Sometimes finances can seem like magic. Or, at the very least, a mystery. Especially when it comes to figuring out how much rent you can afford.
This is where budgeting comes in. Creating a monthly budget can help you understand how rental rates fit into your financial life.
Use these tips and resources to get a handle on your budget, understand how rental rates are determined, and figure out just how much you can comfortably afford to spend each month on rent.
The budget worksheet
Think of your budget not as a restrictive punishment that forces you to cut back, but as a document that allows you the freedom to spend what you need to spend and still meet your financial goals.
Your budget plan starts with knowing how much you make. Once you know how much income you have coming in each month, you can look at how much you have going out in expenses. Comparing those two basic figures is how you make a budget. Remember to be realistic and calculate not just your salary but your take home pay after all expenses are factored in.
It’s easiest to record your spending behavior and get everything straight when you use a budget worksheet. There are several online resources you might check out. Bankrate offers an online app where you can identify and input your expenses; Freddie Mac suggests tracking your income for two months using this PDF budget worksheet.
The rent figure
Rental rates are set according to what the market can bear. To set rates, property managers will consider what comparable apartment units rent for in the area. The price will go up if their units feature bonuses like convenient amenities, a prime location or recent renovations.
But how much should you spend on rent? While it’s common for financial experts to recommend spending around 25 to 35 percent of your income on rent, that figure may not be feasible. In some of the largest and most competitive rental markets — New York City, for example — you may have to spend more. Renters should be flexible and consider what other costs they may be willing to cut in order to get the right rental in the right place.
Watch for hidden costs
It would be nice if rent prices were the only expenses impacting a renter’s monthly budget. But in the real world, your monthly rent is just the first of several other obligations. Beyond the obvious bills such as utilities, cable and Internet, renting often includes hidden costs that can pop up and bite your finances if you aren’t prepared.
Before you even move in, you’ll want to factor in costs such as application fees, moving costs and security and pet deposits. You’ll also need to account for moving expenses and acquisition costs for new furniture or other household necessities.
But the trickiest expenses are the ones that don’t show up until after you’ve moved in. Did you get a parking ticket because the rental didn’t come with paid parking? What will it cost to use a laundromat if you have no in-unit washer and dryer (plus, how will you lug your dirty laundry back and forth)? Think hard and ask tough questions about what new costs your apartment may bring.
Make it all add up
Here’s the most important part: find a way to afford rent and cost of living, while keeping some spare change for your own happiness. Ideally, you want to allot enough funds for each of your fixed expenses, while also saving a little something for the future. To determine a rental rate you can afford means that rate has to fit within these guidelines. Your budget plan will help you figure out how all these expenses balance the spreadsheet of your financial life.
If you can make the numbers work in your city, allocating the ideal 25 to 35 percent of your budget to rental expenses will help you live within your means. The idea is that you’ll have money left over for other expenses, afterward — even some fun ones like vacations and the occasional adult beverage.
Everyone wants to be #1 these days. I guess that’s no different than any other days, but the battle to be on top is growing more and more contentious, especially as overall home loan volume wanes.
Rather surprisingly, a nonbank lender that also happens to be a wholesaler took the second spot for home purchase lending in the second quarter of the year.
United Wholesale Mortgage Beat Out Everyone But Wells Fargo
The wholesale lender originated $11.2 billion in the second quarter
Of which $8.3 billion was home purchase loans
Overall loan volume up 68% year-over-year compared to the six-month mark of 2017
Highest growth rate among top 25 mortgage lenders in the country
I’m referring to United Wholesale Mortgage, or UWM for short, which issued a press release to celebrate the accomplishment this morning.
It’s the latest in a string of “we’re bigger than you” announcements in the mortgage industry, with a prior notable one being Quicken Loan’s declaration that it was the largest home loan lender in America back in February.
Of course, all of these proclamations come with a little fine print, or perhaps some very specific categorization.
For example, Quicken was the top mortgage lender in the fourth quarter of 2017, but Wells Fargo was still the top lender for 2017 overall.
And UWM was simply the largest nonbank purchase loan lender in the nation during the second quarter. If we remove the nonbank part from the equation, Wells Fargo was once again king, by far.
Per their own press release, UWM noted that Wells Fargo mustered $15.4 billion in home purchase loans during the quarter, nearly double their $8.3 billion. But Wells Fargo is a depository bank, thus putting it in a different category.
The list continues, with Bank of America managing $7.9 billion, Chase ringing in $7.86 billion, and Quicken Loans rounding out the top five with $7.8 billion.
United Wholesale Mortgage vs. Quicken Loans
Both mortgage companies are based out of Michigan
UWM is a wholesale mortgage lender that works with brokers
Quicken operates both a retail and wholesale lending channel
They’ve been taking jabs at one another lately as the rivalry intensifies
For the record, Quicken is the only other nonbank in that short list, with it being clear that UWM is proud to have beaten them.
They even go as far as to mention that they produced $11.2 billion in total loan volume during the second quarter, of which 74% was for new home purchases, compared to just 31.6% of Quicken Loans’ second quarter loan volume.
And highlight the importance of purchase business being “critical” to a mortgage lender’s success these days with mortgage rates on the rise, while bashing call centers and smartphone apps.
In other words, UWM is saying it’s the home purchase loan destination of choice, despite being far less well-known compared with Quicken and its Rocket Loans.
Amazingly, they managed this feat via the wholesale channel alone, which relies upon mortgage brokers to connect with home buyers on its behalf.
Meanwhile, Quicken has both a retail and wholesale channel to originate home loans, though that seems to have been a source of conflict lately.
Much of the drama played out over at HousingWire, which you can check out for yourself. But it basically involves claims that Quicken poaches broker’s wholesale customers via its retail channel, which Quicken later referred to as a smear campaign.
What’s crystal clear is that the battle to be numero uno in the mortgage business is heating up, ostensibly because being #1 is often enough for the consumer to make their choice.
My guess is we’ll see a lot more jostling and back and forth, and perhaps more clever categorizing as these lenders try to claim biggest and best amid a weakening mortgage market that is heavily tilted toward home purchases.
UWM has held the top spot for wholesale mortgage lending overall for more than three years, and currently holds a sizable 20.4% market share, more than triple its closest competitor, Caliber Home Loans, which has just a 6.6% market share.
Today we’ll check out Agora Lending, which like a lot of online mortgage lenders, says that by leveraging the latest mortgage technology, they’re able to pass the savings on to you.
This means they might have some of the most competitive rates in the industry, and they don’t simply state that fact – they post their daily rates online for all to see.
Instead of guessing, you can see where they stand in seconds by navigating to their website. They also tend to show up on mortgage comparison websites, so you may come across them that way as well.
For the record, the word agora is Greek and means a gathering place, which the company takes a step further and calls a place of gathering within a home.
Let’s learn more about them.
Agora Lending Fast Facts
Direct mortgage lender that offers home purchase and refinance loans
A division of One American Bank, a South Dakota-based depository
Founded in 2017, headquartered in Tempe, Arizona
Licensed to do business in all 50 states and the District of Columbia
Agora Lending is a direct-to-consumer mortgage lender based out of Tempe, Arizona that offers home purchase financing and refinance loans.
They are actually a dba of One American Mortgage, and also a division of One American Bank, a South Dakota-based depository.
As such, they are licensed to do business in all 50 states and the District of Columbia, which is a plus.
Because they operate online, you’ll be working remotely with one of their loan officers and loan processors to close your loan.
The good news is they use “next-generation mortgage software” to make it both faster and easier to get from start to finish. And in doing so, they may be able to offer you a lower rate.
