Dear Penny: I’m So Frugal I Make My Own Toothpaste, So Why Am I Always Broke?

Dear Penny,
So you need to ask yourself some tough questions. Would you rather work your dream job or a job that offers financial security? How important is it that your job actually uses your master’s degree?
College was a struggle for me. As a student with a learning disability, I struggled and school took longer. When I graduated with my master’s of arts in 2008, the economy collapsed, and we went into survival mode. 
We are struggling to stay on a budget with three kids. With increasing prices for basics, we find ourselves back in that space of struggle, overdraft and panic. We’ve tried using budgeting apps and find them confusing or hard to keep up with. 
You have two part-time jobs. But two part-time jobs often don’t add up to one full-time job in terms of compensation. You may not qualify for benefits like health insurance or a company 401(k) match when you’re not a full-time employee. Career advancement can also be hard when you’re a part-timer. That’s not to mention the brain drain that often comes with working two jobs.
Taking a hard look at your current jobs is going to be difficult. You finally found your dream job after a decade of struggles. You made significant sacrifices to earn your master’s degree, and you’re still paying for your education.
Get the Penny Hoarder Daily

Keep in mind that most people aren’t working their dream jobs. That doesn’t mean they don’t pursue their passions. It’s entirely possible to work a full-time job because it offers good pay and benefits, and then do what you love on the side. There are countless 9-to-5ers whose true passion is blogging, podcasting, volunteer work or playing in a band.
Robin Hartill is a certified financial planner and a senior writer at The Penny Hoarder. Send your tricky money questions to [email protected] or chat with her in The Penny Hoarder Community.
Source: thepennyhoarder.com


If you earned your master’s in a discipline like arts or social work, you may need to accept that a better-paying job may not take advantage of your degree. That’s not to say you’ll never use the skills you acquired from your education. But you may need to shift gears and look for jobs that don’t require your specific degree.
For example, you might have separate envelopes for groceries, clothing, gas and pet expenses. You put the amount of cash you’ve budgeted for each category in the envelope. If you run out of cash for that envelope, you’re done spending in that category for the month. Only in a true emergency do you turn to your debit or credit card.
Ready to stop worrying about money?
People don’t go broke from buying grocery store eggs and name-brand toothpaste. What you have isn’t a spending problem. You clearly have an income problem — meaning you aren’t bringing in enough income to pay for basic expenses and save for the future.
We have done everything we can to survive: We got our grocery budget down by eating a lot of rice and lentils, by getting eggs from a friend and milk from a local farmer. We use free apps and the library for streaming apps. We make our own toothpaste. We are thrift store champs for clothing. 
-J.
There’s so much you’ve done right here. You’ve found creative ways to be frugal, while still providing for your family. You own a home. You’re making progress on your student loan. Now it’s time to take stock of how to maximize your income, even if that means your passion won’t be your full-time job.
There’s only so much you can cut from your variable expenses, i.e., the ones like groceries, clothing and entertainment that you have some control over on a daily basis. Your fixed expenses, like housing, transportation and student loans, tend to eat up a much bigger chunk of your budget, and they’re a lot harder to cut.
This approach can help you avoid overdrafting. Sometimes it helps people identify areas where they didn’t realize they were overspending. But I suspect that in your case, this method will highlight the difficult reality so many Americans are facing right now, which is that income is the problem.
Privacy Policy
You don’t say what subject you earned your master’s degree in. But it sounds like it’s not in a particularly lucrative field.

Dear J.,

<!–

–>


After 10 years of struggle, I FINALLY found my dream job, which is part time. Now I have a second job that uses my master’s degree, but it’s only 10 hours a week. With family help, we were able to buy a house. With two jobs, I am finally able to start paying on student loans and not defer them. 

Tax Day 2022: When’s the Last Day to File Taxes?

Most Americans must file their federal tax returns for the 2021 tax year by April 18, 2022. Note that we say “most Americans.” Taxpayers in two states have until April 19 to submit their 1040s to the IRS. Victims of certain natural disaster also get more time to file, with varying dates depending on when the disaster hit.

In any case, if for some reason you can’t file your federal tax return on time, it’s relatively easy to get an automatic six-month extension to October 17, 2022, by filing Form 4868 or making an electronic tax payment. But you must act by the original due date for your return, whether that’s April 18, April 19, or some other date.

Keep in mind, however, that an extension to file doesn’t extend the time to pay your tax. If you don’t pay up by the original due date, you’ll owe interest on the unpaid tax. You could also be hit with additional penalties for filing and paying late.

