Try the 4-Gift Rule to Keep Your Holiday Spending in Check

This strategy sets clear boundaries on what types of gifts to get and caps how much you buy. It’s a great family tradition to adopt if you want to reduce the financial stress of the holiday season.
These tips for using the four-gift rule will help you stay within your holiday budget and avoid post-Christmas shopping regrets.
This gift category is a way to sneak in learning opportunities for your kids, but you can make it fun too. Even if your children aren’t major bookworms, they might love a book based on their favorite TV show or a new movie that’s coming out. Graphic novels and comics count as books too!
But really though — socks and underwear. Do it.

What Is the Four-Gift Rule?

Or go for something a little more exciting, like headphones, hats or headbands.
Just make sure to set a spending limit for this gift — whatever works best for your budget.

  • Something they want
  • Something they need
  • Something to wear
  • Something to read

If you’ve got room in your budget, don’t forget about jolly old St. Nick! You can opt for one Santa gift for the whole family — like a game — or get each kid one present from Santa that you know they’ll love. Look for small trinkets at the dollar store or somewhere similar to fill up the kids’ stockings.
Fortunately, the solution to keeping the kids happy without going overboard with your spending comes down to an easy gift-giving strategy called the four-gift rule.

See, there’s more to this category than just socks and underwear.

Something They Want

This one is quite easy if you save it for last and see what’s left in your budget. It can be as simple as a paperback, or as grand as an e-reader.
You buy one gift per category — that’s it.
Those of us who have fond memories of opening stacks of presents under the tree on Christmas morning want to re-create that same magical feeling for our kids when the holidays roll around.

Something They Need

You can get creative with this category and find something that you and your kids both agree they need.
What we don’t need, of course, is for our eyes to grow wide when checking our credit card statements and our hearts to sink with disappointment when realizing it’ll take months to pay down all the holiday debt.
Using coupons and shopping sales can really help you score a gift from this category without spending hundreds of dollars.

Something to Wear

Your kids may not have included any clothing items on their wish lists, so think hard about what would be exciting for them to get — like a shirt with their favorite cartoon character on it or a personalized piece of jewelry.
This is a no-brainer if your kids play sports and their gear is getting a little worn. Maybe your children are shoe fanatics and would really appreciate a new pair. Or perhaps your little one loves playing dress-up and could use a nice jewelry box to store their many accessories.
If you were under your budget on your shiny “want” gift, maybe you could package up an entire outfit.
Trim your holiday spending budget by finding free books for your kiddos. This article shares 14 ways to get free kids books.

Something to Read

This is where you can make kids’ wishes come true. Go ahead and get the gift they circled in that catalog or saw on a TV commercial. It will be your shiny present with a bow on top, so make it count. Meghan McAtasney is a freelance writer. Nicole Dow is a senior writer at The Penny Hoarder.
Ready to stop worrying about money?

Bonus: One Gift From Santa

By following the four-gift rule and sticking to one present from Santa, the meaning of giving goes a little further instead of letting Santa get all the credit.
The four-gift rule is super simple. It even rhymes, so it’s easy to remember.
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Without being overwhelmed with a plethora of presents, the kids will be able to really focus their attention on the gifts they receive. The magic of Christmas will remain intact — without the extra financial stress. <!–

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5 Home Services You Should Not Pay For

Man holding up his hand to stop a home purchase
Asier Romero / Shutterstock.com

Homeownership certainly comes with a lot of unavoidable if sometimes unexpected expenses, from property taxes to insurance and repairs.

But there are many home-related costs we don’t necessarily need to pay for — and other things we’re not sure are worth it.

Following are some costs you might be on the fence about, and why we think you should avoid them.

1. Air duct cleaning

duct cleaning
Rob Crandall / Shutterstock.com

Some companies advertise duct cleaning services to supposedly improve your home’s air quality.

Does it work? The Environmental Protection Agency is unconvinced.

It says, “Duct cleaning has never been shown to actually prevent health problems,” and suggests only having ducts cleaned in a few specific situations, such as if mold is visible inside your heating and cooling system or if there are vermin.

2. Custom framing

Selection of custom picture frames
Eric Glenn / Shutterstock.com

Simply hanging artwork in your home shouldn’t be an expensive proposition, but it can be if you rely on custom framing jobs. In some cases, a frame can cost more than what it protects.

The reason custom framing gets so expensive, Vox explains, is the number of options available — a dizzying array of hundreds of frames and mats of all sizes, plus options for moldings and glazings.

For standard-sized images, a ready-made frame may suffice at a fraction of the cost. You can buy them new at a home goods store, or if you want a more “distressed” look and even greater savings, bring a tape measure to your local thrift store and size up some gently-used frames. So-called “floater frames” can provide style and flexibility for displaying art of unusual dimensions.

And then there are a growing number of specialty companies online, happy to provide custom-size frames at a lower cost than local frame shops. The New York Times’ Wirecutter recommends Framebridge, which has a flat fee, high-quality builds and the simplest ordering process among the tested companies.

3. Extended product warranties

Excited salesman
Billion Photos / Shutterstock.com

It’s natural to want to get your money’s worth out of every purchase, and therefore to consider extending a warranty. But many experts suggest they’re usually just not worth it, including Money Talks News founder Stacy Johnson.

This is doubly true if you use a credit card that automatically extends warranties or have another way to get a warranty. For instance, if you’re a Costco member, you can get a free two-year warranty on items such as TVs, computers and major appliances that you purchase there.

4. Self-storage rentals

storage units
sunlover / Shutterstock.com

Buying more stuff than you need is expensive enough. But what’s even worse is when you run out of space for all that stuff in your home and start paying somebody else to hold on to it for you.

Consider self-storage a temporary solution, for situations like moving a household. Otherwise, you’re paying potentially thousands to hide many things you’re probably going to forget about because they’re not important enough to keep handy or remember in your day-to-day life. All that money wasted because you can’t bear the thought of decluttering.

If you really must maintain a unit, check out “10 Ways to Cut the Cost of Self-Storage.”

5. Junk hauling

Upset woman in a cluttered garage
northallertonman / Shutterstock.com

So you’ve decided to declutter: Great! But don’t pay someone to get rid of your stuff.

Instead, turn to free ways to rid yourself of things you no longer need.

Search for local charities that are willing to pick up your donations. Post listings on websites such as Facebook, Freecycle or the Buy Nothing Project.

Disclosure: The information you read here is always objective. However, we sometimes receive compensation when you click links within our stories.

Source: moneytalksnews.com

Dear Penny: Can My Husband Stop His Brother From Stealing His Inheritance?

