10 Money Myths To Watch Out For December 8, 2009

We are all familiar with dozens of money myths such as “money doesn’t grow on trees” and we use the quite often. Most myths are fairly harmless and just for fun, however some can be dangerous and if you believe in them it can do serious damage to your finances. Here is a list of some of the most common money myths, some harmless and some dangerous. Feel free to add yours!

1. I Don’t Have Money To Save
This is probably the most dangerous myth to believe in. First of all if you don’t save you will never have enough money, second of all small amounts can go a long way in your savings especially when you take into account power of compounding. Unless you have a large amount of debt, there is no reason why you should not be saving.

2. Buy On Sale to Save Money
This is a great tip if you buying something you need on sale, however I am not sure how buying something that is on sale saves you any money? Did you really need that big LED TV that was 20% on sale or did you just throw away $2000?

3. I’m Too Young For Life Insurance
You maybe young but are you immortal? Age does not determine if you need life insurance or not, your responsibility to your family determines that. If you are young great! Take advantage of the lower rates.

4. I Don’t Need A Will Everything Is Going To My Spouse
Wrong! Unless you have a valid will your spouse may not get everything. If you die instate (without a will) your assets will be distributed according to your province or states legislation and this might not always be how you want it. So get your self a will.

5. Interest-Only Mortgages Makes Home Affordable
You could not be wrong anymore! Paying interest only you will never really own the home you are basically renting the property from the lender. Should the price the drop you may not be able to refinance it. If you cannot afford the payment just rent!

6. Active Funds Outperform Index Funds
Wrong! Studies show again and again that “professional” money managers rarely outperform the index.

7. You Cannot lose by investing in Blue Chip Stocks
Just investors who owned blue chip stocks in 2008.

8. Red Cars Cost More To Insure
This is one I used to believe until a few years ago, the theory was that red cars are more prone to theft and hence cost more. However the color of your car has nothing to do with your insurance premiums.

9. My Work Pension Is Guaranteed
Please do not rely on your work pension to fund your retirement. If we learned one thing from the last economic crisis is that nothing is ever guaranteed. Things may look great now but who knows what will happen in 15 years when you need your pension.

10. Timing The Market Is Easy

You always hear successful stories of those who have timed the market and have made fortunes. We rarely hear of the thousands who time the market but lose fortunes. Studies and reports show that market timing does not work for 95% of us, unless you have money to burn, don’t time the markets.

I am sure there are many more money myths out there, these are the top I think everyone should be aware of.

How Do I Manage My Money? December 5, 2009

Sometimes I wonder how other people manage their money. I figured I would throw my own way out into the wild and see how it compares to your way. Below I have listed the various ways I deal with earning money and spending money.

Paychecks

I have a percentage of my paycheck directly deposited into my checking account. I have the remaining percentage directly deposited into my high interest savings account at ING DIRECT.

Retirement

401k doesn’t have matching so I don’t contribute to it. Instead, I have a Roth IRA at Fidelity which pulls a fixed amount from my checking account once a month. For tax reasons it doesn’t make sense for me to contribute to my old Traditional IRA.

Other IncomeI continually work to figure out ways to diversify my income streams. Two years ago I had no idea how to make money from anything, but a paycheck and some small dividend and interest income. Side work, web site ads, etc. are some of the ways I’ve found and I try to keep this money separated from my normal day job income. I like to think of it as a bonus and try to save it in a separate savings account and watch it grow. (Of course, it also helps at the end of the year when I figure out taxes which, by the way, are way too high. Sure would love a consumption tax)

Bills

I auto pay or charge almost all the bills I can so I can essentially consolidate multiple bills (gas, electric, cable, phone) into one (credit card). This saves me time every month and saves paper and stamps, too. I don’t like anyone automatically pulling money from my savings account, but I do that too in some cases where it reduces my interest rate (like on a federal student loan). I put entries/reminders in my Google Calendar so I can make sure I always have enough money in my checking account depending on when bills are due and when paychecks get deposited.

