To complicate matters, a significant number of employees are also shareholders. They either hold stock in their employers, have an equity mutual fund in their 401(k) plan (making them shareholders in other companies) or both.
Worlds CollideFrom an employee's perspective, there are two primary goals. The first is to remain employed so that you can maintain your current income stream. The second is to get promoted in order to earn more money.
From an employer's perspective, there are also two. The first is to generate as much revenue as possible. The second is to reduce expenses to the lowest possible amount. Taken together, these two steps are designed to maximize profits for shareholders.
There is an inherent conflict between an employee's goal of earning more money and an employer's goal of reducing expenses. How this conflict plays out in the workplace will have a significant impact on your life.
An Obligation to ShareholdersYour employer has an obligation to investors: help them make money. The strategies for meeting this objective are quite logical. They include growing the business and minimizing expenses.
Expense minimization includes an intentional effort to hire the best possible talent at the lowest possible price. For many companies, it also includes hiring as few people as possible, giving them as few benefits as possible and replacing them with less expensive employees whenever possible.
The results of this strategy have manifested themselves in ways that have transformed the American workplace. Outsourcing to low-wage countries such as China and India is commonplace, as accounting tasks and medical scan interpretation have joined manufacturing and manual labor in the offshore world. Salaries for Chief Executives have become disproportionally high when compared to the average worker, as the most senior executives are paid for highly-valued strategic thinking while labor has become a commodity to be purchased at the lowest possible price. The end result is that a small number of people are paid large salaries while a large number of people are paid small salaries.
What it Means to YouThe relentless effort to increase shareholder value means that the average worker is going to change careers frequently, with a significant number of those changes occurring on an involuntary basis. According to the Bureau of Labor Statistics, among "a nationally representative sample of people born in the years 1957 to 1964 who were living in the United States when the survey began in 1979 … younger baby boomers held an average of 11 jobs from ages 18-44. Twenty-five percent held 15 jobs or more, while 12% held zero to four jobs."
While those job change numbers did not differentiate between voluntary and involuntary changes, additional data on unemployment provides some insight. According to the survey, "High-school dropouts experienced an average of 7.7 spells of unemployment from age 18-44, while high-school graduates experienced 5.4 spells and college graduates experienced 3.9 spells. In addition, nearly one-third of high-school dropouts experienced 10 or more spells of unemployment, compared with 17% of high-school graduates and 5% of college graduates." Clearly, all of the job changes were not of the voluntary variety.
Workplace StrategiesTo survive and thrive in the modern workplace, it helps to have a strategy. The first thing an aspiring worker can do is get an education. The statistics demonstrate an inverse correlation between education and unemployment. Less educated workers experience more instances of involuntary career changes than their more educated counterparts. Acquiring a higher level of education is the first step you can take in an effort to ensure longevity in the workplace. After that, you have an opportunity to determine the mindset with which you will approach your career.
AcceptIf you have a laid back personality and aren't particularly concerned about periods of unemployment, you can simply take a wait-and-see approach. After taking a job with an employer, you can show up everyday, do your job and wait to see how it all plays out. If it works out well, you will keep getting a paycheck. You might even advance. If the ax falls, you can change jobs and repeat the process. This is a common strategy. Many people are content to take things one day at a time and hope for the best.
AdaptA number of companies have adopted the Carvath System, known in the U.S. military as "up or out." Under this system, invented by Paul Drennan Cravath, workers are hired and trained for specific period of time. If, after a certain number of years, the workers have not received a promotion, they are dismissed.
While this process is most commonly associated with employers, employees have the ability to practice it. If your career and/or your compensation are not advancing at a satisfactory pace, you have the ability to seek other opportunities. By making career changes on a schedule of your choosing, you increase your ability to control your own fate.
Taking this approach to the next level, you can intentionally seek out companies that invest in their people. There are firms out there that offer attractive benefit packages, above average wages and better job security. If those are traits that you value, there is nothing stopping you from intentionally seeking employment with these companies.
Opt outIf you are not the type to wait for the ax to fall and don't find the idea of job hopping very appealing, you do have another choice. Work for yourself. Self-employment gives you a greater degree of control over your fate and your income. Your status and income are, in large parts, directly related to your efforts and business acumen. At one end of the spectrum, you may be content to run a sole proprietorship, where you don't have to worry about managing employees. At the other, you can seek to build the next Microsoft or Apple. The choice is yours.
The Bottom LineRegardless of where you choose to work, you can also choose to take an active role in shaping your future. Rather than do the minimum, follow orders and work from nine to five. You can make continuous learning a standard part of how you operate. By taking training classes at work, adding a credential to your resume or pursing an advance degree, you can better prepare yourself for unforeseen developments and unexpected job changes.
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c60254190957ccbb34fb7a3c68153014 | https://www.investopedia.com/articles/pf/12/good-debt-bad-debt.asp | Good Debt vs. Bad Debt: What's the Difference? | Good Debt vs. Bad Debt: What's the Difference?
Good Debt vs. Bad Debt: An Overview
There certainly is an argument to be made that no debt is good debt, but borrowing money and taking on debt is the only way many people can afford to purchase big-ticket items like homes and cars. While such loans usually are justifiable and bring value to the person taking on the debt, there is another end of the spectrum that involves taking on debt through careless spending on a credit card.
While it's easy to differentiate between these two extremes, determining whether or not a debt is good or bad more often involves a deeper analysis of specific circumstances.
Key Takeaways Good debt is a loan that has the potential to increase your net worth.Bad debt involves borrowing money to purchase rapidly depreciating assets or for the only purpose of consumption.Determining whether or not a debt is good or bad sometimes depends on an individual's financial situation, as well as other factors.
Good Debt
Good debt is exemplified in the old adage "it takes money to make money." If the debt you take on helps you to generate income and increase your net worth, that can be considered positive. There are a few notable things worth going into debt for:
Technical or college education. In general, the more education an individual has, the greater that person's earning potential. Education also has a positive correlation with the ability to find employment. Better educated workers are more likely to be employed in good-paying jobs and tend to have an easier time finding new opportunities should the need arise. An investment in a technical or college degree is likely to pay for itself within just a few years of the newly educated worker entering the workforce. To maximize the value of taking on debt for an education, degree programs must be chosen carefully. If there's no career path or little income to be earned from the degree you pursue, your student loans can quickly turn into bad debt.Small business ownership or entrepreneurship. Making money is one of the main reasons to start a small business, with being your own boss also a positive result of the endeavor. Not only can you avoid reliance on a third party to hire you and give you a paycheck, but your earnings potential can be directly improved by your willingness to work hard. With a bit of luck, you can turn your drive and ambition into a self-sustaining enterprise that results in major wealth. Like education, this also comes with risks. Many small businesses fail, but your chances for success are greater if choosing to work in a field you are passionate and knowledgeable about.Real estate, including homeownership. There is a variety of ways to make money in real estate. On the residential front, the simplest strategy often involves buying a house and living in it for a few decades before selling it at a profit. Residential real estate also can be used to generate income by taking in a boarder or renting out the entire residence. Commercial real estate also can be an excellent source of cash flow and capital gains for investors.
1:06 What’s Considered To Be a Good Debt-To-Income (DTI) Ratio?
Bad Debt
While good debt has the potential to increase a person's net worth, it's generally considered to be bad debt if you are borrowing money to purchase depreciating assets. In other words, if it won't go up in value or generate income, you shouldn't go into debt to buy it. Some particularly notable items related to bad debt include:
Cars. New cars, in particular, cost a lot of money. While you may need a vehicle to get yourself to work and to run the errands that make up everyday life, paying interest on a car purchase is simply a waste of money. By the time you leave the car lot, the vehicle already is worth less than it was when you bought it. Put your ego aside and pay cash for a used car, if you can afford to do so. If you can't, take out a loan to buy the least expensive reliable vehicle you can find and pay it off as quickly as you can. Buyers who insist on living beyond their means and financing a new car should look for a loan with little to no interest. While you'll still be spending a large amount of money on something that eventually depreciates until it is worthless, at least you won't be paying interest on it.Clothes, consumables, and other goods and services. It's often said that clothes are worth less than half of what consumers pay to purchase them. If you look around a used clothing store, you'll see that "half" is being generous. As well, vacations, fast food, groceries, and gasoline are all items commonly bought with borrowed money. Every penny spent in interest on these items is money that could have been used more wisely elsewhere.Credit cards are one of the worst forms of bad debt. The interest rates charged are often significantly higher than the rates on consumer loans, and the payment schedules are arranged to maximize costs for the consumer.
Keeping a balance on a credit card is rarely a good idea; the interest spent on credit card debt offsets the value of potential rewards.
Special Considerations
Not all debt can be classified as good or bad so easily. Often it depends on your own financial situation or other factors. A few types of debt may be good for some people but bad for others:
Consolidation loans. For consumers who are already in debt, consolidating higher-interest debt by taking out a loan at a lower rate of interest can be beneficial. The key is to use the cash that has been freed up from lower payments to keep paying down the debt.Borrowing to invest. Leveraging, or borrowing money at a low-interest rate and investing at a higher rate of return (most likely with a margin account), may appear to investors as a solid way to achieve better-than-expected results. Unfortunately, it comes with numerous risks for the inexperienced, as well as the potential hazard of losing a significant amount of money and being required to compensate your broker for the borrowed funds. This is an option that should be pursued only by knowledgeable investors who can afford to absorb losses in the event an investment goes south.Credit card reward programs. There are some great credit card reward programs available for consumers. The money spent using credit cards can help buyers earn free airline tickets, free cruises, cashback, and a host of other benefits. If you have the discipline to pay off your balance every month, this is worthwhile. Otherwise, the interest spent on the credit card debt offsets the value of the rewards.
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f6294ae98725f380ee779863f712962e | https://www.investopedia.com/articles/pf/12/left-out-of-the-will.asp | What to Do When You're Left out of a Will | What to Do When You're Left out of a Will
Being left out of a will is not a situation most people want to be in. But sometimes when a person dies and their will comes to light, its contents throw survivors for a loop. The will can exclude people who had assumed they would be included, or in some cases, who were told that they would be included. If you are left out of a will, there are some time-sensitive steps you should take to at least clarify what has happened—and perhaps contest it. In most cases, you must prove coercion, diminished mental capacity or outright fraud to have a will's terms dismissed.
Key Takeaways If you are left out of a will and believe that you should contest it, prepare to face an uphill battle to get a portion of the estate. Be certain that contesting the will makes financial sense, and that the potential gain will far outweigh the legal costs. Be sure that contesting the will makes emotional sense as the process is a long, and often stressful one involving multiple steps. To succeed, you must prove coercion, diminished mental capacity or outright fraud—all difficult to prove, no matter your personal convictions. Talk with your attorney about how realistic your chances are of getting the will invalidated and other alternatives that may exist.
Judge the Costs
Before you put a retainer on a lawyer, engage in some sober second thought. If you are not family and were never named in a previous will, you have no standing to contest the will. If the testator (the deceased) discussed an inheritance with you previously, write down as much as you can remember. Using this, estimate the dollar value (whether money or possessions). If it was never discussed but was implied, you will need to give a high and a low estimate on what you could have reasonably received based on your knowledge of the testator's estate.
If this amount isn't enough to cover the cost of a consultation with an estate lawyer, walk away. Even if it is twice as much as the retainer, walking away may still be the better course as some of the worst estate fights cost more in legal fees than the inheritance. So, think carefully before you lawyer up.
Make sure contesting a will is a winnable and financially smart battle—being left out of a will is terrible, but wasting time, money and emotions fighting a losing battle is worse.
Get a Copy of the Will
Anyone who creates a will has the final say in who is and isn't in the will. If you believe the will has changed, perhaps under duress or diminished mental capacity, then you can hopefully find out the how and why. Ask the executor for the current will, any previous versions and a list of assets.
A good executor will usually compare copies of the will and will note any significant changes. So it is possible that a notice from the executor will be your first clue that you were removed from the will. If you are not told before the will enters probate, you will be able to get a copy from the probate court. You will also be told how long you have to contest the will. States have different rules and timelines, so you may want to have a lawyer help you get the copy and file the contest sooner rather than later.
Lawyer Up
Remember when you calculated whether it was worth the legal fight? Now it's time to pay up. If you managed to get a copy of the will without a lawyer, you should now find one. Show the lawyer the will and state your reasons for wanting to file a legal challenge.
Basically, the testator has the right to disperse the estate according to whatever whim catches his or her fancy. To contest the will, you need a valid reason. These are fairly straightforward. You need to reasonably prove the testator lacked the mental capacity to understand what was going on when the current will was signed, was pressured into changing it or that the will failed to meet state regulations and is thus not legal.
Your lawyer will be able to tell whether it is a winnable challenge on these grounds. If you don't have grounds, there is still the possibility you can make a claim on the estate. An example would be if you did unpaid work for the testator that you can claim costs for. Again, you would have to consider the value of the claim against the costs of making it.
File a Contest
If you have grounds, your lawyer files a contest against the will. The goal of this legal proceeding is to invalidate the current will and enforce a previous will that lists you as a beneficiary. If you have been left out of several revisions of the will, your chances will be slimmer because multiple wills must be invalidated. The burden of proof will also fall on you, so be prepared for a difficult fight.
Consider Mediation
Rather than fighting it out in an all-out court battle that will deplete you and the estate in legal costs, your lawyer may be able to guide the estate to mediation. Mediation may be able to get you closer to a resolution than a prolonged court battle.
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6149cfaf84af3659782635c800e4ef8f | https://www.investopedia.com/articles/pf/12/set-up-a-trust-fund.asp | How to Set Up a Trust Fund if You're Not Rich | How to Set Up a Trust Fund if You're Not Rich
Trust Funds 101
If you've heard of trust funds but don't know what they are or how they work, you're not alone. Many people know just one key fact about trust funds: they're set up by the wealthy as a way to protect passing on significant sums of money to family, friends, or entities (charities, for example) after they pass away.
However, only part of the conventional wisdom is true. Trust funds are designed to allow a person's money to continue to be used in specific ways after they pass away, and to avoid their estate going through probate court (a time-consuming and expensive legal process). But trusts aren't only useful for ultra-high-net-worth individuals, the middle-class can use trust funds as well, where setting one up isn't out of financial reach.
1:46 How To Set Up A Trust Fund If You’re Not Rich
Key Takeaways Trust funds are designed to allow a person's money to continue to be useful well after they pass away. You can place cash, stock, real estate, or other valuable assets in your trust. A traditional irrevocable trust will likely cost a minimum of a few thousand dollars and could cost much more.
The Mechanics of Trust Funds
To understand how a trust fund operates, let's look at an example. You've worked hard all of your life and have built up a comfortable savings cushion. You know that sometime in the future you're going to pass away, and you want your hard-earned savings to go to the people you love or the charities or causes that you believe in.
Now, what about loved ones who are not as financially savvy as you? You could be concerned about leaving them a lump-sum gift because they might use it irresponsibly.
Furthermore, you may even like to see your money carry over for generations to come. If this is how you feel, then you should set up a living irrevocable trust fund. This type of trust can be set up to begin dispersing funds when certain conditions are met. There is no stipulation that you cannot be alive when that happens.
You can place cash, stock, real estate, or other valuable assets in your trust. You meet with an attorney and decide on the beneficiaries and set stipulations. Maybe you say that the beneficiaries receive a monthly payment, can only use the funds for education expenses, expenses due to an injury or disability, or the purchase of a home. It's your money, so you get to decide.
Eligibility for Need-Based Financial Aid
Although the trust is irrevocable, the money is not the property of the person receiving it. Because of this, a child applying for financial aid would not have to claim these funds as assets. As a result, there will be no impact on eligibility for need-based financial aid. The trustor can also establish trusts for future generations of children, making the trust a lasting legacy for an indefinite number of generations.
Because it's irrevocable, you don't have the option of later dissolving the trust fund. Once you place assets in the trust, they are no longer yours. They are under the care of a trustee. A trustee is a bank, attorney, or other entity set up for this purpose.
Since the assets are no longer yours, you don't have to pay income tax on any money made from the assets. Also, with proper planning, the assets can be exempt from estate and gift taxes.
These tax exemptions are a primary reason that some people set up an irrevocable trust. If you, the trustor (the person establishing the trust) is in a higher income tax bracket, setting up the irrevocable trust allows you to remove these assets from your net worth and move into a lower tax bracket.
Trust Fund Drawback: Fees
There are some downsides to setting up a trust. The biggest downside is attorney fees. Think of a trust as a human in the eyes of tax law. This new person has to pay taxes and the mechanics of the trust have to be written with an extraordinary amount of detail. To make it as tax-efficient as possible, it has to be crafted by somebody who has a lot of specialized legal and financial knowledge.
Trust attorneys are expensive. A traditional irrevocable trust will likely cost a minimum of a few thousand dollars and could cost much more.
Other Options
If you don't want to set up a trust fund, there are other options, but none of these leave you, the trustor, with as much control over your assets as a trust.
Wills
Writing a will costs much less money, but your property is subject to more taxes and the terms can easily be contested in a process called probate. Additionally, you won't have as much control over how your assets are used. If the will is contested, attorney fees could eat up a large portion of the money that you wanted to see used in a way that would benefit others.
UGMA/UTMA Custodial Accounts
Similar to a 529 college-savings plan, these types of accounts are designed to place money in custodial accounts that allow a person to use the funds for education-related expenses. You could use an account like this to gift a certain amount up to the maximum gift tax or fund maximum to reduce your tax liability while setting aside funds that can only be used for education-related expenses.
The disadvantages to UGMA/UTMA Custodial Accounts and 529 plans is that the beneficiary may be attending college, but using these funds for other expenses outside of your control. Furthermore, the amount of money in the minor's custodial account is considered an asset, and that may make them ineligible to receive need-based financial aid.
The Bottom Line
For those who don't have a high net-worth but wish to leave money to children or grandchildren and control how that money is used, a trust may be right for you; it's not just available to high-net-worth individuals, and it offers a way for trustors to protect their assets long after they pass on.
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3613fccb0430d24f0e08bc3d922af47e | https://www.investopedia.com/articles/pf/12/small-business-challenges.asp | 5 Biggest Challenges Facing Your Small Business | 5 Biggest Challenges Facing Your Small Business
Starting a business is a big achievement for many entrepreneurs, but maintaining one is the larger challenge. There are many standard challenges every business faces, whether they are large or small. These include things such as hiring the right people, building a brand, developing a customer base, and so on. However, there are some that are strictly small business problems, ones most large companies grew out of long ago. Here are the five biggest challenges for small businesses.
Key Takeaways A small business should not allow itself to become dependent on a single client.Having professional help with money management frees up a small business owner to focus on operating concerns.It’s important to find the right balance between working long hours and business success.A small business owner should not create a situation in which the business could not continue in their absence.
1:53 5 Biggest Challenges Facing Your Small Business
1. Client Dependence
If a single client makes up more than half of your income, you are more of an independent contractor than a business owner. Diversifying your client base is vital to growing a business, but it can be difficult, especially when the client in question pays well and on time. For many small businesses, having a client willing to pay on time for a product or service is a godsend.
Unfortunately, this can result in a longer-term handicap, because, even if you have employees and so on, you may be still acting as a subcontractor for a larger business. This arrangement allows the client to avoid the risks of adding payroll in an area where the work may dry up at any time. All of that risk is transferred from the larger company to you and your employees. This arrangement can work if your main client has a consistent need for your product or service. However, it is generally better for a business to have a diversified client base to pick up the slack when any single client quits paying.
2. Money Management
Having enough cash to cover the bills is a must for any business, but it is also a must for every individual. Whether it is your business or your life, one will likely emerge as a capital drain that puts pressure on the other. To avoid this problem, small business owners must either be heavily capitalized or able to pick up extra income to shore up cash reserves when needed. This is why many small businesses start out with the founders working a job and building a business simultaneously. While this split focus can make it difficult to grow a business, running out of cash makes growing a business impossible.
Money management becomes even more important when cash is flowing into the business. Although handling business accounting and taxes may be within the capabilities of most business owners, professional help is usually a good idea. The complexity of a company’s books increases with each client and employee, so getting an assist on the bookkeeping can prevent it from becoming a reason not to expand.
3. Fatigue
The hours, the work, and the constant pressure to perform wear on even the most passionate individuals. Many business owners—even successful ones—get stuck working much longer hours than their employees. Moreover, they fear their business will stall in their absence, so they avoid taking any time away from work to recharge.
Fatigue can lead to rash decisions about the business, including the desire to abandon it completely. Finding a pace that keeps the business humming without grinding down the owner is a challenge that comes early (and often) in the evolution of a small business.
4. Founder Dependence
If you get hit by a car, is your business still producing income the next day? A business that can't operate without its founder is a business with a deadline. Many businesses suffer from founder dependence, and it is often caused by the founder being unable to let go of certain decisions and responsibilities as the business grows.
In theory, meeting this challenge is easy—a business owner merely has to give over more control to employees or partners. In practice, however, this is a big stumbling block for founders, because it usually involves compromising (at least initially) on the quality of work being done until the person doing the work learns the ropes.
Growth should never be the enemy of quality. A small business needs both.
5. Balancing Quality and Growth
Even when a business is not founder dependent, there comes a time when the issues from growth seem to match or even outweigh the benefits. Whether a service or a product, at some point a business must sacrifice in order to scale up. This may mean not being able to personally manage every client relationship or not inspecting every widget.
Unfortunately, it is usually that level of personal engagement and attention to detail that makes a business successful. Therefore, many small business owners find themselves tied to these habits to the detriment of the company’s development. There is a large middle ground between shoddy work and an unhealthy obsession with quality; it is up to the business owner to navigate the company’s processes toward a compromise that allows growth without hurting the brand.
The Bottom Line
The problems faced by small business are considerable, and one of the worst things a would-be owner can do is to go into business without considering the challenges ahead. We’ve looked at some ways to help make these challenges easier, but there is no avoiding them. On the other hand a competitive drive is often one of the reasons people start their own business, and every challenge represents another opportunity to compete.
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47708cf8f10ae9318e18c8f089c1d6cf | https://www.investopedia.com/articles/pf/13/calculating-your-tangible-net-worth.asp | How to Calculate Your Tangible Net Worth | How to Calculate Your Tangible Net Worth
Your net worth, quite simply, is the dollar amount of your assets minus all your debts. You can calculate your net worth by subtracting your liabilities (debts) from your assets. If your assets exceed your liabilities, you will have a positive net worth. Conversely, if your liabilities are greater than your assets, you will have a negative net worth.
For certain applications, however, this basic net worth calculation may not be adequate. If you hold copyrights, patents or other intellectual property (IP), you may need to calculate your "tangible" net worth, which is the sum of all your tangible assets minus the total amount of your liabilities.
Key Takeaways Tangible net worth is the sum total of one's tangible assets (those that can be physically held or converted to cash) minus one's total debts. The formula to determine your tangible net worth is: Total Assets - Total Liabilities - Intangible Assets = Tangible Net Worth. Calculating your tangible net worth involves totaling all your assets—cash, investments, and property—and totaling all your secured and unsecured debt, and then subtracting the latter from the former.
What Is Tangible Net Worth?
Your tangible net worth is similar to your net worth in that it totes up your assets and liabilities, but it goes one step farther. It subtracts the value of any intangible assets, including goodwill, copyrights, patents and other intellectual property.
Businesses, for example, calculate tangible net worth to determine the liquidation value of the company if it were to cease operations or if it were to be sold. This figure can also be important to individuals who are applying for personal or small business loans, and the lender demands a "real" net worth figure. Your lender may be interested in your tangible net worth because it provides a more accurate view of your finances—and how much the lender could recoup if it had to liquidate your assets if you defaulted on their loan.
You might want to calculate your tangible net worth to quantify how you are doing financially, or to evaluate your financial progress over time.
Tangible Versus Intangible Assets
The difference between net worth and tangible net worth calculations is that the former includes all assets, and the latter subtracts the assets that you cannot physically touch. Assets are everything that you own that can be converted into cash. By this definition, assets include cash, investments, real property (land and permanent structures, such as homes, attached to the property), and personal property (everything else that you own such as cars, boats, furniture, and jewelry). These are your tangible assets: They are all things that you can hold. (Strictly speaking, investments are financial assets, not tangible ones. But because they can be converted to cash, they're often put in the tangible category for purposes like this.)
Intangible assets, on the other hand, are assets you cannot hold. Goodwill, copyrights, patents, trademarks and intellectual property are all considered intangible assets since they cannot be seen or touched even though they are valuable. If you are selling your small business, you may be able to rightly argue that these intangible assets add value to the business. However, in the case of determining tangible net worth as part of the loan process, the bank may only consider those assets that are tangible because they could be more easily liquidated.