Dear Penny,
I should note that some of the assets you mentioned, like IRAs and life insurance policies, pass through beneficiary designation rather than probate. That means whoever is listed as the beneficiary receives them regardless of what the person’s will states.
I’m also a bit confused about what role the accountant played in this situation. Typically, you’d need an attorney to draft legally binding documents, like a will or a trust.
But disputing a will is a long and expensive process. Most people who mount a challenge will lose.
Your husband can try to foster a discussion. He can try to make it as transparent as possible to avoid disputes with his brother. But ultimately, these aren’t your husband’s decisions. This is your mother-in-law’s money, not his. You and your husband will need to live with whatever choices she makes.
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Is my husband’s brother able to keep him from his half of their inheritance? His brother has made himself the executor of the will and power of attorney, or something. 

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I think your husband is most likely to be successful if he doesn’t approach the conversation from a position of entitlement. This isn’t about making sure he gets his half. The discussion should be about making sure they understand their mother’s wishes.
A better option would be for your husband to talk directly with his mother and brother about his concerns. That means your husband will have to re-establish communication with his brother. They don’t have to become best friends, but they will need to be cordial. Sometimes parents avoid discussing estate planning with their children when they know the siblings’ relationship is strained.
It’s possible to contest a will during the probate process after someone dies, but this is an uphill battle. Usually, you’d have to prove that the person lacked the mental capacity to make or change their will, or that they signed the will because of fraud or undue influence. You can also argue that the will wasn’t properly signed or witnessed in some cases.


My husband’s brother took their mother to his accountant to make sure her mutual funds, stocks and banking accounts were being taken care of and that nobody would be able to extort money from her. She is wealthy. The will stated everything was to be split equally, half and half. 
Ready to stop worrying about money?
I feel they should have gone together to the CPA. My husband won’t listen to me. Am I in the wrong? 
Source: thepennyhoarder.com
I’m not sure what you’re asking of your husband, or why you think you might be in the wrong. But I can’t imagine why your mother-in-law would leave everything to one sibling if she wanted both of her children to split things 50/50. And if your husband is counting on his brother’s goodwill to get an inheritance, he’s in for a rude awakening.
But your mother-in-law isn’t required to split everything down the middle. In fact, she doesn’t have to leave your husband anything at all. It certainly sounds like your brother-in-law is being sketchy here. But sometimes parents have good reasons for leaving one sibling a greater share of their estate. For example, if one child cared for them in their later years or one sibling has greater needs than the others, a parent may choose not to distribute things evenly.
Dear C.,
But that will be between your mother-in-law and her attorney. It’s important to understand that any attorney’s ethical obligation in this situation is to your mother-in-law. Their job isn’t to make sure your husband or his brother get the inheritance they think they deserve.
She has two homes. My husband’s brother has taken one of the homes and lets his mother-in-law reside there rent-free. 

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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.

23 Ideas for Cheap Christmas Decorations

If you’re dreaming of a white Christmas, but you live in an area that doesn’t get any snow, you can use spray snow to make your winter wonderland dreams come true. You can spray artificial snow on your windows to create a frosted look or spray your front door wreath to make it appear to be covered with snowflakes. A can of spray snow costs less than on Amazon.
Dress up your dining table to bring out the joy of the holiday season. Drape your table with a red, green or white tablecloth and fill a vase or tray with seasonal elements, such as pine cones, holly leaves, cranberries, sprigs of pine needles, jingle bells, candy canes or candles.
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23 Ideas for Cheap Christmas Decorations

Source: thepennyhoarder.com

1. Wall Christmas Trees

Turn empty flower pots into outdoor Christmas decor with just a little paint. You’ll need at least three pots of varying sizes. Paint them white if you want to create a snowman out of your flower pots or green to make a flower pot Christmas tree. Once dried, stack the pots on top of each other upside down and paint additional embellishments, like a face and buttons on your snowman or ornaments and tinsel on your Christmas tree.

2. Get an Artificial Christmas Tree

You can buy boxes of candy canes for cheap at grocery stores or dollar stores around this time of the year. Fill candy dishes full of these red and white striped treats to go on your tablescape, coffee table or end tables. Or hang one or two candy canes on your Christmas tree in place of buying more pricy ornaments.

A woman decorates a tiny Christmas tree.
Getty Images

3. Get a Tiny Tree

The weather’s getting colder. The days are getting shorter. Before you know it, Christmas will be here.

4. Garland

Transform your doors into the biggest presents ever by covering them in wrapping paper. You can use wrapping paper to decorate your interior doors as well as your front door. Add ribbon or a big bow for extra embellishment.

5. DIY Ornaments

Talk about easy Christmas decorations that make your home merry. You can also stack your wrapped present props in an empty corner, by the base of your staircase or on your front porch.

6. Twinkling Lights

Rather than buying an advent calendar this year, make your own. This post from Country Living has several ideas. Come up with whatever little treat, token or message you want to open each day.

7. Window Stickers

Whether you use a kit or make your own gingerbread from scratch, a gingerbread house is a fun holiday project that can double as Christmas decor. Just know it probably won’t last long — so consider this a temporary decoration!

8. Candles

Bundling up on a snowy day to go to the Christmas tree farm and chop down the perfect tree may be a sweet holiday outing, but you’ll get more bang for your buck by opting for an artificial Christmas tree. Now, artificial trees can get pricy themselves, depending on what size and type you choose. However, you can reuse the tree for years to come, rather than having to put it out to the curb when the new year rolls around.

A front door is wrapped in wrapping paper.
Getty Images

9. Decorate Your Doors

Candles are a simple and low-cost way to add a bit of Christmas spirit to a room. You can create a tablescape with red, green, white or gold candles — or set them on the mantle or a wide window ledge. Set battery-operated votive candles inside Mason jars painted in holiday colors for a flame-free decor option.

10. Bells Around Door Knobs

This winter craft doubles as a cheap Christmas decoration. You may be able to make it with items you already have at home: white tube socks, rice, buttons, pins and a scrap of fabric. This post from Darkroom and Dearly tells you exactly how to create them.

11. Decorate With Ribbon

Instead of buying an expensive 7-foot tree, you can save money by getting a much smaller tree that’ll fit on your tabletop. In addition to spending less on the tree, you’ll save on the amount of lights and ornaments you’ll need to decorate it.

12. Wrap Empty Boxes

Dress up your windows with seasonal decals. You can find window stickers of snowflakes, ornaments, gingerbread men and more at the dollar store, craft store and major retailers like Walmart or Amazon. If stored properly, you can even reuse them for next year.

13. Holiday Cards Display

An easy way to light up the outside of your house without needing yards of string lights and a ladder is to use a light projector. You can buy one on Amazon, Home Depot, Walmart and similar retailers for under .