Tracking Wealth

Net worth is a great way for tracking if you’re getting richer or poorer. Take all your savings, the value of your car and other assets, and then subtract all your debt like loans, outstanding bills, and perhaps even future tax you’ll own on your 401K/IRA– this is your net worth. I use services like FullView and Mint to track this net worth. Lately, with the economy going to hell, I’ve watched this number suffer, but since I’m not one to put all my money in the market it hasn’t been as obscene as what others have seen. The trick to become rich is to grow your net worth– remember that.

Research

There are always new ways to handle your money and many times they are worth ignoring! It wasn’t long ago there were special funds being set up to invest in real estate loans– they were diversified in risk and high yielding– too bad they were all sub prime loans that even the bank was going to lose money on. Be suspicious of new investment and savings ideas (including any I’ve listed here that may be new to you). Don’t take anyone’s advice as gospel, but figure out what you’re really comfortable with in the long run.

Final Thoughts

It’s important to remember that there is not exactly a right or wrong way to manage your money. Just decide to start trying to put together a system that works for you keep at it!

Understanding your Auto Insurance Coverage November 27, 2009

If you merely search for “understanding auto insurance” and “auto insurance facts” on the Internet, you may find a good, two-paragraph summary somewhere, or you may just get buried under about 4,300,000 hits (which the first phrase brought up on Google). Besides the many thousands that mention all kinds of companies or coverage types, you will also have to wade through many more thousands of sales pitches just to get decent definitions of liability, collision, medical coverage, deductibles, driving records and common policy limitations. This article will fight the tendency to “Internet overkill,” and hit the important points for you.

The most important point, of course, is to read your existing policy thoroughly. If you are shopping for coverage for the first time, take the following suggestions to heart, and continue your research in a targeted, effective manner. In fact, if you are in the market for auto insurance, one of the best approaches is to get yourself educated enough so that you can understand what you are being told, and then let a few insurance websites or local agents compete for your business.

Liability first

There’s one old question about auto insurance that you need to examine in the light of your precise situation. “Coverage, coverage and more coverage – can you ever have too much?” Some people don’t think so, not with the lawsuit-happy citizens of these United States, at any rate. However, you have to be realistic and strike a balance between “coverage, coverage, coverage” and cost, cost, cost! Therefore, cover yourself in the right order.

Without a doubt, liability coverage is the most important because it covers three major components, namely, other people’s bodily injury and property damage, plus uninsured motorists. This coverage protects you against loss if you should injure someone, if someone with no liability insurance injures you and also covers your damages if the other party is underinsured. This is by far the most important coverage, and is the minimum required in most states unless there is another lien holder on your auto.

Other terms and concepts

If the bank owns your car, you will probably be required to have complete coverage including collision, which insures the auto itself and covers repairs. Other coverage includes personal injury, which covers your passengers, and medical coverage, which pays for medical and funeral expenses for you or anyone injured in a covered accident. Your deductible also plays a part in your coverage, and a higher deductible means that you pay a lower premium, but keep in mind that in the event of an accident the deductible comes off the top of the amount you get to fix your vehicle.

Some carriers will pay for rental of a vehicle while yours is being repaired. Like any other coverage, this has to be specified in your policy, and if it is not in the policy, it is not part of your coverage, regardless of what any insurance salesman says. In addition, there are details about your car, your amount of driving, etc., that can affect your rate, including where you live. On the plus side, you can usually expect discounts for a good driving record, anti-theft devices, etc., so make sure you mention all of these when requesting a rate quote.

The numbers game

Liability and medical coverage amounts are often expressed in confusing terms (such as “10/15/30”) that refer to the amount in thousands of dollars for certain parts of the coverage. To further complicate matters, the numbers are sometimes given as “per incident” or as the total amount payable under the policy. Make sure that you understand exactly what the dollar limits are, how they are applied, what the “per-incident” and “lifetime total” amounts are, and how the figures relate to the historic experience of drivers like yourself.