Why Are Taxes Due April 18 Instead of April 15 This Year?

As most people know, Tax Day is usually on April 15, unless it falls on a weekend or holiday, in which case it’s pushed back to the next available business day. April 15 is on a Friday this year, so the weekend rule doesn’t apply. However, Emancipation Day is being observed in the District of Columbia on April 15. The holiday honors the end of slavery in Washington, D.C. Since April 15 is a legal holiday in D.C., the IRS can’t require tax returns be filed that day. The next business day is April 18 – so that becomes Tax Day in 2022 for most people.

Tax Filing Deadline for Maine and Massachusetts Residents

Residents of Maine and Massachusetts get an extra day – until April 19 – to file their federal income tax return. Why? Because Patriots’ Day, an official holiday in Maine and Massachusetts that commemorates Revolutionary War battles, falls on April 18 this year. So, for the same reason Tax Day is moved from April 15 to April 18 for most people (i.e., a local holiday), the IRS can’t set the tax filing and payment due date on April 18 for taxpayers in those two states. As a result, the deadline is shifted to the next business day for Maine and Massachusetts residents, which is April 19.

Natural Disaster Victims Get Tax Filing and Payment Extensions

If the Federal Emergency Management Agency (FEMA) declares a disaster area following a natural disaster, the IRS usually jumps in with tax relief for the disaster victims in the form of tax filing and payment extensions. In the case of certain recent natural disasters, the April 18 (or April 19) tax filing and payment deadline has been extended for individuals and businesses residing or located in the disaster area.

So far, victims of the following natural disasters have been granted extensions that push back this year’s federal personal income tax filing and payment deadline:

Additional extensions may be announced later that impact this year’s tax return filing due date.

State Tax Return Due Dates

Don’t forget about your state tax return. Most states synch their income tax return deadline with the federal tax due date – but there are some states that have different deadlines. Check with the state tax agency where you live to find out when your state tax return is due.

Source: kiplinger.com

Tax Deadlines Extended for Washington Flooding and Mudslide Victims

Residents and business in Washington State impacted by the flooding and mudslides beginning November 13, 2021, now have until March 15, 2022, to file and pay certain federal taxes. The IRS extended the deadlines after parts of the state were declared a disaster area by the Federal Emergency Management Agency (FEMA). The tax relief applies to residents and businesses in Clallam, Skagit, and Whatcom Counties who were affected by the flooding and mudslides. This includes victims who reside or have a business in the Lummi Nation, Nooksack Indian Tribe, and Quileute Tribe.

Various federal tax filing and payment due dates for individuals and businesses from November 13 to March 14 will be shifted to March 15. This includes the quarterly estimated tax payments that are due on January 18, 2022.

The tax relief also applies to the quarterly payroll and excise tax returns normally due on January 31, 2022. Penalties on payroll and excise tax deposits due from November 13 to November 28 will also be waived if the deposits were made by November 29, 2021.

Victims of the flooding and mudslides in Washington don’t have to contact the IRS to get this relief. However, if you receive a late filing or late payment penalty notice from the IRS that has an original or extended filing, payment or deposit due date falling within the postponement period, call the number on the notice to have the penalty abated.

The IRS will also waive fees for obtaining copies of previously filed tax returns for taxpayers affected by the storms and flooding. When requesting copies of a tax return or a tax return transcript, write “Washington Flooding and Mudslides” in bold letters at the top of Form 4506 (copy of return) or Form 4506-T (transcript) and send it to the IRS.

In addition, the IRS will work with any taxpayer who lives outside Washington, but whose records necessary to meet a deadline occurring during the postponement period are located in the state. Taxpayers qualifying for relief who live in another state need to contact the IRS at 866-562-5227. This also includes workers assisting the relief activities who are affiliated with a recognized government or philanthropic organization.

Individuals and businesses in a federally declared disaster area who suffered uninsured or unreimbursed disaster-related losses can choose to claim them on either the return for the year the loss occurred (in this instance, the 2021 return that you will file this year), or the return for the prior year. This means that taxpayers can, if they choose, file an amended return to claim these losses on their 2020 return. Be sure to write the FEMA declaration number (DR-4635-WA) on any return claiming a loss. It’s also a good idea for affected taxpayers claiming the disaster loss on an amended 2020 return to put the Disaster Designation (“Washington Flooding and Mudslides”) in bold letters at the top of the form. See IRS Publication 547 for details.

Source: kiplinger.com

How Risky is Investing in Rental Properties?