Calculating Your Tangible Net Worth
The formula for calculating your tangible net worth is fairly straightforward:
Tangible Net Worth \begin{aligned}&\text{Tangible Net Worth}\\&\quad=\text{Total Assets}-\text{Liabilities}-\text{Intangible Assets}\end{aligned} Tangible Net Worth
To calculate your tangible net worth, you must first determine your total assets, total liabilities and the value of any intangible assets:
Total Assets Total Liabilities Value of Intangible Assets Cash and cash equivalents Investments Real property Personal property Secured liabilities - auto, mortgage, home equity loans, etc. Unsecured liabilities - credit cards, medical, student and personal loans, taxes, etc. Goodwill Patents Trademarks Intellectual property Other IP
Calculating your net worth is a multi-step process. Before you start, decide if you want to calculate net worth individually (you) or jointly (you and your spouse/partner). Also, get all your financial statements (such as bank statements and credit card statements) in one place.
The first time you calculate your net worth will probably take the longest. Once you figure out the methodology and how to value your assets, however, the process will likely take less time. Here's a step-by-step approach.
Calculating Assets
The first hurdle to correctly determine the value of your assets. Begin with the most liquid ones, the amount you have in cash and cash equivalents, including:
Certificates of deposit Checking and savings accounts Money market accounts Physical cash Treasury bills
Next, move on to investments, determining their current market value. These include:
Annuities Bonds Life insurance cash value Mutual funds Pensions Retirement plans – IRA, 401(k), 403(b) Stocks Other investments
Next up: real and personal property—tangible assets. Remember, real property includes land and anything that’s permanently attached to it, such as a house. Personal property is everything else. Include:
Collectibles—antiques, art, coins, etc. Household furnishings Home technology Jewelry Primary residence Rental properties Vacation or second home Vehicles: cars, boats, motorcycles
Add 'em all up—the cash/cash equivalents, investments, and real/personal property. The sum represents your total assets.
Calculating Liabilities
Your liabilities are relatively easy to quantify since they represent all of your outstanding debts, and you likely receive monthly statements or reminders for them. These statements are based on actual numbers—not estimates—and show exactly what you owe.
Start off with the amount you owe in secured debts, including:
Car loan(s) Home equity loan Margin loans Mortgage Rental real estate mortgage Second mortgage Vacation/second home mortgage
Then move on to the amount you owe in unsecured debts, including:
Credit card debt Medical bills Personal loans Student loans Taxes due Other debt and outstanding bills
Add secured debts and unsecured debts. The sum represents your total liabilities.
A Net Worth Spreadsheet
Once you have determined the value of all your assets and the size of all your liabilities, you can use the formula Tangible Net Worth = Total Assets - Total Liabilities - Intangible Assets) to determine your tangible net worth. A sample worksheet is shown below.
Assets Current Value Liabilities Amount Cash and Cash Equivalents Secured Liabilities Certificates of deposit Auto loans Checking account Home equity line Money market account Margin loans Physical cash Mortgage Savings account Rental mortgage Treasury bills 2 nd home mortgage Investments Unsecured Liabilities Annuities Credit card debt Bonds Medical bills Life insurance cash value Personal loans Mutual funds Student loans Pensions Taxes due Retirement plans Other debt and bills Stocks Total Liabilities Real Property Primary home Second home Intangible Assets Rental properties Copyrights Boats Goodwill Intellectual Property Personal Property Patents Collectibles Trademarks Household furnishings Jewelry Total Intangible Assets Vehicles Total Assets Total Assets - Total Liabilities - Total Intangible Assets Tangible Net Worth
Tips for Calculating Net Worth
Having organized records is extremely helpful and will help speed up the net worth calculation. For example, if all your important financial statements are kept in one file cabinet (or file on your computer), you’ll be able to find the necessary information quickly. If your records aren’t organized yet, now is a great time to start.
While you’re at it, create a "Net Worth" file (again, in your file cabinet or on your computer) where you can keep all your net worth statements for comparison. The bottom line is it's going to be easier (and more fun) to calculate your net worth on a regular basis if you don't have to hunt down every piece of information.
The Bottom Line
Your tangible net worth is equal to the value of all of your assets, minus any liabilities and intangible assets including copyrights, goodwill, intellectual property, patents, and trademarks. While a standard net worth calculation (assets minus liabilities) will suffice for most individuals, those who hold intangible assets may be required to calculate their tangible net worth to satisfy a lender's requirements for a personal or small business loan.
Even if you plan on using one of the many online tools or apps to calculate your net worth, it’s a good idea to do it yourself at least once—you’ll get the most out of the numbers that way. While you can use pencil, paper, and a calculator, a spreadsheet program like Microsoft Excel or Google Sheets can do the math for you and reduce the chance of any math errors.
As with any net worth calculation, placing accurate values on assets is critical. Many individuals and businesses prefer to solicit the advice of qualified professionals when valuing intangible assets.
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5e8e9af8427ceb3b39ddf789e98b0b75 | https://www.investopedia.com/articles/pf/13/importance-of-knowing-your-net-worth.asp | Why Knowing Your Net Worth Is Important | Why Knowing Your Net Worth Is Important
Your net worth is the amount by which your assets exceed your liabilities. In simple terms, net worth is the difference between what you own and what you owe. If your assets exceed your liabilities, you have a positive net worth. Conversely, if your liabilities are greater than your assets, you have a negative net worth.
Your net worth provides a snapshot of your financial situation at this point in time. If you calculate your net worth today, you will see the end result of everything you've earned and everything you've spent up until right now. While this figure is helpful—for example, it can provide a wake-up call if you are completely off track, or a "job-well-done" confirmation, if you are doing well—tracking your net worth over time, offers a more meaningful view of your finances.
When calculated periodically, your net worth can be viewed as a financial report card that allows you to evaluate your current financial health and can help you figure out what you need to do in order to reach your financial goals.
Key Takeaways Your net worth is the amount by which your assets exceed your liabilities, or what you have versus what you need to pay off.Regardless of your financial situation, knowing your net worth can help you evaluate your current financial health and plan for the future.By knowing where you stand financially, you will be more mindful of your spending, better prepared to make sound financial decisions and more likely to achieve your short-term and long-term financial goals.
Net Worth = Assets - Liabilities
Your assets are anything of value that you own that can be converted into cash. Examples include investments, bank and brokerage accounts, retirement funds, real estate and personal property (vehicles, jewelry, and collectibles)—and, of course, cash itself. Intangibles such as your personal network are sometimes considered assets as well. Your liabilities, on the other hand, represent your debts, such as loans, mortgages, credit card debt, medical bills, and student loans. The difference between the total value of your assets and liabilities is your net worth.
One of the challenges in calculating your net worth is assigning accurate values to all of your assets. It's important to make conservative estimates when placing value on certain assets in order to avoid inflating your net worth (i.e., having an unrealistic view of your wealth). Your home, for example, is probably your most valuable asset and can have a significant impact on your financial situation. Determining an accurate value of your home—by comparing it to similar homes in your area that have recently been sold or by consulting with a qualified real estate professional—can help you calculate realistic net worth.
Notably, however, there is some debate about whether personal residences should be considered assets for the purpose of calculating net worth. Some financial experts believe that the equity in your home and the market value of your home should be considered assets because these values can be converted to cash in the event of a sale.
That said, other experts feel that even if the homeowner did receive cash from the sale of the home, that cash would have to go toward the purchase or rental of another home. This essentially means that the cash received becomes a new liability—the cost of replacement housing. Of course, if the home being sold has more value than the replacement residence, part of the former home's value can be considered an asset.
Because it's easy to inflate the value of your assets, it's better to err on the conservative side when assigning financial value.
What Does It Mean?
Your net worth can tell you many things. If the figure is negative, it means you owe more than you own. If the number is positive, you own more than you owe. For example, if your assets equal $200,000 and your liabilities are $100,000, you will have a positive net worth of $100,000 ($200,000 - $100,000 = $100,000). Conversely, if your assets equal $100,000 and your liabilities are $200,000, you will have a negative net worth of minus $100,000 ($100,000 - $200,000 = -$100,000). Negative net worth does not necessarily indicate that you are financially irresponsible; it just means that—right now—you have more liabilities than assets.
Like the stock market, your net worth will fluctuate. However, also like the stock market, it is the overall trend that is important. Ideally, your net worth continues to grow as you age—as you pay down debt, build equity in your home, acquire more assets, and so forth. At some point, it is normal for your net worth to fall, as you begin to tap into your savings and investments for retirement income.
Since each person's financial situation and goals are unique, it is difficult to establish a generic "ideal" net worth that applies to everyone. Instead, you will have to determine your ideal net worth—where you want to be in the near-term and long-term future. If you have no idea where to start, some people find the following formula helpful in determining a "target" net worth:
Target Net Worth=[Your Age−25]∗[15∗Gross Annual Income]\text{Target Net Worth} = \left[\text{Your Age} - 25\right]* \left[\frac{1}{5}*\text{Gross Annual Income}\right]Target Net Worth=[Your Age−25]∗[51∗Gross Annual Income]
For example, a 50-year-old with a gross annual income of $75,000 might aim for a net worth of $375,000 ([50 - 25 = 25] x [$75,000 ÷ 5 = $15,000]). This does not mean that all 50-year-olds should have this same net worth. The formula can be used simply as a starting point. Your ideal net worth may be much more or much less than the amount indicated by the guideline, depending on your lifestyle and goals.
If you want to save some time in tracking your net worth, use our free Net Worth Tracker, which allows you to calculate, analyze and record your net worth.
Why Your Net Worth Is Important
When you see financial trends in black and white on your net worth statements, you are forced to confront the realities of where you stand financially. Reviewing your net worth statements over time can help you determine 1) where you are, and 2) how to get where you want to be. This can give you encouragement when you are heading in the right direction (i.e., reducing debt while increasing assets) and provide a wake-up call if you are not on track. Getting on track requires you some fo the following below:
Spend Wisely
Knowing your net worth is important because it can help you identify areas where you spend too much money. Just because you can afford something doesn't mean you have to buy it. To keep debt from accumulating unnecessarily, consider if something is a need or a want before you make a purchase. To reduce unnecessary spending and debt, your needs should represent the majority of spending. (Keep in mind that you can falsely rationalize a want as a need. That $500 pair of shoes does fulfill a need for footwear, but a less expensive pair may do just fine and keep you headed in the right financial direction).
Pay Down Debt
Reviewing your assets and liabilities can help you develop a plan for paying down debt. For instance, you might be earning 1% interest in a money market account while paying off credit card debt at 12% interest. You may find that using the cash to pay off the credit card debt makes sense in the long run. When in doubt, crunch the numbers to see if it makes financial sense to pay down a certain debt, taking into consideration the impact of no longer having access to that cash (which you might need for emergencies).
Save and Invest
Your net worth figures can motivate you to save and invest money. If your net worth statement shows that you are on track to meet your financial goals, it can encourage you to continue what you're doing. Conversely, if your net worth indicates room for improvement (for example, over time you have dwindling assets and burgeoning liabilities), it can provide a needed spark of motivation to take a more aggressive approach to saving and investing your money.
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2308f36f180033d7c54b0292abd09123 | https://www.investopedia.com/articles/professionaleducation/06/series7options.asp | Tips for Answering Series 7 Options Questions | Tips for Answering Series 7 Options Questions
Acing Series 7 Options Questions
The Series 7 exam, also known as the General Securities Representative Exam (GSRE), is a test all stockbrokers must pass, in order to acquire a license to trade securities. Although this exam covers a broad array of financial topics, questions about options tend to be the most challenging.
This article breaks down the world of options contracts and the investment strategies associated with them while providing useful tips to help test-takers achieve passing scores.
Key Takeaways Although options contracts questions in the Series 7 exam are numerous, their scope is limited. The steps detailed in this article can be helpful in achieving passing scores. Practicing as many options questions as possible can dramatically increase the chances of exam success.
Options Questions
Of the 50 or so options-related questions on the Series 7 exam, approximately 35 deal specifically with options strategies.
Options strategies questions in the Series 7 exam, cover the following areas:
PutsCallsStraddlesSpreadsHedgesCovered contracts
Within these sub-categories, questions focus on the following primary areas:
Maximum profit or gainsMaximum lossBreakevenExpected direction of stock movement for profit—including up or down, bullish or bearish
The Options Basics
By definition, a contract requires two parties. When one party gains a dollar on a contract, a connected counterparty loses precisely that same amount. This transaction is referred to as a zero-sum game, where the buyer and seller reach the breakeven point simultaneously.
The majority of options investors aren't interested in buying or selling stocks. Rather, they are typically more intent of profiting from trading the contracts themselves. In that sense, the options exchanges are much like horse racing tracks. While some people visit the track to buy or sell a horse, most are there to bet on the races.
Terminology Tangles
There are many synonymous terms in the options space. As the following Options Matrix chart (Figure 1) demonstrates, the term "buy" is interchangeable with "long" or "hold”, while the term "sell" can be replaced with "short" or "write." The Series 7 exam notoriously interchanges these terms, often within the same question, therefore it behooves test-takers to recreate this matrix on a piece of scratch paper before starting the exam.
Figure 1. Image by Julie Bang © Investopedia 2019
Series 7 Rights and Obligations
As Figure 1 demonstrates, buyers pay premiums to secure all the rights, while sellers receive premiums for shouldering the obligations—also known as risk. To this end, an options contract is similar to a car insurance contract, where a buyer pays the premium and has the right to exercise the contract, where he cannot lose any more than the premium paid. Meanwhile, the seller has the obligation to perform, if called upon by the buyer, where the most he can gain is the premium received. These same principals apply to options contracts.
Time Value for Buyers and Sellers
Because an option has a definite expiration date, the time value of the contract is often called a “wasting asset”. Keep in mind that buyers naturally want the contract to be exercisable, even if they’re unlikely to exercise since they’re traditionally more apt to sell the contract for a profit. On the other hand, sellers want the contract to expire worthless, because this lets them retain their entire premium, thus maximizing gains.
Four No-Fail Steps to Follow
Series 7 test-takers are often unsure how to approach options questions, however, the following four-step process should offer some clarity:
Identify the strategy.Identify the position.Use the matrix to verify the desired movement.Follow the dollars.
Series 7 test-takers should pair these tips with the following formula for the options premium:
Premium = Intrinsic Value + Time Value
Consider the Following Question
An investor is long 1 XYZ December 40 call at 3. Just before the close of the market on the final trading day before expiration, XYZ stock trades at 47. The investor closes the contract. What is the gain or loss to the investor?
Using the four-step process, a test taker may establish the following points:
Identify the strategy – a call contractIdentify the position – long = buy = hold (has the right to exercise)Use the matrix to verify desired movement – bullish, wants the market to riseFollow the dollars – Make a list of dollars in out:
$ Out $ In - - - - - -
The Answer
Questions in the exam may refer to a situation in which a contract is "trading on its intrinsic value,” which is the perceived or calculated value of a company, using fundamental analysis. The intrinsic value, which may or may not be the same as the current market value, indicates the amount that an option is in-the-money. It is important to note that buyers want the contracts to be in-the-money (have intrinsic value), while sellers want contracts to be out-of-the-money (have no intrinsic value).
In the problem, because the investor is long the contract, they have paid a premium. The problem likewise states that the investor closes the position. An options investor who buys to close the position will sell the contract, offsetting the open long position. This investor will then sell the contract for its intrinsic value because there is no time value remaining. And because the investor bought for three ($300) and sells for the intrinsic value of seven ($700), he would lock in a $400 profit.
By examining Figure 2, entitled “Intrinsic Value”, it’s clear that the contract is a call and that the market is above the strike (exercise) price, and that the contract is in-the-money, where it has an intrinsic value. Conversely, the put contracts operate in the opposite direction.
Figure 2. Image by Julie Bang © Investopedia 2019
Formulas for Call Options
Long Calls:
The maximum gain = unlimitedMaximum loss = premium paidBreakeven = strike price + premium
Short Calls:
The maximum gain = premium receivedMaximum loss = unlimitedBreakeven = strike price + premium
Formulas for Put Options
Long Puts:
The maximum gain = strike price – premium x 100Maximum loss = premium paidBreakeven = strike price – premium
Short Puts:
The maximum gain = premium receivedMaximum loss = strike price – premium x 100Breakeven = strike price – premium
In Figure 1, the buyers of puts are bearish. The market value of the underlying stock must drop below the strike price (go in-the-money) enough to recover the premium for the contract holder (buyer, long). The maximum gains and losses are expressed as dollars.
Therefore, to determine that amount, simply multiply the breakeven price by 100. For example, if the breakeven point is 37, the maximum possible gain for the buyer is $3,700, while the maximum loss to the seller is that same amount.
Straddle Strategies and Breakeven
Questions regarding straddles on the Series 7 tend to be limited in scope, primarily focusing on straddle strategies and the fact there are always two breakeven points.
Steps 1 and 2
The first step when you see any multiple options strategy on the exam is to identify the strategy. This is where the matrix in Figure 1 becomes a useful tool. For example, If an investor is buying a call and a put on the same stock with the same expiration and the same strike, the strategy is a straddle.
Consult Figure 1. If you look at buying a call and buying a put, an imaginary loop around those positions is a straddle—in fact, it is a long straddle. If the investor is selling a call and selling a put on the same stock with the same expiration and the same strike price, it is a short straddle.
If you look closely at the arrows within the loop on the long straddle in Figure 1, you'll notice the arrows are moving away from each other. This is a reminder that the investor who has a long straddle anticipates volatility. Now observe the arrows within the loop on the short straddle, to find that they are coming together. This reminds us that the short straddle investor expects little or no movement.
Step 3 and 4
By looking at the long or short position on the matrix, you've completed the second part of the four-part process. Because you are using the matrix for the initial identification, skip to step number four.
In a straddle, investors are either buying two contracts or selling two contracts. To find the breakeven, add the two premiums, then add the total of the premiums to the strike price for the breakeven on the call contract side. Subtract the total from the strike price for the breakeven on the put contract side. A straddle always has two breakevens.
Series 7 Straddle Example
Let's look at an example. An investor buys 1 XYZ November 50 call @ 4 and is long 1 XYZ November 50 put @ 3. At what points will the investor break even?
Hint: once you've identified a straddle, write the two contracts out on your scratch paper with the call contract above the put contract. This makes the process easier to visualize, like so:
Figure 3. Image by Julie Bang © Investopedia 2019
Instead of clearly asking for the two breakeven points, the question may ask, "Between what two prices will the investor show a loss?" If you're dealing with a long straddle, the investor must hit the breakeven point to recover the premium. Movement above or below the breakeven point will be profit. The arrows in the chart above match the arrows within the loop for a long straddle. The investor in a long straddle is expecting volatility.
Note: Because the investor in a long straddle expects volatility, the maximum loss would occur if the stock price was exactly the same as the strike price (at the money) because neither contract would have any intrinsic value. Of course, the investor with a short straddle would like the market price to close at the money, in order to keep all the premiums. In a short straddle, everything is reversed.
Long Straddles:
Maximum gain = unlimited (the investor is long a call)Maximum loss = both premiumsBreakeven = add the sum of both premiums to the call strike price and subtract the sum from the put strike price
Short Straddles:
Maximum gain = both premiumsMaximum loss = unlimited (short a call)Breakeven = add the sum of both premiums to the call strike price and subtract the sum from the put strike price
Beware of Combination Straddles
If in the identification process, the investor has bought (or sold) a call and a put on the same stock, but the expiration dates or the strike prices are different, the strategy is a combination. If asked, the calculation of the breakevens is the same, and the same general strategies—volatility or no movement—apply.
Series 7 Spreads
Spread strategies are among the most difficult Series 7 topics. Thankfully, combining the aforementioned tools with some acronyms can help simplify questions spreads. Let's use the four-step process to solve the following problem:
Write 1 ABC January 60 call @ 2
Long 1 ABC January 50 call @ 8
1. Identify the Strategy
A spread occurs when an investor longs and shorts the same type of options contracts (calls or puts) with differing expirations, strike prices or both. If only the strike prices are different, it is referred to as a price or vertical spread. If only the expirations are different, it is referred to as a calendar spread (also known as a "time" or "horizontal" spread). If both the strike price and expirations are different, it is known as a diagonal spread.
2. Identify the Position
In spread strategies, the investor is either a buyer or a seller. When you determine the position, consult the block in the matrix illustrating that position, and focus on that block alone.
It is essential to address the idea of debit versus credit. If the investor has paid out more than he has received, it is a debit (DR) spread. If the investor has received more in premiums than he paid out, it is a credit (CR) spread.
There is one additional spread called the "debit call spread," sometimes referred to as a "net debit spread", which occurs when an investor buys an option with a higher premium and simultaneously sells an option with a lower premium. This individual deemed a “net buyer”, anticipates that the premiums of the two options (the options spread) will widen.
3. Check the Matrix
If you study the matrix above, the two positions are inside the horizontal loop illustrate spread.
4. Follow the Dollars
(DR) (CR) $800 $200 $600
Tip 1: It may be helpful to write the $Out/$In cross directly below the matrix so the vertical bar is exactly below the vertical line that divides the buy and sell. That way, the buying side of the matrix will be directly above the DR side and the selling side of the matrix will be exactly above the CR side.
Tip 2: In the example, the higher strike price is written above the lower strike price. Once you've identified a spread, write the two contracts on your scratch paper with the higher strike price above the lower strike price. This makes it much easier to visualize the movement of the underlying stock between the strike prices.
The maximum gain for the buyer, the maximum loss for the seller and the breakeven for both will always be between the strike prices.
Formulas and Acronyms for Spreads
Debit (Bull) Call Spreads:
Maximum loss = net premium paidThe maximum gain = difference in strike prices – net premiumBreakeven = lower strike price + net premium
Credit (Bear) Call Spreads:
Maximum loss = difference in strike prices – net premiumThe maximum gain = net premium receivedBreakeven = lower strike price + net premium
Tip: For breakevens, remember the acronym CAL: In a Call spread, Add the net premium to the Lower strike price.Using the above example of a bull or DR call spread:
Maximum loss = $600 – the net premium. If ABC stock does not rise above 50, the contract will expire worthlessly and the bullish investor loses the entire premium.Maximum gain = use the formula:
The difference in Strike Prices – Net Premium(60-50) – 6 = 10 – 6 = 4 x 100 = $400
Breakeven: Since this is a call spread, we will add the net premium to the lower strike price: 6 + 50 = 56. The stock must rise to at least 56 for this investor to recover the premium paid.
Write 1 ABC January 60 call @ 2
Long 1 ABC January 50 call @ 8
Maximum gain = 4Breakeven point = 56Movement of ABC stock = +6The difference in strike prices = 10
When the stock has risen by six points to the breakeven point, the investor may only gain four points of profit ($400). Notice that 6 + 4 = 10, the number of points between the strike prices.
Above 60, the investor has no gain or loss. When an investor sells or writes an option, they are obligated. This investor has the right to purchase at 50 and the obligation to deliver at 60. Be sure to remember the rights and obligations, when solving spread problems, such as the following question:
Write 1 ABC January 60 call @ 2
Long 1 ABC January 50 call @ 8
To profit from this position, the spread in premiums must:
NarrowWidenStay the sameInvert
This question may be somewhat simplified by the fact that the answer to questions regarding spreads is almost always either “Wide” or “Narrow”, therefore “Stay the same” and “Invert” may be eliminated from consideration.
Secondly, remember the acronym DEW, which stands for Debit/Exercise/Widen. Once you've identified the strategy as a spread and identified the position as a debit, the investor expects the difference between the premiums to widen. Buyers want to be able to exercise.
If the investor has created a credit spread, use the acronym CVN, which stands for Credit/Valueless/Narrow. Sellers (those in credit positions), want the contracts to expire valuelessly and the spread in premiums to narrow.
Formulas for Put Spreads
Debit (Bear) Put Spread:
Maximum Gain=DSP – Net PremiumMaximum Loss=Net PremiumBreakeven=Higher Strike Price – Net Premium\begin{aligned} &\text{Maximum Gain}=\text{DSP – Net Premium}\\ &\text{Maximum Loss}=\text{Net Premium}\\ &\text{Breakeven}=\text{Higher Strike Price – Net Premium}\\ \end{aligned}Maximum Gain=DSP – Net PremiumMaximum Loss=Net PremiumBreakeven=Higher Strike Price – Net Premium
Credit (Bull) Put Spread:
Maximum Gain=Net PremiumMaximum Loss=DSP – Net PremiumBreakeven=Higher Strike Price – Net Premiumwhere:DSP = Difference in Strike Prices\begin{aligned} &\text{Maximum Gain}=\text{Net Premium}\\ &\text{Maximum Loss}=\text{DSP – Net Premium}\\ &\text{Breakeven}=\text{Higher Strike Price – Net Premium}\\ &\textbf{where:}\\ &\text{DSP = Difference in Strike Prices}\\ \end{aligned}Maximum Gain=Net PremiumMaximum Loss=DSP – Net PremiumBreakeven=Higher Strike Price – Net Premiumwhere:DSP = Difference in Strike Prices
For breakevens, bear in mind the helpful acronym PSH: In a Put spread, Subtract the net premium from the Higher strike price.