14. Make your Own Advent Calendar

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A boy eats a gingerbread house he made.
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15. Gingerbread House

Deck the halls without wrecking your finances. Here are 23 festive ideas for cheap Christmas decorations.

16. Display Your Kids’ Holiday Artwork

A flat Christmas tree hung on the wall is a great space saver and money saver. You can make wall Christmas trees out of a string of lights, garland, a large piece of felt or even Washi tape. Check out this article from Apartment Therapy for ideas. It looks festive with or without a tree topper!

17. Create a Holiday Tablescape

Make your home not only look but sound festive by tying jingle bells to some red or green ribbon and then wrapping them around your door knobs. Whenever someone opens a door, the kiddos in the house will be looking over their shoulders to see if Santa’s coming.

18. Sock Snowmen

While you’re out shopping for gifts, it can be very tempting to add a bunch of holiday decorations to your cart to help get your home looking merry and bright. But the cost of Christmas decorations often gets overlooked when making your holiday budget — and you end up spending way more than you thought you would.

A person decorates their Christmas tree with candy canes.
Getty Images

19. Candy Canes

To avoid that post-holiday regret, consider these low-budget suggestions for decorating for Christmas.

21. Fake Snow in Windows

Forget the store-bought ornaments, and pick up your hot glue gun. Create wonderful holiday memories while crafting ornaments you can hang on your tree or use as decor around the house. See this Good Housekeeping post for over 75 ideas for DIY Christmas ornaments.

22. Flower Pot Decorations

Nicole Dow is a senior writer at The Penny Hoarder.

23. Light Projector

A string of lights can really spread holiday cheer. To save money, opt for shorter strings of light to cover smaller areas — such as a window or mantle piece, rather than along your gutters or around a 7 foot tree. You can also use a string of lights on a blank stretch of wall in the shape of a star or to spell out “Merry Christmas” in cursive.
You can use ribbon for more than just wrapping presents. Take some thick ribbon in Christmas colors like red, green or gold and use it to make bows to hang on your Christmas tree, your mantle and even on door knobs or drawer pulls. Tie them around a glass vase with a candle inside for a simple Christmas centerpiece. <!–

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Garland is a low-budget Christmas decoration that instantly adds holiday spirit to a room. In addition to stringing garland around your Christmas tree, you can hang strings of garland above your mantle, over your doorways, around your window frames or wrapped around the banister of your staircase. Instead of buying your garland, you can make your own using natural elements like dried citrus and pine cones, construction paper, popcorn or cheap ball ornaments.

James Glassman’s 10 Stock Market Picks for 2022

Last December, after beating the S&P 500 index five years in a row, I wrote, “This kind of streak isn’t supposed to happen, and readers should be warned that there’s no guarantee it will continue.”

Well, it’s over. My annual selections for 2021 performed just fine, with an average return of 17.4%, but the S&P did much better, gaining 35.8%. (Returns and data throughout the story are through Nov. 5.)

Since 1993, I have offered a list of 10 stocks for the year ahead. Nine are culled from the choices of experts I trust, and I include one of my own. For 2021, I’m happy to say, my pick was the biggest winner: ONEOK (OKE), the 115-year-old natural gas pipeline company, which benefited from the rise in petroleum prices and was up 139.9%.

I’ll get to my choice for 2022 at the end. Let’s start with one from the Value Line Investment Survey, a font of succinct research that has a strong forecasting record as well. My strategy is to pick from stocks that Value Line rates tops (“1”) for both timeliness and safety. That list right now is short: nine companies, including obvious ones like Apple (AAPL) and Visa (V).

The outlier is T. Rowe Price Group (TROW), the Baltimore-based asset manager, whose earnings have risen each year since 2009 despite the growing popularity of low-cost index funds. Value Line notes that “shares have staged a dramatic advance over the past year. However, our projections suggest … worthwhile appreciation potential for the next 3 to 5 years.”

Parnassus Endeavor (PARWX), a socially responsible fund – one that invests with an eye toward environmental, social and governance (ESG) measures, has returned a sparkling annual average of 18.3% over the past 10 years. In 2021, Jerome Dodson stepped back from managing Endeavor and other Parnassus funds, but he’s still a guiding force at the firm he founded 35 years ago. My picks from the portfolio for 2019 and 2020 were microchip companies that scored average gains of nearly 100%.

For 2022, I like PepsiCo (PEP), which Billy Hwan, the fund’s new solo manager, acquired for the first time in July. In addition to its soft drinks, the company has such respected brands as Lay’s, Quaker and Gatorade. Revenues have risen consistently, and PepsiCo may be able to benefit from general inflation with aggressive price increases.

Another big winner in 2021 came from Dan Abramowitz, of Hillson Financial Management in Rockville, Maryland, who is my go-to expert in smaller companies. His choice was IEC Electronics, which was purchased by Creation Technologies in October for 53% more than the stock’s price when I put it on the list, noting, “IEC is also a potential takeover target.” 

For 2022, Dan recommends DXC Technology (DXC), a midsize in­formation technology company based in the suburbs of Washington, D.C. It is in the midst of a turnaround, Dan writes, “yet we are still in the early innings here.” Profits are improving, but the stock “is valued at under 10 times current fiscal year earnings.”

A few months ago, I recommended AB Small Cap Growth (QUASX), a fund that has notched a sensational 29.8% annualized return over the past five years. The fund has been adding to holdings of Louisiana-based LHC Group (LHCG), a provider of post-acute care, including home health and hospice services, in more than 700 locations. The stock appears well priced after setbacks from hurricanes and because healthcare workers were forced to quarantine due to COVID-19. As the population ages, healthcare is a growth industry.

Fidelity Advisor Growth Opportunities (FAGAX) is red-hot, ranking in the top 3% of funds in its category for five-year returns. The problem is that it carries a whopping 1.82% expense ratio and is sold mostly through advisers. Still, you can scan its port­folio for ideas. Most of the fund’s holdings are tech stocks, but the only new purchase for 2021 among its top 25 holdings was Freeport-McMoRan (FCX), the minerals (copper, gold, silver) and oil and gas producer. The stock has doubled over the past year, but its price-earnings ratio, based on analysts’ consensus projections for 2022, is just 11.

A disappointment in 2021 was Upland Software (UPLD), down 47%. It was the choice of Terry Tillman, a software analyst with Truist Securities whose previous selections on my annual list had beaten the S&P 500 index for an incredible nine years in a row. Tillman recently initiated coverage on Engage­Smart (ESMT) with a Buy rating. The firm, which helps healthcare professionals manage their practices, went public only in September, but it already has a market value of $5 billion, and Tillman sees the price going much higher.