How to Apply with Agora Lending
Call them up directly or fill out a short online form to get started
A loan officer will get in touch to discuss pricing and send you a link to apply
They offer a digital mortgage application and the ability to electronically complete and sign forms
Aim to close loans quickly and efficiently using the latest mortgage technology
To get started, you can simply call them up on the phone or fill out a short mortgage lead form on their website.
Either way, you’re going to need to speak to someone before you can formally apply for a home loan, which is a slight negative given available technology these days.
But it’s probably in your best interest to inquire about interest rates and pricing before you proceed anyway.
Once you speak with a loan officer, you’ll be sent a registration email that allows you to complete the loan application online via their digital platform.
Most tasks can be completed electronically, such as filling out the application and eSigning disclosures. You can also scan and upload necessary paperwork.
Once submitted, you’ll get updates in real-time as your loan progresses to the next step.
Loan Programs Available at Agora Lending
Home purchase loans
Refinance loans: rate and term and cash out
Conforming loans backed by Fannie Mae and Freddie Mac
High balance loans
Jumbo loans
FHA loans
VA loans
Fixed-rate and adjustable-rate options
They lend on condos/townhomes and investment properties
Agora Lending offers a lot of different loan options, including home purchase loans and refinance loans for all occupancy types.
You can get a rate and term refinance or a cash out refinance, and they lend on all property types, such as condos/townhomes and multi-unit investment properties.
It’s possible to get a conforming loan backed by Fannie Mae or Freddie Mac, or a jumbo home loan that exceeds the conforming loan limit.
They also offer FHA loans and VA loans, though these options may only be available for existing homeowners refinancing a home loan.
In terms of specific loan programs, you can get a fixed-rate mortgage in a variety of different lengths, from 10 years to 30 years and everything in between.
They also offer adjustable-rate mortgages, including 3/1, 5/1, 7/1, and 10/1 options.
All in all, they should have a product for most borrowers out there. The only major loan type missing appears to be USDA loans.
Agora Lending Mortgage Rates
One positive to Agora Lending is the fact that mortgage rates are front and center on their website.
Instead of wondering how competitive they, simply cruise over to their website and you’ll see today’s refinance and purchase rates.
No need to sign in or get in touch with a human first. From what I saw, their mortgage rates appeared to be pretty low, slightly below what big banks were advertising on the same day.
Of course, be sure to pay attention to the many loan assumptions in the fine print, such as required down payment, minimum credit score, max loan amount, and so forth.
And take them with a grain of salt because once your loan scenario is presented, rates could be very different. But this is the case with any lender that advertises generic rates.
Ultimately, I give them bonus points for being transparent, as many lenders do not display their mortgage rates online or elsewhere.
That being said, I can’t find anything about lender fees on their website, so it’s unclear if they charge a loan origination fee or other standard fees like processing and underwriting fees.
Be sure to inquire about both lender fees and interest rates when comparison shopping to get the complete picture.
Collectively, this is known as the mortgage APR and is very important to ensure you get an apples-to-apples assessment.
Agora Lending Reviews
On Zillow, Agora Lending has a favorable 4.61-star rating out of 5 from just over 300 customer reviews.
A good number of the reviews indicated that either the interest rate or fees/closing costs were lower than expected. And in some cases both.
Over at Bankrate, the company has a slightly higher 4.7-star rating from about 40 reviews, with most of them perfect 5-star reviews.
And 95% of those who reviewed the company said they would recommend them, which is a great sign.
Additionally, they have a strong 4.5-star rating on LendingTree (and 88% recommend rate), though it’s from a smaller sample size of around 20 reviews.
They have a less favorable 3.2-star rating out of 5 on Credit Karma from just over 50 reviews, with service an issue despite the low rates on offer.
Lastly, they have a ‘C+’ Better Business Bureau rating, which isn’t great. They also aren’t an accredited business, but their parent company has an ‘A+’ rating.
All in all, while Agora Lending has some mixed reviews, many former customers cite their low rates, which could be worth some of the aggravation on the customer satisfaction front.
As such, they may be well-suited for an existing homeowner with a straightforward loan scenario that is seeking a lower mortgage rate.
Babies can change a parent’s life in all kinds of wonderful ways. But make no mistake, raising a child doesn’t come cheap. As many new families discover, one of the biggest costs they face is diapers.
Newborns go through as many as 10-12 diaper changes per day, and a typical disposable diaper costs anywhere from $0.20 to $0.30. This means on an average day, a parent may spend $2 to $3 just on diapers.
It’s no wonder some parents are looking into cheaper — and potentially more environmentally friendly — alternatives, such as cloth diapers. Let’s take a closer look at both types of diapers, the cost of cloth diapers vs. disposable diapers, and what the potential savings could mean for a family’s budget.
What Are Disposable Diapers?
Soft and ultra absorbent, disposable diapers are designed to hold waste products of babies and young children. They were invented in the 1940s and widely adopted in the 1980s, when they became more practical and affordable. Today, some 95% of parents in the U.S. use disposable diapers for their infants.
The three layers of this type of diaper include a soft layer against the baby’s skin, an inner layer made of a super absorbent polymer that holds moisture, and a waterproof outer layer so the diaper doesn’t leak.
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How Much Do Disposable Diapers Cost?
As the chart below shows, the cost of disposable diapers can vary widely by brand. Keep in mind that you may pay more or less for your diapers, depending on where you live and shop and whether you decide to buy in bulk.
Diaper brand
Total unit cost
# of diapers
Cost per diaper
The Honest Company
$59.99
160
$0.37
Pampers
$45.99
140
$0.32
Seventh Generation
$28.18
80
$0.35
Huggies
$52.99
198
$0.27
Hello Bello
$34.99
128
$0.27
Mama Bear Gentle Touch from Amazon
$32.70
196
$0.17
Up & Up Diapers from Target
$30.99
192
$0.16
Luvs
$39.97
294
$0.13
Parents Choice from Wal-Mart
$17.48
162
$0.11
Prices as of May 2023
Pros and Cons of Disposable Diapers
As you figure out which type and brand of diaper works best for you and your family, there are some general pros and cons of disposable diapers to keep in mind.
Pros
• Convenient
• Less laundry than cloth diapers
• Highly absorbent
• Caregivers may be more familiar with using a disposable diaper
Cons
• Can be expensive
• Contributes to waste in landfill
• May contain adhesives, dyes, fragrances, or chemicals, which can irritate baby’s skin
Disposable Diaper Factors to Consider
Price is a big factor, yes. But if you’re thinking about starting a family, there are other considerations to think about when it comes to disposable diapers.
Health and Comfort
One of the most important factors in the disposable vs. cloth diaper debate is finding a solution that keeps you and your baby happy and healthy. If you don’t have the time for extra laundry, for instance, disposable diapers may be the way to go.
Convenience
Disposable diapers are convenient, especially when you’re on the move. Just toss the waste away in the nearest garbage can.
Price
Babies go through a lot of diapers. An infant generally requires up to 12 diaper changes a day for the first year, and a toddler needs around eight. This means parents should expect to purchase around 3,000 diapers per year. How much of a dent could that put in the household budget? Let’s do the math: Disposable diapers typically cost between $0.20 to $0.30 each, which means new parents should plan on budgeting around $870 per year.
Environment
According to the EPA, disposable diapers account for more than 4.1 million tons of waste each year. Those diapers tend to end up in landfills, and the materials don’t easily degrade. If you’re uncomfortable with that thought, you may want to consider cloth versions. However, keep in mind that they require energy and water to clean.
Recommended: Common Financial Mistakes First-Time Parents Make
What Are Cloth Diapers?