I am trying to buy as many rental properties as possible because of the great returns they provide. I am also trying to help other investors discover the fantastic world of investing in long-term rentals through my blog. However, I run into a lot of feedback from people who are worried about how risky it is to invest in rental properties. I hear: “my friend went broke investing in real estate” or “my parents had a rental and it was a money pit up until the day they were forced to sell it.” There are many horror stories involving real estate, but I have no doubt whatsoever long-term rentals are a great investment if you do your homework and buy properties right. Most of those horror stories come from people who did not do their homework, turned a personal residence into a rental out of necessity, or were hoping for appreciation. What are the real risks of rental properties and how can you mitigate these risks?

What are the main risks of investing in rental properties?

There are real risks with investing in rental properties. Many people felt the wrath of these risks in the last housing crash. Housing values plummeted and in some areas rents plummeted as well. Interestingly enough, not every area saw lower rental rates. Some areas saw rents increase because there were so many more renters (people who lost their houses) and the demand pushed rents up.

The investors who were hurt the most in the housing crash were those who were breaking even on their properties or losing money each month and hoping prices would increase to make money. When the bottom dropped out, they now had a property that was losing money each month and was worth less than they had bought it for. Many investors allowed these homes to go into foreclosure because they didn’t think they were worth keeping.

Other risks come from rentals when people buy a property and do not have enough cash to maintain the property or hold it when it is vacant. Most banks will require a certain amount of reserves when you get a loan on an investment property. But as soon as the property is purchased there is nothing stopping the owners from spending that reserve money. When you own a rental there will be times when the tenants move out, there can be evictions, and rarely a tenant can destroy a property. We see these situations occur quite often because people love to see drama but for the most part our tenants take care of our rentals and are awesome.

Why invest in rentals with these risks?

Rental properties have made me a ton of money over the last decade. Prices have increased significantly, which is great, but the properties also make money every month, and I always get a great deal on everything I buy which means I build equity on day one. There are many ways to mitigate the risks of rentals and the money I have made from my properties more than makes the risks worth it!

A lot of people will assume that when you are investing in large value assets like real estate and there can be huge returns, that the risk must be through the roof. There are types of real estate that can be very risky. We flip houses as well, and that is a much riskier venture than owning rental properties in my opinion. Development can also be much riskier but again come with huge rewards as well.

I also was an REO broker during the housing crash and I talked to many investors who lost homes. I was able to see why they lost their homes, what they could have done differently, and what happened after they lost their homes. For the most part, they bought houses that did not cash flow or make money every month and when things went bad they lost the motivation to keep paying into them. Losing the houses was also not the end of the world for these investors. Many of them had put little money down thanks to the crazy lending that was happening prior to that last crash. They were also able to keep those houses for quite a while after they stopped making payments. Many investors kept collecting rent during this time period which may or may not have been legal, but it did happen.

Many of those investors got right back in the real estate game after recovering and invested the right way with cash flow!

How can you mitigate the risk from rentals?

Buy below market value

One key to a low-risk rental strategy or any successful real estate strategy is to buy property below market value. Buying a property below market enables you to create instant equity, increase your net worth, and protects against a downturn in the market. One of the investors who was hurt badly during the crash was buying brand new houses and turning them into rentals. The houses were in great shape, but he paid full retail value for them.

When I buy rentals I want to pay at least 20% less than they are worth after considering any repairs are needed. For example:

  • A home needs $20,000 in repairs and will be worth $200,000 after those repairs. I want to pay $140,000 or less for that property ($200,000 x .80 – $20k). If I am flipping houses, I need to get an even better deal!

I also usually put about 20% down when I buy rentals which means after the property is repaired I have a loan around $110,000 and a property worth $200,000. Even if prices lost 30%, which is about how much they dropped across the county I am fine.

[embedded content]

Cash flow

I consider cash flow the most important factor in my long-term rental strategy. I want every property to make money each month after paying all expenses. Finding these properties that are also a great deal is not easy, but if you want to change your life with massive returns, it is not easy! When I invest I look for a return of 15% cash on cash. That means I make 15% on the money I have invested into the property. These are very high returns and not everyone needs to make this much but it is what I shoot for.

When you have cash flow coming in every month, it does not matter if values decrease because you do not need to sell the property. While it is true that rents can decrease and lower your cash flow, that is very rare and was even very rare in the last housing crash. There were some areas like Florida and Arizona that were massively overbuilt that saw lower rents, but the nation as a whole barely saw any drop.

My cash flow calculator can help you figure the real income on rentals.

