Child Tax Credits for 2020

Kids are expensive.

According to the most recent numbers from the USDA, it costs the average family between $12,350 and $13,900 every year to raise a child through age 17. That includes the cost of housing, childcare, education, transportation, health care, and clothing, and more.

In total, that’s over $222,000.

The kicker? That doesn’t include college. If your child goes to an out-of-state school, that could be several hundred thousand dollars alone.

You’re in luck.

The U.S. Tax Code helps you with some of these costs through tax credits.

Tax credits are more valuable than tax deductions. Since tax deductions reduce your taxable income, your actual tax savings depends on your tax bracket. Tax credits, on the other hand, are a dollar-for-dollar reduction in the amount you owe. Even better, some tax credits are refundable which means you can get money back over and above the tax you paid in through withholding or estimated payments

Here are a few tax credits parents need to be aware of.

Child Tax Credit

The child tax credit is worth up to $2,000 for each dependent child under the age of 17, lived with you for at least half the year, and has a Social Security number.

It’s not available to high-income taxpayers, though. The Child Tax Credit starts to phase out for single taxpayers once their modified adjusted gross income (MAGI) goes over $200,000. For married couples, the phase-out begins at a MAGI over $400,000.

For the Child Tax Credit, MAGI is essentially your AGI (Line 8b from Form 1040) with any foreign earned income that you were allowed to exclude from your taxable income added back to it.

The phase-out means, for each $1,000 of income above the threshold, your available Child Tax Credit is reduced by $50. The credit phases out entirely once your MAGI reaches $240,000 for single filers or $440,000 for married couples filing jointly. A worksheet in IRS Publication 972 can help you calculate your available credit.

If your available credit is more than your total tax liability, up to $1,400 of the credit is refundable. The refundable portion is also known as the Additional Child Tax Credit.

Credit for Other Dependents

If you have dependent children who don’t qualify for the Child Tax Credit, either because they are age 17 or older or don’t have a Social Security number, you may still be able to claim the Credit for Other Dependents.

This credit is worth up to $500 per eligible dependent, but it has the same MAGI limitations as the Child Tax Credit.

Child and Dependent Care Credit

The Child and Dependent Care Credit helps offset the cost of childcare while you work or actively look for work.

If you paid for care for one child, you use up to $3,000 of those expenses to calculate the credit. If you paid for the care of two or more children, you use up to $6,000 of expenses.

You calculate the credit by multiplying those expenses by a percentage. The percentage you use depends on your AGI. The maximum percentage of 35% is available only to people with an AGI of $15,000 or less. From there, the available percentage decreases as your AGI increases.

Fortunately, the credit never disappears entirely. Taxpayers with an AGI above $43,000 can still claim 20% of their eligible care expenses.

Because this credit helps working families, the IRS rules required you to have “earned income” to claim the credit. Earned income includes wages, salaries, tips, and earnings from self-employment. If your only income comes from retirement or disability benefits, unemployment compensation, or investment income, you won’t be able to claim the credit.

IRS Publication 503 provides more details on qualifying for and calculating the Child and Dependent Care Credit.

American Opportunity Tax Credit

The American Opportunity Tax Credit (AOTC) is worth up to $2,500 per child, per year for parents who pay for college expenses.

Like the Child Tax Credit, it’s a partially refundable credit, so if it brings you tax bill to zero, you can have up to $1,000 of the remaining credit refunded to you.

The AOTC is only available for the student’s first four years of post-secondary education, and the student must be enrolled at least half time.

To be eligible for the full American Opportunity Tax Credit, your MAGI must be $80,000 or less ($160,000 if married filing jointly). The credit phases out for single taxpayers with MAGIs between $80,000 and $90,000, and for married taxpayers with MAGIs between $160,000 and $180,000. No credit is available for parents with MAGIs above those upper limits.

Lifetime Learning Credit

The Lifetime Learning Credit is another tax credit available to parents who help cover the cost of their child’s college education, including tuition, fees, and required books and supplies. It’s worth up to $2,000 per return, but no part of the credit is refundable.

Unlike the AOTC, you can claim the Lifetime Learning Credit for an unlimited number of years, and the student doesn’t have to be working toward a degree program or enrolled at least half-time.

The Lifetime Learning Credit starts to phase out once your MAGI reaches $57,000 if single and $114,000 if married filing jointly. Once your MAGI exceeds $67,000 for single filers or $134,000 for married couples, the credit is not available.

You can read more about the AOTC and the Lifetime Learning Center in IRS Publication 970.

Adoption Credit

The Adoption Credit is worth up to $13,810 for expenses paid to adopt an eligible child. Eligible expenses include:

• Reasonable and necessary adoption fees
• Attorney fees and court costs
• Traveling expenses, including meals and lodging
• Other expenses directly related to adopting a child

The Adoption Credit is not refundable, but if it brings your tax liability to zero, you can carry forward any unused credit for up to five years.

You can only claim the Adoption Credit in the year you finalize the adoption of a qualifying child. So if you incurred expenses in 2019 but didn’t complete the adoption until 2020, you can use the expenses paid in 2019 to claim the Adoption Credit on your 2020 tax return.

The credit phases out for taxpayers with MAGIs between $207,140 and $247,140. Also, you cannot claim the adoption credit if you paid the expenses to adopt your spouse’s child.

Earned Income Tax Credit

The Earned Income Tax Credit (EITC) isn’t solely available to parents, but larger credits are available to taxpayers with children.

For 2019 tax returns, the maximum credit amounts are:

• $529 with no children
• $3,526 for one child
• $5,828 for two children
• $6,557 for three or more children

It’s also a refundable credit, so it can give you a refund if your available credit is larger than your tax liability.

The EITC is only available to working taxpayers. So, like the Child and Dependent Care Credit, you must have earned income to qualify.

This credit is also limited to low- and moderate-income taxpayers, so you must have AGI below the following amounts to claim the credit:

• $15,570 with no qualifying children ($21,370 if married filing jointly)
• $41,094 with one qualifying child ($46,884 if married filing jointly)
• $46,703 with two qualifying children ($52,493 if married filing jointly)
• $50,162 with three or more qualifying children ($55,952 if married filing jointly)

There are several rules for claiming the EITC. For example, everyone listed on your return must have a Social Security number, you cannot claim it if your filing status is married filing separately, and you can’t have $3,600 or more of investment income for the year.

If you’re not sure whether the EITC is available to you, the IRS has an EITC Assistant tool that can help you figure out whether you’re eligible for the credit and estimate the amount you can claim.

Premium Tax Credit

If your family doesn’t have access to employer-sponsored health insurance, you may be one of the millions of people who enrolled in coverage through the Health Insurance Marketplace.

The Premium Tax Credit is a refundable credit that helps individuals and families afford the insurance coverage purchased through the marketplace.

The credit is designed to limit the cost of health insurance coverage to between 2% and 9.6% of the family’s household income, depending on income level. So the amount you qualify for depends on your household income, the size of your household, the ages of the people in your family, and the county in which you live.

To qualify for the Premium Tax Credit, your household income must be no more than 400% of the federal poverty line for your family size. You can find the poverty guidelines for 2019 here.

When you enroll in a health insurance plan through the marketplace, the system will determine whether you qualify for an advance credit payment. Advanced payments are paid directly to the insurance company on your behalf to lower your out-of-pocket premiums. If you receive an advance payment of the Premium Tax Credit or plan to claim it on your tax return, you’ll have to file Form 8962 with your return.

Raising children is expensive, but the tax credits listed above can save you hundreds or even thousands of dollars on your tax return. That can go a long way in helping you financially support your home and family.

Child Tax Credits for 2020 is a post from: I Will Teach You To Be Rich.

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FabFitFun Spring 2020 Box Value Breakdown

The FabFitFun Spring 2020 Box is being shipped next month! I went through the value of each of the customizations so you can check out the value of this season’s box. No surprise, it’s awesome as always! FabFitFun is a seasonal subscription box that sends over $200 USD of beauty, fitness, home decor, and more [...]

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Free Credit Report – Is It Really Free?

A better credit score can save you tens of thousands of dollars.

It’s one of the biggest factors in living your life on your terms.

Your credit score affects your ability to buy a home, lease a car, rent an apartment, get a loan, and get the right credit card.

Do you know your credit score right now? Have you checked it in the last 12 months?

If not, it’s time to look. It takes 5 minutes.

Credit Scores Vs. Credit Reports

Credit scores and credit reports both mean slightly different things. Let’s go through both.

What is a credit report?

A credit history is a historical record of a borrower’s responsible repayment of debts.

A credit report lists information such as:

• Your full name, address, and Social Security number
• A list of open credit cards
• All of your open loans
• The amount of money owed on all loans
• A history of late and on-time payments on those bills
• Any problems with old loans like defaults even if they’ve been paid.

