I decided to start a side hustle late last year when I saw how much extra money I could make in addition to my regular full-time paying job. A side hustle income is something that is coming increasingly popular among 20-somethings who want to pay off debt, save, or are looking to diversify their income.

In the past seven months, I’ve been able to save up just a bit over $4,000. It’s not going to make me rich, but it’s still $4,000 more than I had seven months ago.

If you’re looking to start a side hustle, there are plenty of examples out there to get you started, from the wacky (Odd Jobs for Quick Cash) to the innovative (Making Thousands off Craigslist).  All the funds from my side hustle (which is kept in its own separate savings account), have been comprised of a variety of ways, such as garage sales, freelance writing, mystery shopping and even blogging. Yes, a lot of people make money blogging and you don’t have to have thousands of readers!

Anyone can make money with a side hustle. I know you may think that you have to have some super special skill to get started, but really, I was just a girl who had a garage sale one day and liked the extra money, so I decided I should come up with more ways to make money.

There are several ways a side hustle can help you reach your goals. Here are some key reasons why it pays to have a side hustle:

Pay off debt faster

By increasing your income, you can contribute more funds toward your debt and become debt-free faster. I don’t think I can express enough how important it is to become debt free. Paying off debt will free up your money to be used toward future expenses rather than literally paying for your past.

Splurge

Perhaps you have your debt repayment plan set and you’re comfortable with how long it will take you to completely pay everything off. Side hustle income can help you splurge on something you normally wouldn’t be able to afford.

It’s a lot easier to work harder when you know the funds will go toward something exciting like a vacation, rather than simply paying off debt. I’ve chosen to contribute all my side hustle income into a vacation fund. I’ve been married two years, and we have yet to go on a honeymoon. With my side hustle income hovering a little bit above $4,000, it is now a case of conflicting schedules rather than money.

Reach other milestones

Perhaps you’ve paid off debt, and also have your own savings account for fun stuff. Have you reached all the other milestones you’ve wanted to accomplish? Such as saving for a down payment or allocating at least six months’ worth of expenses toward an emergency fund?

The upside of a Side Hustle

The great thing about a side hustle, is it allows you to make extra money without quitting your full-time job. Perhaps your side hustle adventure may even turn into a full time business—who knows?

You get to determine how many hours you dedicate to your side hustle business. Most people choose to do something they really enjoy as a side hustle business because then it doesn’t really feel like work.

Especially in today’s digital age, it’s easy to get started with a side hustle. Promote your services with free advertisements on Craigslist, spread the word on Facebook and Twitter, and start a blog with search engine optimization for your services.

A few hours a week spent doing something you enjoy could easily help you earn thousands of dollars to help you reach your financial goals faster.

Also, if you’re interested in a great side hustle series, check out what J. Money is doing over at Budgets are Sexy!

photo by Dan4th

Working in retirement sounds absurd on the surface—I mean it isn’t really retirement if you have to work, is it?

But there are actually solid reasons to work during your retirement years, at least on a part-time basis. This isn’t about being gloomy on retirement prospects either—it’s about being prepared for a world where outcomes are uncertain. And even if we can’t know what retirement will look like right now, we can still prepare ourselves to be ready for what ever it might be.

Why you might need to continue working past retirement

There is no shortage of reasons why we may have to work past retirement age. Consider some of these:

1. Statistics and surveys are indicating that most people don’t have enough money saved up to retire

The future of Social Security is highly uncertain, but we can be pretty sure that benefits will be less than what they are now
Traditional pension plans are hard to come by, and even if you do have one few people stay on jobs long enough to make them work the way they’re supposed to. Job losses are hampering retirement account contributions

2. The financial markets don’t always cooperate with our long term plans

Planning some sort of post-retirement career is one way to develop a back up plan in case any of the above become a negative factor in your overall retirement plans. Increasingly, we have to think of retirement planning as having multiple components—and income sources.

Types of post-retirement careers

You can be either employed or self-employed in retirement, and which one you choose will be affected by how you want to live in retirement.

If you opt for a job, you probably will want to consider a part-time job since it will permit at least semi-retirement. Some of the questions you’ll need answered include:

• Does the field you want to go into employ senior citizens?
• Are there part-time opportunities in the field?
• What is the pay level for part-time work?
• What are the geographic restrictions (is there work where you want to retire?)
• Is it a field that matches your skill set?
• Is it the kind of work you’d like to do?