It has not been a good year for China’s big companies, which China’s government apparently thinks have become big enough to threaten the Communist Party. As a result, my 2021 list’s worst performer was Alibaba Group Holding (BABA), the e-commerce giant, with shares falling by nearly half.

Still, if you have a stomach for risk, Chinese stocks present remarkable value these days. Matthews China (MCHFX), my favorite Asian stock fund, has held on to Tencent Holdings (TCEHY), which is down by about 40% from its February peak. Tencent, with a market cap of $576 billion, operates worldwide and offers social media, music, mobile games, payment services and more.

Last year, I turned for the first time to Schwab Global Real Estate (SWASX) and was pleased with the 21% return from its choice, Singapore-based UOL Group (UOLGY), with an office, residential and hotel portfolio. The fund’s third-largest holding is Public Storage (PSTG), owner of 2,500 facilities in 38 states. Is there a better business? Every year, I get an e-mail notice telling me my storage-unit rental has risen in price, and what am I going to do about it? Moving my stuff out is a horrifying thought. I have always wanted to own this stock. It is expensive, but waiting may make it more so.

Over the years, the assets of Berkshire Hathaway (BRK.B), Warren Buffett’s holding company, have become more and more diversified. At last report, the company owned 40 publicly traded stocks. Berkshire Hathaway’s largest holding by far is Apple, at about $135 billion. Guess what’s second? Bank of America (BAC), at $49 billion. I am a longtime fan and shareholder of BofA as well, and it looks especially good at a time when interest rates are rising.

My contrarian bias paid off last year when I shook off my disastrous 2019 choice of Diamond Offshore Drilling (it went bankrupt) and scored a double with ONEOK. Searching for value again, I have arrived at Starbucks (SBUX), which took a big (and to my mind, unwarranted) hit over the summer when the company warned of a slower recovery in China. So I’m taking advantage of skittish investors and recommending Starbucks, one of the world’s best-run companies, growing steadily with 33,000 outlets worldwide.

I’ll end with my usual warnings. These 10 stocks vary by size and industry, but they are not meant to compose a diversified portfolio. I expect they will beat the market in the coming 12 months, but I do not advise holding stocks for less than five years. Buy and hold works! Finally, these are my recommendations, but consider them suggestions for your own study and decision-making. No guarantees.

James Glassman stock picks for 2022James Glassman stock picks for 2022

Source: kiplinger.com

Using Income Share Agreements to Pay for School

Many students end up taking out loans to finance the cost of college. As of the first quarter of 2021, Americans collectively held $1.57 trillion in student debt, up $29 billion from the previous quarter. And a significant share of borrowers were struggling with their debt burdens: Just under 6% of total student debt was 90 days or more past due or in default.

Students looking for alternatives to student loans can apply for grants and scholarships, take on work-study jobs or other part-time work, or find ways to save on expenses.

Recently, another alternative has appeared on the table for students at certain institutions: income share agreements. An income share agreement is a type of college financing in which repayment is a fixed percentage of the borrower’s future income over a specified period of time.

As this financing option grows in popularity, here are some key things to know about how these agreements operate and to help you decide whether they’re the right choice for you.

How Income Share Agreements Work

Unlike student loans, an income share agreement, also known as an income sharing agreement or ISA, doesn’t involve a contract with the government or a private lender. Rather, it’s a contract between the student and their college or university.

In exchange for receiving educational funds from the school, the student promises to pay a share of his or her future earnings to the institution for a fixed amount of time after graduation.

ISAs don’t typically charge interest, and the amount students pay usually fluctuates according to their income. Students don’t necessarily have to pay back the entire amount they borrow, as long as they make the agreed-upon payments over a set period. Though, they also may end up paying more than the amount they received.

Income share agreements only appeared on the scene in the last few years, but they are quickly expanding. Since 2016, ISA programs have launched at places like Purdue University in Indiana, Clarkson University in New York, and Lackawanna College in Pennsylvania. Each school decides on its own terms and eligibility guidelines for the programs. The school itself or outside investors may provide funds for ISAs.

Purdue University was one of the first schools to create a modern ISA program. Sophomores, juniors, and seniors who meet certain criteria, including full-time enrollment and satisfactory academic progress, are eligible to apply.

Students may have a six-month grace period after graduation to start making payments, similar to the six-month grace period for student loans, and the repayment term at Purdue is typically 10 years. For some schools, however, the repayment term ranges from two to 10 years.

The exact amount students can expect to pay depends on the amount they took out and their income. The university estimates that a junior who graduates in 2023 with a marketing major will have a starting salary of $51,000 and will see their income grow an average of 4.7% a year.

If that student borrowed $10,000 in ISA funds, he or she would be required to pay 3.39% of his or her income for a little over eight years. The total amount that student would pay back is $17,971. The repayment cap for the 2021-2022 school year is $23,100.

Again, every ISA is different and may have different requirements, so be sure to check with your college or university for all the details.

The Advantages of Income Share Agreements

ISAs aren’t for everyone, but they can be beneficial for some students. For example, students who don’t qualify for other forms of financial aid, such as undocumented immigrants, may have few other options for funding school.

For students who have already maxed out their federal loans, ISAs can be a more affordable option than Parent PLUS loans or private student loans, both of which sometimes come with relatively high interest rates and fees.

Compared to student loans, many ISAs also protect students by preventing monthly payments from becoming unaffordable. Since the amount paid is always tied to income, students should never end up owing more than a set percentage for a fixed period of time. However, a student’s field of study may impact this. Students who are high earners after college may end up paying more to repay an ISA than they would have under other financing options.

If a student has trouble finding a well-paying job, or finding one at all, payments typically shrink accordingly. For example, Purdue sets a minimum income amount below which students don’t pay anything.

In Purdue’s case, the student won’t owe anything else once the repayment period is over, compared to student loans that can multiply exponentially over time due to accrued interest.

Purdue and several other universities also set the amount and length of repayment based on a student’s major, meaning monthly payments can be more tailored to graduates’ fields and salaries than student loans are. For fortunate students who see their income rise beyond expectations, many schools ensure the student won’t pay beyond a certain cap.

Potential Pitfalls of Income Share Agreements

ISAs come with some risks and drawbacks, as well. Firstly, since the repayment amount is based on income, a student who earns a lot after graduation might end up paying more than they would have with some student loans. This is because if a student earns a high income after graduating, they’d pay more to the fund. Second, the terms of repayment can vary widely, and some programs require graduates to give up a huge chunk of their paychecks.

For example, Lambda School , an online program that trains students to be software engineers, requires alums who earn at least $50,000 to pay 17% of their income for two years (up to $30,000). This can be a burden for recent graduates, especially compared to other options like income-driven repayment, which determines the percentage of income going towards student loans based on discretionary income.