Cloth diapers are made of cloth that’s absorbent, reusable, and washable. They usually have at least two layers, including a waterproof outer layer to keep the diaper from leaking and an inner absorbent layer. There are several different types:
• Flats: Flat diapers are a flat piece of thick fabric without an absorbent middle that can be folded in a number of ways around the baby. They are secured with safety pins or snaps.
• Prefolds: Prefolds are rectangular-shaped piece of fabric with an absorbent middle. They’re secured with safety pins unless snaps are sewed in.
• Fitted. Fitted diapers are an absorbent cloth diaper that’s fitted with elastic at the legs and waist but does not have a waterproof cover.
• Pockets. Pocket diapers have a pocket on the inside of the diaper for an absorbent insert as well as an outer waterproof layer.
• All-in-ones (AIO). AIO diapers have an outer waterproof layer and inner absorbency, but there is no removable insert. AIOs are the cloth diaper equivalent of a disposable diaper since all of the layers are built in.
• All-in-twos. Like a combination of AIOs and pocket diapers, all-in-two diapers have an insert, but it sits directly on the baby’s skin instead of in a pocket.
• Hybrid. A hybrid diaper has a disposable insert with a reusable cover. They create more waste and are more expensive than other types of cloth diapers.
How Much Do Cloth Diapers Cost?
There’s typically a large upfront investment in cloth diapers and accessories, such as a wet bag, pail liner, or cloth wipes. Depending on the type of cloth diapering system you use and how much you’re planning to buy, you could end up spending between $390 and $1,250. Flat cloth diapers, for instance, cost around $2.50 each. If you’re planning on purchasing a fitted cloth diaper, be prepared to spend more. A typical one costs around $14.24 each.
When you’re creating a family budget, it can help to see how much you’re spending on diapers — and everything else. A spending app can help you keep an eye on your finances.
Pros and Cons of Cloth Diapers
The diaper type you choose ultimately comes down to preference and budget. However, there are some benefits and drawbacks you may want to consider as you make your decision.
Pros
• Reusable
• May have a smaller environmental footprint
• Produces less waste
• Softer fabric and natural fibers that may be more breathable
• Attractive designs
• Can help you decrease diapering costs, especially when going from one child to two
Cons
• Larger upfront cost
• Inconvenient
• Requires more laundry
• Require more electricity and water
• Many daycare center will not accept cloth diapers
Cloth Diaper Factors to Consider
Beyond the cost of disposable diapers vs. cloth, there are other important factors to consider.
Health and Comfort
Cloth diapers are usually made from breathable fabrics, like cotton and hemp, which can feel soft on baby’s skin. Proponents also tout the benefits of the diaper’s natural materials, which generally don’t have artificial materials, such as plastic, absorbent gelling materials, or adhesives.
Convenience
While you can certainly manage a cloth diaper change when you’re on the go, it’s usually not as convenient as a disposable diaper. (You’ll need to carry the soiled diaper in a wet bag until you get home and can drop it in the washing machine.) What’s more, if you’re planning to use daycare, check if the center will accept cloth diapers — many don’t.
Price
Cloth diapers can cost anywhere from $2.50 to $21 each. If you plan on buying 25 diapers for each size your child will need — newborn, small, medium, and large — then you could spend between $700 and $2,100 on 100 diapers.
Recommended: How Much Does it Cost to Raise a Child to 18?
Environment
Cloth diapers have a different environmental impact than disposable diapers. Instead of piling up in a landfill, a cloth diaper is washed and used over and over again. However, they can use up twice as much water to produce as a disposable diaper. Plus, you’ll need to use electricity and water to launder dirty diapers, which could be an issue if you live in a state that experiences droughts or routinely restricts water or energy usage.
Cost of Cloth Diapers vs Disposable Diapers
Cloth diapers can require a significant upfront investment of anywhere from $390 to $1,250 — and that’s not including the cost of extras, such as using a diaper laundering service. However, that initial fee may end up being less than the $870 per year many parents spend on disposable diapers.
Reasons to Choose Cloth Diapers vs Disposable Diapers
As with many other parts of parenting, there’s no one-size-fits-all solution when it comes to diapering. However, if cost is a determining factor — and your caregiver or daycare center is on board — cloth diapers may be the way to go. Plus, since this type of diaper is washable and reusable, it means it’s one less item ending up in a landfill.
The Takeaway
Disposable diapers are incredibly popular among parents and for good reason. They’re convenient, highly absorbent, and, compared to cloth diapers, less expensive. On average, parents spend around $870 per year on diapers. And while it’s true that cloth diapers do require a hefty upfront investment of $390 to $1,250, they may have a smaller environmental footprint. Plus, they’re usually made of fabric that’s softer, breathable, and more natural, which some parents may prefer. All of those factors are important when you’re budgeting for a baby.
That said, diapers are just one line item in the family budget. Whether you’re saving up for their college education or looking for ways to lower monthly bills, using a money tracker app can help you manage your overall spending and saving. The SoFi Insights app connects all of your accounts in one convenient dashboard. From there, you can see all of your balances, spending breakdowns, and credit score monitoring, plus you can get other valuable financial insights.
Stay up to date on your finances by seeing exactly how your money comes and goes.
FAQ
Is it cheaper to use cloth diapers or disposable?
It depends on how much use you get out of your cloth diaper. However, generally speaking, over time, it’s cheaper to use reusable cloth diapers, even when accounting for the cost of electricity and water needed to launder dirty diapers.
What is the average cost of cloth diapers per month?
Cloth diapers have a larger upfront cost but a lower monthly cost. If an initial investment of $500 is spread out over 30 months, for example, the cost comes out to around $17 per month.
How many disposable diapers does one cloth diaper replace?
The average baby uses 8,000 diapers by the time they’re potty trained. And let’s say you invest in 100 cloth diapers, or 25 diapers for each size your child will need until they’re potty trained. This means each cloth diaper could potentially replace up to 80 disposable diapers.
Photo credit: iStock/FotoDuets
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Last week brought little news aside from continued mortgage rate fluctuations as a result of Omicron concerns, Federal Reserve tapering, and more. Let’s cover the latest in this week’s holiday edition of the Mortgage Monday update!
Rates Update
Even with markets closing early in accordance with the shortened week, mortgage rates shifted from high to low and back again in the days leading up to Christmas. Freddie Mac’s PMMS reported an overall rate decrease between December 16 and 23, citing Omicron as a reason for recent market volatility. Still, Freddie’s survey results coming in mid-week leaves room for change – and we saw it last week as rates finished slightly higher, according to experts. Luckily this back and forth has resulted in little change for the average borrower.
Experts and major housing authorities are still expecting rates to climb in 2022. Of course, the rate at which this happens will likely depend on the severity of Omicron and its effects on consumer activity – an ongoing concern and a topic we’ll continue to cover for you as it develops. For now, the movement of mortgage rates remains minimal but will be important to keep an eye on as we begin the New Year.
Our rate forecast? Slight increases in January dependent on Omicron and the market’s response. Contact your Total Mortgage loan officer if you have any questions or concerns.
Still Important – Loan Limit Increases in 2022
In case you missed it, the Federal Housing Finance Agency (FHFA) and Federal Housing Administration (FHA) made big announcements regarding their borrowing limits for 2022. The result: more bang for your buck to help compete with rising market prices. With loan limit increases for both conventional and FHA options, these upcoming changes will benefit a wide range of borrowers and create more flexibility in the market. The start of the New Year will be a great time to lock in a new rate, so be sure to contact your Total Mortgage loan officer now to get the ball rolling.
For now, review the updated loan limits in detail below.