For many people, the best employment opportunities will be to continue to work in the same field they’re in now, but in a reduced capacity. But again, you’ll need to ask the same question because the job you have now may not suit your future aspirations. Or you may just be tired of it and ready to move on to something completely different.

Self-employment is another route. The advantage here is that it’s easier to work a business around retirement, and that you don’t need anyone to hire you. Both open a lot of possibilities.

Still you have to ask a few questions:

• Is it a business that you will like working in?
• Can you make enough money doing it?
• Will there be any geographic limitations?
• How much capital will it require to start?
• Do you have the skills to make it a success?

Self-employment can be attractive since most people dream of doing it at some point, and retirement often provides the opportunity. Also, if you’ve never been self-employed before it can be a new adventure that keeps you going for a lot of years.

Why you may need to plan your post-retirement career now

The job market looks a lot different when you’re in your 60s or 70s. When you’re younger you can consider a job almost anywhere, but as you get older a lot of employers won’t want you. For this reason, you can appreciate why planning a retirement career is something that should be done well in advance.

As you see from the questions in the last section, there are fine points to consider in a retirement career. It will be, most likely, a career change, whether you go into a different field of employment or start your own business. Either will have to be planned for now.

This is especially true with self-employment, since you will probably need to start the business well before retirement that way it will be a ready income stream when you need it.

Also, consider that if you’re making a wholesale change—doing work you’ve never done before—you will need to do some research, get training or even work a few apprenticeships. That last one is especially good since you could work in the field for a short time and find that you don’t like it. Then, you’ll have to look into something else.

Another factor is personal. Many people work in jobs and careers that don’t really like, and it can be a stretch after doing that for an entire career to let yourself go and think seriously about working in something you really would like to do. Some people know what that is right now, for others it could take years to figure out.

What ever you decide on, you’ll want it to be something you like a lot better than what you’re doing now. After all, even if you can’t fully retire, you still want to enjoy your golden years.

Being ready for what ever happens

Planning a retirement career isn’t about giving up on more traditional retirement. It’s about being ready for what ever happens. We’ve all heard the saying, “the best laid plans of men and mice go awry”, and that can apply to long term financial planning as well.

The Bible tells us as much. In the book of James we read:

Now listen, you who say, “Today or tomorrow we will go to this or that city, spend a year there, carry on business and make money.” Why, you do not even know what will happen tomorrow. What is your life? You are a mist that appears for a little while and then vanishes. Instead, you ought to say, “If it is the Lord’s will, we will live and do this or that.”—James 4:13-15

Retirement isn’t a magical time when all the cares of life disappear—the unexpected can happen any time in life. Some of what can force you to work into retirement might include:

• A stock market crash just before retirement
• A stock market crash during retirement
• A job loss that forces you to make early withdrawals from your retirement savings
• An adult child or family member who needs direct help
• A series of bad investments (hey—nobody’s perfect!)

Planning for the future is about planning for uncertainties; that’s what planning a post-retirement career is all about.

Is a post-retirement career part of your retirement planning? What kind of work to you think will be the best fit?

photo by bravenewtraveler

It’s a sign of the times that health insurance has become one of the primary expenses in many households, often coming in a close second behind the house payment.

There are many reasons for this: healthcare has become more expensive across the board, employers are reducing their contributions to our premiums and, let’s admit it, we want more coverage than ever.

Having the best health insurance available is understandable, but since few of us have unlimited financial resources, we have to make compromises and cut corners where we can.

The idea is to cut the cost while preserving the most basic coverage. This is not always an easy path to take but there are ways to achieve savings without sacrificing too much coverage.

Raise your deductibles and co-payments

As much as we’re disturbed at the idea of having to pay a doctor or clinic directly even though we have health insurance, we have to understand that this has a major impact on our monthly insurance premiums.

The lower your co-pays and deductibles, the higher your insurance premiums will be. This is because co-pays and deductibles are part of first dollar coverage—which is where the most frequent charges come about.