Currently, there is very little regulation of ISAs, so students should read ISA terms carefully to understand what they’re signing up for.

No matter what, income share agreements are still funding that needs to be repaid, often at a higher amount than the principal.

So you’re still paying more overall for your education compared to finding sources of income like scholarships, a part-time job, gifts from family, or reducing expenses through lifestyle changes or going to a less expensive school.

How Do Income Share Agreements Impact You?

Many schools’ ISA programs are designed to fill in gaps in funding when students do not receive enough from other sources, such as financial aid, federal or private student loans, scholarships or savings. Thus, it’s important to understand how an ISA will impact both your long-term finances and other methods to pay for college.

ISAs do not impact need-based aid like grants or scholarships. Students with loans, however, could have a more complicated repayment plan with multiple payments due each month.

With ISAs, there is less clarity as to how much you’ll end up repaying from up to 10 years of income. As your income changes, your payment will remain the same percentage unless it falls below the minimum income threshold ($1,666.67 at Purdue) or reaches a repayment cap.

Whereas students may pay more than the loan principal to reduce interest, ISAs often require reaching a repayment cap of roughly double the borrowed amount to be paid off early.

Depending on your future income and career path, an ISA could cut into potential savings and investments or serve as a safety net for a less stable occupation.

Who Should Consider An ISA?

As previously mentioned, income share agreements are an option for students who have maxed out on federal loans and scholarships. There are other circumstances when an ISA may or may not be worth considering.

Colleges may require a minimum GPA to be eligible for an ISA. For instance, Robert Morris University requires incoming students to have a 3.0 high school GPA and maintain a 2.75 GPA during their studies for continued funding eligibility. Taking stock of how an ISA aligns with your academic performance before accepting funding could reduce stress later on.

Since ISA programs structure repayment as a percentage of income, graduates who secure high-paying jobs can end up paying a significant sum compared to the borrowed amount. An ISA term could be more favorable to students planning to enter sectors with more gradual salary growth, such as civil service.

Repayment plans at income sharing agreement colleges are not uniform. Students at schools with lower payment caps and early repayment options may find ISAs more advantageous.

Considering Private Loans

Students should generally exhaust all their federal options for grants and loans before considering other types of debt. But for some students looking to fill gaps in their educational funding, private student loans may make more sense for their needs than ISAs.

Recommended: Examining the Different Types of Student Loans

In particular, students who expect to have high salaries after graduation may end up paying less based on interest for a private student loan than they would for an ISA. Some private loans can also allow you to reduce what you owe overall by repaying your debt ahead of schedule.

SoFi doesn’t charge any fees, including origination fees or late fees. Nor are there prepayment penalties for paying off your loan early. You can also qualify for a 0.25% reduction on your interest rate when you sign up for automated payments.

The Takeaway

As mentioned, an income share agreement is an alternate financing option for college. An ISA is generally used to fill in gaps in college funding. Generally, it’s an agreement between the borrower and the school that states the borrower will repay the funds based on their future salary for a set amount of time.

One alternative to an ISA could be private student loans. Keep in mind that private loans are generally only considered as an option after all other sources of federal aid, including federal student loans, have been exhausted.

If you’ve exhausted your federal loan options and need help paying for school, consider a SoFi private student loan.


SoFi Loan Products
SoFi loans are originated by SoFi Lending Corp. or an affiliate (dba SoFi), a lender licensed by the Department of Financial Protection and Innovation under the California Financing Law, license # 6054612; NMLS # 1121636 . For additional product-specific legal and licensing information, see SoFi.com/legal.

SoFi Private Student Loans
Please borrow responsibly. SoFi Private Student Loans are not a substitute for federal loans, grants, and work-study programs. You should exhaust all your federal student aid options before you consider any private loans, including ours. Read our FAQs.
SoFi Private Student Loans are subject to program terms and restrictions, and applicants must meet SoFi’s eligibility and underwriting requirements. See SoFi.com/eligibility for more information. To view payment examples, click here. SoFi reserves the right to modify eligibility criteria at any time. This information is subject to change. SoFi Lending Corp. and its lending products are not endorsed by or directly affiliated with any college or university unless otherwise disclosed.

External Websites: The information and analysis provided through hyperlinks to third party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.
Third Party Brand Mentions: No brands or products mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third party trademarks referenced herein are property of their respective owners.
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
SOPS19048

Source: sofi.com

Cost of Goods Sold Formula: A Step-by-Step Guide

Cost Of Goods Sold Definition
Cost of goods sold (COGS) is the cost of producing the goods sold by a company. It accounts for the cost of materials and labor directly related to that good and for a designated accounting period.

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As a company selling products, you need to know the costs of creating those products. That’s where the cost of goods sold (COGS) formula comes in. Beyond calculating the costs to produce a good, the COGS formula can also unveil profits for an accounting period, if price changes are necessary, or whether you need to cut down on production costs.

Whether you fancy yourself as a business owner or a consumer or both, understanding how to calculate cost of goods sold can help you feel more informed about the products you’re purchasing — or producing.

What Is Cost of Goods Sold?

Cost of goods sold is the cost of producing the goods sold by a company. It includes the cost of materials and labor directly related to that good. However, it excludes indirect expenses such as distribution and sales force costs.

What Is the Cost of Goods Sold Formula?

Four illustrations help explain the cost of goods sold formula, which accounts for beginning inventory, purchases, and ending inventory.

When selling a product, you need to understand the production costs associated with it in a given period, ​​which could be a month, quarter, or year. You can do that by using the cost of goods sold formula. It’s a straightforward calculation that accounts for the beginning and ending inventory, and purchases during the accounting period. Here is a simple breakdown of the cost of goods sold formula:

COGS = beginning inventory + purchases during the period – ending inventory

How Do You Calculate Cost of Goods Sold?

To calculate cost of goods sold, you have to determine your beginning inventory — meaning your merchandise, including raw materials and supplies, for instance — at the beginning of your accounting period. Then add in the new inventory purchased during that period and subtract the ending inventory — meaning the inventory leftover at the end for your accounting period. The extended COGS formula also accounts for returns, allowances, discounts, and freight charges, but we’re sticking to the basics in this explanation.

Taking it one step at a time can help you understand the COGS formula and find the true cost behind the goods being sold. Here is how you do it:

Step 1: Identify Direct and Indirect Costs

Whether you manufacture or resell products, the COGS formula allows you to deduct all of the costs associated with them. The first step is to differentiate the direct costs, which are included in the COGS calculation, from indirect costs, which are not.