In Closing
The window to take advantage of low mortgage rates will likely close quickly in 2022. Among other things, the Fed doubling its tapering efforts will push rates higher, but this could be countered by Omicron at every turn. The gradual increase will continue, but its speed has yet to be determined – be sure to lock in a rate now while they remain at historic lows. Looking ahead, the remainder of the holidays should bring little change and relative stability to our industry. Enjoy the rest of your week and as always, stay tuned for our next Mortgage Monday update in 2022!
Applying for a life insurance policy often involves multiple steps and can take longer than getting other types of insurance. Let’s take a look at what’s commonly involved in the life insurance application process so you can proceed with confidence.
Term or Whole?
Before applying for life insurance, it’s a good idea to consider such things like how much coverage you need, how much you’re prepared to pay for premiums, and which riders you might like to include. You’ll also need to figure out whether a term life or permanent life policy makes sense for you. Whole life insurance is one type of permanent life insurance.
Term life and whole life insurance have important differences. Term life tends to be simpler and more straightforward. Someone purchases a policy for a certain dollar amount and term, and then has life insurance coverage for the designated time period (10, 20, 25, or 30 years, for example).
If the policyholder keeps up premiums and dies within that term, beneficiaries will receive the appropriate payout. Monthly payments are generally fixed with term life policies.
Reasons people choose term life include:
• Term policies almost always cost less than whole life, sometimes significantly so.
• Policyholders predict they’ll have enough money saved by the time the policy expires.
• Beneficiaries are expected to be financially independent by the time the term expires.
Whole life policies, which also require regular payments, are intended to last the holder’s entire lifetime — there is no expiration date. They can cost up to 10 times as much as a term life policy because part of that money is invested into what’s called the policy’s cash value.
Policyholders can typically borrow against their cash value at an interest rate that’s specified in their policy. They may also be able to cash in their policy to receive money; that action closes out the whole life policy. Whatever is left over after the policyholder dies will be distributed to beneficiaries.
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The Application Process
When you’re ready to get the ball rolling on obtaining a policy, the first step is to fill out an application with your carrier of choice. The insurance company will review the application for completeness. If any information is missing, they’ll likely follow up to ensure that the application is completely filled out. Some carriers may conduct a phone interview when someone applies, while others do so only if an application is incomplete.
Recommended: How to Buy Life Insurance in 9 Steps
The Underwriting Phase
Next comes the underwriting phase, which every applicant goes through. There are two tracts of underwriting available: traditional and accelerated. The traditional tract requires a medical exam, and your blood and urine samples may be collected. The accelerated tract typically does not require a medical exam or blood or urine tests.
During this time, the insurance company will review your application for a wide range of factors that may include:
• Your age
• Your gender
• Your current health
• Your personal health history, including prescriptions
• Your family health history
• Your lifestyle and personal habits (for instance, a history of alcohol abuse or tobacco use)
• Your occupation
• How frequently you participate in hobbies that could be considered high risk
• Other factors, including your driving record
The insurance company uses this information along with actuarial tables to determine your risk profile, or how much of a risk you are to insure. Your risk profile can impact how much coverage you qualify for and at what cost.
Medical Exams
A life insurance carrier will sometimes require a medical exam before issuing a policy.
The exam may be similar to a person’s regular annual physical. A medical tech will likely ask questions that are similar to those on the application, and a professional will conduct a physical exam. It can include measuring height and weight, checking blood pressure, and taking blood and urine samples.
In some cases, an EKG may be performed to measure the electrical activity of the heart. Men over age 50 may need to have a prostate-specific antigen test done to check prostate health.
When medical exams are required in applying for life insurance, it’s part of the underwriting process that helps a carrier understand the risk level of insuring the applicant. The tests performed can indicate if a person has high blood pressure and/or high cholesterol, elevated glucose, or other health issues.
Contestability
Some people may be tempted to downplay personal health issues when filling out a life insurance application. That is never a good idea. If someone didn’t fully disclose the truth about their state of health and died within two years of getting a policy, the insurance company can delve into the details. If information is found to be lacking or inaccurate, the carrier could deny beneficiaries the death benefit.
The Takeaway
Applying for life insurance often starts with deciding how much coverage you need, how much you’ll pay in premiums, and whether a term life or permanent life policy is right for you. Once you’ve finished comparison shopping and weighing your options, the first step is to fill out an application with the carrier of your choice and then undergo an underwriting process. During this time, the insurance company will consider a number of factors, including your age, gender, current health, personal health history, family health history, and lifestyle. A medical exam may also be required. The insurer uses this information, along with actuarial tables, to determine your risk profile, which can impact how much coverage you qualify for and at what cost.
If you’re shopping for life insurance, SoFi has partnered with Ladder to offer competitive life insurance policies that are quick to set up and easy to understand. You can apply in just minutes and get an instant decision. As your circumstances change, you can easily change or cancel your policy with no fees and no hassles.
Complete an application and get your quote in just minutes.
FAQ
Are there advantages to applying for life insurance when you’re young?
Yes, because carriers generally base policy price on risk factors, buying a policy when you’re young and healthy typically means lower premiums. Plus, with some term life insurance policies, buyers can lock in pricing when they purchase, and locking in at a low rate can be a financial plus.
Can I change the specifics of a life insurance policy — for example, change the amount of coverage?
Yes, some insurance carriers do allow this kind of flexibility. Current policyholders should check with their carrier. New applicants can check with the carrier to see what kind of flexibility is provided.
Is having employer-sponsored life insurance enough?
Maybe. While having this benefit is good, these policies are generally in the amount of one to two times an employee’s salary. That’s typically not enough to address debt and provide sustained financial help to beneficiaries, which is why it may make sense to purchase a second policy. Plus, employer plans may not be portable: If the employee leaves the company, the policy may be terminated.
What’s the right amount of coverage?
Each person’s situation is unique. Some use the DIME formula to determine the right amount. That acronym stands for Debts, Income, Mortgage, and Education. What will be needed to cover all of those bases? To streamline the process, you might want to calculate your life insurance needs.
Does it make sense to use an agent when buying life insurance?
Possibly. An agent can educate a consumer about what’s involved in getting a life insurance policy. This can be especially helpful if the process seems overwhelming. Many agents work on commission, so using one that does charge a commission can cause the cost of the policy to go up. Higher commissions are typically charged on whole life policies than on term life. However, not all agents charge a commission.
Coverage and pricing is subject to eligibility and underwriting criteria.
Ladder Insurance Services, LLC (CA license # OK22568; AR license # 3000140372) distributes term life insurance products issued by multiple insurers- for further details see ladderlife.com. All insurance products are governed by the terms set forth in the applicable insurance policy. Each insurer has financial responsibility for its own products.
Ladder, SoFi and SoFi Agency are separate, independent entities and are not responsible for the financial condition, business, or legal obligations of the other, Social Finance. Inc. (SoFi) and Social Finance Life Insurance Agency, LLC (SoFi Agency) do not issue, underwrite insurance or pay claims under Ladder Life™ policies. SoFi is compensated by Ladder for each issued term life policy.
SoFi Agency and its affiliates do not guarantee the services of any insurance company.
All services from Ladder Insurance Services, LLC are their own. Once you reach Ladder, SoFi is not involved and has no control over the products or services involved. The Ladder service is limited to documents and does not provide legal advice. Individual circumstances are unique and using documents provided is not a substitute for obtaining legal advice.
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. SOPT0523006
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If you have been trading for a while, then there is a good chance that you have made some trading mistakes along the way.
Unfortunately, it is part of learning how to trade.
After all, trading is a skill that takes time to learn.
Trading mistakes are part of the learning process. I know that sucks to hear, but it is the truth.
The outcome goal is to learn from those trading mistakes.
Then, you can realize what you did wrong so you do not repeat those same mistakes.
