Top-10 mortgage lender Guaranteed Rate has filed a lawsuit against retail rival New American Funding over poaching. But this isn’t your standard poaching lawsuit: G-Rate alleges that NAF has wooed at least 30 employees since early 2023 via illegal loan officer compensation practices.
Despite the rise in poaching lawsuits in a competitive market, it’s the first time a large lender has publicly accused a competitor of violating the LO comp rule by allowing their salesforce to manipulate lead sources in order to reduce their rates and win more loans.
Industry experts told HousingWire for a December feature that the manipulation of lead sources is widespread among retail lenders, and there’s no enforcement.
Tara Castrejon, director of content marketing and public relations at NAF, said in an emailed response to HousingWire that the company does not comment on pending litigation.
A spokesperson for G-Rate did not immediately respond to a request for comments.
“Since February 2023, NAF has unlawfully raided GR’s branches nationwide, poaching over 30 GR employees from coast-to-coast,” the lawsuit states. “To achieve its goals, NAF uses illegal compensation practices to induce GR employees to resign from GR and join NAF, and incentivizes and encourages GR employees to solicit and recruit other GR employees to defect to NAF.”
The lawsuit, which seeks injunction relief and damages, was filed on Dec. 26 in the Circuit Court of Cook County, Illinois. G-Rate claims, among other accusations, tortious interference, violation of Illinois deceptive trade practice laws and misappropriation of confidential information.
NAF zeroed in on employees in Washington, Arizona, Texas, Georgia, Missouri, Florida, and Illinois, the lawsuit states. The departing employees included a divisional manager, branch and regional managers, and loan officers.
G-Rate claims that it all started when Gregory Griffin, a former regional manager and senior vice president of strategic growth, joined NAF as regional manager of strategic growth, where he was responsible for recruiting in the Midwest Region. Griffin had a “non-solicitation” agreement with his former employer, G-Rate claims.
“After Mr. Griffin’s hiring by NAF in January 2023, the dam broke, and NAF began to aggressively recruit and hire from GR. Prior to this point, NAF had not been able to successfully recruit from GR on such a massive scale,” the lawsuit states.
Griffin did not immediately return to a request for comments.
The lawsuit says that former employees who transitioned to NAF sent borrowers’ information to their emails, including pay stubs and bank statements. G-Rate’s research on publicly available data on closed loans shows “numerous customers took their business from GR to NAF in conjunction with the employee defections to NAF,” it says.
Claims re LO comp rule violations
Among the more explosive claims is that NAF repeatedly violated Regulation Z, which prohibits loan officers from receiving payments based on the “terms of a transaction” other than the amount of credit extended.
The rule also prohibits reductions in LO comp to fund pricing concessions to consumers at the expense of the loan officer, which would be characterized as a change in transaction terms.
G-Rate claims NAF does not pay LOs “a fixed percentage of the loan amount or any other type of compensation permitted by applicable law and regulations.” Instead, the company supposedly offers different pricing buckets based on the source lead and allows LOs to play with them.
“Should the consumer dislike the loan pricing first offered using the ‘self-generated’ ‘bucket,’ the loan officer can freely switch the ‘bucket’ to ‘corporate generated’ or ‘connected generated’ instead, which, in turn, corresponds to lower compensation for the loan officer,” the lawsuit states.
“The lower ‘bucket’ results in new, lower pricing to the consumer. If the consumer likes the new pricing, and NAF ‘wins the deal’ with its lower pricing, the loan officer reduces the loan officer’s compensation to provide the consumer with a discount. Put another way; the loan officer is allowed to later (and falsely) change the source of the lead, allowing for lower loan officer compensation and a pricing advantage for NAF over competitors like GR. This approach is illegal.”
G-Rate claims the practice has caused millions of dollars in lost revenues, investment and future business opportunities. It also says NAF misrepresented to potential recruits that its illegal compensation arrangements were “audited” and approved by the Consumer Financial Protection Bureau (CFPB).
An upcoming new year brings excitement for new opportunities, both big and small. The ability to reset your space by cleaning, reorganizing and decorating is one exciting venture renters can join. As you embark on the journey of refreshing your living space for the new year, don’t overlook the small yet impactful task of cleaning your baseboards— a simple step that can contribute to the overall cleanliness and aesthetic appeal of your home.
Cleaning baseboards is a simple task that not only enhances the visual appeal of your living space but also promotes a healthier indoor environment by eliminating dust and grime. We’ll help you kick off your new year on the cleanest note with this ultimate cleaning baseboards guide.
Materials needed
For those baseboards to sparkle, gather these materials. We recommend utilizing gloves as well, to protect your hands from any cleaning products.
Microfiber cloth
Sponge
All-purpose cleaner or Bucket of soapy water and white vinegar mixture (1:1 mixture)
Broom
Vacuum cleaner
Dryer sheets
Old toothbrush (optional)
Magic Eraser (optional)
How to clean baseboards: Step-by-step guide
Now that you’ve gathered your materials, it’s time to tackle those baseboards. Depending on your cleaning style, this guide is a little more meticulous; however, the satisfaction of seeing your baseboards restored will make for a worthwhile effort.
1. Remove any loose dirt
Take your broom and go over the baseboards to remove any accumulated dust or crumbs. You’ll go in for a deeper clean in the next steps, this is just to remove the loose layer of dust to get to the deeper grime. Once you’ve gone over your baseboards a few times with your broom, vacuum the surrounding floor area to clean the loosened grime.
2. Select your cleaning solution
You have a few options for this step, your selection boils down to what you have on hand. Depending on what room the baseboards you’re cleaning are in (some are dirtier than others), you may need extra strength cleaning solutions to fully remove dirt and grime, we recommend all-purpose cleaner for dirtier baseboards while soapy water and vinegar work better for standard dirt and grime.
If you have an all-purpose cleaner or cleaning wipes of any sort, you can utilize those for this step. If you’re using a spray cleaner, dilute it with a little water and utilize either a microfiber cloth or sponge for application. Wipe over the baseboards, scrubbing in circles over dirtier or grimier spots.
If you don’t have any all-purpose cleaner on hand, don’t worry. You can create a 1:1 solution of soapy water and white vinegar to work as your baseboard cleaner. Use a sponge to wipe over the baseboards, paying extra attention to any stained spots or caked-on dirt.
3. Fight tough spots with a Magic Eraser (optional)
Once you’ve done a base level of cleaning, with your cleaning method of choice, there may be spots that remain. These spots need a tougher agent to break through the dirt and grime. Use a Magic Eraser according to user instructions to scrub through these tough stains. Typically, dirtier baseboards are those that are in stain-prone rooms like entryways and kitchens.
If you don’t have this product on hand, you can utilize an old toothbrush or cotton swabs, dipped in your cleaning solution of choice, to scrub extra tough spots.
4. Dry your boards
When the boards are cleaned to your liking, take your microfiber cloth and swipe over your baseboards. This is an important step as it prevents any water damage from your baseboards.
5. Regularly maintain
Maintain clean baseboards by using a dryer sheet over them. Rubbing a dryer sheet across your baseboards prevents static which attracts dry dust. Utilizing dryer sheets is a simple way to ensure your hard work lasts.
Leave grimy baseboards behind
Source: The Moulding Company
Cleaning your baseboards is a chore that not only helps your home appear tidy but creates a better living environment by eliminating cumulated dust. A person’s surrounding environment is shown to impact their mental health and well-being, so a deep clean can ensure one heads into the new year with a refreshed and revitalized living space, setting the stage for a positive and organized start.
Looking for a new, clean start for the new year? Take a look at available apartments and houses for rent here.
Featured image source: Martha Stewart
Wesley is a Charlotte-based writer with a degree in Mass Communication from the University of South Carolina. Her background includes 6 years in non-profit communication and 4 years in editorial writing. She’s passionate about traveling, volunteering, cooking and drinking her morning iced coffee. When she’s not writing, you can find her relaxing with family or exploring Charlotte with her friends.
Winter is a season that transforms the world into a glistening wonderland, and what better way to embrace the chilly charm than by turning your home into a winter oasis? In this exploration of unique winter home features, we’ll delve into the extraordinary, from the exhilaration of having your own private ice rink to the relaxation of soaking in a hot tub beneath the winter sky.
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Skating Under Your Own Sky: Private Ice Rinks
To transform your backyard, you’ll need to first choose a level area and remove any debris, rocks or uneven elements. Pile up snow around the perimeter of the rink to form a natural border – this will help contain the water as it freezes. Then, using a hose or bucket, flood the cleared area with a thin layer of water. Allow it to freeze before adding more layers and repeat this process until the thickness of the ice is satisfactory. Now you’ve got your very own private ice rink to enjoy!