In other words, it’s your entire history with loans.

If you’ve taken out a few loans and have always paid on time, your report will be kind of boring. You might wonder if anything’s missing. You don’t want an exciting report with flags, late payments, and other problems on it. A boring credit report is a good thing.

All this information gets used by banks and lenders to determine if you’ll get approved for any new loans.

But your credit report doesn’t necessarily include your credit score. They’re technically two different things. Sometime a free credit report will give you your credit history (your credit report) but won’t include the credit score at the same time. Some include it, some don’t.

What is a credit score?

A credit score is a three-digit number, between 300 and 850, calculated based on your credit history. The higher your score, the more likely that lenders expect you to pay back a debt.

There’s several factors that impact your score:

• Payment history. You want to make every payment on time and have a spotless history.
• Amount of debt you already have. Keep this low by only using 30% of your total credit card balance at any time (also called credit utilization).
• Credit age. It’s a good idea to keep your oldest credit card open, this does improve your score slightly.
• Types of credit. If you have different types of loans, that’s a good thing. It shows your more experienced with debt.
• Credit inquiries. If you applied for a lot of new loans recently, that’s a red flag and those credit inquiries will start to lower your score. Don’t apply for smaller loans when you’re getting ready to apply for a big one like a mortgage or car loan.

All these factors get blended into your credit score.

What are good and bad credit scores?

While there are various types of credit scores, FICO and VantageScore are the two most recognized scores in the credit industry.

Here’s a breakdown of each credit score from both agencies:

FICO Credit Scoring

• Credit scores between 300-579 are considered Very Poor.
• Credit scores between 580-669 are considered Fair.
• Credit scores between 670-739 are Good.
• Credit scores between 740-799 are ranked Very Good.
• Any score above 800 is considered Exceptional.

VantageScore Credit Scoring

• Credit scores between 300-499 are ranked Very Poor.
• Credit scores between 500-600 are considered Poor.
• Credit scores between 601-660 are Fair.
• Credit scores falling between 661-780 are Good.
• Credit scores 781-850 are ranked as Excellent.

You basically want a credit score around 700, or higher.

Let’s say I was buying a house. If I had a score of 630, I’d definitely focus on getting above 700 before applying for a mortgage. Doing that work up front will save me a boatload of money as I pay off the mortgage.

The Different Credit Reporting Companies

Credit bureaus are companies that collect and maintain consumer credit information. These companies resell this information to other businesses in the form of a consumer’s credit report.

Before lenders or creditors approve consumers for a loan or line of credit, a credit report is obtained from one of the three major credit report agencies in the United States.

Those three agencies are:

• Equifax
• Experian
• TransUnion.

These major credit reporting agencies (CRAs) receive credit-related information from the companies and lenders. The lenders report to CRAs with information about bill payments, late payments, and if an individual has defaulted on a loan.

What do credit reporting agencies do with your information?

Equifax, Experian, and TransUnion sell information to businesses with a valid reason for viewing it.

For example, if a person applies to lease a car, the auto dealership needs to prescreen the applicant and check the credit report. The same goes for credit card companies, mortgage companies, and landlords. Basically anyone that offers loans will check credit reports when they get a loan application.

Banks and other lenders do need your consent though. They can’t check your report randomly if you haven’t applied for a loan.

The Official Free Annual Credit Report and How It Works

Since credit scores and credit reports are crucial for a healthy financial future, federal law states that individuals must get a free copy of their credit report every 12 months.

This service includes a copy from each of the credit report agencies. To obtain a free annual credit report, call Annual Credit Report at 1-877-322-8228 or visit AnnualCreditReport.com.

After obtaining each report, double-check all of the information on each report for accuracy. Check your name, address, Social Security number, and each individual account and loan. Check that all the information on your credit report is accurate and complete.

There’s two types of problems to look for:

• Accounts that were opened in your name without your consent. That’s identity theft.
• Reporting mistakes by banks. They do happen occasionally.

If you find a discrepancy or false information, contact the business issuing the account and the CRA issuing the report.

The Different Options For Getting Free Credit Scores and Reports

Several companies and websites are offering free credit reports and scores.

The more popular credit check websites include:

• CreditKarma.com
• CreditSesame.com

Remember that nothing is truly free. These companies trade a free credit report to obtain your personal information. Your information could be used to sell products, show you ads, and get you on mailing lists.

There isn’t anything illegal about this activity, just know the cost is your financial privacy.

In the grand scheme, I’m not too worried about it. It’s a small price to pay in order to easily pull my credit report. But if you like to keep your personal information private, stay away from “free” credit reporting services. Use the one at AnnualCreditReport.com instead.

These companies also have credit monitoring services. They’ll keep a watchful eye on charges, opened or closed accounts, security breaches, and even the possibility of identity theft. If they detect something, you’ll get a notification.

Know Your Credit Score to Live a Rich Life

 

A high credit score opens the door to lots of opportunities.

People with higher credit scores receive better credit terms, this means lower payments and less money paid in interest over time.

A high enough score will get you:

1. A great rewards credit card which basically gives you a 2% discount on everything you buy.
2. A better mortgage rate which will save you tens of thousands of dollars.
3. A better car loan which will save you thousands of dollars.

Increasing your credit score is one of the big wins of personal finance. Everything else gets easier once you have it.

Free Credit Report – Is It Really Free? is a post from: I Will Teach You To Be Rich.

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Best Performing Stocks of The Past 12 Months

The US stock market had a fantastic year, returning almost 33% in 2019. I always find it helpful to review my portfolio at the start of a year and compare it against the S&P 500’s returns to get an idea of how I am doing.

I also like to look at the best-performing stocks of the past twelve months and analyze why they did well. Among other things, it can be a superb educational experience.

How To Measure Stock Performance

I prefer measuring stock performance by calculating its year on year growth. I simply take a stock’s price at the start of the year and see how much it changed in 12 months.

For example, Tesla’s stock was $301.6 at the start of 2019 and $424.5 at the end, returning 38.6% in 2019.

A year is a long enough time for a stock to rise and fall, and it’s also easy to compare yearly returns.

It’s also important to have perspective while measuring stock returns, so I go a step further and look at the top 1,000 stocks by returns in large-cap, mid-cap, and small-cap.

Companies of different sizes tend to grow at different speeds, so I prefer to group them by market capitalization. It allows me to compare their returns better, and gives me a complete picture of the stock performance.

The 20 Best Performing Stocks in The Past 12 Months

I am going to take the 6 best-performing stocks from small-cap and mid-cap each, and the 8 best from large-cap to make up the list of the 20 best-performing stocks in the past 12 months.

1. Axsome Therapeutics (AXSM)

Stock Price on 31st December 2019: $103.36

12-month growth: 3578.29%

Type: Mid-cap

The scientists at Axsome have figured out a way to get antidepressants past the blood-brain barrier (no other drug can do this right now). The new drug has the potential to change the mental health industry completely, and that’s the reason Axsome’s stock has skyrocketed.

2. Constellation Pharmaceuticals (CNST)

Stock Price on 31st December 2019: $47.11

12-month stock growth: 1066.09%

Type: Small-cap

When clinical trials conducted by pharmaceutical companies show promising results against a deadly disease, their stock price tends to increase exponentially. A similar thing happened with Constellation when their clinical tests for a rare bone marrow cancer drug showed promising results.

3. Stage Stores Inc (SSI)

Stock Price on 31st December 2019: $8.12

12-month stock growth: 941%

Type: Small-cap

Two factors drove the Stage Stores’ stock in 2019. First, the conversion of Stage Store-branded stores into Gordmans stores. And second, they reported a profitable quarter for the first time since 2015.

4. Kodiak Sciences Inc (KOD)

Stock Price on 31st December 2019: $71.95

12-month stock growth: 919.12%

Type: Mid-cap

Kodiak Sciences is another biotech stock. It has risen on the back of successful clinical tests of therapies and drugs for chronic eye diseases.

5. Provention Bio Inc (PRVB)

Stock Price on 31st December 2019: $14.9

12-month stock growth: 741.81%

Type: Small-cap

Another biotech company, Provention, is close to developing a disruptive drug that can delay and even prevent Type 1 diabetes in high-risk patients. Diabetes-related healthcare is a $57 billion space, while Provention is valued at $710 million.

6. EverQuote (EVER)

Stock Price on 31st December 2019: $34.35

12-month stock growth: 725.72%

Type: Small-cap

EverQuote has big ambitions of becoming the largest website for insurance quotes. It’s taking giant strides by partnering with some of the most well-known insurance companies in the US, like MetLife and Progressive. At the same time, its revenue and profits are increasing.