The Bottom Line
Although options contracts questions in the Series 7 exam are numerous, their scope is limited. The four-step process detailed can be helpful in achieving passing scores. Practicing as many options questions as possible can dramatically increase the chances of exam success.
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7bfe76592841b2f78f74fb6172df1dee | https://www.investopedia.com/articles/professionaleducation/07/cfa-charter.asp | So, You Want to Earn Your CFA? | So, You Want to Earn Your CFA?
It's pretty easy to bump into someone in the financial profession who is really excited about entering the chartered financial analyst (CFA) program. Sometimes they know what they are getting into, sometimes they don't. They may have no idea how much time it takes or exactly how having the charter may help or hurt them.
Make no mistake—earning the CFA designation is a grueling process, so before you commit, consider what it takes to earn it, how it will benefit you and your career, the negatives of going through the process, and whether the pros outweigh the cons.
Certified Financial Analyst Requirements
The CFA Institute requires four steps to become a CFA. They include:
Pass all three levels of the CFA exam in succession. Acquire qualified work experience before, during, or after the program. Submit two to three professional reference letters. Apply to join the CFA Institute, which includes completing a professional conduct statement and becoming an affiliate of a local chapter.
For many people, the most difficult part of earning a charter is fulfilling the educational requirements. The CFA program consists of three exams encompassing a "candidate body of knowledge" (CBOK) that the CFA Institute believes is necessary for those in the investment profession.
1:47 What Is A CFA?
The CFA Test Levels and Time
The test for level I is given in December and June, while the exams for levels II and III are given only once a year in June. Candidates must pass each level before moving on to the next.
Pass rates tend to hover around half. In 2018, pass rates were 43% for the June Level I exam, and 45% for the December Level I. Pass rates were also at 45% for Level II. Of those who took the Level III exam, 56% passed.
The investment of time is crucial. The CFA Institute estimates the average candidate should expect to spend at least 300 hours preparing for each level. In fact, the average candidate spends an average of 318 hours preparing for each exam (285 hours for level I; 325 hours for level II; 358 hours for level III).
The Requirements
Once you've considered the time required to pass the levels, you must next look at the professional requirements needed. Before a candidate can become a CFA, they must have accrued 48 months of acceptable work experience. Fortunately, the CFA Institute's definition of acceptable experience is fairly broad, encompassing such areas as trading, economics, and corporate finance.
For work experience to qualify, at least 50% of the time must be directly involved in the investment decision-making process or producing a product that impacts that process. However, there are a number of candidates who enter the program and are not in fields where anything they do can be construed to be within the realm of acceptable experience. Some of these candidates may find that while they are able to pass the educational requirements, they will not receive the designation because they do not have the required professional experience.
The CFA Institute
Finally, before candidates can receive their charters, they must join the CFA Institute. If you need help, the CFA Institute's website explains the process in detail.
The Pros
To help you decide whether to pursue the charter, let's take a look at how it might be beneficial to you and your career.
How Will the Charter Benefit You?
First, there is an educational benefit; you will learn a great deal and add a great credential to your CV. Then, there is a boost to your reputation. People in the business know the time and dedication it takes to earn the charter. When they see you have earned it, they will likely believe you have the ability, dedication, ethical grounding and analytical skills necessary to do the job in question.
There also may be financial benefits. You may see your salary increase after you've become a CFA or you may surpass other applicants who don't have this designation when competing for a new job. The operative word here is "may." Hard work, skill, luck, dedication, political savvy and character have just as much to do with one's success in the investment profession as education, so don't view the charter as your golden ticket to financial paradise.
How the Charter Benefit Your Career
There are a number of financial fields in which having the charter is a substantial plus. The obvious one is investment management. As the investment industry continues to become more competitive and more commoditized, it will become almost imperative for any credible investment manager to earn the charter.
Outside of investment management, there are a number of other professions in which charter holders will benefit considerably:
Buy-side trader or other buy-side professional positions Sell-side analyst, associate or other sell-side professional positions Business school professor Economist A financial advisor or financial planner
Beyond this list, there are a number of professions in which having the CFA Charter helps, but where it is not a career roadblock if the financial professional does not have it.
The Cons
The CFA charter is not a guaranteed path to riches and glory. Before taking the plunge, carefully consider several drawbacks to earning one.
The Time Needed to Complete It
Becoming a CFA is a huge investment in time - a minimum of 250 hours per year over three years. You will sacrifice time with family and friends and the pursuit of hobbies you enjoy. And after committing all that time, there is no guarantee that you will earn the charter.
The Cost of Enrollment and Registration
While this factor may not be a major consideration, it is worth pondering. A level I candidate will pay a one-time program enrollment fee plus an exam registration fee. Level II and III candidates will pay a registration fee as well. There is also the cost of the books and study programs you'll have to buy. Altogether, you should expect to spend several thousand dollars each time you attempt the exams.
The CFA Won't Fix Your Career
The CFA is not a panacea for an ailing career. If you're enrolling in the program to jump-start a stalling career, you may want to look at other reasons your career is not moving forward first. Perhaps before investing inordinate amounts of time and a substantial amount of money into building your pedigree, you might choose to improve your soft skills, such as work ethic and political suaveness.
Putting It All Together
A variation of the good old-fashioned cost-benefit analysis may be the best way to decide whether or not to undertake the program. On paper, plot out the costs versus the benefits of becoming a CFA. Your decision may change as your career changes. A lost promotion in five years may make earning the designation more worthwhile.
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c2d7be855a5296094870fbcdc6b0489c | https://www.investopedia.com/articles/professionaleducation/07/series6_tips.asp | 6 Proven Tips for Series 6 Success | 6 Proven Tips for Series 6 Success
The Series 6 is a tough exam, especially for those who find it is their first introduction to the world of securities. In this article, we'll give you six additional easy tips on how to approach the information and proven techniques for studying for and taking the test. Let's get started!
You Only Need 70% to Pass
Remember that 70% is the passing grade for the Series 6 exam. If a candidate focuses their preparation energies on the portions of the test that will have the greatest number of questions, the odds are much greater of a first-time pass.
The questions on the exam are randomly selected for subject matter to meet the percentages prescribed in the Financial Industry Regulatory Authority (FINRA) outline. There is no subject-matter pattern. The questions are, however, selected for each person by level of difficulty. The first questions are those that have been statistically shown to be less difficult and that most candidates got right. The questions then become more difficult until midway through the test, when the level of difficulty drops steadily until the final question. Illustrated graphically, this would be a classic "bell curve," with the smallest portion of the questions—the most difficult questions—at the top of the curve.
Read Questions Carefully
If a person gets all the easy and moderate questions right, they will pass. Read each question and all the answers thoroughly before making a decision. Don't rush to select the first answer that "looks" right. For example, consider the following question and answers:
Question 1: In 2013, what is the maximum allowable contribution for an individual into an Individual Retirement Account (IRA) per year?
A. $5,500B. $6,500C. $11,000D. 100% of earned income to a maximum of $5,500.Answer: D.Explanation: If a person answering the question didn't read all the answers, then they probably missed the question. In the year this article was written the limits were $5,500, but it will change from year to year so you should familiarize yourself with the most recent contribution limits. Choice B is wrong because the question doesn't provide an age. Only if the question had stipulated that the individual was over 50 would choice B have been correct. Do not read anything into the questions! Choice C is incorrect for similar reasons. There is no mention in the question of a spousal IRA. D is the correct answer, but a candidate who didn't read that far would have missed this question.
Focus Your Studying
While studying for the exam, approach material as if you had been given the task of writing a test question on each subject. Using this approach to study will focus your attention on the essential information and help to prepare you for the questions you'll confront.
Consider the following bit of information: Under the Investment Company Act of 1940, there are three classifications of investment companies: Face Amount Certificate Companies, Unit Investment Trusts and Management Investment Companies.
Notice that there are three classifications of investment companies, and recall that the Series 6 exam always has four choices for each question, but the structure of the question could be in the A, B, C, D format, or in the Roman Numeral (I, II, III, IV) format. Let's try a couple of questions.
Question 2: Under the Investment Company Act of 1940, which of the following are classifications of investment companies?
I. Face Amount Certificate CompaniesII. Insurance CompaniesIII. Unit Investment TrustsIV. Management Investment Companies
A. I, II, III and IVB. II, III and IVC. I, III and IVD. III and IV
Answer: C.Explanation: The answer is C, but the point of the exercise is to recognize how material such as this can be structured in a question. By the way, questions very much like this one, on this subject, have frequently been reported from the actual exam.
If we took the same information about the three classifications of investment companies and put it in another format, it could look like this:
Question 3: All of the following are classifications of investment companies under the Investment Company Act of 1940, except:
A. Face Amount Certificate CompaniesB. Insurance CompaniesC. Unit Investment TrustsD. Management Investment Companies
Answer: B.
A little practice with this study technique will pay great dividends.
Focus on Concepts, Not Formulas
Don't spend too much of your preparation time memorizing formulas. Most people who take the Series 6 report one to three questions requiring the use of a calculator, so there are certainly a few math questions in the test. (The testing center will loan you a calculator for use in the exam, along with pencils and scratch paper.) It is tempting for many students to spend a great amount of their energy and preparation time in memorizing formulas, but don't be one of them. Recognize concepts instead. Work through the essential formulas in your practice questions so that you'll understand the concept. Memorization should not be your primary study technique.
From interviews with those who have taken the exam, the following formulas are those most frequently reported as requiring the use of a calculator:
TEY=Municipal Yield(100% − Tax Bracket %)TFEY = Taxable Yield × (100% − Tax Bracket %)where:TEY=taxable equivalent yield\begin{aligned}&\text{TEY}=\frac{\text{Municipal Yield}}{(100\% \ - \ \text{Tax Bracket}\ \%)}\\&\text{TFEY}\ =\ \text{Taxable Yield }\ \times\ (100\%\ - \ \text{Tax Bracket }\%)\\&\textbf{where:}\\&\text{TEY}=\text{taxable equivalent yield}\\&\text{TFEY}=\text{tax-free equivalent yield}\end{aligned}TEY=(100% − Tax Bracket %)Municipal YieldTFEY = Taxable Yield × (100% − Tax Bracket %)where:TEY=taxable equivalent yield
Hint: Municipal bonds tend to be attractive to those in the higher tax brackets. One of the professions that is associated with higher tax brackets is the medical profession. To remember which formula to use, ask the doctor – the MD, that is. When the question provides the municipal yield: Divide (Municipal Divide). Obviously, if the question doesn't provide the municipal yield, one doesn't divide, one multiplies.
Sales Charge % for mutual funds = ($Ask − $NAV)$Ask$Ask price for mutual funds=$NAV(100%−Sales Charge %)Mutual funds: $NAV + $ Sales Charge = $AskCurrent yield for bonds = Annual Interest PaymentBond pricewhere:\begin{aligned}&\text{Sales Charge } \%\text{ for mutual funds}\ =\ \frac{(\$\text{Ask}\ - \ \$\text{NAV})}{\$\text{Ask}}\\\\&\$\text{Ask price for mutual funds}=\frac{\$\text{NAV}}{(100\%-\text{Sales Charge }\%)}\\\\&\text{Mutual funds: }\$\text{NAV}\ + \ \$\ \text{Sales Charge}\ = \ \$\text{Ask}\\\\&\text{Current yield for bonds}\ = \ \frac{\text{Annual Interest Payment}}{\text{Bond price}}\\&\textbf{where:}\\&\text{NAV}=\text{net asset value}\end{aligned}Sales Charge % for mutual funds = $Ask($Ask − $NAV)$Ask price for mutual funds=(100%−Sales Charge %)$NAVMutual funds: $NAV + $ Sales Charge = $AskCurrent yield for bonds = Bond priceAnnual Interest Paymentwhere:
Many people report that the questions regarding mutual fund pricing are "word" questions rather than math questions. An example of this is:
Question 4: A Registered Representative explains to a customer that the net asset value (NAV) of a mutual fund is $21.85/share and the ask price is $23/share, which means that the sales charge is 5%. The customer is confused and asks how this is computed. The RR should respond that:A. The sales charge is calculated as a percentage of the NAV.B. The sales charge is the reciprocal of the NAV.C. The sales charge is calculated as a percentage of the ask.D. The sales charge depends on the demand in the marketplace.Answer: CExplanation: Yes, the sales charge is calculated as a percentage of the ask price. But this also gives us an opportunity to illustrate another test-taking technique. When two of the answers for an A, B, C, D question are exactly opposite, you can generally eliminate the others. In this instance, we could have immediately eliminated choices B and D. Then, of course, one must recognize the formula.
Eliminate Wrong Answers
Use the "true or false" method in the process of elimination. When confronted by a Roman numeral (I, II, III, IV, etc.) question, your first step should be the process of elimination. Try each numbered response by asking "true or false?"
When you discover an answer that a response cannot be part of the right answer, look at the A, B, C, D choices. If the "wrong" answer is in one of the lettered choices, eliminate that choice. Often you'll find that you can eliminate two choices!
Then, compare the remaining choices to determine whether they are both correct. In most cases, they will be. Those who write the exam use the Roman numeral format when they want the candidate to find more than one choice. For example:
Question 5: Which of the following is included in computing the expense ratio for a mutual fund?I. Advertising and Sales Literature ExpensesII. Investment Advisor's FeesIII. Custodian's FeesIV. Transfer Agent Fees
A. I, II and IIIB. II, III and IVC. I, II and IVD. II and IV
Answer: B.Explanation: Advertising and sales literature are not included in the computation of a fund's expense ratio. These expenses are paid by the underwriter, which receives part of the sales charge.
Now, using the tip: If you just knew one item, that the underwriter pays for all distribution expenses, you'd have immediately eliminated choices A and C, because Roman I is in both of those choices. In this case, you'd also need to know that the other three items are definitely a part of a fund's expense ratio calculation, but you'd have only have had to say "false" to Roman I to eliminate two possible choices.
Guess When Necessary
In case of emergency, break glass! This tip is only for use if you encounter a question and are forced to guess. If the question is a Roman numeral question and all four responses seem to be correct, if all four choices are one of the available answers, choose that response. If the question is in the A, B, C, D format and the answer "all the above" appears, and you're forced to guess, pick "all the above." Interviews with people who've taken the test successfully indicate that these tactics work well when questions are on the subject of rules.
A few words on scheduling your test:
If you are taking a class, give yourself two or three days after the class before sitting for the exam. Use this time to do as many questions as possible.Don't schedule any other tests on the same day. Many people are required to take the Series 6 and the Series 63. Give yourself every opportunity to pass both of these. The study methods are very different. Take a couple of days after the Series 6 to sit for the Series 63.
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08503cd8bf39610889d698d11aa68f12 | https://www.investopedia.com/articles/professionaleducation/07/series7optionswstocks.asp | More Tips For Series 7 Options Questions | More Tips For Series 7 Options Questions
In Tips For Series 7 Options Questions, we discussed "pure" options strategies. Here, we will focus on the considerable number of questions on the Series 7 exam that test the candidates on strategies involving both options contracts and stock positions.
Key Takeaways Although options contracts questions in the Series 7 exam are numerous, their scope is limited, especially when used in combination with stock positions.The steps detailed in this article can be helpful in achieving passing scores.Practicing as many options questions as possible can dramatically increase the chances of exam success.
Solving "Mixed" Options Strategy Problems
The first strategy to use in solving these questions is deceptively simple: Read the questions carefully to determine the customer's primary objective:
If the question indicates that a customer needs to protect a stock position, then he or she must buy an options contract for protection.If the customer is combining options with stock positions to create income, he or she must sell an options contract to produce the income.
As with the majority of options questions on the Series 7 exam, the scope of the questions is limited to maximum gain, maximum loss, and breakeven level.
A tool that you should use each time you calculate any of these is the $OUT/$IN cross. Don't take a chance by trying to keep track of the money flow in your head. The Series 7 exam is quite stressful for most people, so just write it down.
A special note: In any strategy that combines stock with options, the stock position takes precedence. This is because options contracts expire - stocks do not.
Protecting Stock Positions: Hedging
Let's begin with hedging strategies. We will look at long hedges and short hedges. In each case, the name of the hedge indicates the underlying stock position. The options contract is a temporary form of insurance to protect the investor's stock position against adverse movements in the market.
Long Hedges = Long Stock and Long Put
A long stock position is bullish. If the market in a stock turns down, the investor with the long stock position loses. Remember: If an investor needs to protect a stock position with options the investor must buy the contract (like an insurance contract) and pay a premium. Puts go in-the-money (become exercisable) when the stock's market price falls below the strike price. The put is an insurance policy for the investor against a drop in the market.
Let's look at a few sample questions that illustrate one of the many approaches the exam may take to this subject. For these examples, we'll be changing only the multiple choice options that could be provided for the same question.
Example 1
A registered representative has a customer who bought 100 shares of XYZ stock at $30/share. The stock has appreciated to $40/share in the past eight months. The investor is confident that the stock is a good long-term investment with additional upside potential but is concerned about a near-term weakness in the overall market that could wipe out his unrealized gains. Which of the following strategies would probably be the best recommendation for this customer?
A. Sell calls on the stockB. Buy calls on the stockC. Sell puts on the stockD. Buy puts on the stock
Answer: D.Explanation: This is a basic strategy question. The customer wishes to fix, or set, his selling price for the stock. When he buys puts on the stock, the selling (or delivery) price for the stock is the strike price of the put until expiration. The long stock position is bullish, so to counter a downward movement, the investor purchases puts. Long puts are bearish.
Example 2
Now, using the same question, let\'s look at a different set of answers.
Buy XYZ 50 putsSell XYZ 40 callsBuy XYZ 40 putsSell XYZ 50 calls
Answer: C.Explanation: This set of answers goes a bit more deeply into the strategy. By purchasing puts with a strike (exercise) price of 40, the investor has set the delivery (selling) price of XYZ at 40 until the options expire. Why not buy the 50 put? When the market is at 40, a put with a strike price of 50 would be in the money by 10 points. Remember, puts with higher strike prices are more expensive. Essentially, the investor would be "buying his own money," if he purchased the 50 put in this case.
Let's try some others.
Example 3
An investor buys 100 shares of XYZ stock at $30/share and one XYZ 40 put @ 3 to hedge the position. Over eight months, the stock appreciates to $40/share. The investor is confident that the stock is a good long-term investment with additional upside potential, but is concerned about a near-term weakness in the overall market that could wipe out his unrealized gains. What is the maximum gain for this investor?
$7/share$4/share$3/shareUnlimited
Answer: D.Explanation: This is a bit of a trick question. Remember: The stock position takes precedence. A long stock position is bullish, and it profits when the market rises. There is theoretically no limit as to how high the market can rise.
Now let's take a different look at this question:
Example 4
An investor buys 100 shares of XYZ stock at $30/share and one XYZ 40 put @ 3 to hedge the position. The stock has appreciated to $40/share in the past eight months. The investor is confident that the stock is a good long-term investment with additional upside potential but is concerned about a near-term weakness in the overall market that could wipe out his unrealized gains. If XYZ stock drops to $27 and the investor exercises the put, what is the profit or loss on the hedged position?
Loss of $3/shareGain of $4/shareLoss of $7/shareGain of $7/share
Answer: D.Explanation: Track the money as shown in the graph below:
$ Out $ In Purchase Price - $30 Exercising the Put - $40 Put Premium - $3 - Total Out - $33 -
Net Gain/Loss - $7 Net Share Gain
Here's another common approach to this type of question:
Example 5
An investor buys 100 shares of XYZ stock at $30/share and one XYZ 40 put @ 3 to hedge the position. The stock has appreciated to $40/share in the past eight months. The investor is confident that the stock is a good long-term investment with additional upside potential, but is concerned about a near-term weakness in the overall market that could wipe out his unrealized gains. What is the investor\'s breakeven point for this position?
$40$37$33$47
Answer: C.Explanation: Look at the / cross in the previous question. The investor\'s original investment was $30, and then the investor bought the put for $3 ($30 + $3 = $33). To recover his original investment and the options premium, the stock must go to 33. By exercising the put, however, the investor showed a profit of $7/share or $700.
Now, let's look at the other side of the market.
Short Hedges = Short Stock and Long Call
We noted above that the stock position takes precedence. Remember: When an investor sells stock short, he or she expects the market in that stock to fall. If the stock rises, the investor theoretically has an unlimited loss. To insure themselves, investors may buy calls on the stock. The short stock position is bearish. The long call is bullish.
An investor who sells stock short is obligated to replace the stock. If the stock price rises, the investor loses. The investor buys a call to set (or fix) the purchase price. Until the options contract expires, the investor will pay no more than the call's strike price for the stock.
Example 6
Suppose that an investor has sold 100 shares of MNO stock short at $75/share and feels confident that the stock\'s price will fall in the market in the near future. To protect against a sudden rise in price, a registered representative would recommend which of the following?
Sell a MNO put.Buy a MNO put.Sell a MNO call.Buy a MNO call.
Answer: D.Explanation: This is a direct strategy question. The basic definition of a short hedge is short stock plus a long call. The investor must buy the insurance to protect the stock position.
Now let's try a different approach.
Example 7
An investor has sold 100 shares of FBN stock short at 62 and buys one FBN Jan 65 call @ 2. If FBN stock rises to 70 and the investor exercises the call, what is the gain or loss in this position?
$2/share$5/share$8/shareUnlimited
Answer: B.Explanation: Follow the money. The investor sold the stock short at $62, bought the call for $2, and then, when exercising the call, paid $65. The loss is $5/share.
$ Out $ In Call Premium - $2 Short Sale Proceeds - $62 Exercise Price - $65 Total in Account/Share - $60
Net Gain/Loss - $5 Net Loss
Recap: As you can see, the long and short hedges are mirror image strategies. Remember, the stock position takes precedence and the investor must pay a premium (buy a contract) to protect the stock position. If the question refers to protection, hedging is the strategy.
Creating Income with Stock Plus OptionsThe first, and most popular of these strategies is writing covered calls. (To read more, see Come One, Come All - Covered Calls.)
Covered Call = Long Stock Plus Short Call
Writing (selling) covered calls is the most conservative of options strategies. Recall that when an investor sells a call, he or she is obligated to deliver the stock at the strike price until the contract expires. If the investor owns the underlying stock, then he or she is "covered" and can deliver if exercised.
The Series 7 exam may give you a hint by using the word, "income", as in Example 8, below.
Example 8
An investor owns 100 shares of PGS. The stock has been paying regular dividends but has shown very little growth potential. If the investor is interested in creating income while reducing risk, the registered representative should recommend which of the following strategies?
Buy a call on PGS.Buy a put on PGS.Sell a call on PGS.Sell a put on PGS.
Answer: C.Explanation: This is a "classic" covered call situation. The call premium received creates the income and, at the same time, reduces downside risk.
Let's add some numbers to the situation and ask some additional questions:
Example 9
The investor is long 100 shares PGS at $51 and writes one PGS May 55 call @ 2. What is the investor\'s maximum gain from this strategy?
$2/share$3/share$5/share$6/share
Answer: D.Explanation: Again, follow the money. See the / cross below:
$ Out $ In Stock Price - $51 Call Premium - $2 - Exercise Proceeds - $55
Maximum Gain - $6
Example 10Take the same situation as in Example 9 and ask the question: What is the investor\'s breakeven point?
$55$53$49$45
Answer: C.Explanation: The investor owned the stock at $51. When the investor sold the call at $2, the breakeven point was lowered to $49 because that is now the amount that the investor has at risk. $49 is also the maximum loss in this position.
A covered call increases income and reduces risk. Those are the two objectives of this conservative strategy. The strategy works best in a relatively flat to slightly bullish market. Investors must be made aware that:
There is a limited gain.The stock may be called away.
Short Stock Plus Short PutAnother, and much riskier, strategy involves writing a put when the investor has a short position in the same stock. This position is a very bearish strategy. Remember, the stock position takes precedence.
Example 11
An investor sells 100 shares MPS short at 70 and simultaneously writes one MPS 70 put @ 3. What is the maximum gain in this strategy?
$73/share$70/share$67/share$3/share
Answer: DExplanation: The investor sold the stock at $70 and the put at $3. The investor now has $73/share in the account. If the market falls below $70, the put will be exercised and the stock will be delivered to the investor, who will pay the strike price of $70 for the stock and use the stock to replace the borrowed shares. The gain is $3/share.Follow the money as in the / cross below:
$ Out $ In Stock Price on Exercise of Put - $70 Short Sale Proceeds - $70 Put Premium - $3 -
Net Gain/Loss - $3 Gain
Example 12
Another question regarding this scenario: What is the maximum loss?