By raising your co-payments and deductibles you can cut your health insurance premium by up to several hundred dollars a month. Raising deductibles will generally have the greatest impact. If you raise the deductible from $1,000 to $2,000 there will be a significant drop in your premium.

As an extreme measure, you can opt for very high deductibles, such as $5,000, $8,000, $10,000 or even higher. This is what is often referred to as “catastrophic coverage”—coverage that only takes affect during a major medical event, or catastrophe.

Catastrophic coverage can seriously lower your insurance premiums, and is worth looking into if you’re premiums have gotten beyond the realm of affordability.

If you do raise your deductible, understand that you will be responsible for more of your direct medical expenses so you’ll need to prepare. Combining catastrophic coverage with an employer sponsored Health Savings Account (HSA) is one way to do this. It enables you to contribute money to the account similar to the way you would an IRA, complete with similar tax benefits. The money in the account is then available to cover expenses your insurance won’t.

If you don’t have an HSA plan available, the next best step is to increase your emergency fund enough to cover the amount of the higher deductible.

Drop unnecessary coverage riders

Most health insurance plans have riders attached that add certain forms of coverage. These are good options to have, but they aren’t worth having if you seldom or never use them.

Prescription drug coverage is one. We all know that the cost of prescriptions has gone into orbit, but that doesn’t mean you absolutely need the coverage. If you aren’t on any recurring drug therapies, and only go to the pharmacy for the occasional anti-biotic, you’re probably wasting money having prescription drug coverage.

Two others are dental and vision coverage. The problem with dental insurance is that the cost of the coverage is very close to the amount of the benefit. It’s more of a benefit coverage than insurance, especially since it doesn’t usually cover dental catastrophes like braces (and you don’t need that coverage anyway if you don’t have children).

Vision coverage can be even worse since you probably don’t use it every year, even though you pay for it. Many of the chain vision centers have extremely generous coupon offers on their examinations, glasses and contact lenses, and these can be far more cost effective than having vision coverage. Just check out the websites before you go to have your eyes examined or need corrective eyewear. Oh, and many of them will not allow you to use their advertised specials if you have insurance coverage.

Take better care of yourself

There are a couple of factors worth discussing in this regard. The first is that the less you need medical care, the less you need to rely on insurance. Take better care of yourself and you’ll be in a better position to take higher co-payments and deductibles, and to drop certain coverage’s.

The second is that if you have private health insurance you can lower your premiums by losing weight, lowering your blood pressure or quitting smoking. The premium increase for certain physical conditions or health habits are significant, and by taking better care of yourself you can remove the higher costs.

You generally will have to improve the health condition over a period of time before the insurer will recognize the change in your health status. Smokers, for example, often need to show that they’ve been off of cigarettes for a certain period of time, like two years. That makes it important to start taking better care of yourself now.

Contact your insurance company to see how much affect any health conditions are having on the cost of your coverage, and what you’ll need to do to demonstrate that you’ve corrected the situation.
Health insurance premiums will only get higher in the future, so it’s important that we do what we can now to minimize the impact on our finances.

Do you have any suggestions for how to lower health insurance premiums?

photo by dborman2

In 2012, it is pretty rate to see a stock certificate anymore.  Stock certificates, like they sound, are legal documents that certify ownership of a specific number of shares of a given company.  Stock certificates can be issued for both public and private companies, and up until about 10 years ago, it was pretty common to see stock certificates floating around in the financial world.

Now, however, companies are no longer required to issue paper stock certificates, and can instead use electronic registration.  In fact, over 420 of the publically traded companies in the United States no longer offer paper shares.  And if you want to get a paper share certificate?  You may have to pay your broker a fee up to $500 to do it!

Why Did They Exist?

Stock certificates were created in the 1600s to prove ownership rights in a company.

There are two basic forms of certificates: registered stock certificates and bearer stock certificates.  A registered stock certificate is only evidence that you own shares in a company.  However, your ownership interest in the company is also recorded and maintained by the company in the stockholder’s registry.  Companies are required to maintain records of stock holders for voting reasons, paying of dividends, and even tax and reporting implications (such as Facebook having over 500 shareholders and being required to file annual statements).