7. Avita Medical (RCEL)

Stock Price on 31st December 2019: $9.1

12-month stock growth: 719.82%

Type: Small-cap

An Australian company, Avita, aims to regenerate skin for burn victims. With a valuation of $868 million, it is targeting a market of $2 billion. In 2019, its revenue increased seven times to $7.7 million.

8. Durect (DRRX)

Stock Price on 31st December 2019: $3.8

12-month stock growth: 691.67%

Type: Small-cap

Durect is a biotech company whose stock price has risen exponentially because of the development of a promising pain medicine and the approval of a new drug.

9. Arqule Inc (ARQL)

Stock Price on 31st December 2019: $19.96

12-month stock growth: 625.82%

Type: Mid-cap

Arqule specializes in drugs for cancers and rare diseases. In December 2019, Merck & Co., one of the largest pharmaceutical companies in the world, acquired Arqule at $20 per share, when the stock was trading at less than $10.

10. Arrowhead Pharmaceuticals, Inc. (ARWR)

Stock Price on 31st December 2019: $63.43

12-month stock growth: 421%

Type: Mid-cap

Arrowhead is one of the frontrunners in developing a cure for chronic hepatitis B, a condition that kills more people in the world than malaria. In 2019, it reported promising trial results.

11. The Medicines Company (MDCO)

Stock Price on 31st December 2019: $84.94

12-month stock growth: 349%

Type: Mid-cap

In 2019, The Medicines Company got closer to developing a drug for genetically inherited cholesterol issues. It was also bought by Novartis, a huge Swiss pharmaceutical company, at $85 a share. Both reasons played a role in the massive jump in stock price.

12. Roku Inc (ROKU)

Stock Price on 31st December 2019: $84.94

12-month stock growth: 330%

Type: Mid-cap

In 2019, Roku, a media streaming company, aggressively increased two key numbers that are crucial to its business: the number of active customers and the hours of content they stream. At the end of 2019, they had a market share of 39% in the US.

13.  Advanced Micro Devices (AMD)

Stock Price on 31st December 2019: $48.27

12-month stock growth: 160.75%

Type: Large-cap

The launch of better and faster processors and better than expected earnings contributed to AMD’s rise.

14.  Lam Research Corp (LRCX)

Stock Price on 31st December 2019: $295.20

12-month stock growth: 115.39%

Type: Large-cap

Lam Research Corp is a market leader in supplying material to the biggest semiconductor companies. It boasts of clients like Samsung and Intel, among many others. Its stock price rose owing to strong financial numbers in 2019, a rising demand for semiconductors because of artificial intelligence, and 5G.

15.  KLA Corp (KLAC)

Stock Price on 31st December 2019: $179.96

12-month stock growth: 100.82%

Type: Large-cap

KLA Corp also makes and supplies material to the semiconductor industry. Like Lam Research, it rose because of the immense potential and imminent shift to more advanced technologies like artificial intelligence and 5G.

16.  Copart Inc (CPRT)

Stock Price on 31st December 2019: $91.48

12-month stock growth: 96.06%

Type: Large-cap

Copart is an auction and valuation services company. Its business and profits witnessed explosive growth in 2019.

17.  Chipotle Mexican Grill Inc (CMG)

Stock Price on 31st December 2019: $865.28

12-month stock growth: 93.57%

Type: Large-cap

Yes, you played a role in Chipotle’s massive stock price return by eating its lip-smacking food. I did too. Apart from that, a new CEO, rapidly increasing digital sales, a push into catering and delivery services, and the opening of new restaurants led to Chipotle’s stellar performance.

18.  Apple Inc (AAPL)

Stock Price on 31st December 2019: $298.25

12-month stock growth: 90.19%

Type: Large-cap

Apple’s revenue from the iPhone fell in 2019. But it grew in other areas like wearables and accessories, iPads and services like Apple TV+, Apple Arcade, Apple News+, and a new credit card.

19.  Target Corp (TGT)

Stock Price on 31st December 2019: $124.25

12-month stock growth: 89.75%

Type: Large-cap

An improved financial health, rising profits from opening smaller stores, and an increased online business were influential in Target’s stock price soaring in the last 12 months.

20.  Quorvo Inc (QRVO)

Stock Price on 31st December 2019: $113.60

12-month stock growth: 89.54

Type: Large-cap

Quorvo is in the semiconductor business. A range of new innovative services and products released in 2019, coupled with the imminent 5G revolution, set the stock on fire.

Many factors affect a company’s stock price. Present value does not indicate its future potential.

That also makes identifying stocks with high returns difficult. Even the so-called experts and people who have spent all their life studying stocks don’t get it right.

Why Picking Them is Not Likely

All people who have ever bought a stock thought it was a winner. Why else would they buy it?

But you are more likely to pick a losing stock than one that makes you very rich. That’s a statement backed by 90 years of research.

From 1926 to 2015, there have been 25,782 distinct stocks. Yes, I know the number seems low, but half of the stocks ever to be listed on the stock market disappear within seven years.

During these 90 years, the stock market rose $32 Trillion in value. But more than half of it came from JUST the top 86 companies. 86 out of 25,728! The remaining wealth was generated by the top 1000 stocks. That’s ONLY 4% of all the companies. In other words, the other 96% of the stocks were losers.

Do you still think it is easy to pick winning stocks?

Here’s one more piece of data. If you were to buy and hold stocks from 1926 to 2015, four out of seven stocks you bought would have had lower returns than if you had invested in 1-month US Treasuries.

Just investing in the previous year’s best performers would not work either. 12 out of the 20 best performing from the above list had a negative return in the year before that.

Stage Stores is a classic example. It grew by 941% to $8.12 in 2019. But its price in 2013 was a shade under $29. Before its astronomical rise in 2019, Stage Stores had a cosmological fall and had lost almost all of its value.

You may be wondering. Okay, I get that picking individual stocks is hard, and the odds of success are low. But then what’s the solution?

The Best Way to Invest in Stocks

Index funds.

Index funds invest in a basket of stocks and aim to mimic an index like the S&P 500. They don’t try to pick winners (which we know is hard). They don’t try to “beat the market”. Their objective is to be the market.

Passively managed index funds have beaten actively managed funds more than 90% of the time. It shows that those who try to beat the market and get massive returns fail miserably.

On the other hand, an index fund lets you own the entire market, which has historically given positive returns.

Since 1926, the S&P has given an annualized return of 10.21% for 92 years. At that rate, your invested money will double roughly every seven years.

Because of all these reasons, I recommend putting 90% of your stock investments into index funds rather than trying to pick winning stocks. You can use the remaining 10% to “scratch your itch” of buying individual stocks after doing your due diligence.

Best Performing Stocks of The Past 12 Months is a post from: I Will Teach You To Be Rich.

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6 Ways We Prepared Our Finances to Travel the World

A bit over a year ago we left our jobs behind, sold most of our belongings, gave up our house in Calgary, and set off on a once in a lifetime 14 month trip around the world. Now that we’ve returned and are settling back in to real life, one of the questions we often [...]

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Financial Planning Guide For 2020

The key to living a rich life is taking control of your money.

You don’t have to have a six-figure income or own a business to build wealth. All you need to do is have smart money-saving habits and plan for your financial future.

I’ll teach you how to think about money in a different way than you’re used to.

Unlike most money “experts” out there, I won’t sit here and tell you to stop buying coffee at Starbucks or start cooking rice and chicken for dinner every night. Financial freedom means you have control over your decisions.

For myself, I know when to spend extravagantly and I know where to cut ruthlessly.

If you follow the tips and resources that I’ve outlined in this guide, you can say goodbye to money frustration.

Finance Planning 101: Basic Things to Sort Out

Financial planning isn’t about penny-pinching, massive budget spreadsheets, or working 90 hours per week to make ends meet. It’s about having the right systems in place to build wealth.

I don’t want to spend all my time thinking about money. I want to do the work upfront, put it on autopilot, then get back to living my life.

For some people, living rich means being able to travel and spend more time with their family. Others live a rich life by hiring a personal chef or buying designer clothes. But before you can get to that point, you need to sort the following things out first:

Money Mistakes

Avoiding money mistakes can save you hundreds of thousands of dollars, if not millions, throughout your life. Half of the battle is understanding what not to do with your money.

• Mistake #1: Debating minutia — Focusing on minor and insignificant financial details without taking action will not get you rich. Saving $0.60 buying store-brand cereal instead of Cheerios won’t make a difference. Instead of debating about the best interest rates or hottest stocks right now, just set up a no-fee bank account with automatic savings and investments. Then allow your money to grow for 30+ years.
• Mistake #2: Relying on willpower — So many people rely on willpower to prevent themselves from eating out or buying new clothes. Even if you save $2 per day on coffee by making it at home, That $730 at the end of the year isn’t significant unless you’ve actually put it aside and invested it.
• Mistaking #3: Waiting — Procrastination is killing your money. Starting as early as possible is the best path to financial freedom. If a 25-year-old invests $100 per month for 10 years at an 8% return rate, their account will be worth $200,061 by the age of 65. If their co-worker starts investing $100 per month at age 35 for 30 years, their account would be $149,036 at age 65. Even though the second person made contributions for 20 years longer, they still finished with $50,000 less because they longer to start.