Unlimited$3/share$70/share$63/share
Answer: AExplanation: The investor who holds a short stock position loses when the market begins to rise. This investor will break even when the market goes to $73, because that is the amount in the account. Above $73/share, the investor has losses, which have the potential to be unlimited.
On the Series 7 exam, there are relatively few questions on this strategy. Recognize, however, the maximum gain, maximum loss, and breakeven - just in case.
The Bottom Line
Options with stock positions have two basic objectives:
1. Protection of the stock position through hedging2. Creating income by selling an option against the stock position.
The strategies outlined here may be either highly risky or very conservative. In the Series 7 exam, the candidate must first recognize which strategy recommendation is required and then follow the money to find the correct answer.
For everything you need to know for the Series 7 exam, see our Free Series 7 Online Study Guide.
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6d6781fb76e1faec7da90e639087d63b | https://www.investopedia.com/articles/professionaleducation/07/series_6.asp | Tips For Passing The Series 6 Exam | Tips For Passing The Series 6 Exam
As you begin your study and preparation for the Series 6, be aware of two things:
What securities a Series 6 qualifies a candidate to sell The relative importance of the topics that make up the exam.
Who needs the Series 6?The Financial Industry Regulatory Authority (Formerly NASD's) Study Guide for the current Series 6 exam states that:
"The Investment Company/Variable Contracts Products Limited Representative Qualification Examination (Series 6) is used to qualify persons seeking registration with the NASD under Article II, Section 2 of the NASD By-Laws and applicable NASD Membership, Registration and Qualification Rules. Registered Representatives (RRs) in this limited category of registration are permitted to transact a member's business in redeemable securities of companies registered pursuant to the Investment Company Act of 1940, securities of closed-end companies registered pursuant to the Investment Company Act of 1940 during the period of original distribution only, and variable contracts and insurance premium funding programs and other contracts issued by an insurance company ..."
Simply put, a person who wishes to become a registered representative (RR) and sell mutual funds, unit investment trusts (UITs), variable annuities or variable life insurance must pass the Series 6 exam. A Series 6 RR cannot sell closed-end funds except at their IPO (a prospectus offering). (For more insight, read Is A Career In Financial Planning In Your Future?)
The Series 6 ExamThe Series 6 exam underwent a major revision that became effective November 30, 2005. However, the changes to the examination are not primarily in subject matter; they are more structural. One, the number of questions allocated to various topics has changed. The exam is now more heavily oriented toward RR interactions with customers. Two, the exam is now divided into six topical sections rather than four. The exam must still be completed within 135 minutes and still contains 100 questions. The passing score of 70% also remains unchanged.
Within the 100 exam questions, candidates are also given five "experimental" or "pilot" questions, which are not identified and will not count toward the candidate's score.
Scratch paper, pencils and calculators are loaned to candidates at the testing center.
Exam TopicsThe Series 6 exam will be broken up into the following questions:
1. Securities Markets, Investment Securities and Economic Factors - 8 Questions2. Securities and Tax Regulations - 23 Questions3. Marketing, Prospecting and Sales Presentations - 18 Questions4. Evaluation of Customers - 13 Questions5. Product Information: Investment Company Securities and Variable Contracts - 26 Questions6. Opening and Servicing Customer Accounts - 12 Questions
As you can see, Sections 3, 4 and 6 are directly related to the interaction between the RR and the customer. These three sections comprise 43% of the exam.
Note that the topics in Section 1 are now only 8% (compared to the previous 23%) of the exam.
What does this mean for Series 6 exam candidates? Focus your attention on the topic areas that count the most. Remember, you need to achieve an overall score of 70% to pass.
Exam Time ManagementBecause there are 100 questions on the exam and 135 minutes to complete them, candidates have 1.35 minutes to complete each question. Therefore, candidates should carefully budget their time. (There are techniques that can help you pass the test without the stress. Find out what they are in 6 Proven Tips For Series 6 Success.)
Flag the Hard QuestionsSeries 6 candidates will normally encounter several questions on the exam that are long and wordy. These are situation-type questions and can take quite a bit of time to work through and answer. Although it is easy to get wrapped up in these questions, you should remember that the simple questions count just as much as those that are long and complex. A good strategy, therefore, might be to flag a question - the computer program at your testing center will allow you to do this - that will take more time. That way, you can go back and work on answering it after you've finished the test. Choose the questions that you flag carefully: you won't want to do it for 30 questions in a row!
Follow the Bell CurveThose who have recently taken the exam report that the structure of the questions is a "bell curve." That is, the first question and the last question on the exam are quite simple. The level of difficulty increases until one is past the midway point, then drops off steadily until the end. Be aware that this is likely to be your experience and don't let the increasingly complex questions frustrate you. Press on. Easier questions will be on the way.
Don't Second Guess YourselfThe majority of those who take the Series 6 report that they had time remaining after answering all the questions. If this also happens to you, finish the exam, wait for the congratulatory message, smile and go on about your life! Don't go back and change answers! Statistically, when you change answers, you're wrong most of the time. If you must guess, your first guess is usually the best.
Sharpen Your SkillsTo help increase your speed in answering questions, do many practice questions. As you do the questions, keep track of your progress by noting your weakest topics If you are not performing well - especially in those areas that have as significant number of questions - you'll need to review the subject matter more closely.
Exam Day: The ToolsWhen you go to the testing center, be sure to arrive early. After you've signed in and put your personal effects in a locker, you'll be given scratch paper, pencils and a calculator to use during the exam.
You will normally only need to use the calculator two or three times during the whole session. The current test is much less a mathematical exercise than it was several years ago. You must, however, be aware of the basic formulas for mutual funds. The database has a number of questions that require a candidate to recognize the formulas, although you won't have to use them to do computations.
The scratch paper is another matter. Before you start the exam, make all the notes you need on the scratch paper. One of the most useful tools is the teeter-totter illustrating the yields on discount and premium bonds. You may be able to use these to simplify answering several questions. Anything else that you want to use as you take the exam should be on your scratch paper before you start the exam.
Exam-Taking Hints
Read each question all the way through and look at all the answers. Then go back to the question before attempting an answer. Did you see the word "not" or "except"? Can you spot repeated key words in the question and a specific answer? After you've followed the process, look at the answers. Eliminate the incorrect answers as quickly as possible. If two of the answers are exactly opposite the odds are very high that one of those is correct. If you are confronted with a question - particularly about rules - and can't decide between the final two selections, carefully consider the longer answer. The question writer will normally include everything in the correct answer. However, you should only use this technique when you have to guess Don't rush. In your haste, you might miss an easier question by failing to read carefully. Some of the questions are tricky, but don't get too caught up with any one of these; easy questions count just as much as the longer, more difficult ones.
ConclusionIf you follow the advice we've outlined here, you will be well on your way to passing your upcoming exam. To ensure you are at your best, go to bed early the night before the exam and do not try cram in study time immediately before your test. Relax as much as possible and go into the exam confident that you'll pass the first time. Remember: 70% is a passing score - an 'A'. 71% is an 'A+'!
To learn about preparing for other financial exams, check out the Professional Education Archive.
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33ebd4033e3a026018d7e9291461710f | https://www.investopedia.com/articles/professionaleducation/07/series_7_municipal.asp | Municipal Bond Tips for the Series 7 Exam | Municipal Bond Tips for the Series 7 Exam
Series 7 Municipal Bond Exam Overview
Municipal bond topics typically comprise approximately 15 to 25 questions on the Series 7 exam, also known as the General Securities Representative Exam (GSRE), which is the test all stockbrokers must pass, to trade securities.
Municipal bonds fall under the following two broad categories:
General obligation (GO) bonds, which are backed by the credit and taxing power of the jurisdiction that issues them Revenue bonds, which finance income-producing projects and are secured by a specified revenue source
Testers who can clearly differentiate between these bonds stand a greater chance of correctly answering muni bonds questions. This article sheds light on both bond types.
Key Takeaways General obligation (GO) bonds are backed by the credit and taxing power of the jurisdiction that issues them. Revenue bonds finance income-producing projects and are secured by a specified revenue source. Trust indentures, which are legally binding contracts between bond issuers and trustees that represent bondholder interests, are present with revenue bonds, but not with GO bonds.
Revenue vs. General Obligation Bonds
When working on practice questions, a comparison chart can greatly help distinguish GO bonds from revenue bonds.
Characteristics General Obligation Bond Revenue Bond Issued by: States and political subdivisions below the state level, including taxing districts States and political subdivisions below the state level, but including commissions, authorities, agencies, etc. Backed by: Full faith and credit of issuer, or the taxing power of the issuer. Below state level, this primarily means ad valorem (property) taxes Actual revenues generated by user fees from the project/facility Voter Approval: Required (e.g., by a bond referendum) Voter approval not required Special Types: Double-barreled bonds: These have a direct funding source and the ultimate backing of the issuer's taxing power if necessary. Industrial development revenue bonds (IDRBs): These are backed by corporate lease payments , or corporate credit. Special tax bonds—backed by special taxes (tobacco, gasoline, hotel/motel) for a specific project or purpose—not by ad valorem taxes. Special assessment bonds: Backed by assessments made to benefited properties (e.g., sewer and sidewalk bonds). Moral obligation bonds: backed by state legislature's assurance that, in case of a shortfall in revenues, the necessary funds will then be appropriated. Public housing authority (PHA)/ new housing authority (NHA) bonds: Backed by rental/lease revenues from low-income public housing, but guaranteed by the full faith and credit of the U.S. government. Note: PHA/NHA bonds are not double-barreled bonds.
Municipal Notes
Municipal debt instruments that are not classified as bonds, due to their short maturities are called "municipal notes.” These short-term cash-flow instruments come in the following variations:
Tax Anticipation Notes (TAN): Issued to smooth out a city's cash flow between tax collection periods. Revenue Anticipation Notes (RAN): Similar to TANs. Bond Anticipation Notes (BAN): Issued to raise funds when a bond has been issued, but money has not yet been received. The proceeds of the bond issue will pay off the BAN. Tax and Revenue Anticipation Notes (TRAN)
Moody's Investment Grade (MIG) rating system rates bond notes. And although actual ratings have never surfaced on the Series 7 exam, MIG itself has reportedly been referenced on certain questions.
Trust Indentures and Revenue Bonds
Trust indentures, which are legally binding contracts between bond issuers and trustees that represent bondholder interests, are present with revenue bonds, but not with GO bonds. Trust indentures are essentially a set of terms that both parties must adhere to, that may also indicate where the bond’s income source derives from.
Because municipal bonds are exempt from federal regulations, trust indentures go a long way in protecting bondholders, and are hence sometimes referred to as “protective covenants.”
PTD = AV × Millage Rate where: PTD = Property taxes due AV = Estimated Market ( Sale ) × Assessment Rate ( % ) AV = Assessed value Millage Rate = $ 0 . 0 0 1 or 1 / 1 0 th of a cent \begin{aligned} &\text{PTD}=\text{AV}\times\text{Millage Rate}\\ &\textbf{where:}\\ &\text{PTD = Property taxes due}\\ &\text{AV}=\text{Estimated Market}\left(\text{Sale}\right)\times\text{Assessment Rate}\left(\%\right)\\ &\text{AV = Assessed value}\\ &\text{Millage Rate}=\$0.001\text{ or }1/10\text{th of a cent}\\ \end{aligned} PTD=AV×Millage Ratewhere:PTD = Property taxes dueAV=Estimated Market(Sale)×Assessment Rate(%)AV = Assessed valueMillage Rate=$0.001 or 1/10th of a cent
Revenue Bond Covenants
Rate Covenant The issuer assures bondholders that user fees will be raised, as necessary, to assure coverage of debt service and expenses. Non-Discrimination Covenant All users of the facility must pay the same fees. Additional Bonds Two types of covenant: Closed-end: The issuer may not issue additional bonds with equal claim to assets unless funds are required to complete construction of the facility. Open-end: The issuer may sell additional bonds with equal claim to assets if permitted under the provisions of the additional bonds test described in the indenture. Flow of Funds The priority of payments under the indenture—what obligation is paid first and second—is described in one of two types of pledges: Gross revenue pledge: Debt service is paid first from the gross revenues, operations and maintenance expenses are paid second. Net revenue pledge: Debt service is paid second from the net revenues. Operations and maintenance expenses take priority. Hint: These pledges refer to when debt service is paid. If first: from the gross revenues. If second: from the net revenues. This distinction is a common exam question. Insurance Covenant The trust indenture specifies the property/ casualty insurance coverage for the facility for repairs or to make a total call on the bonds in case of catastrophic damage. Call Provisions This section of the indenture specifies when, at what price, and by which method (in-whole or in part) calls may be made. Put Provisions This section describes the put provisions (if any) on the bond. It specifies the put period and put price at which the bonds may be sold back to the issuer.
GO and revenue bonds demand unique analytical approaches, due to their different funding sources. Recall that GO bonds are backed by the taxing power of the issuer. Pointedly: the money essentially comes from property taxes called “ad valorem” taxes, where the amount is based on the value of a transaction or of property.
Series 7 candidates most likely will not ever be required to compute property taxes, however, they may be required to know the following basic property tax computation formula:
EV * AR(%) = AV * MR (1 Mill) = TD where: EV = Estimated market (sale) value AR(%) = Assessment rate MR = Millage rate 1 Mill = $0.001 or 1/10th of a cent TD = Taxes due \begin{aligned} &\text{EV * AR(\%) = AV * MR (1 Mill) = TD}\\ &\textbf{where:}\\ &\text{EV = Estimated market (sale) value}\\ &\text{AR(\%) = Assessment rate}\\ &\text{MR = Millage rate}\\ &\text{1 Mill = \$0.001 or 1/10th of a cent}\\ &\text{TD = Taxes due}\\ \end{aligned} EV * AR(%) = AV * MR (1 Mill) = TDwhere:EV = Estimated market (sale) valueAR(%) = Assessment rateMR = Millage rate1 Mill = $0.001 or 1/10th of a centTD = Taxes due
The Major Factors of Muni Bonds
General Obligation Revenue Major Factors and Tools
Community attitude toward public debt and taxes (recall voter approval is required) Population base—growing or declining? Unemployment rate Economic diversity—is it a one-industry city? Tax base The assessed value of the property (recall ad valorem taxes) Municipal debt statement—a major tool for analyzing GO bonds—the basic outline Estimated sale (market) value of taxable property The assessed value of taxable property Direct debt (i.e., debt that is specifically the liability of the city) Debt limits (ceiling) Demographics and economic health
Plus:
Overlapping (coterminous) debt—shared by more than one jurisdiction (e.g., city and county)
Minus:
Self-supporting debt (double-barreled bonds)
Equals:
Net overall debt
Economic justification:
Is it reasonable to expect that a proposed facility can pay for itself?
Feasibility study:
This study, which explores costs and potential revenues from a proposed facility, typically contains a competitive facilities section, which assesses the impact of competing businesses that sell similar goods or services, on a project’s potential long-term revenues.
Debt coverage ratio:
How many times do the current/expected revenues cover the bond's debt service requirements?
Bringing New Bonds to Market
The processes of bringing new bonds to market widely differ, between GO bonds and revenue bonds. For revenue bonds, the principal underwriter is chosen by the issuer of the bonds, while GO bond underwriting contracts are awarded by a competitive sealed bid sale.
Prior to issuing any municipal bond, issuers commission attorneys known as “bond counsels” to render legal opinions. Tax lawyers are frequently tapped for the gig because tax implications are such a looming concern to most bond investors.
The legal opinion will include the following:
The authority to borrow, demonstrating the legality for this entity to borrow money via municipal bonds under state and federal laws. 1933 Act exemption, which states that municipal issuers are exempt from filing registration statements with the SEC. Tax exemption, which states that the interest from municipal bonds is normally exempt from federal taxation. The legal opinion cites the appropriate laws that support this position.
A copy of the legal opinion, which must accompany delivery of all municipal bonds, come in one of the following two types:
Unqualified opinion: The bond counsel has no reservations about the issuer's authority to borrow, the nature of the bond, and the tax exemption. This is usually called an “approving” opinion of counsel. Qualified opinion: The bond counsel expresses concerns about some or many aspects of the bond.
Another chief distinguishing factor between the two bond types is that GO bonds are subject to voter approval, which is not the case with revenue bonds.
The following chart refers to GO bonds, which are of greater import to the Series 7exam.
Underwriting GO Bonds
Notification of Potential Bidders The issuer publishes an ad in the Bond Buyer (the principal source of information in the municipal bond primary market). The ad is known as a notice of sale . Elements of the notice of sale include: Amount and type of bonds to be sold and their purpose. Interest payment dates, including the dated date from which the bonds begin accruing interest. Identification of the bond counsel (law firm) that prepared the legal opinion. The invitation to bid, which gives the specifics of exact location and time for bids to be delivered. The good faith deposit, which specifies the amount of a check (which will be credited toward the purchase of bonds for the winning bidder), which are returned to unsuccessful bidders after the bid is awarded. A maturity schedule—in the case of GO bonds, maturities are normally serial, while maturity for a revenue bond is usually term. Award of Underwriting Contract Potential underwriters obtain a copy of the official bid form from the issuer or through the Bond Buyer. The firm then writes a scale that shows the coupon rate and yield to maturity of each maturity date. The underwriting contract is awarded to the municipal dealer that submitted the lowest net interest cost (NIC). Many issuers also require that the bidders also provide the true interest cost (TIC). This calculation takes the time value of money into account. Once a municipal dealer has won the bidding, it is now at risk for the sale of the bonds. This is the reason that dealers routinely form underwriting syndicates—to share the risks with other dealers. Syndicate Formation An underwriting syndicate is formed by a document known as a syndicate letter or an agreement among underwriters. Types of Syndicates Divided: Also known as Western—once the syndicate member has sold the bonds for which it accepted a liability, there is no further liability for any unsold bonds. Undivided: Also known as Eastern—these are often called joint accounts in which the member firm has a continuing liability for unsold bonds at the same percentage rate as the firm's original commitment . Be certain to know the difference in the types of syndicates. This is a common exam concept.
Orders for the Purchase of Munis
Orders for the purchase of municipal bonds are filled in a priority sequence specified in the syndicate's priority allocation provisions, which are specified in the underwriting agreement and are provided to all syndicate members. These often popular municipal issues may be oversubscribed, meaning there are more orders for bonds than there are bonds themselves.
The order period in which the syndicate solicits and accepts orders for bonds is established by the syndicate manager, and orders are filled according to the following sequence, regardless of the time sequence in which they were received.
Pre-sale: These orders are entered before the syndicate wins the bid. Customers are willing to commit to buying bonds without specific information on the exact price/yield. Group net: The proceeds of sales from these orders are placed in the syndicate bank account and distributed to members of the syndicate according to their participation upon completion of the underwriting. Designated: These orders specify which member of the syndicate is to receive credit for the order. Note that they are filled after the group orders. Member: The last to be filled in the priority sequence, these orders are placed by members of the syndicate looking to buy bonds for their own proprietary inventory.
The Series 7 exam frequently asks about this priority sequence, and so it’s worth learning the mnemonic: Pro Golfers Don't Miss (PGDM), which helps testers remember: pre-sale, group net, designated, and member orders.
The syndicate buys the bonds from the issuer and sells (re-offers) the bonds to the public at a markup, known as the "underwriting spread." The typical allocation of the spread is shown in the following example of a 1-point ($10) spread:
Image by Julie Bang © Investopedia 2020
The total takedown earned by syndicate members for their own sales is the selling concession plus the additional takedown. In this example, the total takedown is $9 per bond.
When the bonds are delivered to buyers and a settlement is made, the buyer receives a final confirmation and a copy of the official statement, if it has been completed. If the final official statement is not ready, the buyer will receive a copy of the preliminary official statement, which is subject to amendment.
The official statement and the preliminary official statement are disclosure documents about a municipal offering. They serve similar purposes as the prospectus and preliminary prospectus for corporate offerings. The language differs because municipal issuers are not required to follow the Act of 1933 or other federal laws relating to the issuance of securities.
If the bonds themselves are not ready for delivery, the customer will receive a temporary confirmation known as a "when issued" confirm. This document does not show the following:
Settlement date, because that has yet to be determined Accrued interest, because the exact settlement has not been determined The total dollar amount, because the accrued interest must be added to the purchase price to produce the total dollar amount
The Bottom Line
Municipal bond questions sometimes make up to 20% of the 135 question items found on the Series 7 exam. Mastering these questions is key to achieving a passing score and achieving Series 7 glory.
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0b1831a923427bbbf55f43a7418672a0 | https://www.investopedia.com/articles/professionaleducation/08/alternatives-business-school.asp | MBA Alternatives to Business School | MBA Alternatives to Business School
Obtaining a master of business administration (MBA) is often assumed to be a career-enhancing option for young professionals to learn more about the different functions of an organization (such as marketing, strategy, operations, accounting, finance, and management). For professionals who majored in the liberal arts or engineering, an MBA can enhance exposure to the multiple facets of business as well as provide career flexibility.
However, graduate business programs can cost from $30,000 to more than $150,000, depending on the institution, scholarships, and grants available and length of the program. In addition, while there are part-time MBA programs that allow professionals to continue their employment as they pursue their studies in business. Most MBA programs require you to trade the office for the classroom for two years. The costs, in both time and money, mean that some individuals might be better off considering alternatives to business school.
Why Go Back to School?
Obviously, each individual's motivations, experiences and personal and career objectives are different. The dollars and time expended to obtain an MBA, however, have opportunity costs for all prospective applicants. When you ask someone why they might be interested in getting an MBA, you will get a range of responses, including a combination of:
An MBA is an objective way to show one's abilities and justify employers' trust and increased responsibilities.It creates the opportunity for increased compensation and greater chances of promotion.An MBA offers increased career flexibility or the chance to land a better job.Business school provides networking opportunities.It might please parents or relatives.School is a safe place to figure out one's next step.Unaware of any alternatives to business school as a way to get ahead.
For those who enjoy corporate life and envision future success in it, there are reasonable alternatives to getting an MBA.
Alternatives to an MBA
When it comes to finding alternatives to obtaining an advanced business degree, ask yourself these basic questions:
What is your dream organization or company looking for?What skill sets are critical to succeeding in the organization?Is spending time and money on business school the only way to acquire these skills?What work experiences, training, and exposure can help you develop these skills?
Companies look for employees who add value to the organization—that is, employees who have the drive to work quickly and accurately, provide unique insights and who can manage and lead teams aligned with organizational goals. Let's look at a few development opportunities that can help you acquire these coveted skills without returning to full-time studies.
Leadership Development Programs
Larger companies often have management or leadership development programs tailored toward young professionals that display high potential. These programs can be in specific functions, such as engineering, finance, and accounting or can be general programs for future senior managers of the organization. Professionals are often rotated around various jobs and responsibilities every six months or so in order to provide exposure to different aspects of the business.
For instance, a new financial analyst entering the program can be placed for a few months in departments such as audit, treasury, mergers, and acquisitions, financial planning or investor relations. Having gone through such exposure can make the analyst a candidate for manager, controller, or CFO down the road.
Professionals who undergo these types of programs will have gained hands-on, paid experience in different aspects of the company as opposed to merely a theoretical approach to the function they would get in business school.
Change Your Work to a Different Function
A professional can dive right in and gain experience in a certain field. An accountant who wants to transition into marketing can network and look for opportunities in the marketing department of his or her company or join a marketing services firm. Yes, this can work.
Attitude and a successful track record are often the deciding factors in whether an applicant is selected for the job. An accountant with a solid history of success and strong references can be favored for such a position—if they properly communicate the reasons for the employment change. This can give an advantage over a former accountant with an MBA who has taken a few marketing classes.
Two years' worth of experience in a certain function can be highly valuable, as one learns the intricacies and critical success factors in that field. A classroom does not provide the level of insight or the industry relationships you will need to succeed in the field.
Certifications
Moving up to management requires leading and managing teams and ensuring organizational goals are achieved. Managerial responsibilities also include financial planning and the handling of budgets and forecasts. Depending on which part of the organization you would like to transition to, you can prepare for a variety of designations to prepare yourself for added responsibilities and skillsets. There are certifications that are related to finance and accounting, including:
Chartered Financial Analyst (CFA)Certified Public Accountant (CPA)Certified Management Accountant (CMA)Certified Merger & Acquisition Advisor (CM&AA)
Other certifications that are more consulting-related include Six Sigma Black Belt (for process optimization), Project Management Professional, and Certified Information Systems Analyst, among others. There are a wide variety of certifications out there in virtually any field of business.
Obtaining these allows you to remain employed, and successfully passing all the requirements and exams will show others your competence in the specific field of interest. An MBA, on the other hand, may be too general to convey particular expertise in an area.
Besides, there are companies out there that will gladly pay for you to obtain these certifications. Imagine that: They'll pay for you to become stronger in your field—for you to earn a higher income and future promotions. Now there's a good deal.