A bearer stock certificate, on the other hand, is a bearer instrument, which means that physical possession of the certificate is what entitles the holder to exercise their legal rights.  Many bearer stock certificates are not recorded with names in the company registers, only the bearer certificate number, and as such, are perceived to be much more confidential instruments.  However, these instruments are also subject to use in many financial crimes, and so they are extremely uncommon instruments to be found.

What to Do With Your Existing Ones?

If you currently have shares in a company in stock certificate form, chances are the you have the certificates in a safe deposit box (for which you pay a fee), and all reporting, such as proxies, annual reports, and dividends, are being handled through a transfer agent like Computer Share.

If you want to sell you shares, or do other complex investing like writing covered calls, you really should move your shares into a standard brokerage account.  I recommend either Options House or Zecco.  It is very easy to do: all you need to do is bring your paper shares to your broker and fill out a simple form. They will then deposit your shares into your account, and destroy your paper shares.

It can be sad to lose your paper shares, but will be cheaper and easier to deal with going forward.

Why Get Them Now?

 Getting paper share certificates is still an option, but why would you want to get them considering you may have to pay a large fee?

Two main reasons:

-Gifts

-Mementos

Giving the gift of stock can be a great way to put someone, especially a child, on a great financial path.  And doing it with a certificate can let them actually appreciate the gift.  Many share certificates are decorated elaborately (see Disney), and kid’s would love looking at them.

Second, having a share certificate (even for just 1 share) can be a great memento of ownership in the company, especially if the company played a big part of your life.  Many individuals get just one share, and have it framed to represent the company.

Readers, what are your thoughts on paper share certificates?  Are they going to even be around in 10 years?

(This has been a guest post written by Robert, who blogs at The College Investor.  He writes about personal finance, investing, and student loan debt issues for college students and young adults.)

I’m going to do it. I’m going to bum change off people for two months and pay for it. My wife thinks I can’t. She think it’s impossible, but just watch me.

My friend seemed pretty determined and sure of himself just a day before he had finally given in to his wife’s demands for a new washer and dryer. But instead of heading off to the local Sears or Best Buy and swiping plastic, he was determined to do things the good old-fashioned way — by asking for simple pocket change.

“Can you give me a dollar or two for lunch,” he asked friends and acquaintances (and sometimes even strangers) every day. He did this for two months and he proved his wife right – in a short amount of time he had enough money to buy a new washer and dryer.

His experience teaches us a couple simple truisms about money: where there’s a will, there’s a way and (even more importantly) that small change adds up, even in a short amount of time.

Tracking Expenses: From Pennies to Big Bucks?

My friend knew he could bum enough change off friends and strangers to pay for two big-ticket consumer items. He had no shame in asking for change from the same folks, over and over, too.

Even if you would never go to this extreme in seeking new cash streams, consider that his experience shows the possibility of creatively seeking out new sources of cash flow and (more importantly) that his friends, acquaintances and some perfect strangers had no idea just how much money they willingly forked over to him. They were literally bleeding pocket change that added up to big bucks over time.

Learn from my friend’s accomplices: Keep track of your expenses! If possible, forgo cash because it’s so difficult to track. Create a family and household budget that narrows in on spending and is as focused as a laser beam. Above all, remember: small sums add up over time, but small losses and untracked purchases and expenses do too.

There’s a Saying About Change…

You’re happy and rich but you need to change your change to cold, hard cash. Head to your local bank and ask for some (free) coin wrappers, roll the coins in the privacy and comfort of your home and deliver them back to the bank for cash, free of charge.

Credit union members take heed: many credit unions offer coin machines — free of charge — to their customers. You can dump your unsorted shinies into the machine without facing the 10% haircut charged by commercial coin changers. If you have several hundred dollars in change (or even more, like my spouse-betting friend), that’s one very expensive haircut.

Wonderfully Weird and Wacky Ways to Wealth… or a Washer and Dryer

Bumming change to best a betting spouse may be uncouth, but it proves that small things can add up to bigger things? People unfortunately often overlook the fact that they are losing money by throwing away every item passing through their household. Instead of trashing it, you should try cashing it (in). For example, did you know that empty wine bottles could fetch up to 50 cents? Or that used toner cartridges can command even 20 bucks?

If you don’t want to deal with ink, bottles or basketball player undies, you can even earn a tidy monthly sum by testing websites.