You can read various articles on the Internet, like this one and others both more and less specific, to get yourself up to speed before getting some rate quotes. Talk to a few insurance agents, register at a few websites and don’t be afraid to ask questions when you don’t understand a term, a concept or (perhaps most importantly) a dollar figure. It is as unwise to over insure your car as it is to under insure it, so take the time to get the facts.

You should also check with your state’s insurance commissioner to discover what the minimum insurance requirements are for where you live. It is, of course, always wise to educate yourself as much as possible in matters of this importance. If you are still unclear about auto insurance, your state department of insurance should be able to provide you additional help.

ClickInsure.com is a leading broker for health, life and auto insurance in California.  When you need great advice or want to compare auto insurance quotes be sure to visit ClickInsure.com.

Debt-To-Income Ratio – How Much Debt Can You Handle? November 27, 2009

Debt-to income ratio is a financial indicator that helps lenders to ascertain your credibility. Depending on the debt income ratio, a lender decides whether you should be given loan or not. It also evaluates the amount of debt that can be handled by you. Lenders fear losing their money.

 

They have become exceedingly cautious and are approving loans only if consumers are financially responsible. This is where the role of debt income comes into play. In addition to your debt-to income ratio or DTI, credit score is another number that represents your financial responsibility.

Lenders have played a very instrumental role in igniting the subprime mortgage crisis. They approved mortgage loans to borrowers who didn’t qualify for one.

This was done by manipulating income of borrowers, furnishing forged documents of property appraisals to help borrowers qualify for a mortgage. The credit crunch or recession is the outcome of the same.

It is an aftermath of irresponsible lending that has devastated the American economy.

 

Debt-to income ratio has 2 ratios- the front ratio and the back ratio. The front ratio indicates your housing costs. It basically takes into consideration the PITI, the principal, interest rate, insurance as well as taxes.

The back ratio indicates the payments you make for your other debts. This includes credit cards, child support, alimony, student loans etc. It also includes the expenses that are mentioned in the front ratio. A debt-to income ratio of 28/36 is considered a standard. The FHA or Federal Housing Administration allows a debt income ratio of 29/41 to qualify for a loan.

Maintaining a debt income ratio allows you to enjoy several financial benefits that the lenders offer.

The same is with your credit score. If you have a good credit score and a good debt-to income ratio, you are a lender’s favorite.

Cash Out refinance November 20, 2009

If you have any existing loan and you want to take out some cash from the equity you made then it will be considered as cash out refinance. The new loan balance will consist of the current loan and the desired cash-out money.

There are two ways by which a borrower can do cash-out refinance. They can use the home equity line of credit which is known as HELOC, behind the first mortgage they are having or they can refinance their existing mortgage into one or two loans.

Let’s have a look on the following examples where a borrower wants to have $100000 as cash-out from their home:

Home value: $500,000
Existing liens: $300,000 (We can say current loan balance)
Equity: $200,000 (The borrower has paid this amount)

In the above mentioned example total home value is $500000 and the borrower has paid $200000. That means total amount of equity is $200000. So the loan balance is $300000 which the borrowers need to pay off. If the borrower wants to utilize the home equity which is $200000 then the borrower can execute cash out refinance. As I told about this earlier, that a borrower can do this in two ways.

Let’s have a look on the above example assuming that the homeowner has added a second mortgage:

Home value: $500,000
Existing liens: $400,000 ($300,000 1st mortgage, $100,000 2nd Heloc)
Equity: $100,000

In the above example the homeowner has taken a 2nd mortgage behind their existing mortgage which is of $300000. When they took 2nd mortgage of $100000 automatically it increases the loan amount to $400000 and subsequently lowers their home equity to $100000. But the homeowner now can use the $100000 credit line for whatever he wishes.

Now let’s look at the same example and assume that the borrower went for cash out refinance but he did not take any separate loan that means he chooses cash out refinance with single loan.

Home value: $500,000
Existing liens: $400,000 ($400,000 1st mortgage, no 2nd mortgage)
Equity: $100,000

In this example the homeowner refinanced his original $300000 loan and added the cash out money to it that is $100000. So now his total loan amount is $400000. In the both the cases cash out amount and the equity is same. The only difference is here the borrower is taking a single loan may be a completely new mortgage with new lender or new bank with new rate and terms and condition.