Training for Professionals
Universities offer a variety of development programs for managers and executives that allow professionals to undertake training courses on-site during evenings and weekends. Some companies pay for such training if it directly tied to one's job.
An MBA forces you to cover a variety of required topics, whether you want to or not. Executive programs and extension classes, on the other hand, allow you to target areas in which you would like to improve, allowing you to tailor learning according to your needs. These programs are typically structured so that participants must fulfill course requirements and can cover a wide variety of business topics, including:
Negotiation skillsLeadershipPublic speakingStrategyMarketing
Alternatively, there are various for-profit training centers that allow you to hone certain skills. For instance, finance professionals can undergo training in valuation or in accounting. You can remain employed while enhancing your skills, and some companies provide reimbursement upon satisfactory completion of requirements.
Other Development Paths
Sometimes you will find the most help in unusual places. From books on tape to attending seminars, each of these alternatives to business school will provide you an understanding and background in many various business practices.
Executive Mentors
Industry veterans provide invaluable insights and wisdom in your chosen field. If you are lucky enough to secure time from executives that you look up to, seize the opportunity and soak up their advice. Such experienced feedback can save you lots of time, money and energy in helping you get to where you want to go.
Seminars and Conferences
Industry associations, clubs, community organizations, alumni associations, and company-based groups often hold seminars and conferences to keep their members abreast of the latest trends and benchmark practices. Again, depending on your organization and manager's priorities and level of support, these types of seminars, workshops and training sessions can be paid for by your company.
Independent Study
If you spend a total of 10 hours per week driving on the road, that equates to more than 500 hours per year. If you simply listen to audio programs in your car, that initiative alone can make you very knowledgeable in a certain field.
(See also: Pass Your CFA Exams the First Time.)
The Bottom Line
Abraham Lincoln passed the bar studying borrowed law books. Universities do not possess a monopoly on information, especially not in today's "marketplace of ideas." We live in an age of efficient search engines and competition among various for-profit knowledge providers.
An MBA is a great professional tool if you know exactly what to do with it, but don't enroll in an MBA program just to procrastinate. Be proactive and study practical alternative development programs in your field. You might simply just have to dive in. With so many viable alternative options available, incurring school debt by getting an MBA is acceptable only if you have truly compelling reasons.
(See also: Ace Your Business School Courses.)
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95fb48dc533ff2780decb5bcda8afe27 | https://www.investopedia.com/articles/professionaleducation/08/prepare-cfa-exams.asp | Prepare for Your CFA Exams | Prepare for Your CFA Exams
Passing any of the CFA Institute's exams, a requirement to become a Chartered Financial Analyst (CFA), is a very difficult and stressful process.
A CFA exam is not only a test of one's intellect, but also their endurance, diligence, creativity, and will. It is designed in such a way as to demonstrate one's commitment to becoming a CFA charterholder. Like many standardized exams, such as the SAT or GMAT, learning to take the exam is as important as knowing the material.
Overview
All of the three exams within the CFA program are designed as a self-study curriculum, but whether you decide to do it alone or with the aid of a tutor or study course, there are certain things that you must consider to effectively prepare for taking the exams.
The first thing that you must understand is that the commitment to the program is a long and extreme one. Each of the exams is given at least once a year: once in June for all three levels, and additionally in December for Level I. Because of this, the program can conceivably be completed in as little as 18 months, but statistically, doing that is very remote.
The 10-year average pass rate between 2007 and 2017 was 43% across all levels (Level I, Level II, Level III), with the lowest pass rate on Level I. But don't be discouraged! The key is to prepare yourself mentally and strategically to gain that small but necessary edge over the other program candidates.
According to the CFA Institute, the following is what a CFA candidate can expect:
An average of four years to complete the programSix months of preparation for each exam250 hours minimum of study time = 10 to hours per week (although candidates report studying 322 hours on average)
Making a sincere and internalized commitment to completing the program is a prerequisite for success. The program is so intense and requires so much of one's time and energy that for many, trying to complete the program due to some person or institution's requirements will not provide the motivation necessary to realize the end goal.
1:16 Tips for Taking the CFA Exam: Part 2
Develop a Study Strategy
In addition to specific study skills that must be developed to pass the exams, you must develop a specific exam strategy that provides for time management, skill assessment and taking multiple previous and sample exams.
Time management relates to the time necessary for study, and also for taking the exam. For example, a three-hour exam with 120 possible points means one for each minute and a half. At the one hour mark, you should be on question 40; any extra time used means less time for other questions. But the exam begins with ethics questions (more reading required) so maybe you shouldn't panic if you are at question 45. This understanding will only come with hundreds of practice questions.
Skill assessment relates to determining which sections are your strongest and which are your weakest. The importance of determining this is so that you can allocate more time to studying those sections where you are weaker and spend less time on sections where you have the best probability of passing. On multiple-choice sections of the exam, you must learn which questions to skip and return to later if time is available. You must be sure to answer questions that you understand instead of wasting time on questions that you do not feel comfortable with.
In addition to fostering greater confidence when taking the actual exam, taking exams periodically helps determine sections that require additional study, makes explicit your ability to manage time, and gives you a better sense of how to take the exam beyond just answering the questions. It is a wise idea to take as many timed sample exams (corrected for a score) periodically throughout the study period.
Consider, but Don't Rely on, Self Study
Although many have passed the CFA exams by studying alone, it is undoubtedly the most difficult approach. The volume of information the candidate is required to digest is so large that it can be overwhelming. This strategy allows the candidate the greatest amount of freedom in managing time and resources; however, those who aren't diligent about studying continuously for the six or so months before the exam run the risk of leaving too much material to be learned in a relatively short period of time.
There is an abundance of study materials provided by the CFA Institute and third-party vendors on a variety of subjects, including how to approach the exam. However, by using this strategy, the candidate is responsible for making their own interpretation of the quality of the information and the best way to use it.
Take a Study Course
There are many study-course options available, from weekly classroom programs to short-term immersion courses. Many local CFA societies run exam prep courses, and there is an abundance of third-party vendors providing similar services. The advantage of taking a course in preparation for the exams is that it forces the candidate to focus on some section of the exam on a regular basis. Many of the courses offered will also require students to take timed sample exams and then help students determine where their weaknesses lie. Study groups within these classroom settings also help to distribute study responsibilities, allowing students to use available resources efficiently.
The key to getting the most out of a study course is to do some research before deciding on a particular service vendor. The strength of the local society courses is that they are usually taught by multiple CFA charterholders teaching a subject that they are experts in. Their weakness is that although the teachers know the material, the quality of teaching skill can be inconsistent. As for outside vendors, any institution worth their salt will make data such as student pass rates, their ability to forecast the questions that will be given on a particular exam, and any other information that they feel makes them superior to their competition available to the public.
The most successful of these groups require their teachers to take the newest exams after they have been published so that they are always on top of new trends and the evolution of the test design. These teachers are an invaluable source of information on how to take the exams, what information the exam preparers may be concentrating on, and types of information that have a high probability of recurrence. In addition to keeping students on track, and teaching them the information necessary to answer test questions, it is this additional information about the exam design and how to take the exam that allows certain students to break out of the pack.
If you've gathered information from a few different courses, compare how much time they each spend on the course topics provided. You can choose the course which best covers the topics you know least with the most amount of time. Below is a list of the different topics and the approximate percentages devoted to them in the CFA program's three exams:
CFA Exam Topic Area Weights
Topic Area Level I Level II Level III Ethical and Professional Standards 15 10-15 10-15 Quantitative Methods 12 5-10 0 Economics 10 5-10 5-15 Financial Reporting and Analysis 20 15-20 0 Corporate Finance 7 5-15 0 Equity Investments 10 15-25 5-15 Fixed Income 10 10-20 10-20 Derivatives 5 5-15 5-15 Alternate Investments 4 5-10 5-15 Portfolio Management and Wealth Planning 7 5-10 40-55 Total 100 100 100
Source: The CFA Institute (Note: These weights are intended to guide the curriculum and exam development processes. Actual exam weights may vary slightly from year to year. Please note that some topics are combined for testing purposes.)
Another very effective strategy to find ways to gain marginal points on the CFA exam is to seek out as many CFA charterholders as possible to get a better understanding of how to take the exam. There are many CFA charterholders in every local society that are actively involved in some aspect of the exam process. All CFA charterholders are invited to be part of the grading process after the exams have been taken. Although some may only have graded exams once, if at all, there are some that do it religiously year after year. CFA charterholders that do grade usually work with the sections of the exam in which they have a particular interest or expertise. Here are some tips from those who have already taken the exam:
Talk to Other CFA Charterholders, and Candidates
For essay questions, legible writing is key. Graders scan the answers for certain words or phrases and then give points accordingly. If a grader can't read your writing, then you won't get points even if you have the correct information in your essay. If you can do it efficiently, print your essay answers.Start each question with an outline and then write the corresponding answer below it. In many cases, a good, thought-out outline is enough to get all the points for the question and will make your grader happy that the entire essay didn't have to be read.Never leave an essay question blank. If you don't know the answer, put in buzzwords that relate to the subject. Write about the process for getting the right answer. In many cases, this will gain you some points and over several answers can make the difference between passing and failing.Know your ethics information. Ethics is used to determine the outcome of exams that are on the fringe between passing and failing. If you have done poorly on the ethics section then you will most likely fail; ace ethics and you will be given the green light.
These examples are timeless, but there are many others that change as the exams evolve. New trends, tools, and methods are introduced and given greater weight in the exam as that information becomes the standard. In order to create a competitive advantage over other program candidates, it is imperative that you seek out sources of the most current information.
Each local society periodically puts on luncheons that feature speakers on various investment-related subjects. Contact your local society for a schedule of these events and how to register to attend. In addition to being an excellent networking source, there are many members who would be more than happy to help a CFA candidate pass their exams in any way that they can. They have all been through the process and understand the importance of gaining the greatest competitive edge possible.
The Bottom Line
Due to the length and rigor of the CFA program, passing any of the three exams in the CFA program not only requires a passion for the material and a commitment to studying, but also requires understanding how to take the exam and to forecast what information will likely appear as exam questions.
In addition to some introspection in assessing what topics are strengths and which are weaknesses, candidates must develop study and exam-taking strategies that will allow them to outperform the average, that large set of exam participants that straddle the fine line between passing and failing. In addition to study guides and instructors, CFA charterholders, especially those closest to the exam development and grading process, should provide the best source for developing the competitive edge necessary to ensure success and the shortest road to receiving your CFA designation, and opening up many new job possibilities.
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6939bb569f4ff157634016bd20d1e472 | https://www.investopedia.com/articles/professionaleducation/09/mba-real-costs.asp | The Real Cost of an MBA | The Real Cost of an MBA
Given economic uncertainties, professionals who have been laid off or consider themselves to be underemployed are contemplating whether or not to pursue a Master of Business Administration (MBA) program. While such a route offers potential career flexibility, enhancement and advancement opportunities, it can also come with a steep price tag.
Higher education costs in the United States have outgrown the rate of inflation, and getting an MBA has associated tuition expenses along with rent and book costs. MBAs, especially those who go to private business schools, can accumulate between $100,000 and $200,000 in debt and expenses in just over a two-year period. Fortunately, for those who are highly motivated to secure an MBA, there are alternative options one can explore in order to both receive the degree as well as minimize the costs.
Advertised Costs Versus Real Costs
Business schools market their programs in order to jockey for competitive positioning, mostly by way of attempting to secure higher rankings among peer groups. Professionals view the degree as providing greater career flexibility, such as opening the door for a new function or industry. Employers can look at an MBA grad as holding management potential. It is important, however, to assess a program beyond tuition rates.
A yearly tuition rate of $40,000 can easily be augmented with $20,000 in additional boarding and book expenses, depending on your location. Additionally, many programs require the purchase of laptop computers as well as costly overseas tours or trips. It is conceivable that such "peripheral" expenditures can lead to a total semester cost of twice the tuition.
Some professionals may want a "win-win" situation that allows them to earn an MBA at an acceptable cost. While attending a private business school can saddle an individual with low six figures in educational debt, programs at public universities offer a less expensive option. Exploring the full menu of public school MBAs allows professionals to possibly cut their debt in half.
Part-Time Programs
In addition to the real costs associated with tuition rates, room, and books, professionals who undergo a full-time MBA generally must forego at least two years of salary income. There is an additional exposure of graduating at a time of an economic or industry downturn that can establish or prolong the unemployment period. Assuming a professional earns $60,000 a year, a full-time MBA program can tack on an additional $120,000 in lost income and opportunity cost. Additionally, the student will have lost two years of work experience.
So summing it up, $80,000 for tuition, $40,000 for boarding and books, $20,000 for peripheral expenditures brings the total MBA cost to around $140,000, while the lost income brings the tab to a whopping $260,000. That figure amounts to more than four years of salary at an annualized income rate of $60,000. And this is an average school. If you are thinking about attending a more prominent business school, the costs shoot up. According to US News & World Report, in 2020 the average cost of the top 10 business schools in the U.S. was over $140,000 for tuition in a two-year MBA program.
Professionals can undergo a part-time or evening MBA program that allows them to retain their full-time jobs. Such programs typically take three or more years to complete. However, business training in an academic environment can supplement one's learning experiences on the job; a newly minted MBA who took such a route would have a well-regarded degree along with three years of additional work experience and exposure within the organization.
Work for a Major Company and Get a Free MBA
Some companies, especially major Fortune 100 corporations, can assume partial or the entire cost of an MBA program (assuming one earns satisfactory grades). This is an ideal situation for many professionals. To be sure, many would jump at the opportunity to continue earning a salary, get an MBA and have it paid for by one's employer.
Those who can wait a couple of years or so before starting the program should seriously consider this route. The company might also pay for a master's degree in accounting, a master's degree in finance or help pay to pass the CPA or CFA license. Those with family, however, should exercise caution in undertaking a full-time job as well as an intensive part-time MBA program. It can be a difficult challenge to find time and attention for loved ones, let alone having a social life. One could easily dedicate at least 70 hours per week on work and academics.
Professionals who want an MBA at less cost can consider one-year MBA programs. This can reduce overall educational expenditures as well as allow the newly-minted MBA the opportunity to start earning a salary one year early. One should undertake diligence and ensure that the quality of the one-year program matches your expectations. You are, after all, a consumer-customer of the program and the business school is the supplier.
The Bottom Line
Given that an MBA program is a capital-intensive endeavor, carry through with a level of diligence as if you were purchasing a home. It costs that much. Finally, various vendors offer online degrees including an MBA. Undoubtedly, such a route generally entails the least amount of expenditure. However, one should take a serious look at the credence employers give to online MBA programs. You might end up shelling out a few thousand dollars without tangible monetary rewards in the end.
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fc0c6b56474ef80f9ff7c5335d9d67d3 | https://www.investopedia.com/articles/professionaleducation/11/accelerated-bachelors-masters-degree.asp | The Benefits of an Accelerated Bachelor's/Master's Degree | The Benefits of an Accelerated Bachelor's/Master's Degree
A master's degree is becoming increasingly valuable when it comes to working your way into a high-paying career, but there's a downside: two more years in school means more lost income and probably more student debt, as well. Accelerated master's degrees save majoring students the cost and study time of graduate admission tests, application fees, and extra courses. By applying for an accelerated master's program, you can start taking courses toward your master's in your junior or senior year and get dual course credit for both your undergraduate and master's degree.
Accelerated Master's Program Admission Requirements
Accelerated master's degrees will often have tough admission standards, and you generally have to wait until at least your undergraduate sophomore year to apply. Often, a grade point average (GPA) above 3.5 is necessary for consideration, and preference is given for students already enrolled in that university, says Counsel of Graduate Schools Dean in Residence, Dr. Bill Weiner. The reason is that schools want to retain their upper echelon of students for their master's programs; students who experience academic success at their university in their undergraduate courses will likely do well in their graduate school.
Commitment
Before you enroll in an accelerated master's program, you will want to research your field thoroughly. You don't want to get all the way through a master's degree and then find out through work experience that you'd rather pursue a different career path. Thus, career planning begins today. Complete a summer internship, talk to your career counselors and academic advisors, and arrange shadow days.
Academically, take at least one course in your major each semester. Join professional organizations with on-campus student chapters such as the American Marketing Association or Society of Professional Journalists. These organizations offer fantastic opportunities to network with professionals working in your potential career field.
Course Credit
Some courses may count toward both degrees in your senior year. Colleges have varying ranges for the time needed to complete your degree and the number of courses that will earn you dual credit, but the dual credit can help you complete a bachelor's degree in May and your master's as early as December of the same year.
For example, if you finish your undergraduate degree with 12 graduate credits and your master's degree requires 36 credits for completion, you could complete your graduate degree after your undergraduate graduation by taking 12 credits over the summer and 12 in the fall. If your university allows six dual-credit courses to count toward your degree with a 36-credit degree, you may not complete a master's in seven months, but at least you'll still have a six-credit head start.
You have to be extra diligent to earn at least a "B" in dual-credit courses. While a "C" in a course can earn you credit in a bachelor's program, many accelerated master's programs require "Bs" or above to earn credit and sometimes to avoid program expulsion.
Career Advancement
The difference between a bachelor's and a master's degree in job opportunities after graduation is tremendous. Dr. Weiner says that someone enrolled in an accelerated master's program in human resources could graduate as a hospital administrator instead of a human resources manager. Similarly, accounting majors need a master's degree to become CPAs. Plus, studies suggest that workers with master's degrees earn considerably more throughout their careers.
Cost Savings
While annual costs vary by university, you can save a lot of money by reducing your school course requirements. The average cost of attendance (based on data from the National Center for Education Statistics), including tuition, fees and room and board for first-year, full-time, undergraduate students at public schools is $19,204.
If you save six months by completing a semester's worth of credits during your undergraduate degree, you could save yourself more than $9,500. The actual amount you save will vary based on the cost of tuition at your school, scholarships, and grants awarded, and the number of credits required for your master's degree.
Scholarships
Undergraduate scholarships are likely to cover graduate-level courses that dually count towards your undergraduate degree. However, you will need to apply for new financial aid for when you officially graduate from the undergraduate portion of your program. As soon as you decide, you want to pursue an accelerated master's degree program, meet with a financial aid counselor to discuss graduate school grants, Stafford Loans, scholarship programs, and PLUS Loans. The earlier you begin your research, the better off you'll be.
The Bottom Line
If you know you want to pursue a master's degree, especially within your major, accelerated master's programs can save you time and money. However, finishing faster should never mean giving up career exploration opportunities. Be sure to solidify your career path with field study as soon as possible and do as many shadow days and work internships as you can manage. Balance your work experience by focusing on your GPA. With top-notch grades, education, and internships, you'll sail into your first post-graduate position.
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e77ba513f53f19fc562cd2af4804401f | https://www.investopedia.com/articles/professionaleducation/11/convincing-work-fund-education.asp | How to Ask Your Employer to Fund Your Education | How to Ask Your Employer to Fund Your Education
Making the decision to go back to school is never easy, especially if you're a full-time employee. That's because there are a lot of sacrifices you'll have to make including giving up your free time and changing your lifestyle. One of the biggest concerns many people have, though, is how they'll be able to afford the cost of attendance. But there may be a way to fulfill your dream and reduce your out-of-pocket expenses by getting your employer to help contribute to your education. Keep reading to find out how your company may be able to help pay for your tuition and how to make the pitch.
Key Takeaways Going back to school can help increase employee loyalty, reduce turnover, increase productivity, and provides employers with a pool of highly-skilled employees.Some companies offer compensation packages with tuition reimbursement while others have partnerships with local colleges and universities.Make sure your pitch includes specifics like the degree and school, and how the program will benefit the company.If your pitch is accepted, make sure you take the time to review the education contract offered by your employer.
Why Your Employer Should Pitch In
The key to getting your employer to pay for your education is convincing management of the benefits to the company that will result from the new skills and knowledge you will acquire. In fact, there are a number of direct benefits of employer-funded education that you can point out to your boss and your company's human resources manager. Company benefits include increased employee loyalty, reduced turnover, increased productivity, and an employee pool with the skills needed to take on new projects and move into leadership positions.
The idea that higher education increases productivity was made famous by Gary Becker, who won a Nobel Prize for his work on human capital theory. The concept was taken further by Dr. Arnaud Chevalier in a brief titled "Does Education Raise Productivity, or Just Reflect It." These studies offer plenty of evidence that encouraging employees to pursue further education has a positive impact on a company's bottom line. After all, since a better-educated employee is qualified to take on new projects, the company will be positioned to take on additional work and bring in more revenue.
How Some Companies Help
An educational benefit is a tuition assistance program that helps employees and their families with higher education costs. It is generally included as a benefit in an employee compensation package and offers reimbursement of tuition costs at enrollment or after the course is completed.
Many large companies have partnerships with local colleges and universities. These relationships may include the development of programs that benefit the company and its employees the most. Employees who are interested in going back to school may benefit from reduced tuition or employee-funded education expenses at these schools.
For example, Starbucks reimburses its employees for any tuition costs not covered by scholarships and financial aid if they take undergraduate courses through Arizona State University's online program. Convenience store chain QuikTrip offers up to $1,000 per semester tuition reimbursement for employees, depending on how many hours they work in a store. UPS employees are reimbursed for up to $5,250 a year in tuition costs at a selection of colleges near 100 of its locations around the U.S.
As an additional incentive, these companies should be able to take advantage of tax credits and deductions for companies that fund employee education. Tax breaks are generally available if the courses meet guidelines from the Internal Revenue Service (IRS) and are accepted in the company's trade or industry.
1:38 How To Ask Your Employer To Fund Your Education
How to Pitch Your Boss
If you want your company to help pay for your education, prepare to pitch the idea to your boss or the human resources manager. Don't go for it until you are ready with some specifics:
Know the degree or certification you want to earnPick the school and the courses you want to enroll inCreate a list of the ways the company will benefit from your education
Remember, you will be adding valuable additional skills to the company's workforce. You will be able to make a greater contribution to its success and even bring in more revenue. You will be able to share your knowledge with your colleagues and mentor new employees.
Don't go in blindly—make sure you prepare a pitch for your employer about the benefits of paying for your education.
Try to anticipate questions or concerns that your HR manager may have, and answer in a way that speaks directly to the benefit your education will bring the company. If the boss is worried about the expense, note that it may cost less than hiring another employee who already has the degree you're seeking.
Be prepared for this meeting. Practice making your key points, and take your notes into the meeting with you. If the answer is no, don't give up. Try again next quarter.
The Education Contract
If your employer agrees to reimburse your tuition, you may be asked to sign an education contract. Read this document carefully and make sure there are no clauses that you don't agree with or don't understand.
For example, you may be asked to commit to staying with the company for a certain length of time. The company does this because they don't want to fund your training only to have you leave for a job with a competitor. You should sign the contract only if you consider the time commitment acceptable. One or two years may be reasonable while a longer promise may be harder to keep.
You will also want to know how the tuition will be refunded. Will the company pay the tuition directly to the school or pay the money to you? Will they pay it at enrollment or completion? Will you be required to maintain a certain grade point average? If so, what happens if you don't maintain it?
It's also important to know what happens if you can't complete the course or degree for some unforeseen reason. Will you be forced to repay any tuition that has already been reimbursed?
The Bottom Line
The benefits to you of employer-sponsored education are obvious. You get an education without being over-burdened with costs. The benefits to your company may need to be made clear to your boss. Perhaps you can even persuade the boss to make your education a test case for a future company program.
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e8437f2bc262e7a1e490b83fcacff09c | https://www.investopedia.com/articles/professionals/011116/internal-auditor-job-description-average-salary.asp | What Internal Auditors Do – And How Much They Make | What Internal Auditors Do – And How Much They Make
Internal auditing is not a high-profile position, but it is a vital part of a company's infrastructure to help ensure smooth operations and compliance with laws and regulations.
As of 2020 (the most recent figures available from PayScale), the job market for internal auditors continues to flourish with healthy demand for the profession, making internal auditing an attractive career choice for those with a natural inclination toward math.
What Does an Internal Auditor Do?
The role of the internal auditor is that of an impartial watchdog, continuously making sure the company is in compliance with laws and regulations, as well as working to ensure that departments and employees follow proper procedures. An internal auditor audits fiscal statements, expense reports, inventory, and pretty much anything else that needs to be impeccable in case of an external audit by the Securities and Exchange Commission (SEC) or any other governmental regulatory body.
Another key aspect of the job is asset protection through risk management. These risks can range from fraud and legal exposure to internal policy lapses and mismanagement. Internal auditors create risk assessments for each department, using a master plan with a set schedule down to the most minuscule details to ensure nothing falls by the wayside.
They build checklists and supervise audit work schedules. It also falls on the internal auditor to continuously check the internal accounting procedures and operating systems. An internal auditor is not personally engaged in any department and is, thus, expected to approach each area impartially and objectively.
In publicly-traded companies, the CEO is legally required to have an internal auditor reporting directly to him.