If bumming change can buy you an appliance, why not selling your garbage or website testing? Be creative and the change will start to add up very quickly…

(Kyle Taylor is the editor of The Penny Hoarder, a daily blog with weird & wacky tips on how to make extra money. Connect with him on Facebook/Twitter or subscribe to his newsletter to get his 5 wackiest ways to make money via email!)

photo by editor

Life insurance represents one of the most important types of insurance available.  However, many forget about life insurance – in some shape, way, or form.  Follow along as we tackle this vital conversation and see how it may impact your financial situation.

Do You Have It?

According to an article from USA Today, 30% of households have no individual or employee-provided life insurance.  It is quite staggering to consider.

Imagine what might occur, if you were to ignore purchasing some type of life insurance.   Sure, you could beat the odds – you just have to stay alive.  Unfortunately, death can come rather unexpectedly, which could mean very bad things for your family.

Neglecting life insurance can put an unimaginable amount of stress on your family if something were to happen to you.  In many households, losing someone unexpectedly could easily undermine the family’s finances.  It could ruin that of saving for college tuition, certain goals for your children, and even drive your family to selling the home, bankruptcy, and so forth.

Those who don’t need a lot of life insurance still must recognize funeral costs and debts that would be left behind.  You aren’t exempt from the value of life insurance if you are single or have minimal expenses that will be passed on.

Neglecting Your Policy

Perhaps you haven’t fully forgotten about life insurance.  After all, as the previous article describes, a 35-year-old man can purchase a $500,000, 20-year term policy for about the cost of a Netflix subscription.

However, there is another mistake that can weave forgetfulness with life insurance – this is found in forgetting about your policy.  It seems reasonable to believe that the life insurance policy you purchased needs no further consideration.  Yet that isn’t necessarily the case.  Perhaps some of the following examples are true:

• Your Needs Change: This is the big one.  You could easily need more or less coverage as time passes.  Perhaps the children are now on their own, or you and your spouse are paying off the home.  Whatever the case may be, that “magic number” will change.  Keep your life insurance policy in mind along with it.
• Term Policies Expire: Here’s one where you literally can’t “set and forget it.”  You’ll have to recognize that the term life insurance policy will need to be followed up with something – be it another one, a different type of policy, or a very good plan.
• Others: You might need to borrow against your policy, or consider switching policies for a number of possible reasons.  Along with the first reason, perhaps you want to get a second policy.  You also might need to consider your business with life insurance products.

From more coverage to synchronizing your life insurance policy for the well-being of your business, there are plenty of situations in which losing sight of the policy is not a good idea.  You should always be on top of your situation and life insurance policy…

Overview

Along with your retirement plan and other products, life insurance is certainly one important item for you and your family.  Seriously consider life insurance if you haven’t already purchased a policy.  If you have done so, don’t lose sight of it and your finances.

photo by bytesrc

When most people hear the words “credit card,” they usually shut down and stop listening.  With the irresponsibility of big banks and credit card companies in the past, this reaction is totally understandable.  Heck, anything related to “borrowing” and most people run for the hills it seems!  However, I want you to read this article closely.  Please pain attention because credit cards are not evil.  In fact, most people don’t realize the simple fact that you can make money off credit companies risk free with no consequences!

I call what I’m going to explain to you the “credit card shuffle.”  It’s a money making strategy I personally use to make money off of the credit card companies and never have to pay a cent of debt!

At the core of this strategy is what is called a “sign-up bonus.”  This is usually a large cash value bonus that a credit card company offers someone to entice the person to open the card.  Your average credit card company is banking on the fact that you will open the card, get the bonus, and then rack up an obscene amount of debt.  The numbers are definitely on the credit card company’s side however there is a small percentage of people that belong to the group that these companies consider “sunk costs.”

I’m someone who uses a credit card but never pays a cent of credit card debt.  How can this be?  It’s rather simple.  I’m always on the look-out for a new credit card bonus and open new credit cards to receive these bonuses.  While I typically use my Chase Freedom credit card for everyday purchases, I’m always cycling through new credit cards to cash in on big rewards bonuses.

It amazes me how many people have no idea they can do this.  I truly believe people assume that there is some “catch” that these credit card companies are trying to pull.  Well guess what, there is no catch!  This is truly free money and it requires ZERO work!

