Lazy Man and Money

Dig Yourself Out of Debt in 2016

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The following is a guest post by Holly Trillo

If you’ve started off the New Year with a worrying debt, you’re not alone. According to NerdWallet, the average U.S. household with debt carries a balance of $129,579 in total debt, with almost $16,000 of that attributed to credit card debt. If you’re ready to begin ridding yourself of heavy debt and its devastating consequences. Start 2016 off with a bang and use these tips to start eradicating your debt as quickly and as easily as possible.

Establish a Budget Immediately

The first thing you need to do is sit down and create a budget using something like Mint.com. Plan out all your future expenses by using a guide made up from your past few months of spending habits (this is when saving receipts comes in handy). Write down your projected monthly income, and factor in money for an emergency savings fund. Having a budget in mind and established guidelines will help you make better monetary decisions—you’ll definitely need to scale back on spending if you want to make any sort of headway with your debt issues.

Options for Debt Payment

The first hint for paying off your debt is to pay more than the minimum each month, especially if you’re only dealing with a few accounts. Creditors and banks capitalize with each extra month you spend taking to pay them back, and minimum payments will merely prolong your debt struggles, not get you out of them.

If you’re dealing with a multitude of debt accounts, you’ll want to consider the snowball or avalanche methods of making payments. Should you choose to use the avalanche method, your focus will be on paying off the accounts with the highest interest rates first, so as to avoid overpaying as time drags on. If you are feeling overwhelmed with the sheer number of accounts you’re paying off, you might benefit more from the snowball method, in which debtors pay off the smallest account first, checking off account by account. There’s no right way, and you’ll have advice telling you to do both—it’s simply a matter of choosing the method that works for you.

Put the Credit Card Away

Start the year off with a resolution to leave your card at home. It’s easy to use your card for everything, especially if you have a rewards card that gives you points or cash back. This habit can easily plummet you further into debt, and may in fact be the original cause of your current predicament. You’ve likely racked up a hefty amount of bills after the holidays, and your first goal should be to pay these off before even considering using your card in 2016. While you should keep up with any automated payments you have on the card, avoid taking it out on shopping outings. Instead of taking a credit card with you to grocery shop or buy clothing, pull out a sum of cash—when it runs out, your shopping is done.

Luxury Purchases

If you’re in debt, then halt all luxury purchases. Whether its unnecessary travel plans, tickets to events, or new wardrobe purchases, avoid temptation; your top priority must shift to getting rid of your debt. Adding to what you already owe will do you no favors, and the longer it takes to pay it off, the more you will pay in hefty interest rates—meaning your credit card is costing you much more in the long run.

Hire a Professional

If you’re in dire need of financial assistance, or you’re just not sure what the best route for you, consider hiring professional help from a company like Community Tax services. Those trained in finance can help you save on taxes, keep you from digging a bigger hole, and get your debts settled as quickly as possible. As we draw closer to tax season, professionals may also be able to find hidden tax deductions and aid you in getting out of hot water with the IRS.

Debt can be terrifying, and beginning a New Year saddled with payments can make a fresh start seem almost impossible. Incorporating these techniques and tactics into your monetary decisions for the next 12 months can see you greeting January 2017 with open arms.

How Can a Young Person Build Credit?

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What better way to spend Labor Day by pushing off the labor on someone else? Just kidding, but the following is a guest post by James. I’m particularly interested in this topic, because I want to help my kids build fantastic credit before they even head off to college. Fortunately, I’ve got a lot of years before that happens (but I know they’ll go by quickly).

If you are young then you may have come across the problem of not being able to obtain credit because you have never had credit in the past. It can be really difficult to take that first step to getting a loan, or obtaining a credit card.

It’s easy to start giving up hope of ever obtaining the credit you need just to try and buy the larger essentials in life, such as furniture and kitchen appliances. You shouldn’t give up though; there are ways to improve your credit score. Some of them take a while to accomplish, and require patience. Some like Credit Tradelines provide a faster solution.