What Salary Do Internal Auditors Make?
The 2020 national average salary is $58,844 according to PayScale. Internal auditors report receiving bonuses that reach $3,023 on average and profit-sharing programs paying $1,986 annually on average.
The salary for internal auditors varies greatly depending on location and experience. The coastal areas such as New York City, Los Angeles, Seattle, Boston, and Houston have significantly higher average salaries across the board, while inland locations generally trend lower.
For example, salaries in Pittsburgh are reportedly 12% below the national average. The average nationwide starting salary for entry-level auditors with zero to five years of experience is $54,609 and increases fairly rapidly with experience.
Key Takeaways Experience internal auditors have many career path options. Many internal auditor jobs pay nearly $60,000 a year, as a starting salary. Internal auditors must be able to protect a company's assets via risk management skills and tools.
What Type of Education Is Most Common?
A bachelor's degree in accounting or finance is the most common job requirement. In rare cases, people with lower education have earned the position by starting in a junior accounting position and growing into the role through experience.
These people are unable to earn Certified Public Accountant (CPA) or similar accreditations, usually making the role of internal auditor as high as they get in the corporate hierarchy.
Master's and doctorate degrees are mostly found among those who are aiming to move into management. Business- and math-related fields dominate this type of degree.
What Certifications Are Required?
Many internal auditors find that achieving CPA status significantly helps their careers and salary prospects. It is also a requirement to file reports with the SEC. The CPA requirements vary by state, but the common minimum requirement is a bachelor's degree, at least one year of experience working under the guidance of a CPA and passing the grueling CPA exam.
The Certified Internal Auditor (CIA) designation is granted by the Institute of Internal Auditors (IIA) after passing a four-part test. The CIA also requires a bachelor's degree and two years of working experience as an internal auditor.
The IIA also offers the following specialized accreditations: Certified in Control Self-Assessment (CCSA), Certified Government Auditing Professional (CGAP), and Certified Financial Services Auditor (CFSA). These industry-specific certifications can greatly improve employability in these fields.
For those who wish to specialize in auditing software, they can pursue the Certified Information Systems Auditor (CISA) accreditation offered by the organization ISACA, a nonprofit, independent association that advocates for professionals involved in information security, assurance, risk management, and governance.
The Certified Management Accountant (CMA) designation is conferred by the Institute of Management Accountants (IMA) and focuses on financial statement analysis, valuation, and capital structure.
What Skills Does an Internal Auditor Need?
The most important quality of the internal auditor is great attention to detail. A significant part of the job is meticulously following detailed checklists and spending hours upon hours scanning numbers to catch anything that stands out. Being naturally proficient in math is an obvious advantage in this task.
Integrity is another must for the job, as the company and its owners rely on the auditor to catch everything suspicious or amiss. The auditor's primary allegiance is to hard facts and numbers rather than a manager.
Sound judgment and common sense are of great importance, as it is the auditor's job to find a healthy balance between risk and flexibility. The ability to understand the underlying business processes makes the control of policies a fluid part of the workflow rather than a bottleneck.
The ability to effectively communicate is also important. Despite the job being largely centered on numbers, the auditor also needs to communicate the findings and conclusions so it can be easily understood. Certain diplomacy and people skills come in handy when implementing new business controls and procedures. A good grasp of generally accepted accounting principles (GAAP) and Sarbanes-Oxley (SOX) is also a preferable skill.
What Is a Typical Career Path?
After some years as an internal auditor, the natural, and most common, the next step is to become a senior internal auditor. This position has an average salary of $78,749 and shifts the focus more onto policy creation rather than policy enforcement.
The next step in the job level is an internal audit manager with a salary of $99,820. This job focuses on managing the audit team and to act as a liaison with external auditors. Larger firms also offer the position of senior auditing manager, at an average salary of $122,455, or internal audit director, at an average salary of $130,753. The final step is either a partner or a chief financial officer.
Another path from the job of an internal auditor is to first make a largely lateral move to senior accountant, at a salary of $67,904, and then go for the position of financial controller, at a salary of $83,466, followed by the CFO position. Even at later stages in a person's career, the field has a fairly-even gender balance with a slight majority of women working at the entry-level.
The Bottom Line
A job in internal auditing offers many opportunities to those interested in compliance and oversight, and with a background in mathematics. As the need for internal auditors continues to grow, there are a plethora of opportunities for job advancement in this field.
(All figures quoted in the article are from Payscale for 2019)
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914a87d572f31303ac1a0237003cfbcb | https://www.investopedia.com/articles/professionals/011316/controller-career-path-qualifications.asp | How to Become a Controller | How to Become a Controller
For many accountants and accounting students, a company controllership is an attractive career ambition.
Controllers analyze and develop financial information. They are distinguished from traditional accountants by their forward-looking approach. Most accountants record and track current finances and review and analyze past performance but have limited input into the company's strategy for the future.
Key Takeaways The controller has an accountant's background and skill set but a forward-looking role in the organization. The controller is a senior manager with input into the company's strategy and planning. An MBA and years of senior-level accounting are the usual prerequisites.
The controller, as the title implies, is a company's lead accountant. But in addition to taking responsibility for the company's financial record-keeping and regulatory compliance, the controller has a role in the company's future direction.
Background of the Financial Controller
Every controller job is unique, but there are universal skills and qualifications that any serious candidate should possess. It starts with a college degree in finance or accounting. Most openings also require a master's of business administration (MBA) or a certified public accountant (CPA) designation, or both.
A controller has two main functions. The first is to oversee internal financial record-keeping. The second is to execute an operational strategy for the finance team.
Many controllers have years of experience as auditors or accountants with one of the Big Four firms, followed by several years as an assistant controller. However, there are tens of thousands of controller positions in the U.S. in the private sector, in government, and at nonprofits. It is possible to get to a controller position without following the standard career path.
Controller's Role in the Organization
Controllers work alongside or directly under an organization's chief financial officer (CFO), providing key financial information with an eye on future performance and goals. While the traditional role of an accountant is to show historical information reliably, the role of a controller is to anticipate and highlight issues and opportunities ahead.
Controllers understand the company's financial objectives and work to make them achievable.
Specific Tasks of Financial Controllers
A controller has two primary functions. The first is to take responsibility for overseeing the completion of internal control audits, focusing specifically on possible errors or fraud. The second function is developing and executing an operational strategy for the finance team's day-to-day activity.
The controller manages monthly, quarterly, and annual financial accounts. Controllers manage payables, receivables, payroll, controls, and interdepartmental communications.
The Controller's Skills
This is an analytical position, requiring a firm grasp of accounting and business concepts. Controllers refine their technical skills through years of detailed accounting or auditing work.
A substantial part of a controller's job is reconciling the company's budget with realistic outcomes (known as "budget versus actual"), and that means explaining to colleagues how processes work and how numbers are calculated.
Since controllers are considered part of the company's leadership, they need to develop the soft skills that motivate and garner respect from staff.
Accounting students should consider courses in managerial finance, behavioral studies, and business leadership. Current professionals can seek out mentors and take individual courses in leadership.
In addition to a CPA or MBA, aspiring controllers could consider a certified management accountant (CMA) or a chartered financial analyst (CFA) title.
How to Become an Assistant Controller
The most common path to controllership includes a multi-year tenure as an assistant controller.
Most assistant controllers come from auditing or cost control backgrounds, and many already have CPA certifications. Most assistant controllers need to demonstrate strong competency in the use of financial management software.
A current assistant controller interested in career advancement should consider acquiring a graduate degree such as an MBA.
Some employers also place a high priority on experience in their industry.
Timeline
Nobody gets a controller job right out of college, and it can take many years of dedicated work to earn the title.
The standard route starts with four years of undergraduate education with an emphasis in finance or accounting followed by an MBA. Work at a Big Four firm, and possibly a stint as a government auditor or senior-level accounting work, can lead to an assistant controller position. It's typically a 12- to 20-year path to a controllership.
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dba6c284aa1f37da811dcf97d5f278f7 | https://www.investopedia.com/articles/professionals/040813/stockbroker-career-you.asp | The Definitive Guide to a Career in Brokerage Sales | The Definitive Guide to a Career in Brokerage Sales
If you are interested in finance and think that managing other people’s money may be your bag, then you may be cut out to become a stockbroker. Becoming this type of investment consultant isn't easy, and the process can be quite intense and stressful at times. Still, many individuals coming out of school want to join their ranks. As a result, many people have questions and require greater insight into this alluring career, which now offers more options than have previously been available.
Desire and Skills
Working as a stockbroker sounds like a glamorous career, but the fact is that many first-year brokers drop out of the business because the job usually requires long hours, can be overly stressful, and the business requires a substantial amount of dedication.
Key Takeaways Stockbrokers buy and sell investment securities on behalf of their customers. There are no specific education requirements for becoming a stockbroker, but many firms require that the applicant holds a college degree. The Series 7 and Series 63 licensing exams are required to become a stockbroker. While some brokers work at full-service firms and cater to high net worth clients, others work at discount brokers and serve all types of individual investors. The ultimate goal of many brokers is to build a clientele, which is their book of business.
While no particular personality traits are required to become a broker, generally speaking, the successful ones have an inner drive to succeed, and they can take rejection. These are important qualities to have, given that most of a broker's day is likely to be spent on the phone, pitching stock ideas to prospective or existing clients. Other key skills that can come in handy include:
An ability to sell An ability to communicate effectively An ability to explain complex ideas without seeming condescending
Although classes and seminars are offered to improve communications ability and salesmanship, that takes time and money. Therefore, it's usually best if you already possess these skills before entering the field.
1:46 Is A Stockbroker Career For You?
Education Requirements
A college education is generally a must these days, as the competition to get into certain firms and training programs can be quite intense. However, it is not unheard of to meet successful salespeople who have no formal training other than studying for the licensing exams.
While there are no formal educational requirements for becoming a broker, (as there are to become a CPA or financial analyst), many firms seek candidates who have at least a bachelor’s degree, preferably focused on some aspect of business or finance; individuals who major in these subjects probably will have a leg up on the competition. In addition, a master's degree helps a candidate stand out from the crowd, as it implies additional skills in communication and finance that can be helpful on the job.
Licensing Requirements
To become a registered representative—and actually practice—all stockbrokers are required to obtain the same standard securities licenses. One must pass the Series 7 and Series 63 exams administered by the Financial Industry Regulatory Authority (FINRA). These certifications authorize representatives to buy and sell stocks, bonds, mutual funds, and other types of securities, as well as legally advise their clients.
The Series 7 exam is traditionally taken by beginning brokers. It is a general securities license that enables an individual to sell securities such as stocks, while the Series 63 exam focuses on state laws and regulations.
Would-be brokers should understand that these exams are not easy. In addition, you must be sponsored by a legitimate brokerage to take them, and the firm sponsoring you for the exam expects you to pass.
Many stockbrokers are then required by their employer (or choose) to obtain other licenses as well, such as the Series 3 or Series 31 licenses for commodities and managed futures, a Series 65 or Series 66 to become a Registered Investment Adviser, or a life and/or health insurance license to sell life, disability, and long-term care products, as well as fixed and variable annuity contracts.
It is also becoming increasingly important to pass a strict background check that will examine both the prospective broker’s criminal and financial history. Those with recent bankruptcies, tax liens, or repossessions will likely be discarded from the list of potential candidates just as quickly as those who have been in any type of mentionable legal trouble.
Deciding Between Competing Brokerage Firms
How to get into a sponsoring firm? Be on the lookout for companies that have reputable and structured training programs. These companies can be extremely helpful in teaching certain sales techniques, time-management skills, and the ins and outs of the industry.To find this information, conduct a search on the internet, search job ads, and, more specifically, on the websites of individual firms.
Beyond that, consider firms that match your personality and preferences. For example, as a would-be broker, consider whether you want to work for a large, internationally known financial supermarket or a smaller specialty firm.
Sometimes brokers who start off at larger firms feel like small fish in a seemingly endless pond. However, the downside to a smaller firm is that landing customers or ensuring confidence in your firm might be harder because of its lesser-known name.
Types of Stockbrokers
There are three different kinds of stockbrokers, and which one you become will largely depend on your personal preference, as well as your ability to deftly handle clientele.
Full-Service Broker: Working at a full-service firm or wirehouses such as Bank of America/Merrill Lynch (NYSE: BAC) or Morgan Stanley (NYSE: MS) is still the most traditional approach to selling investments. Brokers who work for these firms will be provided with a comprehensive training package that includes sales and product training as well as education in administrative procedures and compliance regulations. They will also typically be provided with office space (or at least a desk), business cards, a guaranteed salary or draw against commission, and a high sales quota that they must meet within a relatively short period of time if they want to remain employed.
Some firms have changed their models and allow their reps longer periods of time with bigger starting salaries so that they have a better chance of succeeding. But a relatively large percentage of each class of trainees will wash out of these programs because they are not able to generate enough business to meet their quotas.
Many successful brokers eventually leave these full-service firms and move on to independent broker-dealers such as Raymond James (NYSE: RJF) or Linsco Private Ledger. These firms typically offer a wider array of products and services and do not require their reps to sell proprietary products of any kind. They also usually offer much higher payouts on commission than full-service firms, and sometimes a warmer and friendlier atmosphere. However, they are usually only capable of giving back-office administrative support and do not provide amenities such as office space. Those who work for these firms must pay for all of their own expenses and overhead.
Those without prior training or licensure might be wise to start at a full-service firm that will provide these things at no cost; even if this sort of outfit is ultimately where they want to be, they will acquire skills that make them much more marketable when they leave.
Discount Brokers: If you are not a super salesman by nature but would still like to try your hand at managing investments, a discount broker, such as Charles Schwab (NYSE: SCHW) or Fidelity (NYSE: FNF) might be the place for you. These firms are geared toward providing effective service for walk-in clients and usually pay their brokers a flat salary (albeit with some minor bonuses or other incentives).
Many brokers who don’t make it at full-service firms end up at discount firms where they have a chance to really learn the business and get a feel for the markets. Some brokers can eventually build up enough of an informal clientele that they can eventually move back to a full-service or independent broker-dealer and make a living there.
Discount brokers are likely to gain a much broader base of experience than many full-service brokers, who generally specialize in certain areas such as IRA rollovers or employee stock options. A rep who works at a firm such as Schwab or Fidelity is expected to be able to provide a broad array of research and services, including basic technical and fundamental analysis, rollovers, stock options, margin accounting, derivatives, bond ladders, mutual funds, closed-end funds, exchange traded funds, partnerships, charitable gifting, 1035 exchanges, and many other areas of investment, retirement, and estate planning.
Reps are often required to perform administrative duties such as cashiering, opening new accounts, processing stock certificates, and other paperwork. But they are not subject to the kind of sales pressure as their full-service counterparts and, generally, have either very low or no production quotas of any kind.
Bank Brokers: Being a broker at a bank is an entirely different proposition than working at Merrill Lynch or Fidelity. Like most discount firms, many banks also look for licensed brokers with previous experience, but the banking system is so unlike the brokerage world that it usually takes newcomers a while to get their bearings.
Brokers who work at banks are full-service brokers in a technical sense, but they are often given a lower payout on their commissions in return for having access to the bank’s customer base. Bank brokerage positions were once viewed as dead-end jobs that were only for brokers who failed elsewhere, but this perception has largely disappeared with the growth of this segment of the brokerage industry.
Most banks and credit unions now employ in-house investment consultants who can offer non-FDIC insured products and services. A growing number of banks also expect their reps to cultivate a clientele from outside the bank, however, and have worked to develop a system that rewards bank employees for referring customers to them as well as some sort of prospecting platform to bring in new business.
Experienced brokers understand that they need to be visible and present to the bank staff and work to educate them on what they do, but also be able to stay out of their way when they get busy with their banking duties. Many of them will invite wholesalers and other product vendors to bring lunch for the staff and then explain how their products can benefit bank customers.
Brokers within a banking environment often have to make an extra effort to get their clients to understand that what they offer—unlike the regular bank accounts—is not insured by the Federal Deposit Insurance Corporation (FDIC).
Bank brokers can also expect to work with a more conservative clientele than they will encounter elsewhere, and many of them rely heavily upon fixed annuities and other low-risk products to build their businesses. But bank brokers usually escape the high sales quotas and pressure to sell products that those who work at other full-service firms face.
Building Clientele
Wherever a fledgling broker lands, the core of their effort is on building a book of business. There are many ways to seek clients, including:
A phone book and an order to "smile and dial," which means to make cold calls in order to open accounts. A list of pre-qualified prospects from which to start contacting to drum up business (These may be given to you by your firm or bought from marketing firms.) Tapping relatives or friends to obtain referrals Organization memberships, such as the local chamber of commerce to network and meet prospective clients.
The Bottom Line
There is more opportunity than ever in the financial industry today for those who are willing to work hard and deal with the negatives aspects (long hours, high stress) that accompany the initial stages of a career in the field. The modern stockbroker has several major areas in which to build a business, but must acquire necessary licenses before practicing. This entire process can be a time-consuming and costly adventure, but many find the financial rewards worth the initial struggle.
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b823579f7dee94efac07bcba0964d5b4 | https://www.investopedia.com/articles/professionals/041013/becoming-registered-investment-advisor.asp | Becoming a Registered Investment Advisor | Becoming a Registered Investment Advisor
Those who wish to work as independent financial advisors to individual investors, to manage assets or provide financial counsel, generally need to become a registered investment advisor (RIA). Unlike that of a financial planner—a broader profession, with no legal mandates for training or licensing—the road to becoming an RIA has specific requirements.
Key Takeaways Registered Investment Advisor (RIA)s—financial professionals who counsel individuals on financial affairs and manage their portfolios—must meet certain legal and professional qualifications.RIAs must pass the Series 65 exam.RIAs must register with the SEC or state authorities, depending on the amount of money they manage.Applying to become an RIA includes filing a Form ADV, which includes a disclosure document that is also distributed to all clients.Usually compensated by a percentage of assets under management, RIAs are legally required to act in a fiduciary capacity for their clients at all times.
RIA Licensing and Qualifications
The first step to becoming a Registered Investment Advisor (RIA) is to pass the Series 65 (Uniform Investment Advisor Law) exam. This test is administered by the Financial Industry Regulatory Authority (FINRA), a self-regulating, private organization that writes and enforces the rules governing registered brokers and broker-dealer firms in the United States.
However, test-takers are not required to be sponsored by a broker-dealer, as they are for most other securities-related exams administered by FINRA.
The test itself covers federal securities laws and other topics related to investment advice. It has 140 multiple choice questions, of which 10 are pretest questions that will not count towards the final grade. Of the 130 scored questions, a candidate must correctly answer 94 to pass the three-hour exam.
It is important to note that while no other licensure or designations are required in order to become an RIA, most advisors will find it rather difficult to bring in business without additional qualifications, such as the CFP® or CFA designation. In fact, many states will actually allow advisors who carry the following designations in good standing to waive the Series 65. These designations include:
Certified Financial Planner® (CFP®)Chartered Financial Analyst (CFA)Chartered Investment Counselor (CIC)Chartered Financial Consultant (ChFC)Personal Financial Specialist (PFS)
Federal and State Registration for RIAs
If providing investment advice or asset management services is going to be key to the services you offer, the next step to becoming an RIA is to register with either the SEC or the state(s) in which you intend to do business. However, you will not have to do this if providing investment services or advice is purely incidental to your practice. A list of professionals who may qualify under this exception includes:
AccountantsAttorneysEngineersTeachersBankersBroker-dealersPublishersAdvisors who work exclusively with U.S. government securitiesAdvisors who are registered with the Commodity Futures Trading Commission and for whom providing investment advice is not a primary line of businessEmployees of charitable organizations
SEC Registration Eligibility
Regulations passed in the Dodd-Frank Act in 2010 set certain limits for SEC registration:
A small adviser with less than $25 million of AUM is prohibited from SEC registration if its principal office and place of business are in a state that regulates advisers (currently all states except Wyoming).A mid-sized adviser with AUM between $25 million and $100 million of AUM:Is required to register with the SEC if its principal office and place of business is in New York or Wyoming, unless a registration exemption is available (e.g., exemption for certain advisers to private funds).Is prohibited from SEC registration if its principal office and place of business are in any state except New York or Wyoming, and the mid-sized adviser is required to be registered in that state. If the mid-sized adviser is not required to be registered in that state, then the adviser must register with the SEC, unless a registration exemption is available.An adviser approaching $100 million of AUM may rely on a registration “buffer” that ranges from $90 million to $110 million of AUM. The adviser:May register with the SEC when it acquires $100 million of AUMMust register with the SEC once it reaches $110 million of AUM, unless a registration exemption is availableOnce registered with the SEC, is not required to withdraw from SEC registration and register with the states until the adviser has less than $90 million of AUM.A large adviser with at least $110 million of AUM is required to register with the SEC, unless a registration exemption is available.
Any firm or individual who acts as an investment advisor on behalf of an investment company is also required to file with the SEC, regardless of the number of assets under management.
Firms that register with the SEC are never required to file with states as well, but they must file a notice of SEC registration with each state in which they do business. The majority of states do not require registration or filing of notice if the advisor has less than five clients in the state and does not have a place of business there.
Most firms register with these entities as a corporation, with each employee acting as an investment advisor representative (IAR). It should be noted that while corporate registration may limit an advisor's financial liability, it will not allow one to escape legal or regulatory action if the RIA violates rules.
RIAs and the Form ADV
The next step in the registration process is to create an account with the Investment Adviser Registration Depository (IARD), which is managed by FINRA on behalf of the SEC and states. (A few states that do not require this, so advisors who only do business in those localities do not have to go through this process.)
Once the account is open, FINRA will supply the advisor or firm with a CRD number and account ID information. Then the RIA can file Form ADV and the U4 forms with either the SEC or states.
The Form ADV is the official application document used by the government to apply to become an RIA. It has multiple sections that all must be completed, although only the first section is electronically submitted to the SEC or state government for approval. Part II of the form serves as a disclosure document that is distributed to all clients. It must clearly list all services that are provided to clients, as well as a breakdown of compensation and fees, possible conflicts of interest, the firm's code of ethics, the advisor's financial condition, educational background and credentials, and any affiliated parties.
This form must also be uploaded electronically into the IARD and given to all new and prospective clients. Preparing and submitting these forms typically takes most firms a few weeks, and then the SEC must respond to the application within 45 days.
Some states may respond as soon as 30 days but the process, in either case, is often delayed by requests for additional information and questions that need clarification. All firms that register with the SEC must also create a comprehensive written compliance program that covers all aspects of their practice, from trading and account administration to sales and marketing and internal disciplinary procedures.
Once the SEC approves an application, the firm may engage in business as an RIA and is required to file an annual amendment to Schedule 1 of the ADV, which updates all of the firm's relevant information (such as the number of assets currently under management). Also, while the SEC has no specific financial or bonding requirements for advisors, such as a minimum net worth or cash flow, it does examine the advisor's financial condition closely during the application process.
Most states require RIAs to have a net worth of at least $35,000 if they have actual custody of client funds and $10,000 if they do not; RIAs who fail to meet this requirement must post a surety bond. (The rules for this requirement, as well as several other aspects of registration, vary from state to state.)
RIAs vs RRs
Financial professionals choose to become RIAs because it allows them greater freedom to structure their practices—more so than that allowed registered representatives who also advise, buy and sell securities for individual investors, usually as employees of brokerage firms.
Despite the similar-sounding names, registered representatives (RRs) are not the same as registered investment advisors. RRs work for a brokerage, serving as its rep for clients trading investment products. Brokers are RRs.
Registered representatives who work for broker-dealers—aka stockbrokers—must always pay a percentage of their earnings as compensation for their back-office support and compliance oversight, which most will readily concede can be very overbearing at times.
Brokers also usually work on commission, while the majority of RIAs charge their customers either a percentage of assets under management or a flat or hourly fee for their services. Many RIAs also use another firm, such as a discount broker, to house their clients' assets instead of holding the accounts in-house, in order to simplify their recordkeeping and administration.
Battle for Regulatory Oversight
Although the SEC and the states have the responsibility of overseeing RIAs, FINRA has spent the past several years lobbying Congress to let it take on the task, even attempting to get a bill passed to that effect in 2012. FINRA claims that research shows that the SEC cannot adequately oversee the RIA industry by itself, and either needs more resources to do so or else needs to cede oversight of RIAs to a self-regulatory organization (SRO) such as FINRA.
Indeed, a study done by the SEC itself in 2011 showed that the government only had the capacity to review less than 10% of all RIAs under its jurisdiction in 2010. FINRA has maintained that it has the resources to effectively oversee and review all RIAs on a regular basis.
However, the RIA community has fought to stop FINRA from intruding upon its territory. The cost of administrating this additional regulation would place a heavy financial burden on advisors, and many smaller firms would likely be put out of business.