Automation

One of the main reasons why people fail to save money is because they rely on their future motivation. Moving money from a checking account to a savings account or investment account takes effort.

Setting up an automated personal finance system for your bills, payments, and savings will eliminate those manual tasks and allow you to focus on the things that truly matter. Automation is so flexible, so you can set it up to meet the needs of your situation.

I personally hate detailed budget plans. Having to constantly review all the transactions, categorize everything correctly, and review tiny budgets for obscure categories drives me crazy.

I’d much rather break everything down into a few core categories that’s simple to follow.

That’s what we call a Conscious Spending Plan.

To establish a conscious spending plan, you’ll look at the major areas of your spending:

• Fixed Costs: 50-60% — Things like rent, utilities, car payments, and health insurance should be roughly 50% of your take-home pay.
• Investments: 10% — Set aside 10% of your income for things like a Roth IRA and 401(k).
• Savings 5-10% — This money can be used for a down payment on a house, vacations, and unplanned expenses.
• Guilt-free spending 20-35% — Leave what’s left for things like eating out, drinks, clothing, and going to the movies.

Once you establish your spending recommendations, you can automate your finances accordingly. Here’s an example of what your automation could look like:

• 2nd of the month — Part of your salary goes directly into your 401(k) and the rest is direct-deposit into your checking account.
• 5th of the month — Automatically transfer funds from your checking account to a savings account. Automatically transfer funds from your checking account to your Roth IRA.
• 7th of the month — Automatically pay bills from checking accounts and credit cards. Automatically pay off credit card bills from your checking account.

Once you automate these payments and savings, you’ll know exactly how much money is left for you to spend each month. That’s where the guilt-free spending comes in. Spend freely until you’ve used up what’s left. You’ve already taken care of your investing and saving. Now you won’t have to think twice about buying a sandwich for lunch or getting that $5 cup of coffee.

Hidden Income

Most people don’t realize that they are throwing away “hidden income” each and every month. This is the next thing that you need to get sorted out.

Tapping into hidden income can be as simple as making a phone call. These calls can save you thousands of dollars every month.

You just need to put your negotiation skills to the test on fixed monthly costs:

• Car insurance — Instead of choosing a car insurance once and never looking at it again, pick up the phone and negotiate your rate. All you need to do is analyze your current plan, check your coverage options, and shop around with different providers.
• Cell phone — Compare your monthly usage (talk, text, data) to other plans offered by various network providers. When you call your cell phone carrier, start by asking what plans can give you a better value. If that doesn’t work, you can use the competitors’ plans as leverage.
• Bank and credit card fees — Yes, you can actually negotiate fees from banks and credit cards. Getting an overdraft fee waived or lowering percentage points on interest payments can save you thousands over time. This can help you pay off your debt faster as well.

When you’re negotiating these costs, don’t make it easy for the customer service representatives to say “no.” Rather than asking, “can you lower my monthly bill?” phrase it as “what other plan options do I have?”

Be prepared to walk. In most cases, people are afraid of negotiating car insurance or cell phone plans because they don’t actually want to cancel the service.

In reality, threatening to cancel gives you the best leverage. Even if it means escalating the conversation to a supervisor, your plan won’t actually be canceled until you say the final word.

Investing

I know lots of people who are scared to invest money in the stock market. But there is definitely a winning formula to being a successful investor over time. This is arguably the best way to build wealth.

Stop focusing on trying to buy the hottest stock today and selling it next year for maximum profits. Trying to beat the stock market is not a viable investment strategy.

You should also ignore all of the media coverage about an impending financial crisis or stock market collapse. If you truly believe that the market will grow and recover in the long run, you should continue investing during all market conditions.

The three most significant factors for successful investing:

1. Start as early as possible.
2. Invest every month.
3. Go with index funds.

A regular investing account is good to have. I’m referring to accounts offered by Fidelity, TD Ameritrade, ETrade, or whatever. But these are taxable accounts. So when you sell a stock, you pay taxes on gains. Those taxes are even more substantial if you sell in less than a year.

But retirement accounts (401k, Roth IRA, SEP IRA, etc.) give you the most significant tax advantages. Max out these accounts first.

Eliminating Debt

If you have a negative net worth, the thought of investing or saving money can seem inconceivable. So the first thing you need to do is eliminate your debt once and for all.

There are five steps to get out of debt fast:

• Step #1: Figure out how much debt you have.
• Step #2: Determine what needs to be paid off first (based on interest rates).
• Step #3: Negotiate a lower APR (annual percentage rate).
• Step #4: Figure out where the money to pay your debt will come from.
• Step #5: Start making a dent in your debts.

Like most areas of money, getting started right away is the best thing you can do. Even paying an extra $20 per month to start can make a huge difference over time.

Here’s a simple explanation to showcase the power of making larger payments. Let’s say two people each have $5,000 in credit card debt at 14% APR.

Person A pays $200 per month. It will take them 32 months to pay the debt, which will incur $1,313.96 in interest payments over that time.

Person B pays $400 per month. It will take them 14 months to pay the debt, which will incur $436.46 in interest payments.

The second person saved nearly $900 on interest fees by doubling their monthly payment payments. Imagine how much money you can save by if you have $10,000 or $20,000+ of debt just by paying extra each month.

Earn More Money

The best and fastest way to enhancing your financial power is by earning more money. You can budget, plan, and cut costs all you want. But if your income doesn’t increase, you’re path to financial freedom will always be limited.

There is a limit to how much you can save, but there is no limit to how much you can earn. 

These are the three easiest ways to make more money:

• Get a raise.
• Earn money on the side using skills you already possess.
• Start a new business.

What could you do with an extra $1,000 per month? What about $5,000 or even $10,000+? The only way to find out is by seeking ways to increase your income.

Financial Planning Advisors: Pros and Cons

Lots of people feel overwhelmed when it comes to financial planning, which is understandable. So it’s not uncommon to seek help from a financial advisor.

I know plenty of people who have had huge success working with a financial planner. But I know others who didn’t have as much luck.

Financial Advisor Pros:

• You don’t have to learn all this stuff yourself.
• Can get your money in the best accounts to save on taxes.
• Save time by having an advisor manage a portfolio for you.
• Create a personal wealth plan for your specific situation.
• Can add an extra barrier to your money, preventing you from making a rash decision.

Financial Advisor Cons:

• Costs associated with hiring an advisor.
• Possible conflict of interest. Some advisors are also brokers, getting kickbacks on sub-standard products that they sell you. Make sure your financial advisor has a fiduciary duty to work on your behalf.
• Tough to find the right financial advisor for you. Like all experts, it can take some trial and error to find someone who’s truly good at their craft.

Whether you decide to work with a financial advisor or not is entirely up to you. Just make sure you shop around and do your due diligence before making a long-term commitment. A good option is to look for a few and try them out on smaller projects for an hourly fee. That’ll give you a better sense before you have them manage your entire portfolio.

Financial Planning Guide For 2020 is a post from: I Will Teach You To Be Rich.

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20 Closing Costs to Know Before Buying a House

Closing costs can be a painful surprise to new home buyers.

What are closing costs?

They’re a range of expenses and services when buying a home. The majority of closing costs will fall on the buyer, but the seller will be responsible for some as well.

In most cases, buyers can expect to pay between 2% and 5% of the purchase price on closing fees. So, if the home costs $200,000, expect to pay between $4,000 and $10,000 in closing costs.

Understanding how closing costs work and what they cover will help you budget accordingly to ensure a smooth transaction in the final stages of buying a home.

1. Appraisal Fee

Lenders need to know how much a property is worth before they can approve a loan. There are two main reasons for this.

• To make sure the amount you want to borrow is justified.
• The lender needs to be able to recoup the value of the home if the buyer defaults on the loan.

The cost associated with an appraisal will vary depending on the complexity of the process and the location of the property. But the typical cost of a home appraisal is $300 to $400.

2. Home Inspection

A home inspection is different from an appraisal. The purpose of an appraisal is to get an approximate value of the home, whereas the inspection assesses the condition of a house.

Before a bank lends you hundreds of thousands of dollars, the bank wants to know that the house is structurally sound and safe to live in. And so should you.

The results of a home inspection can give the buyer some leverage to negotiate the sale price. If severe problems are discovered, you might have the option to back out of your contract if you can’t come to an agreement with the seller on how to fix those issues.