Things to remember when you’re trying to improve your credit

When you’re young you’re building your credit score from scratch. A major factor that contributes to your credit score is your payment history, and you won’t have one. This doesn’t mean that you are necessarily a bad risk for credit, just that there is no record of your reliability. One thing you often need when you’re trying to build a credit score is a lot of patience; it doesn’t happen overnight. Here are a few things to remember.

  • When you first apply for credit you shouldn’t make too many applications at once as this doesn’t reflect well on your credit score.
  • You should never apply for more credit than you know you can repay as doing this can lead to problems keeping up with your payments.
  • You should make sure that you keep a record of when your payments are due so that you don’t risk missing them.

Gradually building the credit you have, and making sure you pay on time, helps to build your credit score and improve your likelihood of obtaining new credit in the future.

A quicker way to improve your credit score

If you need credit urgently then spending time building your credit score may not seem as though it’s going to work for you. If this is the case, you may want to consider buying a seasoned tradeline. These tradelines are lines of credit that have a high credit amount with regular repayments and a low balance. Buying one means that you become an authorized user and the line of credit can be used when calculating your credit score, to improve it.

This doesn’t mean that you can’t still improve your credit score by gradually obtaining credit, and repaying it reliably. It just means that you have another option that enables you to make the process go faster. Seasoned tradelines are an excellent resource for people who have not built any credit as they provide an immediate base on which to build. You don’t have to spend an excessive amount of time trying to get the credit that you need. Whichever option you decide on, there are ways that you can improve your credit score no matter what age you are.

Unsure About the Stock Market? The Top 5 Investing Tips For Success!

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Today’s guest post is from Anna of Dollar Stacker. She is a twenty something personal finance junkie, saving guru and real estate enthusiast. Happy and educated, European-born, Canadian raised. Anna is a full time banker and an optimist. She says, “My blog is my outlet to share my financial successes and experiences, the ABCs of banking, the pursuit of happiness and to motivate & inspire others in their personal financial success!”

The investment market has proven to be sour at times, causing hard losses, disappointments and a few Macaulay Culkin faces. Looking back there was the Great Depression, the Enron scandal, the 2008 Recession and maybe a few more major dips in

The face you make when your stock plummets.
The face you make when your stock plummets.

between. It’s no wonder many are weary of what the stock market has to offer. These events have caused many of us to throw in the Wall Street embroidered towel and keep our money in a regular savings account.

So how do you get over your stock market fears and invest with confidence?

The common perception of the stock market is it’s scary, unknown, volatile, risky and all these uncomfortable words you don’t want to associate your hard earned money with. The truth is, these perceptions are simply stereotypes.

The trick to welcoming the investment market with open arms is learning about the major past events and its lessons learned over the years.

Starting with the most recent crash of 2008-2009. The housing bubble, which led to many losing their retirement savings, their homes and jobs. Yes, it’s true some stocks really did vanish without a trace, however these stocks were likely too risky for the average investor Joe to begin with. Many stocks did regain their composure in later years but due to the scare, many people pulled out too early and missed out on the climb backs.

1. Time in the Market

This brings us to Investing Tip #1 – Time in the Market. A professional investor, much like your nosy neighbour, always knows what’s going on. A professional investor’s job is to know the market inside out, make predictions, take risks and lose sleep watching the market. Since many of you reading this, are not professional investors, which means you are better off investing for the long term. Investing for the long term, I would say at least 3 years, decreases the volatility (the market’s shakiness) because it’s averaged out over a longer period of time. In the chart below, although there are major dips in some years, you’ll notice the general trend is upward over the 20 year mark. The longer you are invested the better the average return is.