A Winter Retreat: Outdoor Hot Tubs
While winter may bring a chill to the air, there’s nothing quite like the contrast of soaking in a steaming hot tub amid the frosty surroundings. Ensure privacy by incorporating natural elements like tall plants or screens around your hot tub, and place serene lighting around the area for ambiance. Having an outdoor tub isn’t just beneficial for relaxation, but it also has several health benefits, can be used as a social gathering spot, and potentially enhances your property value!
Fireside Bliss: Indoor Fireplaces with a Twist
Some homeowners are elevating the coziness of winter by incorporating innovative indoor fireplaces. These include a double-sided fireplace, which makes for a great focal point in an open layout, or a sunken fire pit which creates an intimate and cozy vibe. Floating fireplaces are also gaining popularity for those who want an elevated and modern approach to staying warm.
Indoor Sauna: A Home Spa Experience
Counter the cold weather with an indoor sauna, providing a rejuvenating escape and promoting relaxation during the winter season. A traditional Finnish sauna incorporates natural wood, typically cedar or hemlock, while contemporary saunas opt for a sleek and minimalist design using materials like glass, stone, and metal. If you don’t have much space, compact saunas are ideal and can fit into just a small corner of your home.
Heated Floors: Step Into Warmth
Infuse warmth into every step by installing heated flooring, a practical and luxurious feature that adds comfort to chilly winter mornings. While initial costs to install heated floors can be significant, many homeowners find the comfort, energy efficiency, and long-term benefits well worth the investment. Since there are various systems for heated floors, typically electric and hydronic, you’ll need to consult with a professional to ensure compatibility with your home.
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Starring Eddie Murphy, Tracee Ellis Ross, Jillian Bell, Nick Offerman, and many more recognizable faces along the way, Candy Cane Lane tells the story of the Carver family, as they compete in a yearly holiday house decorating contest to win one hundred thousand dollars.
After losing his job just a few days before Christmas, Chris (Murphy) puts job hunting on the back burner in service of creating a festive masterpiece on his front lawn.
And yes, in case you’re wondering, we felt those Deck The Halls vibes too!
Enlisting the help of his youngest child Holly (sibling of Joy and Nick… get it?), he stumbles across Kringles, a magical Christmas shop where Pepper the elf sells him a ‘Twelve Days of Christmas’, Christmas tree.
When it and the ornaments from each of the twelve days unexpectedly come to life and flee the tree on the night of the competition, Chris and his family must find the five golden rings in time or Pepper, who it turns out was exiled from Santa’s workshop, will turn him into a singing ceramic Christmas ornament.
Is it a classic Christmas tale? Not exactly. Is it a little offbeat? Sure.
But did we have fun with the movie and love seeing all of the houses alight and twinkling ahead of the big day? You bet we did!
Now, we know you’re wondering if Candy Cane Lane is a real place, whether you can visit, and if they actually shut down a whole street to film the movie there.
Well, you can have yourself a merry little Christmas because we’ve done the research for you and can answer all of these questions and more – happy holidays!
Is Candy Cane Lane a real place?
Yes, Candy Cane Lane is a very real place located on East Acacia Avenue in El Segundo, California. Every year since 1949, with an understandable one-year hiatus in 2020, the street comes alive in a spectacle of Christmas lights and festive displays made by the residents.
With nightly shows from December 9th – 23rd, and visits every other evening from Santa himself, it’s a sight to behold and definitely one for the bucket list!
Unlike in the movie, there is no competition between neighbors.
Instead, the displays serve to bring the residents and the community together in celebration of the season.
Did they film Candy Cane Lane on the actual Candy Cane Lane?
Whilst it might look just like the real thing, scenes outside the Carver house were actually all shot on a stage.
Where? None other than Colonial Street at Universal Studios Hollywood.
Setting the backdrop for many of our favorite films and television series over the years, if you’re thinking it looks familiar it probably does!
Other productions filmed on Universal Studio’s Colonial Street
Arguably the most recognizable show shot here was Desperate Housewives.
Since the street was as much a character as the residents themselves, we wouldn’t be surprised if some eagle-eyes fans spotted Wisteria Lane the moment they pressed play on Candy Cane Lane.
Other productions include, Buffy The Vampire Slayer, Malcolm In The Middle, Leave it to Beaver, Why Him, and Sabrina The Teenage Witch – and that really is just naming a few!
More filming locations from Candy Cane Lane
With no snow to build snowmen or go sledding in, children at the start of the movie can be seen sand surfing and building sandmen instead.
According to Atlas Of Wonders, these scenes were filmed in California on Playa Del Rey Beach. Meanwhile, exteriors from the high school were shot in El Segundo itself.
Other movies that feature Candy Cane Lane
Since we’re guessing you love holiday movies (and movie houses!) just as much as we do, you’ve probably come across Candy Cane Lane in TV shows and films before this one.
Most recently, we saw Candy Cane Lane in the holiday movie The Happiest Season, starring Kristen Stewart and Mackenzie Davis.
However, this Candy Cane Lane was based on a different, yet equally amazing display in Duboistown, Pennsylvania, and scenes were filmed on Cleveland Avenue in Avalon.
Read all about that and the other dreamy filming locations and houses we tracked down from the movie right here:
Meanwhile, New Girl fans will remember an episode called The 23rd in season one, where the gang drives to Candy Cane Lane at 4 am and proceeds to scream and shout for the residents to turn on their lights.
According to the New Girl podcast, Welcome To Our Show on which the show’s stars, Zooey Deschanel, Hannah Simone, and Lamorne Morris re-watch and give behind-the-scenes info about each episode, this Candy Cane Lane was shot on the Disney ranch.
Why? Like most holiday movies and shows, the episode was not actually shot at Christmas.
The takeaway? Even if you can’t take a trip to Candy Cane Lane this year, there are plenty of festive movies and TV shows that can transport you there from the comfort of your very own home – Merry Christmas everyone!
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Jackie’s house in ‘Best. Christmas. Ever!’ is on a farm in Utah
It was late 2022 and Mike was feeling the pressure. Mortgage rates had climbed close to the 7% range and he was determined to remain competitive on pricing with rival loan officers in North Carolina.
But there was a problem: pricing exceptions, in which the lender takes the hit, were becoming scarce at his company. So he did what a lot of retail loan officers in the industry were doing — Mike would reclassify a self-generated lead as a corporate-generated lead, thus slashing his compensation from 125 basis points down to as low as 50 bps, giving him a low enough rate to win the client and eventually close the deal. His manager and company bosses knew that he and other LOs were lying about where the lead source came from, he said.
The lower comp rate stung. After Mike paid his loan officer assistant, he was clearing just 40 bps. Still, it was better than nothing. After all, tens of thousands of loan officers had already exited the industry because they couldn’t generate enough business.
“At this time, I didn’t really think of it as an ethical issue,” Mike, whose last name is being withheld for fear of retaliation, told HousingWire in an interview in late November. “But it started to wear on me to where it was like, okay, I’m getting price-shopped left and right. I’m feeling the pressure to cut my pay, because when I do it, and my agent partners, they see that I do that, and then they’ll tell people they refer to me. ‘Hey, he can dig deeper if he really has to.’”
Mike continued: “Well, doesn’t that smack of bad faith if I’m not offering them my best price from jump? I would get people saying to me, ‘I’m not going to go in with you. I don’t feel comfortable with you, because you tried to get me to go for a higher pricing first, and then only offered a better deal once I told you I had another offer.”
Mike said he left that lender in early 2023 as a result of the ‘bucket game’ and refuses to manipulate where lead sources are coming from at his current shop.
“It’s a race to the bottom,” he said of the practice.
Over the past two months, HousingWire has interviewed more than a dozen loan officers, mortgage executives, attorneys and also reviewed several companies’ loan officer contracts and text messages between recruiters and prospects to shed light on the growing issue of pricing bucket manipulation, which critics say distorts market pricing and could represent a violation of fair lending laws.
It’s unknown how many retail lenders are engaged in the practice of falsifying lead sources to lower loan officer pay, but industry practitioners say it’s widespread, and in most cases, reclassifying leads into different pricing buckets before they lock is not permitted by the Consumer Financial Protection Bureau’s rules under Regulation Z.
It’s also unclear whether the CFPB is policing the practice; HousingWire could find no record of enforcement actions taken, and the agency’s audits are not public record.
Evolution of the LO Comp rule
In the wake of the housing crash in 2008, the CFPB created new rules that reshaped how loan officers were compensated. The architects of the new rules wanted to prevent loan officers from taking advantage of borrowers, which was a common occurrence in the days leading up to the Great Recession.
Under an updated Regulation Z, lenders could no longer pay loan officers differently based on terms of loans other than the amount of credit extended. In theory, this means loan officers provide the same service and pricing on loans, reducing the risk of steering.
“LOs also can’t get paid on proxies, and they define proxies to be pretty straightforward: some factor that correlates to terms over a significant number of transactions, and the LOs have the ability to change that factor,” said Troy Garris, co-managing partner at Garris Horn LLP.
But the CFPB did allow loan officers to be compensated differently based on lead sources, which do not fall under the category of terms or proxies and are neither a right or an obligation.