My yearly plan

I’m going to let you in on my secret recipe for credit card bonuses.  I like to open around four credit cards a year so this comes to around a new credit card each quarter.  This may seem like a little much but when you make $500 in bonus rewards, you will start smiling.

It’s important to point out that I don’t always meet my personal quota of four credit cards a year.  Sometimes the bonuses for top credit card companies are just not worth my time so I just wait.

Another thing to bring up is that some credit cards I open are not cash bonuses.  For example, I just opened the Chase Marriott card and received 7 free nights for opening the card.  For me, this is just as good as cash because I love staying at hotels once in a while!  If you crunch the numbers, the average Marriott is going to cost you $100 a night.  At seven nights, the bonus reward for this card is $700.  Not bad for simply opening a card!

After completely using up the bonus money from the opening of a credit card, I usually close it.  Many people say that you should never close credit cards, but I typically do.  I don’t like to have accounts open and have the chance of identity theft.  Yes, it may ding my credit score temporarily but credit scores fluctuate all the time and I’ve never had my credit score not recover.

Any drawbacks to playing the credit card shuffle?

As I’ve just mentioned about credit score dings, at the end of the day this is something you really shouldn’t worry about unless you’re about to apply for a mortgage.  In that case, you’d want the highest possible credit score.  Like all things in life you should consider all the variables in life and ask yourself if it’s worth it to open or close a credit card and have a possible credit ding.

Real bonuses that I currently recommend

Here are a couple credit card bonus promotions I can recommend to you because I’ve personally received them.  Not only are the following companies extremely reputable but they also offer awesome customer service.  I know because I’ve called them and asked them random questions on purpose to see how they react.  They all get an A+ from me so far!

40,000 bonus points with Chase Sapphire (my travel card that I use for international travel)

$100 Bonus with Chase Freedom (my every day purchase credit card)

Free flight with Southwest Rewards Visa (opened this one for the free flights)

50,000 bonus points with Marriott Rewards (scored 7 free nights with this card)

100,000 bonus points with British Airways (this will be my next card as I plan on doing some traveling overseas this next year)

What card will you be opening?

Now that you know how I make thousands of extra dollars each year, will you be joining in on the fun?  While credit cards can be dangerous, you need to realize that you can take advantage of credit card companies and make some easy cash!  It’s super easy and can really benefit you especially in this tough economy.

photo by PT

Mortgages aren’t as easy to get as they were a few years ago. But even if you can’t refinance your loan there are steps you can take that will enable you to pay your loan off early and save you tens of thousands of dollars.

There are different ways you can do this, making it easier to find a way that will work in your particular situation. Find one of the five below that will be most comfortable for you.

For each example we’ll assume you have a 30 year mortgage for $200,000 at 4%, with a monthly payment of $955. Use this mortgage calculator to see how this will work for your particular situation.

Make your payment based on a 15 year loan

Some people are hesitant to take a 15 year mortgage due to the higher payment, and opt for a 30 year term instead. The difference in payment is substantial so its understandable why you’d want the longer term. But what if you take a 30 year loan but still want to pay it off in 15 years?

You still can.

You don’t have to have a 15 year loan to pay your mortgage off in 15 years—you can simply pay your 30 year loan based on a 15 year payoff.

Using the loan numbers above, by increasing your payment from $955 a month to $1,479—the monthly payment for a 15 year mortgage—you’ll not only pay your loan off in 15 years, but you’ll also save over $77,000 in interest.

Increase your monthly payments—a little

If you can’t afford to make your payment based on a 15 year loan term you can still payoff your mortgage early by making smaller additional payments. You can increase your monthly payment by a flat amount that’s comfortable for you and that will still allow you to shorten the loan term.

Let’s say that you decide that you can afford to add $100 to your payment each month, increasing it from $955 to $1,055. By doing this, you can shorten your loan term by 3 years and 9 nine months, effectively reducing your loan from 30 years to 26 years and three months.

Make one extra payment each year

By making one extra payment on your mortgage each year—an extra $955 based on our example—you can reduce your loan term from 30 years to less than 23. You’re not increasing your monthly payment, you’re just making one extra payment each year.