2. Timing is Everything

Investing Tip #2 – Timing is Everything. I’m sure you have heard the rule of them all, “buy low, sell high”. In the stock market crash of 2008-09 many investors ran with their losses, withdrew their investments, only to see many of the stocks rise back up.

chart credit: market update.nl
Although there are major dips in some years, the general trend is upward over the 20 year mark,

The chart above, specifically the red line, is the Standard and Poor’s 500, which represents 500 large companies having common stock listed in the New York Stock Exchange or NASDAQ (another stock exchange index). I wanted to show you this chart because the S&P is considered to be one of the best representations of the U.S. stock market.

Taking a look at the year 2008, you will see that the stocks significantly decreased in value, or “crashed” as we call it. At this point, many novice investors decided to withdraw whatever was left of their money, to avoid an even greater loss. For many, the greater loss was the fact that they withdrew, because over the following years, the stock market rose back up to an even higher level than before.

Timing is everything, sprinting away when the stock price drops only means you are probably not ready to invest at all or know very little about the stock, which brings us to Tip#3.

3. Research the Investment

Investing Tip #3 – Research the Investment – Just as you wouldn’t buy a car without reading about its features, fuel efficiency and warranty, don’t blindly invest into a company simply because you heard it’s a “good one”. Read the company’s quarterly financial statements or get an accounting buddy to do it for you. Looking at the financial statements, will show their quarterly profits/losses, assets, debt and overall picture of the company’s financial status, it’s like looking into your bank account, you know when you’re in trouble.

The Rise and Fall of Enron - 1996-2001
The Rise and Fall of Enron – 1996-2001 Thriving when it was on the brink of a bankruptcy! Their stock plummeted soon after, causing many investors to lose money and faith in the market. Soon after, the Sarbanes-Oxley Act was implemented to prevent such events from happening again and to restore the public’s confidence in the financial market. Chart credit: lilt.ilstu.edu

Read up on the news about the company, what’s happening with them lately? Kind of like that celebrity gossip column we read time to time, get to know the company and its reputation, but do not read into every word, some of it can just be “fluff” to create buzz.

Check what professional investors are saying about this investment, just as you would read the reviews or watch the trailer before going to see a movie, check the reviews on the stock. The reviews can be easily searched online, a good resource is nasdaq.com but there are lots more out there.

4. Simple is Best

Investing Tip #4 – Simple is Best – Again, many of us are not professional investors and with full time jobs, families and a whole bunch of other things to focus on aside from keeping up with the stock market! Making it simple is the way to go, don’t worry about keeping track of irrelevant data points or predicting results. Simple means:

  • investing with a long-term horizon….at least 3 years
  • focusing on companies with economic moats…. which means a competitive advantage over other companies (do your research!)
  • margin of safety….which means buying a stock price that is probably undervalued and has potential or intrinsic value to increase (again…do your research!)

5. Investor Profile Questionnaire

Investing Tip #5 – Complete an Investor Profile Questionnaire – Similar to a personality test, with an investor questionnaire you will know which investing category you fit into. The categories range from very conservative investor to aggressive.

Investing into the stock market is definitely not for everyone, some people prefer the more conservative ways. There are different types of investments out there such as mutual funds, Guaranteed Investment Certificates (GICs), government bonds and the good old savings account. Filling out the questionnaire will allow you to know which investments you will feel most comfortable with based on your answers. The questionnaire is available online or at your local bank.

In a nutshell…

  • Time Horizon – How long will it be before you need to withdraw the money? Knowing the time horizon of your investment will help with choosing the right investment.
  • Goals – Why are you investing? Is it to save for a house, retirement, special project, vacation? Knowing your goal will help you figure out the time horizon and the type of investment that’s best suitable for the goal.
  • Age – Which stage of life are you in? Nearing retirement? Just finishing college? The younger you are, the more time you have to take on more risk and volatility in the market.
  • Type of Investor – Complete the investor profile questionnaire to figure out which type of investment is best suitable for you.
  • How much – How much will you be investing? Is it better to invest a little bit at a time or all at once? Some types of investments have a minimum amount, knowing how much to invest may help figure out which investment is best suitable for you.

There are great investment opportunities out there, follow the above investing tips and you are bound for success!