For example, when an existing customer calls the lender’s call center for a new mortgage or refinance, and the lender redirects the loan to the LO, “the LO gets paid less because it was sourced from the company, and it is less work for the LO,” said Colgate Selden, a founding member of the CFPB and an attorney at SeldenLindeke LLP. When it’s an outside lead, “the LOs generated the lead themselves; they are spending time marketing to new borrowers, so they get paid more.”
Attorneys told HousingWire that in the current marketplace, violations of LO Comp rules can arise when lenders and LOs alter compensation by changing the lead source after the initial contact with the borrower to lower their rate and secure the deals. Regulation Z generally does not allow LOs to change which lead source was used.
But, in today’s competitive market, “I do think there’s an incentive, especially on the LO side, to find ways to do something different – and probably also for companies to decide to take more risk,” said Garris. “We believe this is happening because people are frequently asking if there’s a rule change.”
How the ‘bucket game’ works
LOs who spoke to HousingWire said managers often told them they wouldn’t get pricing exceptions on deals, so if they wanted to gain an edge it would have to come out of their pay. Three loan officers at three different retail lenders described it as a feature of their lender’s business model.
“You feel out a prospective client during the initial conversation, get a sense of whether they know how everything works, if they’ve spoken to another lender, if they’re going to shop you, right? And you quote them the best possible rate you could give them that day, knowing that you’ll put them in a bucket just before lock,” said one Wisconsin-based LO. “It doesn’t really matter what you quote them in the initial conversation as long as you can get it below competitors around lock time…either through a pricing exception or the bucket [manipulation].”
One top-producing California-based loan officer said she was excited when a top 35 mortgage lender tried to recruit her with the promise of multiple pricing buckets. Having the buckets would provide her flexibility that her current lender didn’t offer, she thought at the time.
“What the [recruiting] company told me explicitly was the loan originator, when they go to lock the loan, they check a box – is it self, branch or corp gen? And you only get to check one box, but it’s the loan officer’s choosing, not the branch,” she said. “So the loan originator is choosing, not the branch that says I’m going to give you a lead and this is the comp for it. Not the corporate advertisement or online group that says you’re getting this lead from us and here’s documentation that it occurred and now you’re going to get less comp. It’s the ultimate in legalized fraud. Because it’s not true.”
These days, many lenders have pricing buckets for corporate-generated leads, branch leads, builder leads, marketing service agreement (MSAs) leads, internet leads from aggregators and more. In and of itself, it’s legal, provided the lead really did come from the source and it’s diligently tracked by the lender.
Loan officers and mortgage executives interviewed by HousingWire said some lenders justify the practice of manipulating the buckets by telling LOs it’s legal and they’ve been audited by the CFPB, which has not found any wrongdoing. Several executives accused of the practice declined to comment on the record about pricing bucket manipulation, though they all said they track leads as required and are in full compliance with the law.
Selden, the former CFPB attorney, said that LOs are telling borrowers who complain about high mortgage rates that companies are “running a special offer.” Borrowers are directed to the company’s website, where, by indicating the LO name, they supposedly qualify for a special deal with a lower rate. In reality, at lenders without adequate controls to prevent lead source manipulation, this shifts the source from self-generated to an in-house lead.
LOs interviewed by HousingWire said that in some cases they would be able to change the lead referral source themselves, and in other cases they’d need a manager to alter the lead source in the loan origination system.
While many instances of price bucket manipulation were directed by managers, LOs would also self-select, said Mike.
“Most of the time you don’t have a loan estimate from a competitor, you’re just afraid that you’re going to lose it because you’re so embarrassed about the rate. And that’s why a lot of my comrades… were going to the corporate-generated lead bucket before they even confirmed that they had to. Partly because you wanted to lead with your best price.”
Steve vonBerg, an attorney at law firm Orrick in Washington, D.C., worked as a loan officer and underwriter for seven years. He emphasized the potential trouble for lenders and LOs inaccurately classifying the lead source.
“Often, a [CFPB] examiner would see if the lead channel changed later in the process. That could be legitimate: the borrower starts working with an LO, and it’s a self-sourced lead for that LO, but then decides to buy a home in a different state in the middle of the process; the second LO that it has to be transferred to has now an internal-company referral, and so the lead source would legitimately change,” vonBerg said. “But, if there isn’t a legitimate reason for the lead source changing midstream, that would be fairly easy for an examiner to identify.”
“It’s wrong”
Victor Ciardelli is frustrated by the bucket game. Deeply frustrated. The Guaranteed Rate founder and CEO says he is losing money and loan officers to rivals because of a business practice that he says is flagrantly illegal, pervasive, and does not appear to be slowing down anytime soon.
Some rival retail lenders, he says, are creating up to a dozen pricing buckets for their loan officers. The tiered nature of the bucket comp structure in many cases — self generated being the highest at up to 150 bps, 100 bps for another ‘bucket,’ 80 bps for another, down to 60 bps, 40 bps and sometimes all the way to zero — proves that it is a deliberate business strategy, he said.
“It wasn’t intended that the loan officer at the time that they’re talking to the consumer and quoting them a rate, that the loan officer can put the consumer in any bucket they want,” he said in an interview with HousingWire. “But that is exactly what’s happening. What’s exactly happening is the fact that there’s all these different pricing buckets for a lot of these different companies out there. And that the loan officer is allowed to go in and offer the consumer whatever rate based on what the loan officer wants.”
He argued that LOs are maximizing their personal income per borrower.
“It’s no different than what happened prior to Dodd-Frank, where it was the wild, wild West and people were playing games with customers on rates and fees,” said Ciardelli. “It’s the same thing today. There’s no difference except the fact that there’s a law in place that tells the mortgage company and the individual loan officer. And the loan officers know that they’re violating the law. It’s greed.”
Ciardelli says the rival CEOs — he declined to name individuals and said it’s an industry-wide problem — are establishing these buckets and know “full well that the bucket is put in place in order to lie about where the lead source is coming from.”
They have an obligation to know where the leads are coming from, that the loan officers are putting them in the appropriate bucket and that they are being tracked, he said.
“The loan officer may take a hit on that loan, and may make less on that loan, but the company themselves doesn’t take the hit, their margin stays the same. So the company CEO is happy, because they’re like, ‘I’m giving my loan officers all this flexibility to go out and be competitive and win deals. And they’re going to win more deals than anybody else out there, because they’re going to be able to slot the individual borrower into these different lead channels. So the individual CEO is making all the money. They’re the ones killing it.”
Ciardelli says he asked about the bucket pricing game and attorneys all told him no, it’s not legal, he said.
“I’ll play by whatever the law is…But when the rules are set up to be a certain way and people are not following the rules, then that’s a problem.”
Two other executives at large retail lenders also said they’ve lost loan officers to competitors who are sanctioning, if not directing, the manipulation of pricing buckets.
“The LOs get told this is legal, it’s just pricing flexibility so they can compete, and they have a compliance team that monitors it,” said one executive at a regional lender in the South. “Obviously that’s not true… What’s happening is they [the lenders] are pricing high and basically forcing the LOs to cut from say 150 [basis points down to 50 [basis points] on some loans because otherwise they just won’t do enough business. It’s a feature, not a bug, as they say. We asked our attorneys if we could do this and they told us absolutely not.”
The Mortgage Bankers Association (MBA) is aware of the issue. The organization asked an outside attorney from Orrick Herrington & Sutcliffe LLP to study the permissibility of the practice. In a letter sent to members in February 2023, Orrick advised MBA members that changing the lead source of a loan after beginning work on the application in order to make a competitive pricing concession “is not permissible.”
The letter has had little meaningful impact, sources told HousingWire. If anything, the practice has increased over the last year.
Fair lending concerns
Another repercussion in the market is that savvy borrowers gain access to lower rates when lead sources are manipulated. Less educated applicants could be quoted higher rates for the same loan, raising concerns about fair lending practices.
But this argument prompts a broader discussion on the efficacy of the LO comp rule, with divergent opinions on the matter.
“I used to be an MLO for seven years. I was in the industry in the 2000s until it melted down, and then I ended up going to law school because I had lost my job. I originated hundreds of loans myself, and personally, I think overall the rule is a good rule,” vonBerg said.
vonBerg elaborated: “Under the old regime, LOs were not incentivized to offer their consumers the best loan and best pricing for them. They were incentivized to give them the loans and pricing where they would make more money. Although it has some issues that should be corrected, I think the LO comp rule makes a lot of sense, in that it removes a gigantic conflict of interest.”
Not everyone shares this viewpoint.
“The LO comp rulewas designed to prevent steering to high-cost loans. And really, those things don’t exist anymore. We can’t put borrowers in homes that they can’t afford,” said Brian Levy, Of Counsel at Katten and Temple, LLP.
According to Levy, the rule creates “a tremendous amount of anxiety for the mortgage lending industry that doesn’t benefit consumers in any meaningful way.”