Direct Costs

Direct costs are the costs tied to the production or purchase of a product. These costs can fluctuate depending on the production level. Here are some direct costs examples:

  • Direct labor
  • Direct materials
  • Manufacturing supplies
  • Fuel consumption
  • Power consumption
  • Production staff wages

Indirect Costs

Indirect costs go beyond costs tied to the production of a product. They include the costs involved in maintaining and running the company. There can be fixed indirect costs, such as rent, and fluctuating costs, such as electricity. Indirect costs are not included in the COGS calculation. Here are some examples:

  • Utilities
  • Marketing campaigns
  • Office supplies
  • Accounting and payroll services
  • Insurance costs
  • Employee benefits and perks

Step 2: Determine Beginning Inventory

Now it’s time to determine your beginning inventory. The beginning inventory will be the amount of inventory leftover from the previous time period, which could be a month, quarter, or year. Beginning inventory is your merchandise, including raw materials, supplies, and finished and unfinished products that were not sold in the previous period.

Keep in mind that your beginning inventory cost for that time period should be exactly the same as the ending inventory from the previous period.

Step 3: Tally Up Items Added to Your Inventory

After determining your beginning inventory, you also have to account for any inventory purchases throughout the period. It’s important to keep track of the cost of shipment and manufacturing for each product, which adds to the inventory costs during the period.

Step 4: Determine Ending Inventory

The ending inventory is the cost of merchandise leftover in the current period. It can be determined by taking a physical inventory of products or estimating that amount. The ending inventory costs can also be reduced if any inventory is damaged, obsolete, or worthless.

Step 5: Plug It Into the Cost of Goods Sold Equation

Now that you have all the information to calculate cost of goods sold, all there’s left to do is plug it into the COGS formula.

An Example of The Cost of Goods Sold Formula

Let’s say you want to calculate the cost of goods sold in a monthly period. After accounting for the direct costs, you find out that you have a beginning inventory amounting to $30,000. Throughout the month, you purchase an additional $5,000 worth of inventory. Finally, after taking inventory of the products you have at the end of the month, you find that there’s $2,000 worth of ending inventory.

Using the cost of goods sold equation, you can plug those numbers in as such and discover your cost of goods sold is $33,000:

COGS = beginning inventory + purchases during the period – ending inventory
COGS = $30,000 + $5,000 – $2,000
COGS = $33,000

Accounting for Cost of Goods Sold

There are different accounting methods used to record the level of inventory during an accounting period. The accounting method chosen can influence the value of the cost of goods sold. The three main methods of accounting for the cost of goods sold are FIFO, LIFO, and the average cost method.

Two illustrations help explain the difference between FIFO and LIFO, which is an inventory method of accounting for the cost of goods sold.

FIFO: First In, First Out

The first in, first out method, also known as FIFO, is when the earliest goods that were purchased are sold first. Since merchandise prices have a tendency of going up, by using the FIFO method, the company would be selling the least expensive item first. This translates into a lower COGS compared to the LIFO method. In this case, the net income will increase over time.

LIFO: Last In, First Out

The last in, first out method, also known as LIFO, is when the most recent goods added to the inventory are sold first. If there’s a rise in prices, a company using the LIFO method would be essentially selling the goods with the highest cost first. This leads to a higher COGS compared to the FIFO method. By using this method, the net income tends to decrease over time.

Average Cost Method

The average cost method is when a company uses the average price of all goods in stock to calculate the beginning and ending inventory costs. This means that there will be less of an impact in the COGS by higher costs when purchasing inventory.

Considerations for Cost of Goods Sold

When calculating cost of goods sold, there are a few other factors to consider.

COGS vs. Operating Expenses

Business owners are likely familiar with the term “operating expenses.” However, this shouldn’t be confused with the cost of goods sold. Although they are both company expenditures, operating expenses are not directly tied to the production of goods.

Operating expenses are indirect costs that keep a company up and running, and can include rent, equipment, insurance, salaries, marketing, and office supplies.

COGS and Inventory

The COGS calculation focuses on the inventory of your business. Inventory can be items purchased or made yourself, which is why manufacturing costs are only sometimes considered in the direct costs associated with your COGS.

Cost of Revenue vs. COGS

Another thing to consider when calculating COGS is that it’s not the same as cost of revenue. Cost of revenue takes into consideration some of the indirect costs associated with sales, such as marketing and distribution, while COGS does not take any indirect costs into consideration.

Exclusions From COGS Deduction

Since service companies do not have an inventory to sell and COGS accounts for the cost of inventory, they can’t use COGS because they don’t sell a product — they would instead calculate the cost of services. Examples of service companies are accounting firms, law offices, consultants, and real estate appraisers.

salary, business owners should have a well-rounded view of the costs associated with their goods sold. Following this step-by-step guide to learn how to use the cost of goods sold formula is a good starting point. As always, it’s important to consult an expert, such as an accountant, when doing these calculations to make sure everything is accounted for.

Sources: QuickBooks

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Seeking Alpha Review – Is the Premium Subscription Worth It?

At a glance

Seeking Alpha Logo

Our rating

  • What It Is: Seeking Alpha is a stock market news and research website that produces more than 10,000 articles per month, designed to give readers investment ideas and tools for evaluating different investments.
  • Membership Fees: Basic, Free; Premium, $29.99 per month or $239.88 annually ($19.99 per month); Pro, $299 per month or $2,388 annually ($199 per month).
  • Pros: Detailed research and opinions from bears and bulls, proprietary rating systems, intuitive stock screener, portfolio monitoring, earnings calls and transcripts, and notable calls from Wall Street experts.
  • Cons: Relatively high monthly fee, many of the premium features can be found free elsewhere, few tools for technical traders, and the vast amount of information can overwhelm newcomers.

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Dig Deeper

Additional Resources

Everything you read when it comes to learning how to invest tells you that research is the foundation of profitable investment choices. One of the best research tools for the fundamental investor is found at SeekingAlpha.com.

Seeking Alpha is an investment research service fueled by more than 7,000 contributors who produce more than 10,000 articles per month, with each having a unique stance on the topics they cover. Investors can benefit quite a bit from the company’s free services, but if you’re willing to pay for the premium service, even more tools are unlocked.

What Is Seeking Alpha?

At its core, Seeking Alpha is a crowdsourcing website that sources valuable investment research through a vast consortium of contributors. Seeking Alpha was designed for individual investors who are interested in choosing individual stocks. 

The vast majority of the content on the website is available for free for the first 10 days after publication. However, if you’re interested in in-depth research, stock screening tools, and proprietary rating systems, you’ll need to sign up for one of the company’s subscription services.


Pricing

There are three different pricing models available.