Your turn! What has helped you to invest successfully? What advice would you give for beginner investors?

Ready to Buy a Home? Let’s Find Out

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There is something to be said for renting. Actually, there is quite a lot to be said for it. There is so much to be said for it, in fact, one wonders why anyone would ever want to become a home owner in the first place. Homeownership is the single most recognizable aspect of what we call the American dream.

Without a doubt, there are certainly some benefits of owning vs. renting. When owning, one can do any internal home improvement project one wishes. External projects are possible. But some require a permit. Owning a home is beneficial for credit, auto insurance, and anything else where status and credibility are considerations. Owning a home can also be a valuable investment that can pay off big later in life. So if you think you’re ready to become a homeowner, here are a few things you might want to consider:

How to Turn the Purchase into an Investment

Buying a home can be a great investment. But it is not automatically a great investment. There are things you have to do to insure a good return on your investment. The first thing is to make sure you are buying a property that will retain its value. There are many declining neighborhoods that may look nice enough at first glance. But further inspection shows a lot of For Sale, and worse, For Rent signs. Those signs are indicators of declining property values. You can loose your shirt buying the wrong home in the wrong part of town.

You will want to invest in the right kinds of home improvements. Some of them actually decrease property value. Swimming pools are a good example of something that can actually lose you money when it is time to sell.

You will also want to be aware of options beyond selling the family home. One of the most popular methods of extracting value from a home is the reverse mortgage. You can use a reverse mortgage calculator to determine the amount of the home finance assistance you need.

The thing to remember is that a home is not an automatically good investment. But it can be made into a good investment with a little planning and elbow grease.

Are You the Do-it-Yourself Type?

It has been said of swimming pools that they are big holes in the ground where you pour money. The truth is, that sentiment could be used for everything related to home ownership. A home is a series of expensive, unfinished projects. No amount of money, time, or energy will ever see all the little things taken care of.

The question is how you plan to deal with that challenge. Are you the do-it-yourself type? or do you plan to deal with all home improvement projects by picking up the phone and calling in a professional? Both strategies can be rather costly. Doing it yourself requires a bigger financial outlay than you expect, regardless of the project. It will also cost you in property value when it is time to sell. No one wants to buy a house full of DYI projects that you should have never done yourself.

Still, hiring out everything is impractical for all but the 1%. You are going to have to have a strategy that involves both savings, and educating yourself to become proficient at home improvement tasks. If you do not plan for this aspect of home ownership, you could end up greatly disappointed.

Have You Considered the Alternative?

As has already been established, there is nothing wrong with owning a home. But there is also nothing wrong with renting an apartment. Home ownership does not make you a better person than anyone else. It does not make you wealthier. It does not make you smarter or more successful. Just as there are good reasons not to own a car, there are reasons not to own a house. Don’t dismiss the alternatives. Examine them carefully. Make an informed, rather than an emotional decision.

What’s Your Financial Freedom Plan?

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Last month I reviewed Martin of Studenomics’ book. Failure To Launch No More (read the review). My conclusion was that while the book will not win a Pulitzer, it is well worth the very small investment in your time and money to read it.)

Martin has another book out: Next Round’s On Me: How-to Achieve Financial Freedom in Your 20s. This time, he’s graciously provided a guest post, which will give you a flavor for the book and his writing style. I’ve got a few words to say about the book at the end, which will include an offer that you shouldn’t refuse.

“Financial freedom sounds like a scam.”

I totally get that. I would be skeptical as well because this initially sounds like something you would hear on a late night infomercial. Promoting financial freedom in your 20s isn’t easy in the era of online scams.

I don’t get offended when someone puts down financial freedom. I am however amused sometimes. It always surprises me how those who have no clue about money management, are in huge amounts of debt, or can’t get ahead are first to put down my ideas. On the other hand, my successful friends are always curious and open to a discussion.

Financial freedom is about being free and feeling free. I’m not promising you millions of dollars and beautiful girls as you sleep 12 hours a day.