“The industry is frustrated. They’re unable to easily reduce prices. For example, in the past, before the rule was around, LOs were able to take less as a commission, just like any other salesperson – a car salesperson – to make the deal work. That’s illegal now for loan officers. The mortgage company can make that decision [of lowering their margins and reducing rate], but the loan officer cannot.”
Levy noted that some consider the LO comp rule to be a de facto fair lending rule.
“But we already have fair lending rules. The idea that if the loan officer is discounting their fees, they would end up discounting on a discriminatory basis would already be problematic under existing law, so you don’t need the LO comp rule to make that illegal. It’s already illegal to discriminate in pricing. That said, it’s not illegal for people to negotiate just like you can negotiate a car price.”
The CFPB has also taken issue with other forms of pricing concessions over the last year. In the summer of 2022, the agency reported that pricing exceptions, in which the lender offers a discount, had harmed protected classes, who were less likely to be offered discounts.
Where’s the CFPB?
Multiple sources said the CFPB audits about 20% of mortgage lenders per year, and because of the prevalence of this practice, would undoubtedly have come across lead bucket pricing manipulation by now.
Why there hasn’t been any enforcement to date or whether there’s a future enforcement action is just on the horizon is hard to know.
The CFPB, which is undertaking a broad review of the LO Comp rule, declined to make anyone available to speak on the issue.
“We cannot comment on any ongoing enforcement or supervision matters,” said Raul Cisneros, a Bureau spokesperson. “Those who witness potential industry misconduct should consider reporting it by going here. Additionally, we always welcome stakeholder feedback on any of our rules, including the loan officer compensation rules.”
In early 2023, the CFPB initiated a review of Regulation Z‘s mortgage loan originator rules, which include certain provisions regarding compensation. However, industry experts do not foresee substantial changes or anticipate the CFPB addressing the issue of lead source manipulation.
“In fact, there haven’t been a lot of public enforcement actions by the CFPB in several years [on the LO comp rule]. But having said that, we used to complain that the CFPB was participating in regulation by enforcement, and now they seem to be regulating by supervisory highlights,” Kris Kully, a law firm Mayer Brown partner, said.
The CFPB’s latest move regarding the LO Comp Rule was to issue a supervisory highlight in the summer stating that compensating an LO differently based on whether a loan product was originated in-house or brokered to an outside lender is prohibited.
Industry practitioners said the lack of enforcement from regulators has allowed the pricing bucket manipulation practice to flourish, creating an uneven playing field.
“You have all these companies that all of a sudden are starting to get a free pass,” Ciardelli said. “They’re like, ‘I’m not having any audits. I’m not having anybody come and say anything to me. I mean, nothing’s really happening. I’m pretty much unscathed here.’ And year after year goes by, there’s no auditors, there’s no issues. And then they start to move the needle on how they’re running their business and decisions they’re making. And they have less fear of the government, less fear of the existing rules that are in place, because the rules that were set up are not being enforced.”
Another mortgage executive speculated that the pricing bucket games will come to an end not because of CFPB enforcement, but because loan officers and executives will battle it out in court.
“I’ve got calls from loan officers who feel like they’ve been pushed into a lower commission scale than they thought they were going to get to start with,” he said. “I hired somebody from a well-known lender. When they hired her, they told her, ‘Hey, these are what the rates are and this is what the commission is.’ When she got over there, the rates they were quoting were the lead-based rates, not the hundred-based points they were promising her… I don’t think the enforcement will come from the CFPB. I think it’ll come from some type of lawsuit like that.”
The lasting impact of LOs cutting their comp to win clients and close deals won’t be clear until mortgage rates meaningfully fall for a sustained period.
But many fear that the genie can’t be put back in the bottle.
“We’ve done this so much that they’ve built it into their pricing,” said Mike, the loan officer in North Carolina. “They are pricing things higher, assuming that we’re going to cut our pay, and protect their margins. So to me that’s the bigger issue for us selfishly, is we start doing that, and it’s going to become the norm. The pricing system and everything is going to assume that we’ll do that.”
He mused that RESPA guidelines prohibit an LO from buying a Realtor partner a Big Mac after a closing but lying about a lead source is not policed.
“Personally being an LO, the biggest issue to me is, they’re screwing with us and just… That’s how all these shops are finding a lifeline to keep their doors open. ‘We don’t have to pay them 100 bps, we can just pay them 50, and they’ll take it on the chin.’ And it’s like, yeah, we’ll take it on the chin. Many of us are using the heck out of our credit cards right now to survive. It’s not cool.”
Over the past two years, travelers have packed airports, hotels and destinations with a fervor that earned the post-pandemic trend a label: “revenge travel.”
Demand from leisure travelers soared at hotels in 2022 as travel restrictions subsided. This year, Americans flocked to popular European cities faster than they did in 2019. From June to October 2023, TSA recorded seven of its 10 busiest days ever at U.S. airport checkpoints — and then the all-time single-day record for passenger traffic was set on Nov. 26.
Now, there’s a lingering question as 2024 approaches: Might revenge travel finally end?
Industry leaders split on the future of revenge travel
Ask 10 people in the travel industry, and you may get 10 different opinions.
At one end of the spectrum, some airlines continue to report that travelers are more than willing to pay for high-end business class seats, especially on long-haul overseas flights.
“Our core customer base is in a healthy financial position,” Ed Bastian, CEO of Delta Air Lines, said during the company’s most recent earnings call (a sentiment United Airlines executives noted on their third-quarter earnings call, too).
Some hotel executives are echoing the optimism. Despite economic uncertainty, “The consumer is still generally holding up well,” said Leeny Oberg, Marriott’s chief financial officer, during the company’s November earnings call.
But other companies are starting to notice some changes.
Some airlines have reported decreased demand in recent months, contributing to financial losses. For instance, Southwest Airlines is pulling back on plans to keep growing its flight schedule in 2024, noting leisure travel trends have looked less strong and more like pre-pandemic times in recent months.
“There is no doubt that there is a slowdown occurring,” says John Grant, chief analyst at travel data firm OAG. “We’re talking about a softening. We’re not talking about a nosedive.”
Reasons revenge travel may not last
Consumer costs mounting
Though inflation has cooled from its peak in June 2022, many everyday expenses such as groceries and rent remain more expensive than before the pandemic.
Plus, consumers now face high interest rates, resumed student loan repayments and, for many, a smaller pandemic savings cushion, says Cara McDaniel, a professor specializing in macroeconomics at Arizona State University’s W.P. Carey School of Business.
“Life is looking a little less affordable,” McDaniel says. “People, even if they are OK, might not be feeling the urge to splurge. So I imagine that’s going to drag on travel.”
A return to ‘normal’
There’s also the theory that a return to more traditional routines is inevitable.
“People traveled more frequently, or spent more on extravagant vacations after being unable to do so during the pandemic. Now, most travelers are reverting to regular travel spending habits,” Emmy Hise, senior director of hospitality analytics at data firm CoStar, said in an email.
She noted that hotels at popular U.S. vacation destinations started seeing demand slide this past spring — though while still outpacing 2019.
Why revenge travel could stick around
More approachable travel prices
According to NerdWallet’s most recent Travel Price Index, the overall cost of travel in October was down about 2% from the same month in 2022, helped primarily by cheaper airfare.
As airlines have hired staff and brought planes back into service, the supply and demand equation is more favorable for consumers than it was a year or two ago.
During this fourth quarter of 2023, the eight largest U.S. carriers are flying with nearly 17% more seats compared with the fourth quarter of 2021, according to airline scheduling data from aviation analytics firm Cirium.
To entice travelers to buy tickets, Southwest executives told analysts they’ve had to offer cheaper tickets on less crowded days like Tuesdays and Wednesdays. Other airlines (particularly low-cost carriers) have offered steep discounts and promotions of late, too.
For travelers, more approachable prices could be reason enough to book another trip.
Bucket lists still unsatisfied
Several industry leaders have also cited an enduring willingness from consumers to spend on travel and sacrifice other purchases instead.
Michael Daher, vice chair and U.S. transportation and hospitality leader at consulting firm Deloitte, said in an email that his team has tracked an “overall decline in financial well-being” over the last year, including still growing concerns about savings.
But, he added, the company’s survey data also suggests consumers hope to travel nonetheless, perhaps merely electing to fly on a cheaper ticket type, like basic economy.
“We may be moving from ‘revenge travel’ to a period of reprioritization that values travel highly,” Daher said.
How to maximize your rewards
You want a travel credit card that prioritizes what’s important to you. Here are our picks for the best travel credit cards of 2023, including those best for:
I bet you didn’t know that Home Depot isn’t just for hammers and nails — it’s also stocked with beautiful decorative items, from fancy candles to luxe linens. As a designer, I often source from the retailer, because it carries everything from key pieces of furniture to blissful bedding. Below I’ve collected just a smattering of the deals still on offer in the Home Depot 2023 Black Friday sale.