Home inspections are roughly $300 to $500.

3. Application Fee

An application fee covers the cost to process a request for a new loan.

It includes costs related to administrative expenses and sometimes covers credit checks depending on the lender. Some lenders will charge an application fee just to make sure that the buyer doesn’t go elsewhere for a loan.

Application fees can be as low as $25 or as high as $150.

4. Credit Report

Lenders need to run a full credit report on a buyer before offering the terms of a mortgage loan.

In some cases, the credit check will be included in the application fee. But it’s not uncommon for lenders to charge a borrower separately for a credit report.

Credit report fees are usually $20 to $30, at most.

5. Origination Fee

The loan origination fee is also known as the underwriting fee, processing fee, or the administrative fee. Lenders charge an origination fee to evaluate and prepare a mortgage loan.

It covers notary fees, document preparation, and the cost of the lender’s attorney.

Origination fees are usually based on the amount of the loan. Buyers should expect to pay about 0.5% of the amount borrowed. For example, a $200,000 mortgage would result in a $1,000 origination fee.

6. Attorney Fees

In some states, it’s required for an attorney to be present at the closing of any real estate purchase. Even if this is not a requirement in your state, it’s still in your best interest to hire an attorney if you’re buying a home.

Your attorney will make sure all of your documents and contracts are legally sound.

Attorney fees vary based on the rate and how many hours they work for you. Real estate lawyers charge anywhere from $150 to $350+ per hour.

7. Assumption Fee

Some homes have an assumable mortgage. This means that the loan can be transferred from the current owner to the subsequent one. The interest rate and terms stay the same on an assumable mortgage.

For example, if a 30-year mortgage is five years old, the buyer assuming the loan has 25 years to pay it off.

If you’re assuming a mortgage, you can expect to pay a variable assumption fee based on the balance of the loan.

8. Prepaid Interest

Interest accrues on mortgage loans between the settlement date and the due date of your first monthly payment. Lenders typically require the buyer to pay the interest accrued during this time.

As a buyer, you should be prepared to pay this amount at the closing. The cost of prepaid interest fees will depend on the size of your loan.

9. Mortgage Broker Fee

Mortgage brokers act as a middleman between borrowers and lenders. If you hire a mortgage broker, they’ll work on your behalf to find competitive interest rates and loan terms from different banks and lenders.

While a broker can help you get a good deal, they’ll need to be compensated accordingly.

Mortgage brokers are either paid by the lender or the borrower. Compensation ranges from 0.50% to 2.75% of the loan amount. Federal law prohibits mortgage brokers from making more than 3%.

10. Title Search Fee

The purpose of a title search is to ensure that the person selling the property is the legal owner. A title search will also uncover any outstanding liens or claims against the house.

If the real estate records aren’t computerized in your area, the title search can be a labor-intensive process. The cost for a title search will vary based on the company and region, you should expect to pay about $200.

11. Title Insurance

There are two types of title insurance that are associated with closing costs:

• Lender’s Title Insurance — Lenders require this loan policy as protection if there is an error in the title search. Coverage lasts until the loan is paid off in case someone claims ownership of a property after the sale.
• Owner’s Title Insurance — This coverage protects you, as the buyer, in case claims are made against the property after the closing. Coverage lasts as long as you own the property and typically costs about 0.5% to 1% of the purchase price.

It’s possible to get the seller to pay for your title insurance costs, but that’s up for negotiation. Sometimes discounts are available if the lender and owner purchase a protection policy at the same time.

12. Survey Fee

Getting a property surveyed is usually required by a lender before the loan is finalized. Even if your lender doesn’t require this, as a buyer, you should always get your land surveyed before you buy a house.

The survey fee can either be paid by the buyer or the seller. The costs are used to confirm the dimensions and size of the property.

13. FHA, USDA, and VA Fees

All loans insured by the Federal Housing Administration are subject to FSA mortgage insurance premiums. Loans guaranteed by the US Department of Agriculture or the Department of Veterans Affairs are subject to guarantee fees as well.

• The FHA requires an upfront prepayment of 1.75% of the loan.
• The USDA loan upfront guarantee fee is 1% of the loan amount.
• VA guarantee fees are between 1.25% and 3.3% of the loan amount, depending on the down payment.

14. Mortgage Insurance Fees

Some lenders will require you to pay a year’s worth of mortgage insurance premiums upfront. Other lenders require a lump-sum payment to cover the entire duration of the loan.

Mortgage insurance fees typically cost between 0.55% and 2.25% of the purchase price.

15. Property Taxes

It’s common for buyers to pay two months’ worth of property taxes at the closing. These cover both city and county taxes.

The amount of tax paid depends on the value of the property, your income, household status, and local government rates.

16. Homeowners Insurance Premium

Most lenders will require the buyer to purchase a home insurance policy before the settlement is finalized. This keeps you protected in case of damage, vandalism, burglary, and more.

If the property has an HOA fee, the association might include insurance premiums in the monthly dues. So if you’re buying a condo or other property with an HOA, be prepared to pay those dues upfront as well.

17. Escrow Account Fees

An escrow company is responsible for handling all of the funds involved in the real estate transaction. It’s their job to make sure all parties fulfill their payment obligations and get paid appropriately.

For example, at the time of the closing, the buyer will wire a down payment and closing costs to the escrow account, and the lender will wire the loan amount to the account as well. The escrow company pays off the loans, pays third-party providers, and sends the remaining funds to the seller.

Escrow fees are usually based on the purchase price or loan amount. This is also known as the closing fee or the settlement fee.

18. Discount Points

The discount points, also known as discount fees, are paid to the lender to lower your interest rate. This is commonly referred to as “buying down the rate.”

For example, if you pay 1% of the loan amount (one discount point), the lender will reduce your interest rate by a specific percentage amount. In most cases, paying one point reduces the rate by 0.25%, but this varies depending on the lender, loan type, and current interest rates.

19. Real Estate Commission

Real estate commission fees are split between the buyer’s agent and the listing agent. Commissions can range from 5% to 8% of the sale price, but 6% is the industry standard.

The commission fees are almost always paid by the seller, unless otherwise negotiated.

20. Title Transfer Fees

Another common fee paid by the seller is the transfer tax. This legally transfers the seller’s property rights to the buyer.

Title transfer fees vary by region. But it’s usually a fixed amount per every $1,000 of the sales price, such as $5 or $7.50.

Buying a home is not as simple as paying a down payment and getting approved for a mortgage. You need to have a clear understanding of other closing costs, so you’re not surprised by additional fees.

Having the funds ready to pay your closing costs will ease the transaction process in the final stages of the sale.

20 Closing Costs to Know Before Buying a House is a post from: I Will Teach You To Be Rich.

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Effective tax rates in the United States

For the most part, the world of personal finance is calm and collected. There's not a lot of bickering. Writers (and readers) agree on most concepts and most solutions. And when we do disagree, it's generally because we're coming from different places.

Take getting out of debt, for instance. This is one of those topics where people do disagree — but they disagree politely.

Hardcore numbers nerds insist that if you're in debt, you ought to repay high-interest obligations first. The math says this is the smartest path. Other folks, including me, argue that other approaches are valid. You might pay off debts with emotional baggage first. And many people would benefit from repaying debt from smallest balance to highest balance — the Dave Ramsey approach — rather than focusing on interest rates.

That said, some money topics can be very, very contentious.

Any time I write about money and relationships (especially divorce), I know the debate will get lively. Should you rent a home or should you buy? That question gets people fired up too. What's the definition of retirement? Should you give up your car and find another way to get around?

But out of all the topics I've ever covered at Get Rich Slowly, perhaps the most incendiary has been taxes. People have a lot of deeply-held beliefs about taxes, and they don't appreciate when they read info that contradicts these beliefs. Chaos ensues.

Tax Facts

When I do write about taxes — which isn't often — I try to stick to facts and steer clear of opinions. Examples:

• The U.S. tax burden is relatively low when compared to other countries.
• The U.S. tax burden is relatively low when compared to U.S. tax burdens in the past.
• A large number of Americans (roughly one-third) pay no federal income tax at all.
• Despite fiery rhetoric, no one political party is better with taxing and spending than the other. The only period during the past fifty years in which the U.S. government had a budget surplus was 1998-2001 under President Bill Clinton and a Republican-controlled Congress.

Even when I state these facts, there are people who disagree with me. They don't agree that these are facts. Or they don't agree these facts are relevant.

Here's another fact that can stir the pot: The United States has a regressive tax system. That is, low-income earners pay a larger share of their income to taxes than high-income earners do. I'm not here to comment on whether or not this is a good thing or a bad thing, but it's a fact.