  1. Basic. The Basic subscription is absolutely free. With this subscription, you’ll gain access to free articles for the first 10 days after their publication as well as some portfolio management tools. For most casual investors who aren’t interested in diving deep into research and fundamental analysis, the Basic subscription is a great fit. 
  2. Premium. The Premium service unlocks all articles on the website regardless of their age. Premium members also get access to a customized news platform, an intuitive stock screener, proprietary Quant ratings, unlimited conference call transcripts, earnings call audio, and exclusive author ratings. In exchange, members agree to pay $29.99 per month or $239.88 paid annually ($19.99 per month). You can also try before you buy with the company’s 14-day free trial. 
  3. Pro. The Pro service comes with a price tag that will turn off most mom-and-pop investors at $299 per month or $2,388 paid annually ($199 per month). Designed for investors who manage large portfolios, the Pro service offers a curated collection of the most in-depth research offered through the platform. 

Key Features

As a research-centric service, the vast majority of key features offered by Seeking Alpha have to do with getting to know the companies you invest in before risking your hard-earned money on them. Some of the most exciting features you’ll gain access to when you sign up include:

Thorough Investment Research

With more than 7,000 contributors offering up more than 10,000 articles per month, you’ll have everything you need to research just about any publicly traded company and make a quality investment decision.

The vast majority of these articles are labeled as investment ideas that fall into one of the following categories:

  • Long Ideas. Long ideas are investment ideas centered around stocks that the authors believe will head up in value in the long term. 
  • IPO Analysis. Initial public offerings, or IPOs, are a hot topic among investors, and tools that help determine whether an IPO is priced fairly and has strong potential to grow in value are invaluable. The IPO analysis offered by Seeking Alpha is one of the best ways to go about analyzing an IPO trade.
  • Quick Picks. Quick picks are articles centered around stocks based on a specific investment theme or fundamental data. 
  • Fund Letters. Fund letters is a curated list of select letters from professionally managed funds to their investors outlining the investing landscape and their goals moving forward. 
  • Editor’s Picks. Editor’s picks are articles that are hand-selected by the editors at Seeking Alpha based on in-depth research, the author’s track record, and other factors.  
  • Stock Ideas by Sector. The Stock Ideas by Sector section of the Seeking Alpha website lets you quickly scan through any sector of the market. 

Beyond the basic search functions of the website and access to all articles regardless of how old they are, Premium members also enjoy a customizable news dashboard that displays articles on stocks and investment strategies they’re interested in first, making combing through the vast sea of content on SeekingAlpha.com far easier. 

Note that although investment ideas are shared on the company’s website, nothing on the site constitutes investment advice. The author couldn’t possibly know your unique goals, financial capabilities, risk tolerance, and other factors that make you, well, you. The platform is designed as a research tool. You should never blindly make an investment just because the title of an article on the platform suggests big gains are ahead. 

Article Sidebar

The article sidebar is a feature that’s only available to Seeking Alpha Premium subscribers, but it alone is worth the subscription fee for many investors. 

When making investment decisions based on what you read online, it’s important to validate the source of the research and ensure the author and the stock are worth following in the first place. The Article Sidebar makes this simple to do at a glance by offering a brief bullish and bearish synopsis of the stock, stock ratings from the authors on the platform, a real-time stock price chart, and ratings for the author who contributed the piece.

Quant Ratings

Technology and computerized trading algorithms have reshaped the investing industry. Today, the market is more active than ever before, and algorithms provide a trove of data on the potential of any investment. 

However, the details offered up by these algorithms are often difficult to understand, and therefore often are ignored by novice investors. 

The good news is that Seeking Alpha offers its readers quant ratings, which algorithmically rate stocks in an easy-to-understand way. These ratings are based on five key factors: value, growth, profitability, EPS revisions, and momentum.

Factor Scorecards

Factor investing has become a popular concept. The idea is that by investing in stocks that come with risk premiums like small-cap, value, growth, and other characteristics, you’ll be able to beat the average market performance in your portfolio. 

When analyzing these factors, Seeking Alpha offers an easy-to-understand score ranging from A+ to F.

  • REIT Scorecard: On scorecards for real estate investment trusts (REITs), Seeking Alpha provides scores based on funds from operations as well as adjusted funds from operations. 
  • Dividend Stock Scorecard: Dividend stocks are a great way to generate income through your investments. The Dividend Stock Scorecard takes various factors into account, considering not only whether the stock pays competitive dividends, but also whether those dividends are sustainable. 

Earnings Call Transcripts & Recordings

Earnings reports are some of the most important events in the stock market. Every quarter, publicly traded companies are required to provide updated financial information, letting investors in on the financial stability and growth prospects for the company. 

Basic members have access to earnings call transcripts, but if you want to listen to the recorded calls, you’ll need to upgrade to a Premium subscription. 

Earnings Estimates & Surprises

Basic members have access to past earnings data from the company’s they’re interested in as well as information on dividends. 

For premium members, the data becomes a bit more intuitive, offering analyst forecasts and earnings surprises, which show the extent to which the company beat or missed earnings expectations in recent quarters. 

Notable Calls

Across Wall Street, there are tons of investment grade funds and investing professionals that manage money for individual investors. These fund managers often provide quarterly letters to their investors outlining the state of the market and how they plan on capitalizing on it in the future. 

The Notable Calls section of the website, only accessible by Premium and Pro members, is a curated list of these quarterly announcements from some of the most well-respected hedge funds and investment-grade funds. 

Intuitive Stock Screener

Stock screeners make it easy to find the types of opportunities you’re looking for in the stock market. It seems as though every investing-centric website offers one. However, the screener offered by Seeking Alpha is one of the best in the business. 

As with any stock screener, you’ll be able to screen opportunities by volume, sector, stock price, and more. However, what’s unique about the Seeking Alpha screener is that it lets you screen stocks based on the company’s proprietary Quant Ratings and Factor Scores. 

So, if you’re looking for a technology stock that has both a high Quant Rating and Factor Score and is experiencing exceptionally high volume, you won’t have any issues digging an opportunity up. 

Personalized Alerts

Personalized alerts are available to all Seeking Alpha subscribers. These alerts come via email, informing you of any news and analyst upgrades or downgrades of the stocks you’re interested in. 

While the service is available to all users, Premium members get all the data in the email they receive, while Basic members must click to the Seeking Alpha website to see the full information associated with the alert. 

Portfolio Monitoring

Investors are able to connect their live investment portfolios to Seeking Alpha and monitor their holdings through the platform. Through the portfolio monitoring service, you’ll be able to track your portfolio and pinpoint the investments that are doing best and worst for you. 

Moreover, when you attach your portfolio, you’ll receive alerts when news and opinion articles are published around a ticker you invest in. Premium members enjoy faster time-to-delivery, ensuring you’re one of the first to see the news on stocks you invest in. 