Save an orange bucket’s worth of dough with this sale, and freshen up your home. But don’t wait too long — these Home Depot extended Black Friday deals are going faster than your famous sweet potato pie did on Thanksgiving.
Home Depot
Channel hygge this winter — the art of being comfortable — with a sherpa-lined throw in cozy plaid. Save 50% on this holiday-worthy option, and snuggle up under the weight of the standard throw-sized charmer. Looks great on a chair or at the edge of your bed. Machine washable for easy cleaning.
$18 at Home Depot
Home Depot
You can never have enough storage, and large woven baskets are a charming way to keep tidy. This set includes two, so you can use them in the foyer for extra shoes, the living room for throw blankets or the bathroom for rolled-up towels. Save nearly 60% on these open-weave organic looking winners.
$50 at Home Depot
Home Depot
Score a 60% discount on lanterns so versatile, you’ll want them everywhere in the house. Designed for use with flameless candles, this set will serve you year-round. Add a welcoming touch to an entryway, some ambiance to the living room or dress them up for the holidays with fresh greens and ribbon. The set comes in varying heights of 15 and 18.75 inches tall.
$72 at Home Depot
Home Depot
A tray goes a long way as an essential multi-tasker in your home. Use it to serve up cocktails or as a reliable surface to rest your drink on your coffee table ottoman. This beauty, in a natural wood grain walnut finish, is finished with brass handles lending it elegance. Add some decor, like a live plant or trio of accessories. Get creative— it’s as functional as it is attractive.
$66 at Home Depot
Home Depot
Mirrors are a designer’s trick of the trade to catch the light and make a room appear larger. This beauty is available in different sizes for just the right fit. Hang it over your dresser in the bedroom, above a console in your entry or use it as your bathroom vanity mirror. Save 55%.
$90 at Home Depot
Home Depot
When my clients don’t have a green thumb, are worried about pests or have a second home, I recommend a faux plant to give a room a natural vibe that springs to life. At 6 feet, this palm makes a statement, filling your space with fresh greens without the worry. Save more than 40% on this lush palm with bamboo-like stems and you’ll bring a taste of the tropics indoors.
$70 at Home Depot
Home Depot
A pouf or small ottoman is a great addition to any room. It provides extra seating in a pinch, or a great place to put your feet up. Light enough to move where you need them, this knit version is just the texture for winter. I’m drawn to this pretty blush color, but check out the variety of shades, from bold to neutral. Get 25% off — I’d grab two.
$50 at Home Depot
Home Depot
I’m charmed by this pair of decorative vases, in 6 and 8 inch heights, that are the perfect objét to add to your bookcases, entry console or dining centerpiece. Natural pottery such as this adds warmth to the room with a hand-cast feel, and the speckled glaze finish is earthy and pleasing to the eye. Not waterproof, these are meant for dried flowers or add a topiary ball to the top. Though I think their shape and texture is attractive enough to stand alone. Enjoy 20% off.
$26 at Home Depot
Home Depot
Good design should inspire all the senses, so don’t forget to add a scent to the air. This candle by Root is literally rooted in its passion for bees, creating a natural beeswax-blended candle. Aromas abound, but I’ve featured the Winter Balsam scent to evoke the season with its combination of Canadian fir needle and green citrus. With a natural fiber wick, you can feel good about gifting this made-in-the-USA candle. Save 20%.
$21 at Home Depot
Home Depot
Score a 45% discount on a new set of sheets and level up your bedding. These luxurious cotton sateen sheets are wrinkle-resistant with a silky finish. OEKO-TEX certified for safety, the fitted sheet works with mattresses anywhere from 8 in. to 20 in. using patented Flexi Fit technology.
$49 at Home Depot
Home Depot
Don’t forget the bathroom. This 45%-off deal is a great opportunity to refresh your bath linens for less. Available in a bevy of colors, the set includes bath and hand towels, plus washcloths. The 100% Hygro Cotton gets softer and fluffier the more you wash.
$66 at Home Depot
Home Depot
Do you have something in your yard you’d prefer not to look at — like a rough fence around an air conditioning unit? These artificial hedges can cover up an eyesore with ease. You’ll get 12 tiles, each 20 inches by 20 inches, that will cover a total of 33 square feet.
$60 at Home Depot
Your Black Friday Shopping Guide: See all of Yahoo’s Black Friday coverage here. Follow Engadget for Black Friday tech deals. Learn about Black Friday trends on In the Know. Hear from Autoblog’s experts on the best Black Friday deals for your car, garage and home, and find Black Friday sales to shop on AOL, handpicked just for you.
How we find and select deals: Our deal-hunting team of award-winning writers and editors are seasoned experts in their fields (tech, style, home, beauty), many with 20+ years of experience. This team works diligently to bring you the best sales, deals and price drops. Our unbiased experts maintain strict editorial integrity: We only feature items we believe will save you money. Here’s more on how we select deals for our Black Friday and Cyber Monday coverage.
Whether you’re dreaming of beaches in the Caribbean or roaming the streets of Paris, one thing’s for sure: Traveling is expensive. Factor in the cost of flights, food, and lodging, and it’s no wonder some people feel like traveling is reserved only for the rich and famous.
The good news? Traveling doesn’t have to break the bank. Saving enough money for your next holiday is totally doable, and it all starts with proper budgeting for travel. With a defined vacation budget and some planning, you could request time off for travel sooner than you think. Here’s how to do it.
How to build a travel fund
Before you start booking plane tickets and buying museum tickets, you’ll need to determine what’s realistic for your current financial state, according to Athena Valentine Lent, author and founder of Money Smart Latina. If this is your first time budgeting for travel, Lent says these three steps can help you get started:
1. Set a savings goal for your trip
Budgeting for travelstarts with identifying where you want to go and calculating the total amount of money you’ll need to cover that trip.
“Decide where you’d like to go, and start from there,” Lent says. “Research the best times to visit your travel destinations, so you can take advantage of any off-peak seasons. If you’re unable to visit during that time, consider another place.”
In addition to researching prices of big-ticket items like airplane tickets, Lent recommends researching all potential expenses to paint an accurate picture of your total cost. “Look into how much you’ll pay for lodging, food, transportation to get there—plus transportation while there—and any other exhibits or bucket items you want to check off while you’re there,” she says.
Vacations can and should include plenty of spontaneity, so Lent recommends giving yourself some extra wiggle room in your travel fund to cover other possible expenses (think: last-minute excursions and souvenirs). As you continue to plan, creating a financial vision board can help you visualize your dream vacation and keep you motivated during your savings journey.
2. Turn one big goal into multiple smaller goals
Once you’ve established how much your trip will cost, determine the amount you need to save on a monthly, bi-weekly, or weekly cadence until you can fully fund your goal, Lent says. For example, if you’ve figured out that you need $1,000 for a trip coming up in five months, you’d want to save $200 a month. Or if you wanted to break it up into even smaller chunks, you could have a savings goal of $50 a week.
Breaking your goal into smaller steps makes it appear more manageable, Lent says. Saving $200 a month feels much more attainable than trying to put away $1,000 all at once. Psychologically, splitting up a large goal into multiple smaller ones gives you a sense of accomplishment every time you cross one of your funding milestones.
3. Keep your travel fund in a separate savings account
There are ways to make your money work harder for you. With a high-yield savings account, you’ll earn a specific percentage of interest on your money, known as an annual percentage yield (APY). That interest is compounded, too, so you’ll grow your savings even faster.
Keeping your travel fund in a separate savings account is another helpful strategy. It can streamline your efforts, making it easier to track progress and know exactly when you’ve reached your goal.
“I love me a high-yield savings account,” Lent says. “The ability to put cash aside into a different account labeled with a goal motivates me to call it ‘my precious’ and protect it. I’m also a firm believer in making your money work for you.”
Tips for keeping your travel fund on track
Making a plan and budgeting for travel is a critical first step, but if you want to make your dream vacation a reality, you’ll need to stay on track. To keep your momentum going, consider these four tips for how to save money for travel:
1. Curb your spending habits
Looking for some low-hanging fruit? Lent says to try reducing nonessential spending first. While that might mean spending less money on things like dining out or new clothes, it doesn’t mean you need to live like a hermit to achieve your financial goal.
“Cutting back on your discretionary spending can seem brutal when all you want to do is live your current lifestyle,” says Lent. “My advice is to cut spending in small amounts at first and then look for cheaper ways to do the things you want to do. As you begin to cut back while still doing the things you love, you won’t be depriving yourself, which makes it easier to stick to your budget.”
2. Take advantage of freebies and discounts
Just because you’re budgeting for travel doesn’t mean you have to give up on fun entirely. These days you can find coupons or discount codes for almost any activity, from festivals and sporting events to restaurants and bars. “For example, if you want to go to a concert, look for it on a group coupon site,” says Lent. “Plan on drinking with friends? Ask your friends to check out a happy hour with you.”