Yesterday, I read an article that complained the wealthy are taxed too much. (I wish I could find the article again but I can't. It was an aside in some other piece, and I can't figure out which one.) The author made an argument along these lines: “The top five percent of income earners pay half of all taxes in the U.S.” (My numbers aren't quite right there because I can't find the source, so don't focus on them. But you get the gist of the author's argument.)

While this statement is true, I feel that it's meaningless in isolation. What percentage of income do these top earners make? I'd bet big money that their share of the income pie is much larger than their share of the tax pie.

Effective Tax Burden

To me, what matters most is each individual's effective tax burden. Your effective tax burden is usually defined as your total tax paid as a percentage of your income. If you take every tax you pay — federal income tax, state income tax, property tax, sales tax, and so on — then divide this total by how much you've earned, what is that percentage?

This morning, while curating links for Apex Money — my second personal-finance site, which is devoted to sharing top money stories from around the web — I found an interesting infographic from Visual Capitalist. (VC is a great site, by the way. Love it.) They've created a graphic that visualizes effective tax rates by state. Here's a summary graph (not the main visualization):

As you can see, on average the top 1% of income earners in the U.S. has an effective tax rate of 7.4%. The middle 60% of U.S. workers has an effective tax rate of around 10%. And the bottom 20% of income earners (which Visual Capitalist incorrectly labels “poorest Americans” — wealth and income are not the same thing) has an effective tax rate of 11.4%.

Tangent: This conflation of wealth with income continues to grate on my nerves. I'll grant that there's probably a correlation between the two, but they are not the same thing. For the past few years, I've had a low income. I'm in the bottom 20% of income earners. But I am not poor. I have a net worth of $1.5 million. And I know plenty of people — hello, brother! — with high incomes and low net worths.

Is this system fair? Should people with high incomes pay more? Are we talking about numbers that are so close together that it doesn't matter? I don't know and, truthfully, I don't care. I'm concerned with personal finance not politics. But I do care about facts. And civility.

The problem with discussions about taxation is that each side talks about a different number. When Republicans say high-income earners pay more, they're talking about raw numbers. And they're correct. When Democrats say low-income earners pay more, they're talking about taxes as a percentage of income. They're also correct. But this is like comparing apples to oranges.

Final Note

Under the Digital Accountability and Transparency Act of 2014, the U.S. Department of the Treasury was required to establish a website — USASpending.gov — to provide the American public with info on how the federal government spends its money. While the usability of the site could use some work, it does provide a lot of information, and I'm sure it'll become one of my go-to tools when writing about taxes. (I intend to update a couple of my older articles this year.)

The USA Spending site has a Data Lab that's currently in public beta-testing. This subsite provides even more ways to explore how the government spends your money. (I also found another simple budget-visualization tool from Brad Flyon at Learn Forever Learn.)

Okay, that's all I have for today. Let the bickering begin!

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Introducing Wealthsimple Cash: Great rates on money you’re not investing

Wealthsimple Cash is a new spending and saving account replacing Wealthsimple Save. It’s offering 2.4% interest, a stunning metal card, and a host of extra features. Wealthsimple is one of our favorite fintech brands. Their platform Wealthsimple Invest is a roboadvisor that lets you invest in the stock market easily, affordably, and without any headache. [...]

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Cash Advance Pros, Cons and Alternatives

Did you know that  you can get a short-term cash loan from your credit card?

It’s called a cash advance.

It comes in handy  when you need some cash ASAP.

Be careful though, watch those fees which can be 5% of the total and a higher APR. If it’s an emergency, the fee can be worth it.

Let’s dive in.

Understanding a Cash Advance and How it Works

All sorts of emergencies can happen. Maybe something comes up and you’re forced to pay cash without having enough money in your checking account.

Whatever the circumstances, sometimes you just need cash.

Unlike the money you withdraw from your bank account, you don’t own the money you take as a cash advance. Instead, you are using the balance from your credit limit. Even if your credit limit is high, for most people, their cash advance limit is usually capped at a few hundred dollars. You can find your credit limit and cash advance limit by looking at your monthly credit card bill.

A cash advance is borrowed, and you have to pay it back with interest. It’s like you are using your credit card to buy cash instead of a burger.

Your bank looks at a cash advance and a credit card purchase differently. If you pay your credit card bill each month on time, you usually wouldn’t be charged any interest on it. However, as a cash advance is a short-term cash loan, you will be charged interest on it from the day you borrow the cash until you pay it back.

That makes a cash advance much more expensive than just using your credit card to make a purchase. The interest adds up quickly so taking a cash advance must be your last option.

That said, it’s still better than a payday loan.

In addition to taking cash directly, buying foreign currency, gift cards, lottery tickets, making electronic transfers, and paying mortgage payments are all considered a cash advance if paid via a credit card.

Methods of Getting a Cash Advance

If you run into an emergency and need a cash advance, here’s how to get one:

At an ATM: Your credit card must have a Personal Identification Number (PIN) to get a cash advance at an ATM.  If it doesn’t, you can call your bank and ask them to set one up.

If you have your PIN, you can simply go to an ATM, insert your credit card into the slot on the ATM machine and punch in the amount of cash you want. You have to agree to pay an ATM fee, which is different from the cash advance fee and interest. Once you accept it, you will get your cash right away.

You can go to any bank’s ATM for a cash advance, but I would recommend going to the bank that issued your credit card to avoid the ATM fee. In addition to the cash advance limit, many banks have a withdrawal limit per day, which may further cap the cash advance you can take using an ATM.

At a Bank: You can go to your card’s bank teller and ask for a cash advance. Remember to carry your credit card and a valid personal ID.

Your bank will likely charge a fee on top of the cash advance fee and interest.

Using a Convenience Check: You may have been mailed convenience checks along with your credit card. Their purpose is to get a cash advance easily.

Just fill out the convenience check like any regular check and deposit it at your bank to get a cash advance. In most cases, convenience checks will let you take a higher cash advance than an ATM.

Understanding The Math: What’s The Cost?

A cash advance is a terrible deal. The fees and interest are too high and I don’t recommend using them often. But let’s put that aside and assume you’re in a cash crunch. What will the total cost look like?

Here’s the breakdown of the cost:

• Cash Advance Fee: Credit card providers make a lot of money when you take a cash advance. Even though it varies across providers, most charge a flat fee between $5 and $10 or 3-5% of the cash advance amount, whichever is higher.
• Cash Advance Annual Percentage Rate (APR): The APR for a cash advance doesn’t work the same as normal credit card purchases. First, the APR for cash advances is usually higher. Second, you can’t avoid the APR by paying your card in full every month. The interest for a cash advance kicks in right away. It’s critical that you pay off the cash advance as quickly as possible.
• ATM/Bank Fee: The ATM/Bank fee can be a flat charge of $3 to $5.
• Cash Advance Balances Come Last:  If you carry a normal balance on your credit card and take out a cash advance, all payments to your card reduce the normal balance BEFORE the cash advance. You have to pay off the normal balance in full before paying off the cash advance. On a card with a high balance, this could be very difficult to do.

You will find all these details in your credit card’s Schumer box (aka a document with all the “fine print” that contains the terms, fees, and interest of a credit card agreement).

Here’s how much a $500 cash advance will cost you if you take 6 months to pay it back:

Cash Advance = $500

Cash Advance Fee (5%) = $25.00

Cash Advance APR (25%) = $69.02

ATM/Bank Fee = $5

Total Charges (Interest + Fees) = $99.02

Total Amount To Be Paid Back: $599.02

So if you borrow $500 for 6 months with a cash advance with the fees above (some can even be higher!), you’ll basically pay $100 to do so. That’s a terrible deal.

Apart from the direct cost, a cash advance can affect your credit score in two ways.

Firstly, paying off a cash advance can become difficult as it is expensive. If you fail to pay or miss a payment, your credit score will take a hit.

Secondly, a cash advance could also negatively affect your credit score if it increases your credit utilization score above 30%. A credit utilization score is a ratio of the credit you have used to the credit available to you. It is one of the several factors used to calculate the credit score. A lower ratio tells lenders that you are a responsible spender and don’t depend too much on credit.

The Least Costly Cash Advance Options

Interest and fees on a cash advance are usually calculated as a percentage of the amount you borrow, so even a difference of 1% can add up to a massive amount. In that case, try to find a credit card that has a lower cash advance rate:

PenFed Credit Union – PenFed has several relatively low-cost cash advance credit cards. I recommend their PenFed Platinum Rewards Visa Signature Card and PenFed Promise Card. They don’t have a cash advance fee, and their cash advance APR is between 11.74% and 17.99%.

You can apply for a PenFed credit card if you or a family member has worked for the United States Department of Defense. You can also get one by making a one-time donation of $15 to Voices for America’s Troops, a non-profit organization.