So which option you should choose the first one or the 2nd one. If the interest rate is higher then you should go for second mortgage option. Then you first mortgage will not be affected due to high rate of interest.

If you see that interest rate is low then you should go for single mortgage option. Then you will get advantage as your first mortgage loan will also get the facility of low interest rate and for that you will have to pay lesser amount.

payday loans, compare loans, unsecured loan, personal loans choose the best November 7, 2009

You were certainly in the situation that you had no money, but the day when you get your salary was not even close.

You were certainly in the situation that you had no money, but the day when you get your salary was not even close. It happens with everybody. You had to spend money on something, had a bigger bill or lost your money. These events can happen very easily and can let you without money.

Don’t get scared, there is a solution for such cases. You can always count on payday loans. A payday loan means that you borrow the money until your next payday. The loaners don’t care about what you need the money for, they simply give it to you and you pay it back when you get your salary.

If we want to compare loans, a payday loan can be called an unsecured loan. This means that it has no collateral, you simply get the money. It’s logical, because you borrow only small amounts of money and you give them back soon, so it has no sense to secure it with any collateral. Payday loans make part of personal loans, meaning that the money is borrowed for personal use, no matter what that is. Also payday loans have a small interest rate, mainly because the sum is small.

The best loan would be one that has no interest, but even loaners have to live from something, so they charge small percentages to have some income on payday loans.

It’s not hard to find payday loan offers. Probably this is the most common loan and you can find such a loan in any bank or credit company. You just have to take a good look. There are many companies that try to attract people to them by offering low interest rate, high sums of money and many other benefits. There are even companies that offer the first loan free, meaning that you have to repay the same amount that you have borrowed.

To find a good offer, you simply have to search for it. You can do this by traveling the city and going from bank to bank, or you can use online help. There are a lot of web sites that help you compare the offers and decide which one fits your needs the best. A payday loan is a small sum, so if you don’t want to waste your time with searching the best offer, simply pick the first offer that appears on the search list. It will probably be the best offer or at least it will be good. You apply for it, get it and problem resolved.

On the bright side of credit cards October 30, 2009

The use of credit card for purchases is now becoming a trend. It may have caused good effects to others and bad to some. Well maybe all these things would depend on the user, if he/she knows the proper way to use it. He or she will manage to enjoy its different advantages. So looking at the brighter side, let us enumerate these one by one.
Using a credit card is of no doubt a convenient way of paying and provides safety to the user for one need not to carry on cash whenever you need to buy something especially the expensive ones. Therefore, it takes away the fear of losing your cash for some other reasons like theft or carelessness. It also offers a protection under the Consumer Credit Act wherein you could get your money back whenever it is used on a fraudulent purchase after you have reported of its lost or theft. Some credit card companies give incentives, freebies, or special privileges to the users of their card. For example, you could earn “air miles” for every purchase you made and when you have earned enough, you could travel for almost free. Also gives cash rebates on purchases like common annual savings of 1% on all purchases which you can claim by receiving credit on your bill or a rebate check; gas rebates; store and restaurant discounts; and some seasonal rewards for the cardholder.
Cardholders can also exercise their “Stop Payment Rights”, in the event that an item you have purchased is never received or has been broken, or maybe you bought a plane ticket from an airline, which then subsequently declared bankruptcy; you can contact you credit card issuer and initiate a stop payment on that item or product.
For those people with bad credits, this is also a chance to regain a good credit reputation. Just being a good and responsible credit card holder who pays timely while help you restore your credit standing. A good rule of thumb is to prevent spending more than 15% of your available line.
By also using your credit card, you are helping an approved charity, because the companies are giving back a percentage of your purchases thus making a nice tagline of “helping while shopping”.

These are just some of those many advantages. If you are a smart and wise holder, all of these privileges and freebies are yours. So spend wisely!