Make periodic lump sum payments

Maybe you don’t like being locked into a higher monthly payment—that’s fine, you can still shorten the loan term.

If instead of going the higher payment route you decide to save up your money and make a lump sum additional payment once a year—or any frequency you choose—you will still pay your mortgage off faster.

By making a single lump sum additional payment of $2,000 each year, you can shorten your mortgage from 30 years to less than 23 years. Seeing what lump sum payments can do to shorten your loan term can be a real incentive to pay as much as you can and pay off the mortgage even sooner.

Apply windfalls to your mortgage

Let’s say you aren’t much of a saver and you can’t afford to make higher monthly payments–there’s still a way pay your loan off early.

When ever you get a windfall, apply it toward your mortgage.

Let’s say you get a $5,000 income tax refund, and you decide to put it toward your mortgage—how much would it shorten your loan term with just a single, one-time payment? One year and four months—just for making a single payment in year one of the mortgage term.

What if you did the same each year—let’s say the tax refund is only $3,000, but each year you faithfully used it to prepay your mortgage. You’d reduce your mortgage term by nine years and seven months.

Just by applying your tax refund to your mortgage each year—not a bad deal!  Instead of letting your money sit in a savings account, apply your money to your mortgage!

Is paying off your mortgage early worth the extra effort?

Imagine your life without a mortgage; you’d have more money to spend, more money to save, more money to invest—more money for everything! The sooner you can make it happen the sooner you can do all those things.

Once you start thinking that way you have real incentive to make it happen. You can even combine one or more of the strategies above to make it happen even faster.

Is giving up some money now worth having extra money later?

photo by wwworks

Car loans have become so common that most of us seldom think of buying a car without one. But you should think about doing just that, and there are a number of strong reasons you should.

Other Big Debts are only getting bigger

A house is an expensive proposition these days; so is a college education. Most people today are using debt to pay for the majority of these purchases, and that’s forcing overall debt levels to get steadily higher.

As the bigger debts get even bigger, one of the best ways to manage debt overall is to be debt free on everything else. That means no credit card debt, no secured debt (furniture loans, etc) and no car loans!

We may not be able to completely eliminate mortgages and student loans from our lives, but that makes getting rid of the rest even more important.

Cash flow drain

All loans are not created equal, not when it comes to monthly payments. A typical monthly credit card payment will be about two percent of the outstanding loan balance. A student loan payment will be in the ballpark of one percent of the loan balance. Monthly mortgage payments (on a 30 year loan) will be substantially less than one percent of the balance.

Car loans are a different story entirely. The monthly payment on a $15,000 car loan at five percent interest for a four year term will be $345 a month, or more than two percent of the loan balance. That’s not bad, but it gets worse as time goes on.

When you’’ve paid your loan balance down to $10,000, your payment will still be $345 a month, or nearly 3.5% of the remaining balance. At $5,000 your payment will be equal to nearly seven percent of the balance.

That’s good for paying the loan off quickly, but it’s an outsized payment for a small loan balance, and a big cash flow drain on a relatively small debt. And it figures significantly in the next issue……

You can lose your car for a very small loan balance

Let’s stay with that $345 monthly payment for a bit. You’’ve paid the balance down to $5,000–which is good–—but you just lost your job and now you have no income. Even though you’’ve paid the loan down by two-thirds, the monthly payment isn’’t doable any more and the lender won’’t give you any credit for your good work to date if you can’’t make the payments going forward.

You know what happens when you can’’t make a car payment–—the lender takes back the car. A car repossession doesn’’t take nearly as long as losing a house in foreclosure. You can lose a car in a matter of weeks and there aren’’t many legal defenses for non-payment.

If the car is worth, say $12,000 at the time of repossession, you will have lost 100% of that value for inability to pay a $5,000 debt that you were well on your way to paying off while you were working. It’s a lot to lose for a small loan balance.

Pay it off, and you don’t have to worry about any of that.

A car is too important to risk with a loan

Staying with the repossession idea, this is complicated by the fact that it’s very difficult for most people to earn a living without a car. Some areas are well served by public transportation, but let’s face it, most aren’’t. In the areas where most people live, no car equals no job.