CapED Federal Credit Union – The CapED Visa Platinum Credit Card has no cash advance fee. Its APR is between 9.45% to 17.45%. I also like that it does not have an annual fee. You can join CapED by simply donating $20 to the Idaho CapED Foundation.

American 1 Credit Union – American 1 has four credit cards that don’t charge you a cash advance fee. You can get one of them by joining Community 1 Operative after paying a $3 membership fee. I recommend their American 1 Rewards Credit Card. It charges an APR between 9.49% to 18% for both purchasing and taking a cash advance.

Most major banks charge a higher fee and an APR of about 25% for taking a cash advance. At the very least, look through all your cards and find the one with the lowest cash advance APR and fees before taking out a cash advance.

Cash Advance Alternatives

If at all possible, consider these alternatives before going with a cash advance:

• Friends and family: You should consider borrowing money from your closest folks. I know conversations about money can get awkward, embarrassing, and emotional. You’ll get the best terms from friends and family though.
• Personal Loan: If you have a good credit score, taking a personal loan can be cheaper than a cash advance. If your credit score is excellent (720-850), the interest rate will usually be between 10% to 12.5%. If it’s between average to poor, it could be anywhere between 13.5% and 32%.
• Salary Advance: Check if your employer offers a low-cost cash advance. Their interest rate can be as low as 10% but can shoot up to more than 100%. Compare it against the cost of a cash advance and make a call. You can repay the loan with automatic deductions from your salary.
• 401k Loan: Most employers let you borrow money from your own 401k account. As far as possible, do not borrow from your 401k as it can drastically reduce the funds you have at the time of retirement. The loan term is 5 years, and the loan amount is capped at 50% of the funds or $50,000, whichever is higher. The interest rate is usually around the personal loan rate.
• Roth IRA: I would not recommend taking money from your Roth IRA as it is meant for your retirement. But you are allowed to withdraw money from a Roth IRA without any tax penalties. You can withdraw the entire amount after 59½ years of age. Before that, make sure you don’t withdraw more money than how much you have contributed as it will be taxed.

Avoid Cash Advances If Possible

A cash advance is COSTLY. That’s why you should take it only in the case of an emergency and when you have no choice. Before taking one, make sure you know how much it will cost you. Only borrow the amount you can afford to pay back.

I would gladly take a cash advance before a payday loan though. Payday loan fees and interest are brutal. If those are your only two options, definitely go with the cash advance.

Just don’t make it a habit. Cash advances are a huge drag on your finances if you use them regularly.

Cash Advance Pros, Cons and Alternatives is a post from: I Will Teach You To Be Rich.

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The Complete Guide to Vanguard Index Funds

Index funds are like cheating. And the Vanguard Index Funds are the best around.

You get more while paying less. Your money grows faster than doing it yourself or using professional managers. The fees are also crazy low, so low that you won’t even notice them.

Better performance at a lower price. It’s one of the situations where paying more doesn’t get you a better result.

And Vanguard’s corporate structure is set up so that the fund investors are the owners. That’s you. All fund profits get returned to fund shareholders as lower fees. You never have to worry about getting gouged.

What Is a Vanguard Index Fund?

A Vanguard Index Fund is comprised of hundreds of stocks and/or bonds. The goal isn’t to pick a few “winners” and beat the market. The goal is to get as much diversification as possible in order to match the market.

While a managed fund may individually choose stocks, index funds invest in most of the funds in a specific index (ie., S&P 500, Dow Jones, Nasdaq).

When you purchase shares of an index fund, you’re basically buying into that market as a whole. Having shares in a Vanguard US stock index fund is like having shares in the entire US stock market. You own a little bit of everything instead of owning shares in a single company.

Index funds also tend to have lower taxes since they don’t buy or sell frequently like managed funds. Index funds also cost less than managed funds because there’s less time spent hand-picking stocks and bonds.

How do the index funds work?

When building a stock index fund, Vanguard purchases shares from a ton of different companies. Vanguard’s goal is to match their ownership of a given company to that company’s share of the overall market.

For example, let’s say a Vanguard fund has $100 to invest and that Amazon represents about 10% of the entire stock market. In this case, Vanguard would invest $10 into Amazon and the remaining $90 into other companies. If Amazon’s value grows, Vanguard buys more. If it shrinks, Vanguard buys less.

Then when you buy shares in that index fund, you have a claim to a small percentage of all those investments that Vanguard makes on your behalf. When those companies give dividends, you get your cut. And as the value of the market grows or shrinks, the value of your investment changes with it.

This is how index funds work across all their respective markets: stocks, bonds, real-estate, international stocks and bonds, etc. Vanguard has 80 index exchange-traded funds and more than 60 main index funds from which to choose. Each of them tracks their respective market as closely as possible.

Our Take on Vanguard Index Funds

Vanguard is an excellent option for index funds. They started the index fund revolution and set the standard for the entire industry. Compared to index funds from other firms, Vanguard either has the lowest fees or comes really close.

They do have one major downside: most of their funds require at least a $3,000 deposit to get started.

In the past, the lowest fees from their Admiral Funds didn’t open up until you had $10,000 invested. Vanguard did eliminate this restriction and now offers their lowest fees at the $3,000 minimum. It’s a good example of Vanguard always looking for ways to reduce their fees.

For first time investors, $3,000 is still a steep requirement. Many index funds at other firms don’t have any minimums, you could start with an investment of $10 if you wanted to.

When I was starting, I saved up $3,000 in order to open up my first Vanguard investment fund. That’s one option.

But if the $3,000 minimum is too steep, I’d go with another firm.

The Cost and How to Buy Vanguard Index Fund Shares

Every index fund has an expense ratio, it’s a percentage that the fund charges you every year based on your total investment in that fund.

Most of the Vanguard index funds have an expense ratio in the 0.04% to 0.15% range. As a rough rule, simple index funds like total stock or bond indexes are on the lower end and more complicated markets like precious metals will have higher fees. It wasn’t that long ago that mutual funds would charge 1-2% so these expense ratios are super low.

Vanguard does technically have an annual service fee of $20 per account. There’s two ways to avoid this fee:

1. Have at least $10,000 in the account
2. Agree to electronic delivery for all documents

Since electronic documents are almost always easier, most folks can easily get the fee waived. So all you have to worry about is the expense ratio on your funds. Everything else is free. That includes buying and selling Vanguard index funds.

A list of Vanguard’s fees is here.

The Best Vanguard Index Funds

Vanguard has dozens of index fund options to choose from.

If I had to pick only four index funds to invest in for the rest of my life, it would be these four. They have the best combination of:

• Simplicity
• Low fees
• Diversification across asset classes

For most folks, these are the only index funds you really need. You could easily build an entire retirement around just these funds.

• Vanguard Total Stock Market Index Fund (VTSMX): The Total Stock Market Index Fund puts investors in the middle of the US. equity market. The fund covers all ranges of investments from small to large-cap and value stocks. Overall stock market volatility is the biggest risk here.
  
• Vanguard Total International Stock Index (VTIAX): The VTIAX gives investors exposure to international stock markets which tend to have a low correlation with US stock performance which makes it a great option for diversification. The index focuses on both emerging and developed markets.
• Vanguard Total Bond Market Index Fund (VBMFX): This index fund invests 30% in corporate bonds and 70% in U.S. government bonds over a range of short, mid, and long-term levels. This fund invests in all areas of the fixed-income market. It’s a great option for getting full exposure to the US bond market.
• Vanguard Total International Bond Index Fund (VTABX): The VTABX exposes investors to non-U.S. investment-grade bonds. This fund focuses on governments, corporate securities, and international agencies. The fund is a mix of developed and emerging countries.

The Lazy Portfolio of Vanguard Index Funds

If the idea of scouring the list of stock prices makes your head hurt, you could choose a lazy portfolio option. A lazy portfolio option is exactly what it sounds like: investing with minimal effort.

There are a few ways you can do this.

With a two-fund portfolio, you split your investment between stocks and bonds, a popular option is the 60/40 split. By allocating 60% of your investment towards stocks and 40% towards bonds, you put some money at risk for bigger returns while protecting the rest of your investment in bonds which tend to be less risky. If you went this route, you’d have an entire portfolio with just the VTSMX and VBMFX funds.

For the three-fund lazy portfolio, you divide your investments between stocks, international stocks, and bonds. If you follow the 60/40 rule for this type of investment, you would split the 60% stock investment between U.S. based stocks and international stocks, with the remaining 40% in bonds.

Finally, in a four-fund portfolio, you divide your total investment into four parts: U.S. stocks, small-cap U.S. stocks, international stocks, and bonds. Alternatively, you could factor in international bonds over one of the stock options.

Here’s the split that I use:

• 80% in stocks, 20% in bonds.
• Of the stock portion, 70% in US stocks, 30% in international stocks.