There are also plenty of ways to have fun without spending money. Look no further than your local community for meetup groups, free museum or zoo days, or music nights hosted by your city or town. Depending on where you live, getting out into nature is often free, and many national parks even offer free entry on certain days. Entertaining yourself doesn’t have to be expensive – finding no-cost alternatives will enable you to put even more money away in your travel fund.
3. Hack your way to savings with a cashback credit or debit card
Another way to make your travel dreams come true is to use credit card rewards in a process known as “travel hacking,” Lent says. Some credit card providers will give you points or cash back on a percentage of the money you spend overall or in certain categories like food, travel, or gas. If you want to use these credit card rewards for travel, however, Lent recommends paying off your credit card debt each billing cycle.
Some banks also offer cash back when you spend with your debit card. For example, with Discover® Cashback Debit, you can earn 1% cash back on your debit card purchases1 and put that extra cash toward building up your travel fund.
Earn cash back with your debit card
Discover Bank, Member FDIC
4. Consider a side hustle
If you feel like you’re not making as much headway as you’d like on your travel fund, you might want to explore some side hustle ideas to earn extra income. Side hustles can range from freelance projects on the weekend to driving for a ride-sharing company.
Pursuing a side hustle isn’t for everyone, but if you have the time and ability to take on additional work, Lent says, you can use the extra cash to fund your travels without dipping too much into your primary source of income.
Your next vacation is one travel fund away
Planning a vacation can be intimidating, especially once you start calculating how much everything will cost. But just like any financial goal, saving money for travel is doable if you have a clearly defined budget and stick to your plan.
Take Lent’s advice: If you want to know how to save money for traveling, determine where you want to go, research how much it’ll cost, and break your savings goal into manageable chunks. You’ll be jet-setting off to your next adventure in no time.
If you’re ready to build your travel fund and make your vacation dreams a reality, check out the features of a Discover Online Savings Account to see how it can keep your travel savings safe and growing over time.
Articles may contain information from third parties. The inclusion of such information does not imply an affiliation with the bank or bank sponsorship, endorsement, or verification regarding the third party or information.
1 ATM transactions, the purchase of money orders or other cash equivalents, cash over portions of point-of-sale transactions, Peer-to-Peer (P2P) payments (such as Apple Pay Cash), online sports betting and internet gambling transactions, and loan payments or account funding made with your debit card are not eligible for cash back rewards. In addition, purchases made using third-party payment accounts (services such as Venmo® and PayPal®, who also provide P2P payments) may not be eligible for cash back rewards. Apple Pay® is a trademark of Apple Inc. Venmo and PayPal are registered trademarks of PayPal, Inc. Samsung Pay is a registered trademark of Samsung Electronics Co., Ltd. Google, Google Pay, and Android are trademarks of Google LLC.
Inside: Are you finding yourself struggling to cover unexpected expenses? This guide will teach you how to create a financial plan and budget that will help you avoid costly surprises.
Life is full of surprises, and not all of them are pleasant. Sometimes, these surprises come in the form of unexpected expenses, hitting when one least expects them.
This can leave you devasted financially. Over the years, we have been slapped with unplanned costs and left scrambling.
However, you can successfully navigate through the rollercoaster ride of money management.
The key is knowing “What are unexpected expenses?’ Along with the knowledge equips you to avoid or mitigate them.
This post may contain affiliate links, which helps us to continue providing relevant content and we receive a small commission at no cost to you. As an Amazon Associate, I earn from qualifying purchases. Please read the full disclosure here.
What are Unexpected Expenses?
In the realm of personal finance, unexpected expenses are costs you haven’t foreseen or budgeted for. They strike out of nowhere, leaving you scrambling to balance your finances.
These expenses differ from other cost categories such as fixed expenses (weekly, monthly, and recurring costs like rent) and variable expenses (those that do not happen regularly but vary in cost like groceries).
The crux lies in not being able to anticipate these unplanned expenses, making them disruptive to financial plans.
What is an example of unplanned spending?
Unplanned spending often occurs when there’s an unforeseen event that demands immediate financial attention.
Picture this scenario: You take your car for a routine inspection; however, the car fails the inspection due to a defective part that needs immediate repair. Initially, you hadn’t allocated funds for this, but now you have to deal with this unforeseen cost – a classic case of unplanned spending.
Common Examples of Unexpected Expenses
Unforeseen financial events can leave many unprepared and struggling, adding unnecessary stress. This section will delve into examples of typical unexpected expenses that individuals often encounter, providing key insights into how to efficiently incorporate these into your financial plan.
By understanding and preparing for these unexpected expenses, one can effectively mitigate the surprise factor they pose, promoting a healthier and more secure financial state.
We have overcome many times and you can too!
1. Medical Emergencies and Healthcare Costs
Medical emergencies are prominent examples of unexpected expenses. Even with health insurance, costs can amass, thanks to high deductibles, co-payments, and therapies not covered by insurance.
One factor is paying for the medical costs, but the other weighing factor is loss of income when dealing with medical emergencies or critical diseases like cancer.
Overcome this by:
Contributing the max each year to your Health Savings Account (HSA). This way you have a bucket of money just for medical expenses.
Look into short-term disability insurance that can cover part of your lost wages while you can’t work.
2. Automatic Home or Vehicle Repair Needs
Home and vehicle repairs often sneak up as unexpected expenses. Time, accidents, natural disasters — all can cause wear and tear that demands immediate repair. The consequences of ignoring these repairs can be hefty.
Similarly, significant home repairs such as fixing a faulty HVAC system or leaky roof can set you back by thousands of dollars.
Overcome this by:
Be proactive with routine maintenance. Take care of your house and car before problems escalate.
Save the same amount each month for home and vehicle repairs separately.
Personally, we save $100 monthly for car repairs as one is a beater car. This amount will be increased to $350 to start saving for a new car. Conversely for home repairs, we keep a minimum of $1000. This amount will fluctuate depending on when we last did a major repair. Since we just replaced our HVAC, our funds are lower.
3. Natural disasters
Natural disasters, such as hurricanes, earthquakes, wildfires, and floods, lead to unexpected spending. The impact of these events can cause significant damage to homes, cars, and other property, leading to repair and replacement costs.
Furthermore, these situations might also necessitate expenses for emergency supplies, temporary shelter, and other necessities. For instance, Hurricane Katrina inflicted a staggering $196.3 billion in damage, illustrating the overwhelming cost of such unpredictable events.1
Overcome this by:
Make sure you have proper insurance whether it is renter insurance or flood/wildlife insurance. Also, make sure you have the proper amount of insurance. As highlighted by the Marshall Fire where most people were underinsured. 2
Storing cash on hand at home in case of an emergency. A cushion of money will always be helpful.
4. Increase in Bills
Monthly bills are a constant in our lives, but what’s not constant is their amount. Landlords may raise the rent when leases are up for renewal, utility companies could increase their rates, and insurance premiums may also inflate periodically.
All these scenarios lead to higher monthly expenses. For example, the U.S. energy costs per household rose by 13% in 2022 reaching the highest percentage increase since it was measured. 3
Being unprepared for these increases can cause significant financial strain.
Overcome this by:
Get one month ahead on your bills. Then, you will start building a cushion. Also, known as aging your money – thanks to YNAB.
Be proactive and realize that with inflation high. All of your bills will likely increase in cost.
YNAB
Enjoy guilt-free spending and effortless saving with a friendly, flexible method for managing your finances.
Pros:
Comprehensive approach to budgeting, helping you plan monthly budgets based on your income.
Offers expert advice, making it suitable for those who require an in-depth, forward-thinking budgeting strategy.
Superior synchronization skills make it the winner in this area.
YNAB has extra features like goal setting for budgeting, shared budgeting tools for partners.
Option to manually add and upload transactions from accounts each month.
YNAB prioritizes user privacy.
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5. Overlooked Taxes
Overlooked taxes pose another source of unexpected expenditure.
A higher than expected tax bill can indeed surprise and unbalance your budget. This happened to my friend when she started her own fitness coaching business.
Uncertainties in estimating the exact tax amount, mathematical errors in filing, or an overlooked quarterly tax payment often culminate in an escalated tax bill. An audit from the IRS, though it may find no additional taxes owed, can lead to expensive fees from a CPA or tax attorney.
Overcome this:
Use a tax calculator to know what your estimated tax payment due.
Understand the common reasons you may owe higher taxes this year.
6. Pet Emergencies
Pet emergencies can bite a large chunk out of your budget without warning. For instance, if your cat suddenly starts having seizures or your dog gets hit by a car, the medical costs associated can spiral rapidly.
Emergency vet care can range between a few hundred dollars to several thousand dollars. For instance, a poisoning can range from $200-$3000. 4
Overcome this by:
Prevention methods like pet insurance can help you manage these costs effectively.
Decide in advance the maximum you are willing to spend on emergency vet care.