Many RIAs also view FINRA as an ineffective organization that is heavily biased toward the broker-dealer community, and some statistics indicate that FINRA has ruled substantially in favor of the major wirehouses in arbitration cases where clients sought large amounts of money in transactional disputes.
Advisors also see FINRA substantially lowering the protection given to RIA clients now, as RIAs are legally required to act in a fiduciary capacity for their clients at all times.
Brokers and securities licensed reps only have to meet the suitability standard, a much lower standard of conduct, which only requires that a given transaction performed by a broker must be "suitable" for the client at that time. The fiduciary standard requires that advisors unconditionally put their clients' best interests ahead of their own at all times and in all situations and circumstances. FINRA oversight would likely put an end to this standard for advisors.
The Bottom Line
Registered Investment advisors enjoy greater freedom than their counterparts in the industry who work on commission. They are also required to adhere to a much higher standard of conduct, and most advisors feel strongly that this should not change.
Of course, those who register to become RIAs must also contend with the normal startup issues that most new business owners face, such as marketing, branding, and location, in addition to the registration process.
The SEC website offers additional information on becoming an RIA.
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779011dd114fcc8140a194f66caef616 | https://www.investopedia.com/articles/professionals/041713/what-management-accountants-do.asp | What Management Accountants Do | What Management Accountants Do
What Do Management Accountants Do?
If you like keeping track of a company's income and expenses but also want to hold a position with significant responsibility and authority, management accounting could be the job for you. This article teaches you about the profession of management accounting, touching on everything from a management accountant's job responsibilities, skill set, and formal educational requirements right down to the professional designations that can help you get ahead.
Key Takeaways Management accountants work for public companies, private businesses, and government agencies. Their duties include recording and crunching numbers, helping to choose and manage company investments, risk management, budgeting, planning, strategizing, and decision making. Management accountants need an aptitude for and interest in numbers, math, business, and production processes, along with accounting skills, knowledge in GAAP, and leadership skills. The minimum requirement is a bachelor's degree, but experience also helps. Management accountants can get a special designation as a certified management accountant and as a chartered global management accountant.
Understanding What Management Accountants Do
Management accountants work for public companies, private businesses, and government agencies. These professionals may also be called cost accountants, managerial accountants, industrial accountants, private accountants, or corporate accountants. Preparing data for use within a company is one of the features that distinguishes a management accountant from other types of accounting jobs such as public accounting.
You'll be recording and crunching numbers for internal review to help companies budget and perform better. You may help the company choose and manage its investments along with other company managers. Management accountants are risk managers, budgeters, planners, strategists, and decision-makers. They do the work that helps the company's owner, manager, and/or board of directors make decisions.
Management accountants often supervise lower-level accountants who handle basic accounting tasks, such as recording income and expenses, tracking tax liabilities. This information is used to prepare income statements, cash flow statements, and balance sheets, In smaller firms, you may end up performing these tasks yourself. A management accountant performs analysis to forecast, budget, and measure performance and plans, then presents them to senior management to assist in operational decision making.
A management accountant may also identify trends and opportunities for improvement, analyze and manage risk, arrange the funding and financing of operations, and monitor and enforce compliance. They might also create and maintain a company's financial system and supervise its bookkeepers and data processors. Management accountants may also have an area of expertise, such as taxes or budgeting.
Skill Set
The most fundamental skills you need to be successful as a management accountant are an aptitude for and interest in numbers, math, business and production processes, and helping to manage a business, according to Steve Kuchen, executive vice president and chief financial officer (CFO) of PacificHealth Laboratories.
Management accountants need a solid foundation in hard accounting skills, including knowledge of basic accounting, generally accepted accounting principles (GAAP), and basic tax principles, according to William F. Knese, former vice president of finance and administration and CFO of Angus-Palm.
"Management accountants expand this base of skills to include knowledge of cost accounting and, my favorite, finance tools such as discounted cash flow," Knese says. "Since management accountants function inside a business, they need a good grounding in economics and the softer skills such as communication and presentation skills, writing, persuasion, and interpersonal relations skills."
You also need to be able to see your organization's big picture, says Ben Mulling, CFO of TENTE Casters. "Management accounting is all about helping your users and the company make the best decision possible given the information available to them," he says. "This includes making decisions such as capital investment, operational structuring, and foundational risk assessments."
Finally, you'll need leadership and management skills. You need to be persuasive and convincing and be educated in both human capital management and financial capital management, according to Lon Searle, former CFO of YESCO Franchising LLC.
"Presentation, education technology, and information technology skills are also critical. Less critical but also important is a knowledge of social media, marketing, and sales," he says.
Formal Education
All four of the management accountants interviewed say that the minimum requirement for becoming a management accountant is a bachelor's degree. Knese says a good undergraduate education is important to develop the critical thinking skills you need in the field.
\Mulling adds that while the typical management accountant possesses a bachelor's degree in accounting or finance, your degree doesn't have to be in one of these subjects to obtain a Certified Management Accountant (CMA) certification.
The minimum requirement to becoming a management accountant is generally a bachelor's degree.
Knese's undergraduate degree is in English. He acquired the educational background to become a management accountant when he completed coursework in economics, business, accounting, and finance as part of a Master of Business Administration (MBA) program.
Searle says prospective management accountants should expand their studies beyond those of a traditional financial accountant.
Professional Designations
There are two major professional designations for management accountants. Obtaining one of these designations may help you command a higher salary.
The first is the certified management accountant (CMA) designation, offered by the Institute of Management Accountants (IMA). You can earn this designation if you complete a bachelor's degree, pass the two-part CMA exam, and acquire two continuous years of professional experience in management accounting or financial management.
The second is the chartered global management accountant designation, offered by the American Institute of CPAs in conjunction with the London-based Chartered Institute of Management Accountants. The credential has only been offered since the beginning of 2012. At its inception, the CGMA program offered the credential based on experience alone. As of 2015, there is also an exam requirement.
Mulling, Kuchen, Knese, and Searle are all CMAs. Searle is also a certified public accountant (CPA), while Mulling is also a CPA and a certified information technology professional (CITP). Kuchen is a CMA only but says it is a very good idea to be a CPA as well as a certified internal auditor (CIA) or certified treasury professional (CTP). Knese is also a CPA and certified financial manager (CFM).
"Each of these required passing a standard rigorous examination and meeting experience requirements. I value each of these credentials," Knese says.
Career Ladder
Management accountants often begin their careers as staff accountants to learn the fundamentals of accounting and how a business functions, Kuchen says. Searle notes they may also start out as analysts. They may advance to become senior accountants or senior analysts, then to accounting supervisors to controllers, and to CFOs.
According to Mulling, the career ladder can go in many different directions depending on your individual goals. In fact, he says management accountants often make their mark at companies as vital decision-makers. He says the best way to advance is by volunteering to work on various projects and decision-making tasks to increase your knowledge of the company and your role in its success.
Mulling also recommends getting involved in your profession at the local or global level. For instance, the IMA provides that opportunity and also helps professionals create a network for career opportunities, skill enhancement, and decision support. Kuchen adds that devising new systems, business processes, and analyses that save the company money and help it run more efficiently, along with showing an interest in and aptitude for cost accounting, will help you advance.
Knese's career provides an example of one of the possible paths for management accountants. He started as a public accountant and earned the CPA credential, then advanced to management accounting before earning the CMA credential. When he became CFO, he earned the CFM credential.
"I worked in financial statement preparation, product costing and profitability, corporate treasury and finance, mergers and acquisitions, risk management, and benefit plans. I have worked for both public and private companies, and I wanted to learn as much about the business and accounting world as I could," he says.
Knese says he differentiated himself and advanced in his career through certification and continuing professional education. "A career is advanced through demonstrated competency and through visibility," he says. "Visibility comes from the good work you do that is noticed by leaders and influencers. Careers are advanced because people ask for the chance to show what they know and what they can do."
Searle says lower-level accountants and analysts can advance by demonstrating analytic, leadership, and financial skills. "Playing a key role in operational decisions and special projects is how management accountants set themselves apart from the traditional financial accountant," he says.
Depending on the type of company, management accountants need to demonstrate expertise in different areas, according to Searle. "In a manufacturing environment, the management accountant needs to demonstrate abilities in lean manufacturing and/or Six Sigma to progress quickly. In a technical field, the professional might need to take on duties in developing systems or managing technical education projects," he says. He adds that management accountants are often called upon to monitor marketing efforts or act as analysts on special projects. These experiences can prepare them for additional management responsibilities either in finance or general management.
Salary
Just like any other position, the salary of a management accountant depends on several factors including experience, specialties, education and designations, and the company for which you work. According to the IMA, the compensation for CMAs globally is 63% higher than that of non-CMAs. The group's 2020 survey noted accountants with the CMA designation received a base salary of $105,000 in the Americas. That's $25,000 more each year than those without it.
Although the Bureau of Labor Statistics (BLS) does not differentiate between different accountants, it does report salary expectations for accountants—along with auditors—in general. The BLS reported the average annual salary for accountants and auditors in 2019 at $71,550 or $34.40 per hour. The industry reported more than 1.436 million jobs, with the potential to grow 4% between 2019 and 2029.
$71,550 The median annual salary for accountants and auditors in 2019, according to the Bureau of Labor Statistics.
Management Accounting FAQs
What Is the Most Important Role of Management Accounting?
Management accountants work in both the public and private sectors. They prepare data—recording and crunching numbers—that their companies use for budgeting and planning purposes. They are also responsible for managing risk, planning, strategizing, and decision making. Other duties include supervising lower-level staff, identifying trends and opportunities for improvement.
What Is an Example of Managerial Accounting?
Managerial accounting involves the use of information that relates to the sales revenue and costs of a company. One part of managerial accounting is cost accounting, which focuses on a firm's complete production costs. This is done by analyzing all of the corporation's fixed costs along with all of its variable costs.
What Types of Accountants Make the Most Money?
You can command a higher salary if you have certain designations to complement your accounting experience and education. For instance, you can earn much more money with the certified management accountant (CMA) or the chartered global management accountant designation. The CMA is granted by the Institute of Management Accountants to accountants with an undergraduate degree and two years of experience, as long as they pass the two-part CMA exam. You can become a chartered global management accountant through the American Institute of CPAs and the London-based Chartered Institute of Management Accountants by passing an exam.
What Are the Five Major Types of Accounting?
The five major types of accounting are cost accounting, managerial accounting, industrial accounting, private accounting, and corporate accounting.
Is Management Accounting a Good Career?
Management accounting is definitely a good career if you enjoy math and generally have an aptitude for working with numbers. It's also a great option if you love supervising, doing analysis, working with financial statements, making decisions, solving problems, and if you work well with others. This means that you'll need good communication and presentation skills. In order to become a management accountant, you'll need at least an undergraduate degree. Professional designations, like the CMA and the chartered global management accountant designation, and experience can help you command a higher salary and put you higher up on the career ladder.
The Bottom Line
If you want to take your number-crunching job to a higher level, management accounting might be a good fit for you. Remember, you'll need at least an undergraduate degree and may need to start as a CPA or staff accountant. After a few years in the industry, you'll be able to earn a designation that can help you work your way up the corporate ladder and command a higher salary.
"A person who can solve problems, think creatively, and persuade others will have a promising career in management accounting," Searle says.
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82e169186d12f4b5fe9ff15eabe52640 | https://www.investopedia.com/articles/professionals/042313/getting-your-real-estate-license.asp | Getting Your Real Estate License | Getting Your Real Estate License
Any person who engages in real estate transactions as an agent for another must first obtain a real estate license in the state in which they will work. For the general purpose of protecting consumers, each state has its own rules, regulations, and examination for obtaining a real estate license.
Most states offer two types of real estate licenses: sales (or salesperson) and a broker. In general, real estate salespeople and provisional brokers (or associate brokers in some states) work for and under the umbrella of a designated broker. Some states, such as North Carolina, have a "broker only" licensing system, meaning that there is only one basic type of license (broker), but with various "status levels." Many real estate salesperson licensees decide to complete the necessary coursework and exams to become brokers ultimately, as this often provides more flexibility and career opportunities.
If you are considering getting your real estate license, you must review the requirements for your state since there is no such thing as a "national" real estate license. Here, we explain how to find information on your state's requirements, the different types of real estate classes that are available, and how to prepare for the real estate exam.
State Requirements
To become licensed, you will have to meet your state's unique requirements. You can find this information by visiting the Web site of your state's real estate regulatory office. To find the site, you can perform an Internet search for "(your state) real estate regulatory office." You can also find links to each state's regulatory agency on the Association of Real Estate License Law Officials (Arello) website.
Each state has specific requirements for:
Age requirements Application process and fees Background checks and fingerprinting Continuing education Education requirements (such as a high school diploma) Examination eligibility Examinations Pre-licensing courses Process for achieving the next level of licensing Reporting of any criminal history (such as misdemeanor and felony convictions; in most states, if you have a felony conviction or have pled no contest to a felony, you won't be able to get a real estate license.)
Some states have reciprocal licensing agreements with other states, meaning you can get your license in one state and use it in another without having to take that state's license examination. Nevada, for example, has reciprocity with Arizona, Colorado, Delaware, Idaho, Illinois, Indiana, Iowa, Kentucky, Louisiana, Minnesota, Oklahoma, South Carolina, Texas, Utah, Washington, and West Virginia. As with regular licensing requirements, each state has its own process for obtaining licensure by reciprocity. Qualification requirements can be found on each state's real estate regulatory agency's Web site.
Real Estate Classes
Every state requires you to take some real estate pre-licensing course and demonstrate that you have completed a course with a minimum number of hours before you can schedule to take the real estate license exam. Each class is accompanied by textbooks, workbooks, and/or online material to assist in your studies. It is important to take a course that fulfills your state's education requirements, keeping in mind that there is no "national" real estate course or license.
In most states, there are a number of ways that you can fulfill the education requirements, including:
Online pre-licensing courses – All coursework is conducted over the Internet. Search "online real estate classes" to find options; not all online schools offer classes in every state. Brick-and-mortar real estate "schools" – In-person classes taught by real estate professionals. Search "(your state) real estate school" to find local schools. Community colleges – Many community colleges offer real estate classes that fulfill their state's pre-licensing requirements. Contact your local community college for information.
You may be able to save money using one type of class program over another; however, it is important to choose the method that will work best for your learning style and schedule. For example, if you are an independent learner, an online class may work well. If you learn better from a live instructor and if you like to be able to ask questions, a brick-and-mortar or community college setting may be more appropriate. Choose your course carefully, since the quality of the instructors and materials may have a direct effect on how well prepared you are to take the exam.
In addition to the required pre-licensing classes, there are a variety of real estate exam prep products available to help prepare you to pass the exam. These may be made available to you wherever you decide to take your pre-licensing class, or you can check online (search for "(your state) real estate exam prep"). Many exam preps offer both practice exams and tips for taking the test, both of which can be helpful. Again, since there is no national license, be sure to invest in an exam prep product developed specifically for your state.
License Examinations
Real estate exams are typically conducted on a computer and consist of two parts: a national portion that covers real estate principles and practices, and a state-specific section that tests your knowledge of your state's real estate law. Each section is scored separately, and you must receive a passing grade (determined by each state) on both sections to pass the exam. If you fail one part of the exam, you typically need only retake that section. The exams are multiple-choice format; each state determines the number of questions and the time allotted for the exam.
Most, but not all, states use outside testing providers to administer their real estate license exams, with testing offered on weekdays and Saturdays to accommodate different schedules. Once you have completed your pre-licensing course, you should receive instructions on how to schedule, register, and pay for your exam. You can find out more information by visiting the testing provider's website. A few of the main providers are:
AMP – Applied Measurement Professionals Person VUE – Assessment Systems Incorporated PSI – Psychological Services Incorporated
Your state's testing center, whether it is administered by the state or through an outside party, will have its regulations regarding the testing process, including specific rules for the types of calculators that can be used and how you identify will be confirmed at the test. It is important to review the requirements thoroughly, so there are no surprises on test day.
If you fail one or both sections of the exam, you will have the opportunity to retake the exam. Each state has its own rules regarding the number of times you may retake an exam, how long you must wait in between exams and the deadline for completing any retakes. If you do pass, you must submit a complete application on the appropriate forms, along with any required documents and fees, to your state's real estate agency.
Once your application is approved, the state will mail your real estate license certificate (and probably a pocket card) to the address shown on the application form, and your name will be searchable under the "Licensees" section of its Web site. Keep in mind that it is unlawful to engage in the business of real estate before the state's real estate agency issues your license (i.e., don't start working until you have the license in your hand).
The Bottom Line
Getting a real estate license is a commitment of time and money, but it can help secure a rewarding job – with the opportunity for growth – within the real estate industry. As a real estate salesperson or provisional broker, you will have to work for and under the umbrella of a licensed broker. For increased flexibility and career opportunities, you may eventually decide to pursue a broker or broker-in-charge license. In addition to a real estate license, you may also wish to consider the various real estate designations and certifications, including those specific to mortgages, appraisals, residential property, commercial property, and property management, to further enhance your career and marketability as a real estate professional.
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29d82b1de9b22c795b2e31a7ba0caf5e | https://www.investopedia.com/articles/professionals/051713/day-life-cfo.asp | CFO Daily Responsibilities: 3 Case Studies | CFO Daily Responsibilities: 3 Case Studies
Being a chief financial officer means having more than just an advanced knowledge of accounting and financial concepts. It means understanding how an entire company and its industry work so you can help that company to be profitable and competitive. To give you an idea of what your life might look like if you were to become a CFO, we've interviewed three professionals in the field to see what their workdays look like. One is a self-employed consultant who serves as a part-time CFO to numerous companies. Another helps manage an online company. The third works for a small business where he not only serves as CFO but also heads several other divisions.
Key Takeaways A Chief Financial Officer's (CFO) daily responsibilities include such as building financial models, analyzing and preparing financial statements, and reconciling income and expenses.Because a CFO typically has multiple departments reporting into him or her--such as accounting, HR, and operations--he or she can spend a lot of time in meetings and in a management role.Each company's CFO responsibilities vary by industry and role, with even some external consultants serving as CFOs. The three profiles covered in this article give a day in the life of three different CFOs.
John Lafferty, Self-Employed Interim and Virtual CFO of CFO-Pro
Being a CFO doesn't have to mean being one company's full-time employee. John Lafferty of Naperville, Ill., has been a full-time interim CFO since 1996. Before starting his own firm, he gained more than 30 years of experience as an auditor, controller, treasurer, CFO, and COO for companies in a wide range of industries. Now, he divides his time among multiple clients, typically small and mid-sized businesses with $3 million to $30 million in annual revenues.
On a part-time, as-needed basis, he fulfills the needs of companies that can't afford or don't need a full-time CFO but that sometimes need executive-level financial expertise. He helps both emerging and mature companies manage issues such as ensuring sufficient cash flow to sustain growth, enhancing working capital, freeing up money tied up in inventory, determining where to concentrate sales efforts, deciding whether to sell the business and more. Working remotely, he builds financial models, analyzes key metrics, prepares financial statements, and develops financial strategies. For some clients, he offers a one-and-done solution, while for others, the client will stay in touch with questions.
In a typical day, Lafferty spends the first hour and a half overseeing accounting staff. He'll then spend an hour on emails and phone calls to follow up on various company matters. He dedicates the next hour to cash flow planning and cash management, then another hour to account analysis and reconciliations. He then spends half an hour recommending and documenting changes in procedures and processes, and another half hour in strategy and planning sessions with his client's CEO or COO.He spends another hour on accounts receivable management and collection calls, and an hour more pitching in to help his staff when someone is ill or has too much on their plate. During the last half hour of the day, he resolves accounting and reporting questions and disputes. Other key activities that he performs less frequently include monthly closings, monthly, quarterly, and annual regulatory responses, filings and taxes, and annual budgets.
Those are just the tasks he performs directly for his clients. He must also manage his own business, which takes about two additional hours a day and includes reading, networking, attending seminars, developing his business, and grabbing early morning coffee with his key influencers. All told, he works about 50 to 55 hours a week. He is able to choose when he goes on vacation, but he works remotely, which covers his vacation costs. In his spare time, he works out at the gym, sings barbershop harmony, is a cantor at church, and races go-carts.
Mark Karsch, CFO of Nexxt
Mark Karsch is the CFO of Nexxt, which acquired Beyond.com, an online career network. He served as the company's vice president of finance before becoming CFO and had prior experience as CFO of several companies.
Karsch arrives at the office around 8:15 a.m. and spends the first hour of his workday reviewing key operating metrics such as revenue numbers, email performance, new member acquisitions, and member engagement data from the prior day and for the month-to-date. If those metrics aren't where they need to be, he develops a plan to help the operations team improve them.
For the next hour, he'll meet with one of the three groups that report to him - finance, customer service, and client relations - to review their progress on current projects. Karsch then spends 30 minutes to two hours reviewing and approving commissions and payables, lining up financing for future capital purchases, reviewing the status of collections and delinquent receivables, and reviewing the adequacy of accruals and reserves. He also works with both internal resources and outside professionals to get tax payments and filings made on a timely basis.
In the afternoon, Karsch spends a little over an hour meeting with other departments to discuss optimization of return on investment, additional revenue opportunities, new project strategies, and strategic goals. He devotes the last two and a half hours of his workday to following up on tasks related to his earlier meetings, reviewing his and his teams' goals and accomplishments, and ensuring that outstanding projects are on track.
Karsch also has a number of non-daily activities. Once a week, his finance team provides to the senior team (the CEO, COO, and various vice presidents from throughout the company) a comprehensive financial report with detailed operating metrics to show where the company stands in relation to its goals and why. Monthly, he prepares a detailed budget for senior management and the board of directors comparing the current period and year-to-date results with the company's goals and prior year results and explaining any variations. Quarterly, he may participate in board meetings. He also prepares an annual budget in conjunction with the senior team and coordinates budget updates throughout the year.
Karsch works 50 hours a week, on average. There are nights when he's the last one in the office, but it's not a daily occurrence. He checks his email on weeknights and weekends, but only responds to the most important ones. On Sunday nights after dinner, he spends some time planning what he wants to accomplish with his team in the coming week. He makes time to go on a couple of vacations a year with his family.
Ron Martin, CFO of AAIM Employers Association
Ron Martin is CFO for AAIM Employers Association in St. Louis. The association offers peer networking opportunities, business research information, human resources and management consulting, performance and process improvement, outsourcing and recruitment, and professional training and development for more than 1,600 St. Louis and Illinois employers of all sizes and industries. Because he works for a small company, he not only acts as CFO but also as information technology director, human resources director, and president of AAIM's training and consulting companies.
Martin begins each morning by spending 10 minutes setting his priorities for the day. Throughout the day, he spends one to two hours managing staff and solving problems. For example, he might need to interpret an accounting rule related to a financial transaction. Also, since he fills several roles, he might need to resolve a non-financial problem.
He spends another one to two hours reviewing and responding to emails, and another one to four hours in meetings that require financial input, typically with the CEO, the marketing director, and the rest of the management team. He presents the sales forecast for the next two months, including the forecast of revenues, expenses, and net profits based on these sales.
Weekly, Martin prepares a revenue forecast, which takes two to three hours. Every other week, he takes an hour or two to review and approve invoices and payroll. Monthly, he spends eight to 10 hours preparing sales reports, commission calculations for the sales team, financial forecasts, and budgets, so he can present the previous month's financial results to management. He also spends one to two hours a month reviewing and approving financial statements and another four to six hours preparing monthly forecasts.
Over the course of the quarter, he'll dedicate 14 to 20 hours to preparing and presenting financial statements for the company's board to help them make decisions about the company's direction. He also spends about eight hours with the board annually to engage in long-range planning. Another 20 to 30 hours a year goes toward preparing and reviewing the organization's budget.
Martin usually works 60 hours per week, but he's able to spend most weekends at home and has time for family, social activities, and vacation. In his free time, he and his wife attend their children's sporting events and after-school activities. He exercises, keeps up with family members that live out of town, and helps his mother around her house. He even has time to relax in the pool during the summer.
The Bottom Line
A career as a CFO offers a wide range of possibilities for the types of industries and companies you can work for. It also offers opportunities to not only manage a company's finances at the highest level but to contribute to other areas as well. Finally, it offers much more flexibility than you might expect if you decide to run your own business as a consulting CFO.
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a1817e4a7159aff5e0328e4967373b9d | https://www.investopedia.com/articles/professionals/052913/cma-designation-worth-it.asp | Is The CMA Designation Worth It? | Is The CMA Designation Worth It?