However, more than not, it is more common to repeat the same mistake over and over again.
If you are ready to recognize trading errors and learn how to overcome them, then keep digging in. Take notes and adjust your trading plan accordingly.
We will cover emotional trading mistakes, technical trading errors, and option trading mistakes.
What Are Trading Mistakes?
Trading mistakes are errors made by traders when you enter trades, either to purchase stocks or options.
More than likely, you will see the same type of trading error happening over and over again.
Trading mistakes are very common, but they do not have to lead to complete panic.
In order to minimize the chances of making a costly mistake, traders should adhere to their trading strategy. Additionally, traders should always trade with a clear head and stay disciplined.
There are plenty of trading mistakes you can avoid by being smart and adjusting your trading plan where needed.
Why Understanding Trading Mistakes Is Important for Long-term Success
Trading mistakes are the result of traders taking losing trades, which can result in poor overall performance.
Mistakes that occur during trading often include not paying attention to the market, not understanding risk, not having a well-thought out trading strategy, and being bad at managing the trade.
Whatever the reason, trading errors occur and it is how we react to them that matters.
Long-term success in trading is not a goal that can be accomplished overnight.
Achieving long-term success with active trading requires patience, discipline, and practice.
It is easy to get caught up in day-to-day successes and forget to commit to a long-term plan. As traders, it is important to be able to recognize our mistakes so that we can learn from them and move forward.
Top 5 Trading Mistakes
As you will see, we compiled a long list of trading mistakes. Each trader will see some of those trading errors in themselves. Some are small trading mistakes while others are detrimental.
First, we are going to focus on the top five trading mistakes first. This will make or break your success as a trader.
The following are five common trading mistakes that traders make and how to avoid them.
#1 – No Trading Plan
Trading without a plan means you enter a trade without knowing your next step.
No trading plan means that traders are not able to set clear goals, establish risk-reward ratios, and avoid common pitfalls that can occur during a trade. This makes it difficult for traders to know when they should be buying, selling, or holding.
Trading without a plan is risky because it can lead to losses that are much higher than they need to be.
When starting out in trading, it is important to remember that we can only focus on what we can control. This means that we should not worry about things we cannot change, such as the past or the behavior of other traders. Instead, we should form a trading plan and stick to it so that we can succeed in the long run.
Creating your trading plan will happen with many revisions. The goal of the trading plan is to set your overall strategy for trading.
Also, you need to have a specific trading strategy for each trade you enter.
Avoid by: Spending time to develop a trading plan. Revise as needed. Stick to it.
#2 – Risk Management Plan is Missing
A risk management plan is essential for traders and it should be included in any trading plan.
Without a risk management plan, traders are more likely to make emotional decisions that can lead to costly mistakes. For many traders, this is the hardest thing for them to manage.
It is possible to create a risk management plan as your overall trading plan.
In your risk management plan, you must decide (in advance) how much money you are willing to lose based on the amount of profit you perceive to make. For instance, you are willing to risk $300 in order to make $1000.
Many day traders focus on a 2:1 reward-to-risk ratio. Personally, I look for stronger reward-to-risk ratios greater than 3:1.
Avoid by: Understand how risk is a part of making a profit. Set your risk tolerance and do not deviate from it.
#3 – Not Keeping a Trading Journal
One of the most important aspects of successful trading is keeping a journal.
This not only helps you keep track of your trades and performance, but it can also help you remember what worked and what did not. Journaling is so helpful and such an overlooked task.
Your trading journal is the perfect place to take notes, keep track of your wins and losses, and record market movements so that you can learn from past mistakes.
At the end of every trading session, you should take some time to analyze your trades.
What went well?
What didn’t go well?
Why did you make that particular trade?
What was your entry strategy?
What was your exit strategy?
Where was the overall market momentum?
Did you control your emotions?
What grade would you give yourself?
This analysis is important so that you can learn from your mistakes and improve your trading skills. Stay motivated to continue learning about trading and keep more profit.
Avoid by: Start journaling. Spend time after exiting a trade and the market day to understand what happen and why you did a certain trade.
#4 – Watching Too Many Stocks
Watching too many stocks can lead to a decrease in returns and overall confusion on what is happening with your watchlist.
As a result, it is important to be selective.
The same can be said of stock scanners. If you are watching too many variables and possibilities, you can quickly become overwhelmed.
When you develop your trading plan, you need to decide how you find stocks.
Personally, I prefer to focus on a handful of stocks and a few key metrics. Then, watch them closely and trade accordingly.
As a new trader, I would pick about 5-10 stocks to analyze.
Avoid by: Revise your watchlist to half what you are currently watching.
#5 – Actually Exiting Trade as Planned
Above we talked about creating a trading plan and having a trading strategy for each trade taken.
But, the trading mistake happens when you do not exit the trade as planned.
This could be because of “hopemium” that the stock price will recover and you will get back your loss.
Our “hopemium” is that the stock price keeps rising and you will make more money.
Either one can be damaging to your trading account.
You created a plan. As a disciplined trader, you must follow your plan either to maximize your current profit or protect your risk against further losses.
Avoid by: Exiting at your set targets. Period.
12 Typical Emotional Trading Errors
Trading is 80% mental and 20% execution. Okay, I am not sure that there is an official study to back it up. But, I do know as a trader that emotions play heavily into your overall profit.
The typical emotional trading errors that traders make when they are in a trade are overconfidence, jumping into trades before the proper analysis is completed, and inability to take losses.
This is where most of the trading mistakes are made.
When first starting out in trading, it is easy to get caught up in the prospect of making a lot of money quickly. However, most traders find that trading is not easy to do and make common emotional trading errors.
Let’s dig into these emotional mistakes first and then we will follow up on the technical trading mistakes.
1. Letting emotions impair decision making
Emotions are an important part of decision-making, but it can be dangerous to allow them to influence our decisions. We should also take into account that emotions can often lead us astray.
It is clear that emotional trading can lead to bad decision making and, ultimately, financial losses.
When investors let their emotions take over, they are not thinking logically and may make impulsive decisions. For example, they may sell stocks when the market is down in order to avoid further losses, even though the stock may rebound soon after.
In order to be successful traders, it is important to stay calm and rational when making decisions.
Overcome by: Stick to your trading plan and take emotion out of the equation.
2. Unrealistic Profit Expectations
You go into every single trade expecting a home run! Enough money to achieve your dreams overnight!
These types of profit expectations will have you throwing your risk management plan out of the window and set you up for failure with greed, overconfidence, and impatience.
Be realistic about your expectations with trading activity.
Overcome by: Go for base hits. Small consistent wins.
3. Greed
Greed is a deep-seated need for more profit without regard to the chart or market conditions.
The common rationale is hopefully the stock will go up. Typically, you hold your position too long and end up losing some of your gains.
Greed can manifest in many different ways, and people with greed often neglect their own needs in order to attain more.
Overcome by: Set an OCO bracket to exit the trade at your specified level. Take you out of the equation.
4. Fear of Missing Out (FOMO)
You fear that you missed out on a trade, so you decide to jump in. As a result, you are risking more than you should.
This trading mistake is common, especially with online trading communities.
As a result, you may buy at the high and watch the stock reverse.
Overcome by: Realize that there will be missed opportunities. That is part of the game. There will always be another chance.
5. Fear
In many cases, fear is a reaction to why or why not we enter a trade.
For any trader, they may become frozen unable able to make a decision as their mind is wrapped in fear. At the same time, they are either missing out on potential profits or unable to exit a trade due to mounting losses.
Overcome by: This is a real emotion that you must overcome. Take the time and read resources to help you overcome being paralyzed by fear.
6. Overconfidence after a profitable trade
The overconfidence that comes with success can lead to a loss of profits.