Advantages to Using Credit Cards with Reward Programs October 27, 2009

Using credit cards wisely is part of an overall financial plan that should include budgeting, savings/investment, debt management and insurance. In your economic life, money is “fungible,” meaning that all these areas are interconnected, and a dollar saved in one area can be spent in another. It all comes out of one “pot,” so to speak, so any time you reach into that pot for more than is budgeted, you will affect your entire financial plan.

That said, there are ways to save money on credit cards – shopping around for interest rates, getting cards with no annual fee, paying your balance off monthly – but there are also ways to make money with them. This is where rewards and/or “points” programs come into play. Remember, though, that credit card companies do not promote rewards programs out of kindness or on a whim. They do it because they can make money doing so. Therefore, you need to know how rewards programs work, and have the discipline to work them to your advantage, or they will just be another expense to you, regardless of the occasional item you get to trade points for (and it may even come in a box with ribbon on it).

Rebates vs. points

When considering what credit card reward programs to join, make sure to research the subject well and think it through. You also need to ensure that the type of program you choose fits your lifestyle and temperament. If you are a bachelor, you don’t need a card that builds rewards points at “Baby & Boo’s Clothes for Youths” or anything like that. You should get reward cards whose advantages that are of real value to you, and valuable right now, not in three years. Naturally, the primary advantage of a rewards program that is well-managed (by you and by the credit card company) is the fact you will be obtaining benefits worth more than the programs cost you.

The two most popular rewards programs are (1) accumulating points toward merchandise or services and (2) getting cash rebates, usually annually. The Discover card is famous for its rebate programs, but the fact is that there are a number of limitations and you have to work diligently to get anything close to the maximum 5% annual rebate. Other cards, from Visa and MasterCard to oil company cards, have rebate programs, too, but most often have points-based rewards programs that are geared to travel or shopping. You need to make this decision, cash back or points, when deciding among the credit cards and rewards programs in effect today.

Tailoring the programs

You may decide that you want a “cash back” card or, better yet, one that does not offer just cash, but also gives you the option of taking rebates in the form of gift certificates or cards. Sometimes, for extra incentive, gift certificates that are used at specified businesses can result in up to double the cash back. If you are a big fan of getting real “bang for your buck,” then you should consider getting a credit card that offers these expanded choices.

Rewards programs in which you build up points can be advantageous especially when used for travel redemption. In fact, among the very first credit card rewards programs were some that let you build up “miles” for use with certain airlines. Today, of course, you can do many more things with your points, and anything you want with your annual cash rebates. Programs run by the different credit card companies share a number of basic characteristics, of course, but then offer incredible variety when it comes to how they operate, what they cost and what they really offer in value.

Making the choice(s)

Whatever rewards program you join, read all the fine print. Make sure you understand what purchases are not qualified, that is, do not earn you any points or rebates. There will always be exclusions. Some cards offer rewards programs with no annual fee, while others will waive the first year’s fee if your spending reaches a certain threshold, but it is very hard to get a no-fee program unless your credit is excellent and your purchases add up to a hefty number.

You should take the time to crunch a few numbers to see if joining a rewards program or two is worth your while. The annual fee, the interest you pay, the amount you use your card – all of these will affect your total cost of membership, and your benefits need to exceed the cost or you will simply be handing over extra money to the credit card company and the bank behind it. Talk to some friends or coworkers about their experiences with rewards programs, and interpret what you hear in terms of your own needs, buying patterns and financial status. The last thing you want to do is make the rewards program a reward for the credit card company instead of yourself!

Credit Cards Made Simple provides information on helping you make the right choice when choosing low interest credit cards and understanding the credit card processing companies.
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Buying Property with an Investment Loan October 26, 2009

When it comes to purchasing a new property, you may want to consider obtaining an investment loan. This option should only be considered if you want to purchase a second home for either the purpose of resale or to use as a rental income. There are many advantages to securing an investment loan for this type of property purchase, and in some places it is the only option open to those who want to purchase investment property. While on the surface an investment loan and a mortgage seem the same, in reality they are two completely different types of funding.