Type of property

The older the property, the better the chance of a major repair needing to be done. I have enough cash flow coming in to account for major repairs, but homes over 100 years old can have issues come up that could wipe out all equity. It is rare, but a foundation or structural problem can make a property uninhabitable and cost tens of thousands of dollars to repair. By purchasing newer properties, I lessen the chances of running into repairs that could wipe out my profit for a year or even two.

Multifamily and commercial real estate can also carry more risk. Those types of properties are more complicated and have fewer buyers. I also buy multifamily and commercial properties but I am very careful what I buy and understand there will most likely be way more costs and exposure if the market changes.

If you buy properties that need a ton of work that can add to the risk as well. On my flips and rentals, the worst deals I have done were properties that needed massive remodels. It takes so much time, so many resources, and there is so much that can go wrong. It can also be risky trying to do all of that work yourself!

Cash reserves

One of the most important things to have when investing in real estate is cash! If you buy rentals or flips that can be expensive at times. It is very important to set aside cash to take care of the problems that might come up. When I figure my cash flow I set aside money for vacancies and repairs. You need to have cash set aside in case something goes wrong and this is one of the biggest mistakes landlords make is not having cash around.

Ironically, getting a loan allows investors to have more cash in many cases. Paying down the mortgage early or trying to pay it off with all your extra cash can leave you in a bad situation. If you do pay a property off and need to access that money in an emergency it can be hard to get to without selling.

Good management

Another way to have problems with your rentals is to manage them poorly. Many people have no idea how to manage a rental but decide they can do it on their own. They choose a bad tenant after not screening them, then never check on the property, and are surprised when it gets trashed. If you are going to manage rentals on your own you have to take the time to learn how to manage them. You have to screen tenants, and keep tabs on the properties!

If you don’t want to manage them yourself, you can hire a property manager as well. It takes time to find a good property manager and this is where it takes from work from the landlord as well. Again, no one said owning rentals was easy, but there are many ways to make them a great investment if you are willing to put in the work.

Liability and damage

Another risk that comes with rental properties is natural disasters or liability from accidents. People can get hurt and can sue tenants or tornados can wipe your property off the earth. Both instances are rare, but they happen. To mitigate the liability side you can put your properties in an LLC or make sure you have the property insurance coverage like a landlord and umbrella policy. With these policies, if you have a tenant destroy property or need to be evicted, they can help cover those costs as well! Putting a property in an LLC can help with getting sued but is not foolproof.

It is important to make sure your insurance agent knows you are using the property as a rental so you have the right coverage. It might be cheaper to leave homeowners insurance on the property if you used to live there but that can cause problems down the road.

Risks that are tough to mitigate

There are some cases where a landlord does everything right but still has a massive loss. These are rare but can happen and just about any investment or simply living life comes with risks.

  • Meth or drug house: If someone is cooking meth or using meth in your house it can cause damage that insurance will not cover. You may have to make major repairs depending on how bad it is. These risks can be alleviated by good tenant screening and checking on the properties often. It is not always the case, but many drug houses we see have cameras all over. That can be a sign to check the house out more if you see cameras on your rental.
  • Floods: Not all floods are covered by insurance. You often need an additional rider or flood coverage. If you are in a flood zone the lender will require the additional coverage but if you pay cash or use private money you may not be required to have it. There is also the risk of a flood outside a flood zone. If the property has a risk of flooding it is important to talk to your insurance agent about additional coverage.

Why does everyone say rentals are risky?

I won’t tell you it is impossible to lose money investing in long-term rentals. It can easily happen if you don’t have a plan, have reserves, or are impatient. It is not easy to buy properties below market value with great cash flow. If it were easy investing in long-term rentals, everyone would be investing in real estate.

The reason so many people think rentals are risky is that they hear anecdotal stories. Stories are good for entertainment and drama but they don’t give the entire picture. “my cousins, aunts, friend, lost all their money when their rental was trashed!” They failed to tell us the person self-managed a property they used to live in from 4 states away and never once talked to the tenant in 3 years. Then they were surprised it was trashed. There are all kinds of stories but usually, you can find one of the main reasons above for why people lose money on rentals. Overall, real estate is one of the best ways to build wealth!

Don’t be scared to invest in rental properties

There are many people who have gotten rich and retired early by investing in long-term rentals. There is a lot of opportunity and many advantages to investing in real estate. Just because you can have some great rewards does not mean there is a massive risk. Some risk? Yes of course and the less you pay attention to your investment the riskier it will get!

Categories Rental Properties

Source: investfourmore.com