When a trader has a winning position, they may become overconfident and make bad decisions because of the previously profitable trade.
For example, they may not take their profits off the table when there is an opportunity to do so or increase their position size when they should be taking profits. This could lead to them losing all of their winnings and more.
Overcome by: Take a break from trading for a few days or a week after a big win.
7. Entering a Trade Based on Your Gut
The process of entering a trade based on your gut is, essentially, following your “gut feeling” and buying or selling shares after the market opens. This is seen as a more risky and less profitable strategy than following a more traditional market timing approach.
Trading is all about making calculated decisions and sticking to a plan.
Trading based on your gut feeling or emotions will only lead to costly mistakes.
Overcome by: Before entering into any trade, make sure you have a solid strategy in place and know all the rules. Only then should you start trading.
8. Not reviewing trades
Not reviewing trades is a common problem for many traders. Traders who don’t review their trades tend to be more likely to make mistakes in their trading and over-trade, which can result in losses.
You will make the same mistake over and over again until you realize the root of the problem.
This is how you move from a losing average to a winning percentage.
Overcome by: Let your journal be your friend. Document everything including your emotions.
9. Following the Herd
Many people enjoy following the herd with stock trading, especially online platforms on Reddit, Discord, or Twitter.
You may decide to follow a certain group of people in order to be fed stock picks or updates.
This can be risky because there is no sound foundation to base your trade upon.
Overcome by: Trade your style and let that fit you.
10. The Danger of Over-Confidence
The “beginner’s luck” experienced by some novice traders may lead them to believe that trading is the proverbial road to quick riches.
Over-confidence is the belief that one’s abilities, knowledge, or qualities are better than average.
This over-confidence is a risk factor for certain types of mistakes and other negative outcomes as it leads to complacency, a lack of preparation, and an overestimation of one’s abilities.
Overcome by: Realize your limitations and watch for overconfidence to appear.
11. The Importance of Accepting Losses
Losses are always a part of trading life, but they can be overwhelming when they occur.
It is important to recognize that losses are in fact an inevitable part of growth and development as a trader.
Overcome by: Journal all of your losses. Look for patterns to appear. Adjust your trading strategy as appropriate.
12. Quit Your Job Too Fast
Quitting your job too fast is not a good idea, as it will force you to place trades that may not be the best set-ups.
Day trading can be a very risky venture, and it is possible to lose everything you have invested.
It is important to be aware of the risks before getting started. More importantly, do not quit your job too fast. This can lead to losses in your investments and could potentially put you in a worse financial situation than you were before.
Overcome by: Keep trading as a side hustle. Hone your trading skills and build up a reserve fund that will cover your monthly expenses. You will know when you are prepared to leave your 9-5.
Common Mistakes in Stock Trading
According to a study by the U.S. Securities and Exchange Commission, technical trading mistakes are actually fairly common among individual investors.
Mistakes in technical trading can be two-fold, either due to lack of knowledge or poor execution.
The most common mistakes are buying at the top and selling at the bottom, overtrading, and not taking the time to properly understand how trading works.
Now, let’s dig into all of the common trading mistakes I see.
1. Overtrading
Let’s start by talking about overtrading. This is a mistake that I see many people make. It is also a mistake that could have been easily prevented if you had just done your research before placing the trade.
Overtrading or placing more orders than you should do is the most common mistake.
Many new traders will simply open up their platform, look at the market, and place a trade. They are often chasing after the last couple of candles or they see an opportunity to get in “on the cheap”.
The problem with this approach is that you have no idea if this is a good trade or not. You are simply taking a shot in the dark and hoping for the best.
Overcome by: Only place the A+ setups that you like. Once you have traded so many times per day or week, stop trading.
2. Buying High and Selling Low
We all have heard the saying, “buy high and sell low.” However, too many novice traders do the complete opposite.
This trend happens with one of the emotional mistakes of FOMO; we already dived into that concept earlier.
Overcome by: Follow your trading plan on when to enter and exit the trade. Practice your strategy in a simulated account and master it.
3. Lack of Trading Knowledge
The lack of trading knowledge is a problem for many traders who are not familiar with how the stock market works. This can cause them to make mistakes when buying and selling stocks, which could result in losing a lot of money.
Just because you made a profit once on one stock does not mean that is a repeatable action.
In order to be successful in trading, it is important to have a good understanding of the markets and the strategies involved.
Without proper training, you are likely to make costly mistakes that can cost you money. Trading courses and tutorials are available online and through other resources to help you gain this knowledge and become a successful trader.
Overcome by: Take an investing course. Spend money on your education and not your losses. Here is a review of my favorite day trading course.
4. Following Too Many Strategies
Following too many strategies is a common problem in the investing world, which can lead to poor performance and more costly mistakes.
There are a million and one different approaches on how to trade the stock market, which indicators to use, whose advice you should follow, so on and so forth.
And then, many traders try and couple the strategies together only to quickly learn they may cause more losses than profits.
One way to avoid following too many strategies is by using a set of rules to decide which strategies are appropriate for investing.
Overcome by: Develop your trading plan. Outline the investing strategies you will use. Test any new strategies in SIM first.
5. Do Your Research
The solution to this problem is simple: do your research!
Before you enter a trade, take the time to do some analysis on the asset you are looking at. Look at past price action, news events, and any other relevant information that you can find.
Understand why the market might move in your favor and be able to build a case for it. The more data points you have supporting your position, the better off you will be.
If you are able to build a strong case for why the asset will move in your favor, then you can enter with confidence. This is because if the market does not move in your favor, you will know that it isn’t because of a lack of research on your part.
When you enter with confidence, this will make it easier to hold through the inevitable volatility and price swings.
Overcome by: If you enter without knowing why something is likely to move in your favor, then you are setting yourself up for failure. Do your research.
6. Not Using Stop-Loss Orders
Stop orders come in several varieties and can limit losses due to adverse movement in a stock or the market as a whole.
Tight stop losses generally mean that losses are capped before they become sizeable. However, you may have your stop loss too tight and get stopped out before your stock has room to move.
A corollary to this common trading mistake is when a trader cancels a stop order on a losing trade just before it can be triggered because they believe that the price trend will reverse.
Overcome by: Plan your stop loss in advance. Stick to it as it is part of an overall risk management strategy.
7. Letting Losses Grow
Active traders can be harmed by refusing to take quick action to close a losing trade.
It is important to take small losses quickly and limit your risk in order to stay profitable.
Stop losses can help you avoid larger losses.
While the stock may come back to your buy price, you have increased your risk far beyond what you planned. If your planned loss was $300 and now you are down over $500, it will take that much longer to overcome that growing loss.
Cut your losses. Review the chart. See what a better entry point may be.
Overcome by: If the stock moves past your pre-determined stop, then exit the trade. Don’t trade on hope.
8. Chasing After Performance
Many day traders are tempted to chase stocks, which is a bad reputation in the day trading world.
This happens when they see a stock that has had a large price increase and they think that it will continue to go up. In reality, this is not usually the case, and chasing stocks can lead to big losses.
What goes up must come down, right?
Overcome by: Wait for a better time to enter the trade according to your trading plan.
9. Avoiding Your Homework
It is important to do your homework. If you avoid doing your homework, then don’t expect fast results
Many new traders often do not do their homework before making any investment decisions.
This can lead to costly mistakes that can be avoided by doing some basic research. Trading is a complex process and should not be taken lightly – make sure you are fully prepared before risking your hard-earned money.
Overcome by: If you have not enrolled in an investing course, do that. Set daily goals on how to improve your trading performance that is not based on profit or loss.