What’s financial freedom all about?

There are different levels of financial freedom ranging from:

  • Paying off your student loans.
  • Getting rid of credit card debt.
  • Being able to eat out often (daily for me).
  • Paying back your parents for college.
  • Joining that expensive gym.
  • Quitting your job.
  • Going on a trip for the first time.
  • Saving up enough money to live comfortably.

Freedom depends on what you want out of life and where you want to be.

  • If you enjoy your job, then keep it.
  • If you don’t want to travel full-time, you don’t have to.
  • If you want to eat out religiously, then you can.
  • If you want to kill your debt, then it’s possible.
  • If you want to buy the next round of drinks for your buddies, you better invite me.

Freedom depends on where you are and where you want to be. You see, there’s a huge difference between where you are right now and where you want to be. I’m here to help you close that gap.

What’s your financial freedom plan?

Let’s create a plan together so that you don’t keep on keeping on forever.

Step #1: Decide on your goal.

What’s your goal? I’m not talking about dreams here. This has to be a goal with a tangible result and a deadline.

Do you want to pay off your student loans? Do you want to quit your job?

Only you know what you want. Your freedom will depend on this. Paying off your student loans will give you freedom because you no longer have to stress about owing money. You could now take some risks with your time and finances.

Step #2: Calculate the numbers.

What are the numbers like?

If you have debt, then you need to see how much you owe.

If you want to quit your job, you need to save up to cover your expenses.

If you want to work for yourself, you need to determine how much you could live off of and what you need to pay the bills.

For example, when my friend Bo wanted to quit his job, I had him write down his expenses. To quit his job he had to save up enough money to cover his expenses for 6 months. Why 6 months? This was the amount of time that he was willing to give himself before he went back to work as he grew his business.

What do your numbers look like? If you’re not happy with how high your expenses are, then it might be time to make some phone calls to cut some of these expenses. I did this last year when I cancelled a subscription and lowered the features on my cell phone.

The numbers don’t lie. It may be a bit intimidating at first when you see how much you owe or how much you need to quit a job. Don’t worry. You can get there if you break this figure down.

Step #3: Figure out how long it’s going to take you.

How long will it take you?

I hate it when a friend gives me a vague timeline. We all know that “next winter” just isn’t concrete enough.

The math here is simple. Add the numbers up to see what your number is.

Do you have $20k worth of student debt? $5k worth of debt? Do you need to save $6k before you can quit your job?

How long will these goals take to reach? With a financial target in mind and a clear timeline, there’s no stopping you.

Step #4: Give yourself some shortcuts.

You need to make things easy for yourself. This is why I believe in small wins and celebrating.

You save $100? Perfect, treat yourself to dessert.

You increase your income? Treat yourself with a drink of your choice.

Life gets tough. I don’t want you to be bored out of your mind as you work towards your financial freedom plan. You need to have some fun. Celebrate the small wins and enjoy the ride. Before you know it, that debt will be paid off or you’re going to be in Thailand.

Do you need a plan?

Yes.

You need a destination in mind. You can’t just have wild dreams in your mind that you never follow up on. When you have a plan you now have focus. You won’t let useless distractions get in the way because you know exactly where you want to be.

If you ever get lonely, bored, or confused, please refer to this quote.

“Lacking an external focus, the mind turns inward on itself and creates problems to solve, even if the problems are undefined or unimportant. If you find a focus, an ambitious goal that seems impossible and forces you to grow, these doubts disappear.” – Tim Ferriss

Good luck to you!

Editor’s Note: Martin also provided me with a copy of the book, Next Round’s On Me: How-to Achieve Financial Freedom in Your 20s. Once again it is well worth your time. Right now, the price of the book is “just a damn buck” (one of my favorite Martin quotes). I don’t know why he’s pricing it so cheaply, but I’d take this opportunity to spread the word. How can it not be one of the best dollars you’ve ever spent?