The Certified Management Accountant (CMA) professional credential, offered by the Institute of Management Accountants (IMA), is the certification to get if you're in the management accounting profession. While you don't have to become a CMA to work as a management accountant, more than 30,000 people have chosen to do so since the program's inception in 1972, and you might want to as well. In this article, we'll take a look at what four CMA holders have to say about the designation's benefits.Why Become a CMA?The professionals we interviewed all said they pursued the CMA credential for career advancement."I decided to go after my CMA because I felt that the CPA left some gap in the trade skills that I needed to have to continue my career in industry," says Ben Mulling, CFO of TENTE Casters, Inc., in Hebron, Ky. Mulling is a member of IMA's Global Board of Directors and also holds the Certified Public Accountant (CPA) and Certified Information Technology Professional (CITP) designations.Lon Searle, CFO of YESCO Franchising LLC in Salt Lake City, Utah, said he decided to become a CMA because he knew he would be promoted to CFO someday and he wanted to be prepared to be a world-class financial leader.Steve Kuchen, a member of the IMA's Small Business Financial and Regulatory Affairs Committee, says, "After leaving a job, I went to a search firm specializing in finance and accounting professionals and the recruiter really impressed upon me how important it was to have some credentials after my name. He thought that the CMA would be just right based on my prior experiences and interests."Financial CostEarning your CMA has the following financial costs:
Annual IMA membership fees are $39 to $230 depending on whether you are a student, academic, young professional or professional. CMA program entrance costs $225, but student or academic IMA members are eligible for a $150 discount. CMA exam fees are $300 or $350 per part, depending on how you register and when you take the exams, for a total of $600 or $700. The ongoing annual CMA maintenance fee is $30.
You may spend additional money on test-prep materials, such as $470 for an online self-study course or $1,110 for an online self-study course plus textbooks and access to an online test bank. Finally, some continuing professional education (CPE) materials and activities cost money, but there are also options to earn CPE credits for free.Time CommitmentEarning your CMA requires a significant time commitment. You have to meet requirements for education and work experience. You'll also need to study for and pass two exams, which you're allowed a maximum of three years from program entry to complete. Once you become a CMA, you must complete 30 hours of continuing professional education annually. But just how much time does the program actually take if you already have a bachelor's degree and the two years of required work experience?Mulling says the CMA process took him about 12 months, including study time and exams. He earned his CMA in 2008.For Searle, who also became a CMA in 2008, it was a longer process. "For two years, I spent an average of four hours a week studying for the CMA exam," he says. "I listened to CDs during my commute and studied online using practice tests." The effort paid off: "I used skills and knowledge I acquired during my studies in my position at work almost immediately," he says.Susan E. Bos, tax and accounting manager for the Washtenaw County, Mich., treasurer's office and a member of the IMA's Global Board of Directors, says it took her about a year and a half to study for the CMA exam. "I already had the work experience and had already passed the CPA exam , which gave me credit for one of the four parts," she says. The exam had a four-part program when she earned her designation, in 1996. Bos is also a Certified Fraud Examiner (CFE).Kuchen also earned his CMA in 1996, when the four-part exam was in place. It took him about 18 months to earn the credential because of other demands on his time and because he had been out of school for a few years when he began pursuing the designation.Passing the ExamGiven the time and expense involved in preparing for the exams, you'll want to do your best to pass on the first try."My advice is to set a study schedule and stick to it religiously. Plan out your week and achievement markers and commit yourself to keeping those goals," Mulling says.Kuchen says he initially took an in-person study class at a local college. The class helped him "immensely," he says. It got him back into the flow of studying and, because it was taught by professionals who had experience grading the CMA exam, he learned what graders were looking for in the open-ended question parts of the test. "After that, I used a private company's self-guided software study program, which also helped me a great deal," he says."Apply the principles in your career and find opportunities to use new skills," says Searle. "This will make you comfortable with the principles and familiar with applying them in different situations." Searle also says he listened to the audio lessons several times until they were very familiar, because he learns best from audio or classroom instruction.Bos says she used the Gleim books. She did every multiple choice question and went over every essay question. She also took a one-day review class through her local IMA chapter. "If you prepare well, you will pass," she says.Repetition in your study time is a major key to success, Mulling adds. "Keep reviewing previous-chapter and multiple-choice questions over and over," he says. "If you stay on track with your study schedule, you should do fine."Job Opportunities, Career Advancement and Earning PotentialSearle says the CMA certification provides a very large advantage in the job market. There are jobs that require either a CPA or CMA designation, he says.Mulling says the CMA credential has "tremendously" helped him in his career. "It provided me with critical decision-support skills that I have used to advance my career to CFO of my company," he says. Even with his CPA license, he says he could not have succeeded in guiding his company through the recession and back into growth mode without the skills he mastered as a CMA.Bos says earning the CMA designation gave her credibility and confidence. "I was already working as an accountant for several years, but the CMA gave me more visibility," she says.Like Mulling and Bos, Searle says the CMA has added value to his career. "I have used the knowledge gained during my studies for the exam in all areas of my job as a CFO including strategic planning, coaching staff, marketing, financial analysis, decision making and banking. It was a much more applicable educational experience than studying for and passing the CPA exam," he says.Kuchen says attaining the CMA shows that you are serious about your career and interested in improving your skill set. He also says the CMA material is very relevant to real-world situations you might encounter, not only in finance and accounting, but also in other disciplines like information technology.Finally, the IMA's most recent annual survey of its members found that CMAs earn nearly $27,000 more in total compensation than non-CMAs.The Bottom LineBecoming a CMA involves a commitment of money and, most of all, time that shouldn't be taken lightly. But if you want to pursue a career as a management accountant, the extra effort can pay off.
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905c590331a6d2041ea874ccf1c3c764 | https://www.investopedia.com/articles/professionals/062613/unexpected-challenges-selfemployed-finance-professionals.asp | 5 Challenges for Self-Employed Finance Professionals | 5 Challenges for Self-Employed Finance Professionals
Self-employment is very nearly a universal goal across most industries. While not practical in fields like commercial aviation or nuclear engineering, it is certainly an option for financial professionals. Many brokers and investment managers understand quite clearly how much of their revenue they must "share" with their employers, and dream of the the freedom and income-generating possibilities that go with independence.
Before taking the leap, though, would-be self-employed financial professionals should consider the following five challenges that go with the do-it-yourself approach.
Key Takeaways Don’t rely on family and friends as clients to help you get started. In many cases, taking existing clients to your new firm is forbidden. To be successful you’ll need to be a motivated self-starter—there is nobody else telling you what to do. Going solo can be a lonely existence with many late nights. Would-be self-employed financial professionals shouldn’t underestimate the costs of the resources needed and the time involved to set them up.
1. Friends and Family Aren't Customers
Many would-be solo financial pros build their business plans around the assumption that they will manage the funds of their family and friends and use this as the starting point for their business (and to tide them over). More often, though, this business never materializes and the end result is not only a lot of hard feelings, but a business plan that is undermined at its foundation.
A lot of people are uncomfortable talking about their financial situation with family members or friends, and this cuts both ways in this context. Many entrepreneurs are reluctant to ask their friends and family for business, and just as many (if not more) friends and family members are resistant to give the entrepreneur that level of access and information regarding their personal financial situation.
It's great to have a rich relative who believes in you (it certainly helped Warren Buffett back in the day), or wealthy friends who are willing to help you get started, but these are far and away the exceptions. At best, you may be able to manage a portion of their funds, but you should not expect to feed yourself on the management of the funds of your friends and family.
If nothing else, think about the dinner table at Thanksgiving and how unpleasant that will be if you've lost money for most of the people sitting there.
2. Your Customers Aren't Your Customers
Whatever sort of new investment business you're contemplating (brokerage, investment management, advisory services, etc.) carefully check the provisions of the employment agreement with your current employer, as well as relevant industry, regulatory and association rules regarding the solicitation of existing customers upon switching jobs. In many cases, approaching existing clients of your firm and soliciting them to move their business to you is explicitly forbidden.
It's not unheard of for companies to work out transition agreements with employees who wish to go independent, with the entrepreneur often having to agree to a profit-sharing arrangement. Existing customers can, of course, switch their business to you if they so choose, but you cannot solicit them. Sometimes even informing them of your departure is not allowed.
What that means is that the large business you've built may be largely off-limits if you wish to venture out on your own—or at least off-limits for a period of time (sometimes measured in years).
Simply going out on your own and poaching customers is a bad idea. For starters, you may be in violation of a contract or civil/securities law in doing so and expose yourself to significant financial consequences. Second, nobody likes poachers—for all of the criticism that the financial services industry has taken over the years, it is still a business where reputation counts for a lot and ruining your reputation from the get-go is a sure way to fail.
3. There's No One Else to Push You
There is an image of the independent financial professional as an ambitious and motivated self-starter. That's certainly true, but it only applies to the successful ones.
One of the hardest parts of transitioning to self-employment for many people is also the part that made it so attractive—there is nobody else telling you what to do. If you want to knock off early and go play golf instead of continuing to call prospective clients or work on your marketing pitch, nobody will stop you.
Working as a solo act requires a certain amount of delusional self-confidence, but assuming that you can take it easy early on, just because you know the customers will show up eventually, is a good way to fail.
4. It Can Be Lonely
It's common to the point of being a cliché to talk about managers and supervisors who live easy off of the work done by their subordinates. This is particularly true in Wall Street, where senior analysts and bankers may leave at noon on Friday to play golf. But the first-year employees are stuck in the bowels of the firm assembling pitch books until 11 p.m. on Friday night.
Many new entrepreneurs are surprised to learn just how much work goes into running a business. Much of this is invisible in a large firm with multiple branches—the accounting, HR, legal, compliance and other functions may not even be done on-site or in-country. When it's your business, though, it all has to get done and, ultimately, by you. This can result in many late nights or weekends spent attending to tasks that aren't even why you got into the business in the first place.
This can lead you to become something of a recluse or hermit—not necessarily by choice, but because you have to get the work done. If you value a job where you can just "unplug" at 5 or 6 p.m. every night, going independent may not be for you.
5. You Lose Resources and Brand Name
One of the biggest surprises that independent financial professionals discover is how expensive it is to replicate the resources they are accustomed to when working for a larger firm, such as information sources like Bloomberg and FactSet. While these data sources are invaluable for competing as an independent financial professional, they cost tens of thousands of dollars each year and can represent significant upfront costs for the newly independent professional.
Not only can large firms like Merrill and Edward Jones negotiate more competitive rates for seat licenses, but they have more options in paying for those resources. Not so with the lone independent. There is virtually no negotiating leverage there to speak of, and customers are not going to pay higher fees just because your expenses are harder to leverage. This is also the case when setting up systems for clearing, custody and so on, which can take time.
Expenses like rent, support staff, back-office functions, IT and info services all add up, and they're not too hard to quantify if you ask the right questions. What can be more challenging, though, is factoring in the cost and value of the reputation of working for a known brand. Think of it this way: If you deal with a "bad rep" at a nationally known firm, there's at least some chance of getting legal and financial satisfaction through the the arbitration process.
Dealing with an independent, though, can bring to mind images of Bernie Madoff and the prospect of somebody taking your money and running to the Cayman Islands. That difference in client confidence may be difficult to quantify, but it does show up as a real "cost" when it comes to establishing your own business and your reputation as an independent.
The Bottom Line
Done right—which means careful and detailed planning backed by significant resources to get you through the startup and initial months—working independently can be a great life. There is no shortage of challenges or hassles, but the rewards flow all to you, and you can decide the sort of business you want to operate.
The key is "done right," which means thoroughly understanding not only the requirements and challenges of the business, but your particular strengths and weaknesses and your ability to respond to both expected and unexpected challenges.
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0cff31fca757b840dabcf5d23395dba9 | https://www.investopedia.com/articles/professionals/071415/how-martha-stewart-built-media-empire.asp | How Martha Stewart Built a Media Empire | How Martha Stewart Built a Media Empire
Known to millions as the Queen of Domestic Arts, Martha Stewart is a successful entrepreneur who built a media empire from scratch out of the old adage "there is no place like home." During her pinnacle moments as a prominent media mogul, she found her name among the world's wealthiest and powerful business leaders on the Forbes Billionaires list.
Key Takeaways: Martha Stewart's net worth is estimated to be in the vicinity of $400 million as of 2020. Martha Stewart first became a billionaire when her company, Martha Stewart Living Omnimedia, went public in 1999. Due to obstruction of justice, making false statements, and conspiracy of lying, Stewart served five months in jail in 2004. In 2015, Martha Stewart Living Omnimedia was sold to Sequential Brands Group for $350 million. Sequential Brands Group sold Martha Stewart Living Omnimedia in 2019 to Marquee Brands for $175 million. Martha Stewart's career history includes being a stockbroker, starting her empire through a catering business, publishing successful cookbooks, and her own magazine.
Martha Stewart first became a self-made billionaire when her company, Martha Stewart Living Omnimedia, went public in 1999. The initial public offering raised $1.9 billion and the stock climbed to an all-time high of $39.75 per share the following day. Her net worth did significantly drop in the early 2000s but has since slightly recuperated. Her fortune in 2020 is estimated to be somewhere around $400 million.
Stewart's life and her media empire were both interrupted when Stewart was convicted of obstruction of justice, making false statements, and conspiracy for lying to investigators about her sale of shares of Imclone Systems in 2001, a day before the company announced a negative Food and Drug Administration ruling about one of its cancer drugs that prompted a massive sell-off in the stock. She served five months in a federal correctional facility following the conviction in 2004.
On May 31, 2018, former President Trump indicated that he might grant Stewart a presidential pardon. While Stewart never faced insider trading charges for the sale, she paid $195,000 to settle civil charges with the Securities and Exchange Commission.
In June 2015, Martha Stewart Living Omnimedia, once valued at more than $2 billion, agreed to be acquired by Sequential Brands Group (SQBG) for just shy of $350 million. In 2019, Sequential Brands sold Martha Stewart Living Omnimedia to Marquee Brands for $175 million. Though the winds might seem to have shifted slightly for Stewart, no one can dispute that she made an indelible mark in the media industry as well as the lives of countless Americans looking to brighten their lives in the household.
Loss of Value Martha Stewart Living Omnimedia, once valued at $2 billion, was sold for $350 million in 2015 and then again for $175 million in 2019.
Where It All Began
Even when she was just a child Martha was making money. When she was 10 years old she often found herself babysitting for extra change. At 13, she modeled on the side and regularly appeared in television commercials. One of her clients was the luxury fashion company, Chanel. By the time she was 24, she was making well over six figures a year as a stockbroker in New York.
Stewart's billion-dollar empire actually started out as a small home-based catering business that she founded with a partner. Shortly after, the business became very successful, and Martha bought out her partner's equity stake.
Publishing Powerhouse
In 1977, Martha had been hired to cater for a book release event. At the party, she met Alan Mirken, who was the head of Crown Publishing Group, a subsidiary of Random House. Following that night, the two began having discussions regarding the possibility of publishing a cookbook based on the recipes that Martha used for her catering events. That idea bore fruit when Martha's first book, Entertaining, was published in 1982. The book went on to sell more than 625,000 copies.
From 1983 to 1989, Martha published a number of other cookbooks for another Random House imprint. During that time she was slowly becoming a household name throughout the United States. In addition to contributing columns on home keeping to newspapers and magazines, Martha began to regularly appear on a handful of well-watched television programs such as Larry King Tonight and The Oprah Winfrey Show.
Magazine
By the early 90s, Martha Stewart was one of the most recognized public figures among the American working class; however, she was not completely satisfied. In an attempt to further extend her reach and expand her brand, she signed a magazine deal with Time Inc. With a quarter of a million subscribers signed up for the initial issue, Martha released Martha Stewart Living magazine in late 1990. Subscriptions for the magazine quickly grew to over two million.
Originally started as a quarterly magazine, Time soon began to publish a new issue every month. Each issue featured a variety of cooking recipes, decoration instructions, craft ideas, and homemaking guides.
Martha the Billionaire
Martha may have been the face behind her magazine and other merchandise, but she did not completely own all the rights to them. Time Warner, for example, owned and published the Martha Stewart Living magazine.
This all changed in 1997 when Stewart raised the money to purchase the rights to all of her related brands. Martha borrowed $85 million to finance the acquisition of the magazine alone. She had formed Martha Stewart Living Omnimedia in 1996, which became the holding company that housed all of her projects, publishing, and merchandise.
After two years after the formation of Martha Stewart Living Omnimedia, Stewart listed the company on the New York Stock Exchange. This allowed her many fans and followers across the country to actually own a piece of Martha's media powerhouse. On the day the company went public, Martha Stewart Living Omnimedia's stock opened at $18 per share. It soared over the next year, a spike that made Martha's 70% stake in the company worth more than a billion dollars.
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e131468b3ce10a7c9bd10eb823fc2f53 | https://www.investopedia.com/articles/professionals/071913/scholarships-and-grants-future-financial-advisors.asp | Scholarships And Grants For Future Financial Advisors | Scholarships And Grants For Future Financial Advisors
For those who enjoy assisting people with money management issues, a career as a financial advisor might be an attractive option. However, future financial advisors may need some fiscal help of their own as they figure out how to pay for the education that is needed to pursue this occupation.
In an attempt to foster a new generation of financial advisors, private businesses and associations in the finance industry have developed scholarships and grant programs. There are several ways for future financial advisors to find funding for training and professional development.
Education Needed to Become a Financial AdvisorOne of the most obvious paths to becoming a financial advisor is to earn a degree in business with an emphasis in finance. College and universities offer degrees in finance from the associate level to doctorate level. However, you don't have to have a degree in finance to become a financial advisor. According to a 2009 poll by The Financial Planning Association, 88% of financial planners and advisors started out with a different day job.
To get an entry-level position, you'll need at least an associate's degree, but a bachelor's degree is preferred by most employers. There are also a number of certifications and licenses that financial advisors need to obtain. Depending on the area of financial advising that you want to go into, the exams for these credentials can cost hundreds of dollars.
Scholarships from Private BusinessesGraduates in finance and related fields are in high demand, which is why corporations and endowments have funds set aside for undergraduate and graduate students who are pursing degrees in these areas. The TD Ameritrade Institutional NextGen Scholarship is one example. Each year, the company awards $5,000 scholarships to 10 students. The recipients must be current freshman, sophomores or juniors who are pursing a bachelor's degree in financial planning at an accredited four-year college or university. The students must maintain a GPA of at least 3.0.
College/University ScholarshipsSome of the top academic programs for financial advisors offer both a solid curriculum and a wealth of scholarship money. For instance, The College for Financial Planning offers scholarships based on merit to graduate-level students who are new to financial planning and those who already have experience in the field.
The Robert J. Glovsky Scholarship Fund provides money for graduate-level students who are enrolled in the financial planning program at Boston University's Metropolitan College Center for Professional Education. The $2,000 merit-based awards are given out annually. Texas Tech University and Virginia Tech University also offer several scholarships for financial planning majors.
Organization/Association Scholarships and GrantsNetworking and continuing education are two common reasons for professionals to join organizations that are made up of people in their field. Another benefit is to become eligible for scholarships that are only available to members. The National Association of Personal Financial Advisors offers a Certificate in Financial Planning (CFP) Scholarship that reimburses the recipients for the full fee of taking the CFP exam after they pass. The group also awards scholarships to attend their two annual conferences. The scholarships cover all costs including registration fee, travel and hotel.
The American Institute of CPAs (AICPA) and their partner organizations offer scholarships every year for undergraduate and graduate accounting students. Finance majors who want to use their degrees for a career in local or state government can get financial assistance from the Government Finance Officer Association (GFOA). The GFOA awards $10,000 and $5,000 scholarships to full-time undergraduate and graduate students annually.
The Bottom LineFinancial advisors are in demand, and the industry's businesses and associations are willing to pay to help recruit new people to this profession. Aspiring advisors should take advantage of all of the free money that is available on their path to building a successful career.
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07ec74cbcc177012e5df0bab1ff61620 | https://www.investopedia.com/articles/professionals/072415/value-or-growth-stocks-which-best.asp | Value or Growth Stocks: Which Is Better? | Value or Growth Stocks: Which Is Better?
Growth stocks are those companies that are considered to have the potential to outperform the overall market over time because of their future potential. Value stocks are classified as companies that are currently trading below what they are really worth and will thus provide a superior return.
Which category is better? The comparative historical performance of these two sub-sectors yields some surprising results.
Key Takeaways Growth stocks are expected to outperform the overall market over time because of their future potential. Value stocks are thought to trade below what they are really worth and will thus theoretically provide a superior return. The question of whether a growth or value stock investing strategy is better must be evaluated in the context of an individual investor's time horizon and the amount of volatility, and thus risk, that can be endured.
Growth Stocks vs. Value Stocks
The concept of a growth stock versus one that is considered to be undervalued generally comes from the fundamental stock analysis. Growth stocks are considered by analysts to have the potential to outperform either the overall markets or else a specific subsegment of them for a period of time.
Growth stocks can be found in small-, mid-, and large-cap sectors and can only retain this status until analysts feel that they have achieved their potential. Growth companies are considered to have a good chance for considerable expansion over the next few years, either because they have a product or line of products that are expected to sell well or because they appear to be run better than many of their competitors and are thus predicted to gain an edge on them in their market.
Value stocks are usually larger, more well-established companies that are trading below the price that analysts feel the stock is worth, depending upon the financial ratio or benchmark that it is being compared to. For example, the book value of a company’s stock may be $25 a share, based on the number of shares outstanding divided by the company’s capitalization. Therefore, if it is trading for $20 a share at the moment, then many analysts would consider this to be a good value play.
Stocks can become undervalued for many reasons. In some cases, public perception will push the price down, such as if a major figure in the company is caught in a personal scandal or the company is caught doing something unethical. But if the company’s financials are still relatively solid, then value-seekers may see this as an ideal entry point, because they figure that the public will soon forget about whatever happened and the price will rise to where it should be.
Value stocks will typically trade at a discount to either the price to earnings, book value, or cash flow ratios.
Of course, neither outlook is always correct, and some stocks can be classified as a blend of these two categories, where they are considered to be undervalued but also have some potential above and beyond this. Morningstar Inc., therefore, classifies all of the equities and equity funds that it ranks into either a growth, value, or blended category.
Which Is Better?
When it comes to comparing the historical performances of the two respective sub-sectors of stocks, any results that can be seen must be evaluated in terms of time horizon and the amount of volatility, and thus risk that was endured in order to achieve them.
Value stocks are at least theoretically considered to have a lower level of risk and volatility associated with them because they are usually found among larger, more established companies. And even if they don’t return to the target price that analysts or the investor predict, they may still offer some capital growth, and these stocks also often pay dividends as well.
Growth stocks, meanwhile, will usually refrain from paying out dividends and will instead reinvest retained earnings back into the company to expand. Growth stocks' probability of loss for investors can also be greater, particularly if the company is unable to keep up with growth expectations.
For example, a company with a highly touted new product may indeed see its stock price plummet if the product is a dud or if it has some design flaws that keep it from working properly. Growth stocks, in general, possess the highest potential reward, as well as risk, for investors.
Historical Performance
Although the above paragraph suggests that growth stocks would post the best numbers over longer periods, the opposite has actually been true. Research analyst John Dowdee published a report on the Seeking Alpha website where he broke stocks down into categories that reflected both the risk and returns for growth and value stocks in the small-, mid-, and large-cap sectors, respectively.
The study reveals that from July 2000 until 2013, when the study was conducted, value stocks outperformed growth stocks on a risk-adjusted basis for all three levels of capitalization—even though they were clearly more volatile than their growth counterparts.
But this was not the case for shorter periods of time. From 2007 to 2013, growth stocks posted higher returns in each cap class. The author was forced to ultimately conclude that the study provided no real answer to whether one type of stock was truly superior to the other on a risk-adjusted basis. He stated that the winner in each scenario came down to the time period during which they were held.
A Different Study
However, Craig Israelsen published a different study in Financial Planning magazine in 2015 that showed the performance of growth and value stocks in all three capsizes over a 25-year period from the beginning of 1990 to the end of 2014.
The returns on this chart show that large-cap value stocks provided an average annual return that exceeded that of large-cap growth stocks by about three-quarters of a percent. The difference was even larger for mid-, and small-cap stocks, based on the performance of their respective benchmark indices, with the value sectors again coming out the winners.
But the study also showed that over every rolling five-year period during that time, large-cap growth and value were almost evenly split in terms of superior returns. Small-cap value beat its growth counterpart about three-quarters of the time over those periods, but when growth prevailed, the difference between the two was often much larger than when value won. However, small-cap value beat growth almost 90% of the time over rolling 10-year periods, and mid-cap value also beat its growth counterpart.
The Bottom Line
The decision to invest in growth vs. value stocks is ultimately left to an individual investor’s preference, as well as their personal risk tolerance, investment goals, and time horizon. It should be noted that over shorter periods, the performance of either growth or value will also depend in large part upon the point in the cycle that the market happens to be in.
For example, value stocks tend to outperform during bear markets and economic recessions, while growth stocks tend to excel during bull markets or periods of economic expansion. This factor should, therefore, be taken into account by shorter-term investors or those seeking to time the markets.
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