7. Delayed payments
Delayed payments may not be an external expense, but the repercussions can be just as financially challenging. This affects your income stream, potentially leading to difficulty in managing your financial obligations.
For example, if an employer goes bankrupt, salaries might be delayed or even indefinitely withheld. According to research, late payments can cost businesses $3 trillion globally, affecting both personal financial planning and business operations.5
This is a highly stressful situation.
Prepare yourself financially by:
Aging your money. By getting one month ahead of your bills, you can scrap through a delayed payment. YNAB coined this term.
Start saving for a large rainy day fund.
Raisin
Simply select one of the high-yield savings products offered by their network of federally insured banks and credit unions to begin your savings journey.
You can open a free Raisin account in just a few minutes!
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8. Gifts and Special Occasions
Commemorating special occasions can lead to unexpected expenses. Life events such as birthdays, weddings, baby showers, and retirements, traditionally require gift-giving.
While typical gift giving on Christmas or birthdays should be part of your planned variable expenses. Saying yes to being a bridesmaid can definitely set you back a few thousand dollars. These are costs that we often fail to factor into our budgets.
Overcome this by:
Setting aside money monthly to cover gifts and special occasions.
If saying yes to a special event will hamper your finances, then you may have to politely decline the invitation.
9. Unexpected Travel Costs
Unexpected travel costs can significantly impact your budget, particularly when they arise from unplanned events such as attending a funeral or a wedding. The costs of last minute travel can vary widely depending on the destination, distance, and mode of transportation.
To manage these expenses, consider driving or taking public transportation for shorter trips, exploring less expensive lodging options, and creating a meal plan that limits dining out.
Overcome this by:
Setting aside a regular amount in a travel fund can help prepare for these unexpected costs that tend to crop up every year.
Decide if taking the unplanned trip is something you can feasibly manage with your current financial situation.
10. What You Forget to Budget for
Some subtle but regular expenses often sneak past our budget plans. This is why we have a full list of budgeting categories so hopefully, you don’t miss anything!
Consider online subscriptions and memberships: Many services offer free trials, but the charges kick in if not canceled. Other overlooked budget items may include pet care, parking fees, and toll fills—small amounts that may seem insignificant but can considerably dent your budget over time.
Overcome this by:
Review your checking account and credit card bills to see all of your expenses for the past year. Write down those unexpected expenses that came through.
Now, make a plan for how to spend your money in advance with your findings.
This helps you prepare for unexpected expenses
Here are simple tips to make sure you employ the habits of a financially stable person.
Tip #1 – Building an Emergency Fund
Building an emergency fund is a fundamental strategy to brace for unexpected expenses. This fund acts as a financial buffer, providing the economic security to cover unexpected costs without tapping into monthly budgets or savings aimed at other goals.
As a starting point, aim to save $1000 and then work your way up to save a month’s paycheck. Start small and build over time – every penny set aside helps to mitigate future financial stress.
Tip #2 – Properly Utilizing Sinking Funds
Sinking Funds are a sagacious tactic to prepare for larger, infrequent expenses. They allow you to systematically and gradually save up for anticipated financial obligations such as vacations, holiday gifts, car maintenance, etc.
By assigning a specific amount to save each month, by the time the need arises, you’ll have a pool of money ready. With platforms like YNAB, creating sinking funds becomes easier, letting you monitor your progress month by month.
This is how we have less frequent unplanned costs than we did in our 20s.
Tiller Money
Your financial life in a spreadsheet, automatically updated each day.
Tiller is the fastest, easiest way to manage your money with the unlimited flexibility of a spreadsheet.
Update your finances in one place, so you can take control of spending, optimize cash flow, and confidently plan your financial future.
Pros:
Tiller automatically updates Google Sheets and Microsoft Excel with your latest spending, balances, and transactions each day.
No more tedious data entry, CSV files, or logging into multiple accounts.
You can customize everything and finally track your money, your way.
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Tip #3 – Saving for the Larger Rainy Day
Beyond smaller emergency funds and sinking funds, saving for the ‘larger rainy day’ is a crucial tactic to avoid financial duress caused by unexpected expenses. This refers to padding your savings to cover larger, more substantial financial shocks that might require more than just a few months’ worth of expenses.
It may take time to build such a fund, but even a small contribution each month can result in substantial savings over time.
Tip #4 – Pick up a Side Hustle
One way to strengthen your financial resilience against unplanned expenses is to start a side hustle. This could mean picking up extra shifts at work, selling handcrafted items online, or using skills like photography or writing for freelance work.
With the rise of the internet, making money online is really easy and simple to get started. We have a few side hustles to shield against unforeseen costs.
Tip #5 – Budget Properly and Stick to It
Budgeting is an essential line of defense against unexpected expenses. By tracking your income and comparing it against both predictable and variable expenses, you can calculate how much money can be saved each month.
Regular budget check-ins help ensure you’re staying on track, steadying your financial footing.
Quicken
Personal finance and money management software allows you to manage spending, create monthly budgets, track investments, retirement and more.
I have used this platform for over 20 years now.
Pros:
Birds-eye view of your complete financial picture.
Conveniently download your spending activities, and automatically categorize them (Quicken connects to over 14,000 financial institutions).
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Tip #6 – Regular Review of Financial Plans
Regularly reviewing and updating your financial plans can serve as a preventative measure against unexpected expenses. Consider changes in income, expenses, and lifestyles, and adjust your savings and spending plans accordingly.
Tip #7 – Utilizing Digital Banking Features for Money Management
Digital banking tools have revolutionized financial management and can be part of a robust strategy to avoid unexpected expenses.
Features such as instant account balance checking, transaction alerts, set-and-forget savings transfers, budgeting tools, and proactive spending categorization help you grasp where your money is and how it’s being spent.
Tools to Ward Off Unexpected Expenses and Not Go into Debt
Unexpected expenses are inevitable, yet going into debt to cover these costs can lead to financial strain due to accumulated interest and fees.
Here are crucial steps in preventing unexpected expenses from turning into debt.
Dealing smartly with Credit Cards options
Credit cards can serve as a lifeline during a financial crunch but should be employed judiciously.
To smartly deal with unexpected expenses, consider options like 0% or low-interest credit card offers – these are particularly useful if you can pay off the balance during the introductory period. But tread with caution: high-interest rates can cause difficulties if you can’t pay off the balance in time.
Profit from Asking for a Paycheck Advance
In times when emergency expenses arise, asking for a paycheck advance can help. Some employers offer this as part of their policy to assist employees dealing with abrupt financial needs. A salary advance allows you to ‘borrow’ from your future earnings and repay the amount through future pay deductions.
Budgeting apps like Chime not only help in tracking expenses, but they also enable early access to your paycheck, up to two days before payday. This feature ensures you avoid running short of money at the end of the week or month, allotting you ample room to plan, track, and adjust your spending and savings.
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Exploring Personal Loans for Emergency Situations
Personal loans are a convenient option during urgent monetary needs. They are unsecured loans and therefore don’t require collateral.
However, they’re typically accompanied by relatively high-interest rates. Consider using online prequalification tools for personal loans to determine if you’re eligible and view potential interest rates.
Explore different lenders, but be wary of the terms and conditions to make sure you don’t invite more financial trouble.
Which of the following is true regarding unexpected expenses?
Unexpected expenses are costs that are not anticipated or planned for, such as sudden car repairs or medical emergencies.
To efficiently manage unexpected expenses, it’s recommended to make them a part of the monthly budget. A suggested approach is to analyze past “unexpected expenses”, then estimate their costs and timing, which can provide an estimate of how much should be saved each month.
While basing future expenses on past ones only furnishes savings guidelines, this method can prevent an unexpected expense from turning into a severe financial emergency.
Planning for unexpected expenses by setting aside money from each paycheck can protect individuals from unforeseen financial difficulties.
Understanding what types of unexpected expenses might occur can help in the development of strategies to handle them successfully, reducing the impact of any unpleasant financial surprises.
Yes, all of the statements above are true.
What is not true about unexpected expenses?
Unexpected expenses are entirely out of our control.
Unexpected expenses can be completely avoided.
These unanticipated costs only occur irregularly or infrequently.
You can’t prepare for unexpected expenses.
All of these statements are not true. While the occurrence of these expenses might be unexpected, they’re not entirely unpredictable. Many times, they are the result of poor financial planning or management as they are often unforeseen costs that were not anticipated or included in a budget.
Frequently Asked Questions (FAQ)
It’s advisable to aim for at least 3 to 6 months of living costs for an emergency fund. This acts as a buffer to cover unexpected expenses and offers financial security during unexpected life events like job loss or serious illness.
However, the “right” amount to save varies depending on your personal situation, lifestyle, and financial obligations. Always remember: saving something is better than saving nothing; start small and increase gradually as your income allows.