10. Trading Difficult and Unclear Patterns
It is important to stick with the patterns and indicators that are clear and unmistakable so you don’t get caught up in any ambiguous or unclear trading signals.
With a little bit of research and understanding, these market patterns can become quite clear.
By forcing a chart to fit in what you want, then you are putting your trading capital at risk.
Overcome by: If you cannot read a clear chart or pattern, then quickly move to the next stock.
11. Poor Reward to Risk ratios
The most common mistake made by traders is poor risk management. This usually means taking on too much risk in relation to the potential rewards, which can lead to heavy losses if the trade goes wrong.
It is important to always have a solid plan for how much you are willing to lose on any given trade and never deviate from it.
What is the Reward to Risk ratio you look for:
1:1 Reward to Risk
2:1 Reward to Risk
3:1 Reward to Risk
Many beginner traders do not want to take on as much risk because their appetite for potential rewards may be lower. It is important for beginners to consider their trading strategies and risk management plans so that they can make the most informed decisions possible.
Risk-to-reward ratios are an important part of trading, and experienced traders are typically more open to risk in order to maximize their potential rewards. This means that they may be more likely to make high-risk, high-reward trades.
Overcome by: Stick to Risk to reward ratios that fit your trading plan.
12. Ignoring volatility
Volatility is the fear and unknown in the market.
The most important thing to remember about investing is that the stock market can be volatile.
A measure of volatility is from the VIX.
Overcome by: Decide how you will trade when the VIX is high and the news is negative.
13. Too Many Open Positions
Entering too many positions is one of the most common mistakes investors make. A portfolio should consist of a handful of top-performing investments that have proven to be good bets over time.
It is unwise to open too many positions in a short amount of time because it could lead to confusion.
This can be risky because if one or two of the positions go south, the entire portfolio can suffer. For this reason, it is important to carefully consider each position before opening it and make sure that all positions are contributing positively to the overall goal.
Overcome by: As an active trader, stick to under 5 open positions. As a long-term investor, look to build a portfolio of 25 stocks over time.
14. Buying With Too Much Margin
Most brokers offer 2:1 or 4:1 margin to cash. While this is tempting to use, it can also give you a margin call.
Margin can help you make more money by increasing your position size, but it can also exaggerate your losses.
Exaggerated gains and losses that accompany small movements in price can spell disaster for a new trader using margin excessively.
Overcome by: Use your cash only. Stay away from using margin.
15. Following Meme Stocks
These are the stocks made popular by many Reddit personal finance groups.
You have probably heard of Gamestop, Blackberry, AMC, or Bed Bath and Beyond as a meme stock.
While these stocks have risen to crazy highs, they have also fallen just as fast. Chasing the high may leave you with a big and painful loss.
Overcome by: Stick to your stock watchlist.
16. Buying Stocks With No Volume
Buying stocks with no volume is a risky idea that involves placing an order on a stock without knowing how much interest there will be in the shares. This can result in losing money if there are no buyers for the shares.
It is important to validate the price of a stock by looking at volume. The volume shows how much interest there is in a stock and can be indicative of future price movement.
When volume is low, it’s best to stay away from buying stocks as it could be a sign that the stock price is not stable.
Overcome by: Trade stocks with a volume of at least 500,000 or higher.
17. Ignoring Indicators
Indicators are things that tell us the market is going up or down. Examples of indicators would be the stock market at a particular point in time, a company’s performance with regards to earnings, the price of a product or service.
Every trader has their own set of indicators they use.
If you have outlined indicators you use in your trading, make sure to follow them regardless if it is against the way you want the stock to move.
Overcome by: Stick to your trading plan for each stock individually.
18. Trading Too Large Position Sizes
Trading too large position sizes is a risk that traders may run into when they hold positions in their portfolios for extended periods of time.
Position size is the amount of money placed on a trade, and the risk is that a trader may lose more than their capital on the trade if it does not go well.
Overcome by: Base your position size on the amount you are willing to lose. Not how much you want to make.
19. Inexperienced Day Trading
In order to be successful in trading, it is important to have a good understanding of the markets and the strategies you are using. Without proper training, it is easy to make costly mistakes.
Too many day traders turn trading into an unnecessary risky game.
To be successful, a day trader must have a solid foundation in how to invest in stocks for beginners.
Overcome by: Practice in a simulated account and make all of your mistakes there before moving to live money.
20. Inconsistent trading size
Inconsistent trading size is when traders are unable to predict what their position size should be in order to meet the trader’s desired profit goal.
Trading size is one of the most crucial aspects of a trading strategy and should be considered carefully. Larger trade sizes come with an increased risk, so it’s important to be aware of your position size when making trades.
Overcome by: Don’t risk too much on one trade. Stick to your risk management plan.
21. Trading on numerous markets
Trading on numerous markets is when a trader invests in stocks, bonds, commodities, crypto, and other securities.
Every type of market moves differently and takes time to understand how to be profitable.
Overcome by: Find your niche and stick to it.
22. Over-leveraging
Leverage is a powerful tool that can be used to magnify gains and losses in a trade. It is important to be aware of the amount of leverage being used in order to effectively manage risk.
Brokers play an important role in protecting their customers by providing margin calls and other risk management tools.
Overcome by: If you feel over-leveraged, sell some positions before your broker gets involved.
23. Overexposing a position
Overexposure is a term used in the investment world to describe the risk that comes with exposing your position too much in the market. When you have overexposed your position, you are putting yourself at risk of losing money if the stock or security you are invested in falls in value.
You are taking on too much risk.
Overcome by: Stick to your risk management plan. Always have cash reverse on hand in case the market reverses.
24. Lack of time horizon
There are different time horizons for various types of trading strategies. It is important to think about the time horizon you are comfortable with before investing in any type of investment.
If you are a day trader, you plan to close your trades before the end of the trading session. As a swing trader, you typically hold trades for a couple of days maybe up to a month. As a long-term investor, you plan to hold your stocks for longer than a year.
Overcome by: Match the time horizon of that investment purchase with your investing goals.
25. Over-reliance on software
Although some trading software can be highly beneficial to traders, it is important not to over-rely on it.
Automated trading systems are becoming so advanced that they could revolutionize the markets. As a result, human traders need to be aware of the potential for these systems to make mistakes and use them in conjunction with their own judgment.
Overcome by: Set alerts before you want to enter or exit a trade. Then, review if the move still follows your trading strategy.
Top Options Trading Mistakes Beginner Traders Make
These options trading mistakes are specific to option trading.
Trading options is an advanced strategy. If you have losses trading stocks, wait before you start trading options.
1. Not having a Trading Plan
Every trader needs a trading plan that outlines strategies, game plans, and trade metrics.
When you are trading without a plan, you are essentially gambling and hoping for the best.
This is not a recipe for success in the world of stock trading and is especially true for options traders.
A good trading plan should include chart analysis so that you can make informed decisions about when to buy and sell stocks. If you are using HOPE instead of a trading plan, then you need to find out the right way to interpret the chart because that will give you a better idea of what is happening in the market and how likely it is that your investment will succeed.
Overcome by: Create a specific trading plan based on your option strategy.
2. Not properly Researching Option Contracts
Learning to trade options is like going to school for a whole different trade.
There are way too many technical aspects to discuss in this mistake.
Spend time learning what criteria you want from an options contract to be successful.
Overcome by: Learn how options work and practice trading options in the simulator before going live.
3. Trading without an understanding of the underlying asset
Before you start trading options, trade with stocks.
Every stock moves at its own beat. You need to learn how it moves.
Jumping into options prior to knowing the stock can cause extreme losses. Learn how the underlying asset moves first. Be successful in trading stocks before moving to options.