For that reason you want to keep your car free of debt risk. You already have the break down/repair risk that’s inherent in cars to begin with so you don’’t need to increase that risk with a loan.

Keep the car free and clear so that come what may, you’’ll always be able to earn a living.

More people are working from home than ever

Few things in life are as absurd as the concept of making payments on a car that seldom leaves your driveway. If you work from home, this could be your situation.

Whether by telecommuting or running some sort of online business, more people are working from home now than ever and more are joining the ranks all the time. You may still need a car for other purposes, but if you don’’t have to worry about commuting to work you almost certainly don’’t need too much of a car, and certainly not one that’s expensive enough to rate having a loan on.

Take advantage of your work status by getting rid of that expense.

Considering all of the above, if you’’re planning to buy a new car, try to buy one that doesn’’t require a loan. That might mean buying a less expensive vehicle, or delaying the purchase until you can save up enough to pay cash for it.

If the car you own now has a loan on it, do what ever it takes to pay it off as soon as possible. The sooner you do, the faster you’’ll eliminate a big monthly payment, and guarantee that, come what may, you’’ll always have a car to get to work in.

photo by tworubies

Who wants to work forever? No, I didn’t ask who wants to live forever, but who wants to work forever. When I got out of high school I said there’s no way I’m going to work till I’m old. Then I started working and wondered how I was ever going to get to stop working if they didn’t pay me enough to save for it. And there’s the kicker. You may not get paid enough, but you can most definitely save…..at least some or hopefully more.

But should you invest in a Roth IRA, Traditional IRA, 401k, 529 plans or maybe become a day trader? Good question, but one thing all of these have in common is they work off the principal of compounding interest. So before you learn about those investment options you must first learn and understand how compounding interest works. And by learning this you will want to seize the day and be on your way towards financial freedom.

Consider this:

If you started today, putting aside $100 every month and it compounded annually at a 7% rate of return (this is conservative), after 30 years you’d have $121,287. Or you could lock that up in a box under your floors and in the same amount of time it’ll total up to a whopping amount of only $36000. See the difference? (If you want to put in your own values, Google compounding interest calculator and try it out.)

Still not sure how compounding interest works? Don’t worry, I didn’t get it the first time I heard about it.

This example helped me wrap my brain around it.

First year: $1200 ($100 month) x 7% = $84 in interest

Second year: $1284 (1^st yr) + $1200 (2^nd yr) x 7% = $173.88

At the end of the second year you’ll have $2657.88 total when you only put in $2400. Follow this for 30 years and you’ll have $121,287…..don’t save early and in 30 years compounding interest will no longer be an option. This is a simplified example. In reality there are other options like monthly, quarterly, bi-annually compounding that you’ll need to consider. But the goal is to understand compounding interest and make it work for you.

Want to know how long it’ll take for your investment to double? It’s called the rule of 72. All you have to do is divide the rate of return (aka interest rate) into 72. The result is an estimate of how long it’ll take to double your value. For example 72 divided by 8% (interest rate) equals 9 years to double whatever amount you started with.

So what’s the deal? Why does it sound so simple yet all I hear is how everyone at retirement age hasn’t saved enough for retirement. Is the problem compounding interest or that people aren’t saving enough? Well, it’s a bit of both. The biggest catch to compounding interest is that the younger you start the more years your interest compounds and the more you have saved in the end. So you really do want to start now.

According to standardandpoors.com, from January 1970 to December 2009 (30 years), the average annual compounded rate of return for the S&P 500, including reinvestment of dividends, was approximately 10.1%. The S&P 500 is a good example because it is an INDEX fund that’s comprised of the top 500 leading companies in leading industries of the US Economy.

Here’s a little fun fact:

Warren Buffett, the founder of Berkshire Hathaway, started with only $9800 in 1955 and today is worth $44 billion.

In the April issue of ForbesLife magazine he said, “The thing is, when I got out of college, I had $9,800, but by the end of 1955, I was up to $127,000. I thought, I’ll go back to Omaha, take some college classes, and read a lot–I was going to retire! I figured we could live on $12,000 a year, and off my $127,000 asset base, I could easily make that. I told my wife, “Compound interest guarantees I’m going to get rich.”

(This post has been contributed by John over at Fearless Men)

photo by artbystevejohnson