It is important that when you are considering any new loan that you first research all of the possibilities available. It is also highly recommended that you ensure that your credit and financial situation is at the level that your financial institution will require to get the best rates possible. All of this research and previous planning will ensure that you will be able to obtain the best rate, which has the potential to save thousands of dollars over the course of your loan. All of this planning should be done before you even approach your financial institution to avoid any surprises during the actual loan process.

Once you have decided that you meet all of the requirements of your financial institution and you have found the investment loan that will meet your specific situation, then it is time to seek pre-approval from your institution. In this case an investment loan and a mortgage are very similar. You should always secure pre-approval for any investment loan or mortgage that you are seeking before you begin the process of searching for the right property. This will give you an edge over other potential buyers and will give you a concrete amount that you will need to work with during the shopping phase of this process.

It is important to remember that in this case an investment loan will work much like a mortgage in many ways; however there are certain programs and benefits that will not be available. While on the surface both an investment loan and a mortgage will act in the same manner, you may see the difference when it is time to refinance, or in the fees that are charged at the close of the loan. It is important to anticipate these differences to avoid any unnecessary stress during this time.

When it comes to investing in property an investment loan is usually the only option open to you. Many both in and outside of the financial industry will use the terms mortgage and investment loan interchangeably when the conversation turns to investment property. The important thing to remember is that these are two very different loans. Most financial advisers will tell you that investing in real estate is always a wise choice, even in a slow housing market. One of the most secure types of investments will always be real estate, so it may be time to try your hand at the housing market.

Austral Mortgage makes choosing the right Investment loan for you easy. Your Choice of Investment loan will impact on your Investment Return. We have a wide range of loans to suit your mortgage needs. We also provide advanced mortgage calculators to help make your financial decisions easy.

 

How will you select the right debt counseling agency? October 24, 2009

Debt counseling has helped many debtors get out of debt. It is an effective means of finding out alternatives to filing bankruptcy. So, if you visit a debt counselor you can explore the various options that can make you debt free. How effectively a debt counseling session works for you is also determined by the debt counseling agency you choose. There are instances when debtors have consulted credit counselors but failed to derive any benefit from them. This is because the debt counselor may not have been the right choice. To add to the woes of the debtors, it has been reported that many debt counseling agencies have rubbed shoulders with debtors the wrong way.

The BBB has requested consumers to watch out for the following prior to selecting a debt counseling agency.

•    Watch out advertisements
A good debt counseling agency will not flaunt its services or send emails and notifications to consumers in their mail box. You get to know a good credit counseling agency mainly through referrals.

•    Compare agencies
You can ask your friends that have benefited from the services of credit counseling firms. These days most of the credit counseling firms have websites and you can compare services offered and rates of different service providers.

•    Check accreditation
There are many states that require credit counseling agencies to be licensed before they can offer their services. Check if the debt counseling agency you are planning to hire is registered and fulfills the norms of the state.

•    Are the credit counselors qualified?
Avoid hiring services of a credit counselor that is paid fees through commission. They should be paid by an outside organization. The credit counselors should also be qualified.

•    Is your personal information kept confidential?
The company you are choosing should have a privacy policy. Your personal information should be kept confidential.

•    Find out if the services offered are tailor-made?
It is a well known fact that no 2 debtor can have the same solution since the outstanding debt handled by an individual varies greatly. So, avoid hiring a debt counseling agency that doesn’t offer customized solutions.

•    Check past track record
Try to find out the number of drop outs and reputation of the debt counseling agency. The number of complaints lodged against it is also an important measure of the credibility of the credit counseling agency.

•    Fees
Get a fees break up when you are enrolling for the debt counseling program. You may have to pay set-up fees and monthly service charges. You should not be charged more than USD$75 and USD$40 as set-up fees and monthly service charges respectively.

Debt counseling has been made mandatory as per the new federal bankruptcy laws. However, you have to take these credit counseling sessions from a credit counselor who is approved by the government.