Financial experts generally advise having an emergency fund equivalent to three to six months of monthly expenses. This guidepost factors in expenses such as food, housing, utilities, transport, healthcare, and other necessities.
However, if you are in a volatile occupation or the sole breadwinner of the family, aiming for a larger fund may be prudent. Whichever your situation, remember it’s not about reaching the benchmark overnight; the key is consistency in saving.
Managing urgent financial liabilities without incurring debt hinges on proactive financial planning.
Building an emergency fund: Start small and deposit to accumulate enough to cover at least three to six months of essential expenses.
Proper budgeting: Maintain a budget, ensuring you live within your means and regularly contribute to savings.
Insurance coverage: Adequate insurance coverage can help circumvent the financial impact of medical emergencies or catastrophic events.
Extra income: Consider a side hustle for additional income to bolster your budget and increase your savings.
Plan Ahead to Avoid Unforeseen Expenses
While unexpected expenses are an inevitable part of life, their financial stress isn’t.
Through effective planning and budgeting, you can cushion their blow, ensuring they don’t throw you into financial turmoil. Around here at Money Bliss, we strive for our readers to have less stress with money.
No matter how well you plan, unexpected costs can still arise from time to time. They can happen quite regularly, which is why it’s crucial to include them in budget planning.
By setting aside a portion of each paycheck in a savings account, you can be better prepared for such costs when they arise.
Remember, every dollar saved is a step towards greater financial stability, helping you to navigate life’s uncertainties with confidence and peace of mind.
Now, make sure you are financially sound.
Source
NOAA.gov. “Costliest U.S. Tropical Cyclones.” https://www.ncei.noaa.gov/access/billions/dcmi.pdf. Accessed December 1, 2023.
Colorado Public Radio. “Most people who lost homes in the Marshall Fire were underinsured, Colorado insurance regulators say.” https://www.cpr.org/2022/05/02/most-people-who-lost-homes-in-the-marshall-fire-were-underinsured-colorado-insurance-regulators-say/. Accessed December 1, 2023.
U.S. Energy Information Association. “U.S. residential electricity bills increased 5% in 2022, after adjusting for inflation.” https://www.eia.gov/todayinenergy/detail.php?id=56660. Accessed December 1, 2023.
BetterPet. “Average emergency vet costs: what to expect.” https://betterpet.com/emergency-vet-costs/. Accessed December 1, 2023.
Mastercard. “Your real-time guide to real-time payments.” https://www.mastercard.com/news/perspectives/2023/real-time-payments-what-is-rtp-and-why-do-we-need-instant-payments/. Accessed December 1, 2023.
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More importantly, did I answer the questions you have about this topic? Let me know in the comments if I can help in some other way!
Your comments are not just welcomed; they’re an integral part of our community. Let’s continue the conversation and explore how these ideas align with your journey towards Money Bliss.
Let’s chat about the stock market. Specifically, let’s think about average investors like me and you. And let’s ask: how much money do we need to invest to become a millionaire?
First, we need to set some ground rules. It’d be easy to say, “If you invested in Apple stock in 2002, you could have 1000x‘d your money…boom, you’re a millionaire.”
But that’s not how reality pans out. In fact, we need to apply logical rules to our investing framework. The rules that I espouse on The Best Interest (and that matter for today’s article) include…
Dollar-cost averaging. It’s too hard to determine when the market is overvalued or undervalued. Instead, the long-term investor should commit to a consistent investing schedule (e.g. $300 every month, or 10% of every paycheck, or $10,000 yearly). In fact, waiting to “buy the dip” is demonstrably dumb.
Investing (in stocks) for decades. Simply put, stocks are not a short-term investment. They’re decades-plus. The data shows why.
Diversifying, a.k.a. buying the whole market. History proves how challenging it is to find the “needle in the haystack” in the stock market. This article dives into further detail.
Buy-and-Hold’ing. We don’t sell our investments when the headlines get scary. We hold. The past month has provided a terrific real-life example of why that is, as did the transition from 2022 to 2023.
We reinvest our dividends. This rule is a bit in the weeds but a complete no-brainer.
Make sense? Let’s now put these rules to work. I went back to 1950 and grabbed all the S&P 500 data (which will act as our proxy for “the stock market”) through today.
Then I asked, “If an investor followed our rules, how much would they have needed to save and invest to become a millionaire?”
***Important note: I’m also inflation-adjusting all this data to 2023 values. Being a millionaire in 1950 was drastically different than being a millionaire today. Hence, everything you see below is adjusted to modern terms to make our understanding easier.
We know compound interest is a powerful tool, so we expect millionaire status to get progressively easier over longer investing periods. But we also know the market can be volatile. Two 20-year periods can provide drastically different investment returns.
So let’s compare 10-year periods against 20-, 30-, and 40-year periods. And we’ll look at all 10-year periods from 1950 to today (same for 20-, 30-, and 40-year periods) to show how much variability/volatility exists.
The Data: Becoming a Millionaire in the Stock Market
This chart shows every 10-year period from 1950 to today.
We label each period by its first year; the X-axis shows that.
We then look at the stock market returns for each period to ask, “What annual investment would have gotten us to $1 million over this period?” The Y-axis shows that dollar amount.
e.g. the left-most bar represents the period from 1950 to 1959. Over that period, a $42,463 annual investment would have grown to a $1M portfolio.
For these 10-year periods, the average investor (the dotted red line) needed to invest $71,595 yearly to reach $1 million.
But the data that sticks out to me is the number of periods with a required investment above $100,000 annually. The 1965 and 1999 starting years are prime examples.
This is a glaring problem! If you’re investing ~$150,000 for 10 years (for a $1.5M total investment) and only end up with $1 million, you lost significant capital. Not good.
My takeaway: even over 10 years, the stock market can be volatile. We need to zoom out further. Let’s look at the 20-year data.
The average investor (in red) must commit $27,203 annually to become a millionaire. For those keeping track, that’s a $544,069 outlay over 20 years that grows into $1,000,000.
This data shows a few periods at or above the $50,000-per-year mark ($50K times 20 years = $1M). In other words, these periods showed near-zero, outright zero, or negative returns over 20 years. Examples include the period starting 1955, ’58-’60, ’62
But most periods provided legitimate, absolute returns. That’s great.
But can the average person save $27,203 per year? Then repeat that for 20 years? And this begs a bigger question that we won’t chase down today: is $1M the right goal in the first place. This is good food for thought.
Let’s move on to the 30-year chart.
The average investor (in red) must commit $11,347 annually to become a millionaire. That’s a $340,432 outlay over 30 years that grows into $1,000,000.
None of these periods flirt with zero or negative returns. The “worst” period was 1952 – 1981, which required a ~$23K annual investment (or ~$695K total) to grow into $1M.
And finally, the 40-year data…
The average investor (in red) must commit $4725 annually to become a millionaire. That’s a $189K outlay over 40 years that grows into $1,000,000.
Again, none of these periods flirt with zero or negative returns. The “worst” period was 1969 – 2008, which required a $7500 annual investment (or $299K total) to grow into $1M.
The Power of Long-Term Investing
The 30-year and 40-year charts are particularly encouraging if you break them down into monthly terms.
$1000 per month is powerful.
For most 30-year periods, $1000-per-month made you a millionaire.
For all but three 40-year periods, $1000-per-month made you a multi-millionaire.
“But $1000 per month is a lot!”
I hear you. But between 401(k) contributions, employer matching, IRA contributions, after-tax investing, etc…$1000 per month is a reasonable goal.
If you’re in your 20s or 30s, set your baseline investing goal at $1000 per month. You’ll be setting yourself up for terrific long-term success.
What If You Don’t Have 3+ Decades?
If you’re reading this at age 50, you might not have 3 or 4 decades to wait for the stock market’s compound magic. What to do?
Let’s consult our trusty bucket method. Think about your current assets and savings based on when you’ll need them in the future…
The money you need in your 50s –> Avoid the stock market. Too risky.
The money you’ll need from age 60-65 –> you can introduce some stocks, but as we’ve seen today, positive returns aren’t guaranteed.
The money you’ll need from age 66-70 –> stocks arebecoming increasingly enticing…
The money you’ll need from age 70+ –> 100% stocks is reasonable.
In summary, a fair portion of this 50-year-old’s assets should not be exposed to the stock market. Bonds, for example, are more appropriate.
Despite that, some of their money still has a 20-30+ year timeline. That money should be exposed to a risk asset like stocks.
Financial planning provides the backbone for these types of allocation decisions.
Just Start…
My investing journey started at age 22 with my first employer’s 401(k). Unsure what I was doing, I decided to learn.
11 years later, here I am.
There’s no guarantee the stock market will make me a millionaire. But history is on my side, and I’m controlling what I can (e.g. my monthly savings rate) to make it happen.
I encourage you to do the same.
Thank you for reading! If you enjoyed this article, join 7000+ subscribers who read my 2-minute weekly email, where I send you links to the smartest financial content I find online every week.
-Jesse
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