Advantages

Seeking Alpha is one of the most successful investing-centric websites online today, and that popularity didn’t just happen out of the blue. There are several benefits to taking advantage of the services provided by the company, the most significant being:

1. Investing Ideas

Finding quality investment opportunities is arguably one of the most difficult parts of the investing process. Seeking Alpha is essentially a curated list of the best investment ideas produced by thousands of authors. 

Considering the sheer scale of content produced, you’ll be able to find quality ideas no matter whether your preferred style of investing is growth, value, or income.  

2. Free Services

For many investors, the content available under the Basic membership will provide everything you need to make wise decisions in the stock market.  

3. Proprietary Scores

The proprietary scoring system used by the company to provide at-a-glance information about stocks is second to none. Not only does the company take general fundamental data into account when creating these scores, it adds in a risk premium factor that’s difficult to find elsewhere.

4. Portfolio Monitoring

When managing your own self-directed investment portfolio, monitoring your performance in the market is key. The company makes this simple for both free and paid users, including email alerts when important news is released about a stock you’ve invested in.  


Disadvantages

Sure, there are plenty of reasons to consider signing up for this service. However, as with any rose, there are some thorns to be mindful of before grabbing a fistful and taking a whiff:

1. Not the Best Option for Technical Traders

If you’re a swing trader or day trader who relies heavily on technical analysis, you won’t find much value in the service. The company’s core focus is on providing fundamental data and research, and it leaves most technical data to companies that focus on providing that type of information. 

2. Many Features Are Found Elsewhere Free

While the company does make it easy to access tools in one space, much of what it provides can be found elsewhere for free. For example, there are tons of websites that publish free opinion articles on stocks, and a simple search on Google will provide a list of articles on the stocks you’re interested in. 

Moreover, stock screeners, portfolio monitoring services, and earnings data are all widely available for free online. However, it is worth mentioning that most free services don’t go as far in depth as the tools available at Seeking Alpha. 

3. It’s Expensive

Sure, $29.99 per month doesn’t sound like much, but if you have a beginner investment portfolio that consists of $1,000 in stocks, you’ll have to earn a return of nearly 3% per month just to cover the cost of the service. As such, the Premium service is most worthwhile for investors who have a portfolio value of at least $10,000. 

4. No Buy Recommendations

Seeking Alpha is not an alert service. In fact, the disclaimer on all articles on the website suggest that investors should make their own decisions. There are plenty of services with similar pricing that actually offer alerts, recommending when investors should buy or sell stocks. If you’re looking for an alert service that does so, you’ll have to look elsewhere.  


Final Word

All in all, Seeking Alpha is a great tool for the fundamental investor who takes the time to research what they’re buying before diving into a stock. With so many authors and articles on the platform, investors are able to see stocks they’re interested in from multiple points of view, helping to avoid investing based on a few skewed opinions. 

Moreover, Seeking Alpha is a great add-on service to those who use the Motley Fool Stock Advisor, which gives two trade ideas per month. By cross-referencing the ideas provided through the Motley Fool or another alert service with the in-depth research Seeking Alpha provides, you’ll be able to form educated opinions about whether the recommendations are worth following. 

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The Verdict

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Our rating

Seeking Alpha is a valuable research tool for the fundamental investor. While it doesn’t offer much for technical traders and has a relatively high premium membership fee (starting at $29.99 per month), it is a great option for active investors looking to add detailed research to their repertoire of tools.

While there are plenty of benefits for paying subscribers, the service is relatively expensive compared to its competitors, and some premium features can be found elsewhere for free. However, active fundamental investors will benefit greatly from the detailed research and proprietary scoring system Seeking Alpha offers.

Editorial Note:
The editorial content on this page is not provided by any bank, credit card issuer, airline, or hotel chain, and has not been reviewed, approved, or otherwise endorsed by any of these entities. Opinions expressed here are the author’s alone, not those of the bank, credit card issuer, airline, or hotel chain, and have not been reviewed, approved, or otherwise endorsed by any of these entities.

Source: moneycrashers.com

It Still Pays to Wait to Claim Social Security

Laurence Kotlikoff is a professor of economics at Boston University and author of Money Magic: An Economist’s Secrets to More Money, Less Risk, and a Better Life. He also developed MaxiFi Planner and Maximize My Social Security—software programs designed to help users raise their living standards by getting the most out of their Social Security benefits.

In its most recent annual report, the Social Security Board of Trustees said that if nothing is done, the trust fund will be depleted by 2033, which would mean Social Security would be able to pay out only 76% of promised benefits. What do you say to people who plan to file at age 62—which results in about a 25% cut in benefits—because they’re afraid the program will run out of money? I have run through our software a benefit cut starting in 2031, and you still see a very major gain from waiting to collect. But I don’t see the politicians cutting benefits directly. I think they’re going to raise taxes on the rich. Congress could also use general revenue to finance Social Security, or they could partially index benefits for the rich. Historically, they phase in changes, so anybody who is close to retirement is quite safe—and by close I mean 55 and older.

Yet many people fear that if they postpone claiming Social Security until age 70, they’ll die before they’ll be able to take advantage of the higher benefits. What’s your response to that? They’re ignoring longevity risk. If you’re 98 and collecting a Social Security check that’s 76% higher and adjusted for inflation, that’s where you want to be. A lot of people will live that long. If you buy home insurance and your house doesn’t burn down, are you shortchanged because you paid the premium? You’re protecting yourself against catastrophic events. Financially, the catastrophic event is living to 100.

Thanks to big increases in home values, seniors have seen their housing wealth grow to a record $9.6 trillion. Are reverse mortgages, which allow seniors to tap that equity while remaining in their homes, a good source of retirement income? When the Federal Housing Administration insured most reverse mortgages, I thought, they can’t be that bad. But when I spent several weeks looking at them carefully with software, I decided that they’re way too expensive. They’ve got huge fees. You could sell your home and move into a continuing care retirement community—that’s like buying an annuity and long-term-care insurance at the same time. Or you could sell the house to the kids and write a contract in which they let you stay in it until you die. You take care of me and as soon as I die, you get the house. I die early, you win. I die late, I win. But it’s a win-win because we’re insuring each other.

What did the pandemic teach us, if anything, about the state of personal finances in the U.S.? We don’t save enough. The Chinese save 30% of their disposable income. We save very little. This is a wake-up call. The pandemic got me to think about what I was spending on housing, living in Boston. We downsized and moved to Providence, where house prices were a third as expensive. The pandemic has been a saving and spending wake-up call for us, just as the Great De­pression was for those who lived through it. We’ve realized life is much riskier than we thought. The pandemic is making us all reevaluate our finances and what really matters, which doesn’t include driving a BMW.

Source: kiplinger.com