That’s a super simple yet very effective three-fund lazy portfolio. It requires almost no effort to maintain and has gotten me a handsome 10% annual return during the decade-long bull market that we’ve had.

In general, weight more heavily towards stocks when you’re younger. Then weight more heavily towards bonds as you get close to retirement.

We go into more detail on the lazy portfolio here.

Other Options For Index Funds

While Vanguard is the oldest and most well-known company that provides index funds, there are many companies that offer index funds.

Before you choose a company to work with considering the following:

• Does this company offer the type of funds I want or need?
• What are the annual fees like?
• Are there other service or trading fees?
• Do I prefer to keep my accounts consolidated at a single bank?
• How much is the minimum investment required for each fund?
• Do I need to have an account minimum to maintain a brokerage account with certain companies?

Other index fund options include Schwab, Fidelity, and TD Ameritrade. All three are great options with solid reputations.

The Complete Guide to Vanguard Index Funds is a post from: I Will Teach You To Be Rich.

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EQ Bank raised their interest rate to 2.45%

If you don’t already have an EQ Bank Savings Plus account, now is the time to get one. EQ Bank has raised its interest rate and is now offering 2.45%* everyday interest rate on the EQ Bank Savings Plus Account. This is one of the highest interest rates available on savings accounts in Canada. Furthermore, [...]

The post EQ Bank raised their interest rate to 2.45% appeared first on Money After Graduation.

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How To Buy a House in 2020

Buying a house is one of the biggest financial decisions most people ever make.

So it’s no surprise that there are a LOT of misconceptions around it. A few common ones:

• Renting is throwing money away because you don’t own a house!
• Houses are a good investment because they build equity.
• You need to buy a house (and get married and have kids) after you graduate college.

Luckily, this is all nonsense.

In reality, renting might be better than owning. It really depends on where you live (check out this great calculator from NYT to see what that means for you).

Also, real estate is not that great of an investment. In fact, Yale economist and Nobel Laureate Robert Shiller reported that from 1890 to 1990, the return on residential real estate was just about zero after inflation.

Perhaps most importantly, though, buying a house is a very personal decision. That means no one can and should tell you whether or not you should buy.

Renting and owning are two very different lifestyles. Knowing exactly what goes into both is the key to making the right decision for you.

That’s why we want to dive into exactly what goes into buying a house—and how to buy one if you do want to.

Before Buying a Home: Know The True Cost

It’s easy to think that if you’re renting, you’re throwing money away. After all, your rent checks is going to the landlord who actually owns the property.

However, this often couldn’t be further from the truth.

Why? Simple: Phantom costs.

These are the unseen costs many people don’t take into consideration when they purchase a house. After all, owning a home is much more than a mortgage.

Some examples of phantom costs:

• Homeowners Association (HOA) fees
• Property taxes
• Insurance
• Utilities
• Home repairs
• Interest
• Maintenance fees

In the end, these costs will add hundreds of dollars per month to your living expenses beyond the mortgage payment.

Check out this infographic below for a breakdown of what this can look like over the course of a 30 year mortgage.

But that doesn’t mean buying is always a bad decision. In fact, you might be in a place in your life when it just makes more sense to do so (ex: have kids and need more space, work requires you to move to a specific location, etc.).

If that’s the case for you, it’s important to know exactly how much house you can afford before you start looking for one—which brings us to…

Know How Much House You Can Afford

If you’re going to buy a house, knowing how much house you can afford is the first step in the process.

Knowing the amount you can spend will allow you get the right loan AND make sure you can pay it off.

Finding the right amount is simple too by using the handy 28/36 rule.

This is a great back-of-the napkin system that even mortgage lenders will use to determine whether or not you can afford a house.

And it’s straightforward:

• Your max household expenses shouldn’t exceed more than 28% of your gross monthly income. Including everything within your home payment.
• Your total household debt shouldn’t exceed more than 36% of your gross monthly income. This is also known as your debt to income ratio.

For example, if you earn $3,000 / month in gross income, the best mortgage you’re likely to attain would be no more than $840 / month — because that’s 28% of your gross income.

By that same rubric, if your debt is at or exceeds $1,080 / month, you probably should focus on paying down your debt rather than buying a house.

If you want to learn more on this topic (and you should) be sure to check out our article all on how much house you can afford.

Know What Your Credit Score

If you plan on getting a mortgage to buy a house, you absolutely need to check your credit score.

Not only that, but you also need to make sure that your credit score is good to get a good home loan.

Not doing so could result in tens of thousands of dollars lost over the course of your mortgage.

That’s not an exaggeration either. Imagine two people: One has a great credit score of 790 and the other has a low credit score of 630. Both are looking to get a $200,000 30-year fixed-rate home loan.

How much do you think they’ll each pay in interest? Take a look:

Source: MyFico.com, calculated December 2019

The one with a bad credit score will end up paying $66,000 more than the one with a good credit score! That’s assuming they are able to get a mortgage at all with a score like that.

If your credit score isn’t the best, you’ll want to improve it. Here are a few resources from IWT that’ll help you do just that.

• How to get out of debt fast
• Check your credit score — the most ignored Big Win
• Pay off your credit card debt

Mortgage Rates in 2020

Good news: Mortgage rates have been trending lower for the past few years—and it’s expected to remain low in 2020.

As of January 2020, rates have been sub-4% since 2019 (Freddie Mac). That’s an incredibly low mortgage rate and a boon for any homebuyers going into this year.

Bottom line: There’s no better time to buy since rates are so low right now.

Cash On Hand: Down Payments and Hidden Costs

The conventional wisdom is that you need a 20% down payment in order to attain a mortgage. Though that’s a great savings goal to shoot for, you likely don’t need that much to get a loan.

For example, first-time homebuyers can get an FHA loan which requires just a 3.5% down payment.  Even most conventional down payments can go as low as 5% (Consumer Protection Bureau).

BUT it matters how much your down payment is in the long run. Why? The more you pay towards your down payment, the less you’ll pay in interest rates over time.

Imagine you want to buy a home that costs $200,000. With a 20% down payment, you’ll end up with $160,000 left to pay off. With a 5% down payment, you’ll have $190,000 left to pay off.

Which one do you think will have a higher interest? The one with the 5% down payment of course.

The more you pay on your down payment means the lower your interest rate will potentially be too. Mortgage lenders like it when you’ve paid as much of your house off as possible before you even make a mortgage payment. It shows that you’re more likely to pay your bills each month.

Bottom line: You don’t need 20% down payment to get a mortgage — but it sure helps if you’re trying to save money.

Working With a Real Estate Agent

A good real estate agent is someone who will work with you and represent your interests. A bad one will mostly just look out for themselves and not care about finding a house that’s right for you.

That’s why it’s so important that you take the time to find a good real estate agent you trust.

There are two types of real estate agencies:

1. Seller’s agency. These agencies represent the person selling the actual house. They are there to protect the interests of the seller. You’re not looking for a seller’s agent.
2. Buyer’s agency. These agencies represent you and want to protect your interests. You want to find a buyer’s agent.

To find a buyer’s agency, contact your state board of Realtors and they will help you find someone who will find you a good house.

Click here to find your state board’s information.

Due Diligence – A Checklist of Things to Look For and Consider

There are a million different things you should watch out for when you’re looking to buy a house. Here are just a few very important ones for you to keep in mind:

• Hire a property inspector: This is a third-party professional who will go through your house and examine it for structural flaws, damage, and repair suggestions. They’ll give you a full report of their findings and you can use this in case of negotiations. Or, if they find something really bad, you can back out of the deal much easier.
• Get a home appraisal: Once you’re approved for a loan, you have the opportunity to ask your lender for a home appraisal. This allows the lender to take into account different factors that might impact the home’s price (how many rooms, swimming pools, the price of the homes nearby, etc). This appraisal will give you an idea of what a good asking price would be.
• Shop around: A lot of home buyers (especially first timers) tend to fall in love with a location and rush into a purchase. Instead, slow down. Be sure to shop around when it comes to your house. And diversify the ways you find homes too. Check newspaper ads, websites like Zillow, and ask your realtor for locations.
• Look beyond the price tag: When negotiating for the home, remember you can always negotiate beyond the price of the house. Maybe you can ask the seller to include a washer and dryer? Or maybe you can ask them to clean the carpets or paint the walls a different color? Get creative!

Take Your Time

Buying a house is a BIG financial decision. That’s why it’s so important that you educate yourself on the process as well as all the ways you can save money in the long run. Be sure to check out a few of our other articles on buying a house for more systems to help you out:

• The 5 steps to buying a house
• Pay off mortgage early: How to pay $70,000 less on your loan
• Find out how much house you can afford with the 28/36 rule

How To Buy a House in 2020 is a post from: I Will Teach You To Be Rich.

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