Overcome by: Learn to trade the stock with shares first. Then, practice in a simulator. Once familiar, then trade live with options.
4. Buying Out-of-the-Money (OTM) Call Options
Options trading is a risk-based strategy. It’s important to know which strategies are right for you and what the risks of each option type are before putting on an option trade.
One common mistake that many traders make when it comes to option trades is buying out-of-the-money (OTM) call options.
This is because OTM call options are inexpensive and have a range of around 100,000 to 1 million. To avoid this mistake, it’s important to know what the risks of buying OTM call options are and which option strategies are appropriate for you.
Overcome by: Focus on trading In-the-money (ITM) call contracts. Know your strategy.
5. Not Knowing What to Do When Assigned
When you enter into an options contract, you are essentially agreeing to buy or sell the underlying asset at a specific price on or before a certain date.
If the market moves in a way that benefits the buyer of the option (the person who contracts to buy the asset), they can choose to exercise their option and purchase the asset at the agreed-upon price. However, if the market moves in a way that benefits the seller of the option (the person who contracts to sell), then they may “assign” their contract to someone else – meaning that they no longer want to buy/sell the asset, but would like someone else to take on that responsibility.
This can be jarring if you haven’t factored it into your decision-making when trading options, so it is important to be aware of the possibility.
This is why traders need a higher trading level to sell options contracts or verticals.
Overcome by: Be okay with buying the shares if you are assigned. That is a part of your trading plan.
6. Legging Into Spreads
It is a common mistake for traders to get legged into spreads by entering positions when the market price has moved away from their position. They may have gotten caught up in the belief that they are being a “smart” trader by trying to profit from the spread.
The problem is that they are not taking into account that their cost basis must go up in order to maintain the position. If the market price of the underlying goes up, their cost basis must go up as well.
Overcome by: If you are not comfortable with this advanced strategy, then exit your options contract and place a new one.
7. Trading Illiquid Options
Trading illiquid options is a mistake because traders are taking on too much risk, with potentially disastrous consequences.
Illiquid means that the option cannot be bought or sold at the given time.
In other words, the option is not tradable. When traders trade illiquid options, they are taking a risk that their trades will not be executed because there is no liquidity in the market at that time. They have to hope that the market will become liquid again, and they can then sell their position or buy back their option at a lower price.
Overcome by: Check option volume and open interest at your strike place. Verify you have interest in moving your contract.
8. No Exit Plan
It is important to have a plan in case your trading strategy doesn’t pan out as planned.
This will give you the peace of mind that you won’t be left high and dry without an exit strategy.
With options is it more difficult to limit your risk to reward. As a result, you must decide your exit plan in advance.
Overcome by: Develop your trading strategy and include how and when you will exit the option contract.
Ready to Avoid these Trading Mistakes?
Investors are often their own worst enemy when it comes to trading.
They make emotional decisions instead of logical ones, and this leads to them making costly mistakes. Plus there are many technical errors new and seasoned traders are still making.
In order to be successful in the markets, investors must first learn to accept their losses and move on. Only then can they put that mistake behind them and focus on making profitable trades in the future.
In this post, I shared some of the more common trading mistakes that people make and how to avoid them.
Now, you have to work to avoid these trading mistakes and be profitable.
Know someone else that needs this, too? Then, please share!!
Put simply, income is the amount you earn whereas net worth is the total value of your assets minus any debt. When it comes to measuring your financial health, income isn’t the metric that matters. Sure, you want to know whether your income will help you reach your goals, but looking at your net worth is a better measure of your overall wealth.
That being said, it’s important to understand how both play into your finances, so let’s take a look at net worth vs income and how they factor into your financial health.
Income vs Net Worth: Two Measurements of Wealth
Both income and net worth can help measure the chances of someone creating wealth. However, the difference is that income is the primary way someone generates wealth, whereas net worth measures your level of wealth. To put it another way, income is how you make money, but it doesn’t necessarily lead to creating wealth.
Instead, looking at your net worth allows you to see the value of all your assets and liabilities at a specific point in time. It gives you a sense of your financial health in terms of whether you own more assets — such as your home, investments and cash — than liabilities (any money you owe, like credit card debt). Your net worth also allows you to see how much of your wealth is held in assets or cash. And it offers a reference point to help you measure your progress toward your financial goals.
Recommended: Should I Sell My House Now or Wait?
Is Net Worth More Important Than Income?
While income is a key aspect of your finances, net worth typically is more important. That’s because even if you have a large income, it doesn’t guarantee that you’ll generate more wealth than someone else who may have a slightly lower one. Sure, having a larger income can help you build wealth faster, but it’s all in how you handle your finances, such as the amount of money you save.
Let’s say your friend makes $100,000 per year but has a lot of debt, leading their net worth to be $15,000. On the other hand, you make $70,000 but have invested over 10 years, to the point where your net worth is $100,000. You have more wealth, and therefore, are more likely to be financially stable than your friend.
Another instance where income doesn’t correlate with wealth is when someone is older and getting ready to retire. Their income may be lower because they’re working part-time, but their wealth could be in the millions because they’ve worked for many years.
All this to say, income is important but only as important as how you use it to reach your financial goals.
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How to Calculate Income
Calculating your income doesn’t simply mean looking at the number on your paycheck. You’ll also want to factor in other sources of income, such as any government benefits, commissions, tips and dividends. Don’t forget to include irregular or occasional income sources like cash gifts, inheritances and even tax refunds.
Make sure that when you add these up, it’s your net income and not gross income, as that will give you a more accurate picture of what you’re bringing in. Gross income is pre-tax money and before deductions are taken out. Net income, on the other hand, is income that has taxes and deductions taken out.
Example of Calculating Income
Let’s say you have a day job that offers bonuses and commissions. You also invest in securities that provide dividends.
Here’s how you would calculate your income:
• Annual net salary: $64,350
• Annual commissions: $3,500
• Annual bonus: $2,000
• Annual dividends: $3,234
TOTAL INCOME: $73,084
You can then use this total to calculate monthly and weekly income — in this case, it’s $6,090.33 per month and $1,405.46 per week.
How to Calculate Net Worth
Calculating your net worth involves creating a net worth statement so you can see a snapshot of your assets and liabilities.
Start by looking at your assets and determining the total amount of all accounts under this category. Assets are items that have some sort of monetary value. These include:
• Checking accounts
• Savings Accounts
• Your home
• Real estate
• Retirement fund
• Personal property (such as your vehicle)
• Pension equity
• Securities (like stocks and bonds)
• Life insurance policy
• Profit-sharing equity
Once you’ve calculated all of your assets, you’ll need to calculate the total amount of your liabilities. Liabilities are any debts or financial obligations you have, including:
• Mortgage
• Credit card balance
• Personal loans
• Auto loans
• Student loans
• Unpaid medical and dental bills
• Home equity loans
• Money you owe to family and friends
• Unpaid taxes
After totaling up your assets and liabilities, subtract the latter from the former. This number will be your net worth. If your liabilities are greater than your assets, you’ll have a negative net worth. The more assets you have than liabilities, the higher your net worth will be.
Example of Calculating Net Worth
As an example, let’s say that Barbara decided to calculate her net worth. First, she’d list out her assets and liabilities:
ASSETS
Checking accounts
$600
Savings accounts
$10,000
Home
$365,000
401(k) balance
$24,399
Vehicle (current value)
$32,590
Brokerage account
$12,000
TOTAL:
$444,589
LIABILITIES
Mortgage
$200,000
Car loan
$29,251
Credit card
$4,126
Student loans
$36,700
Personal loans
$13,857
Unpaid medical bill
$300
TOTAL:
$284,234
Once she’d written that all out, she would be able to calculate her net worth using the following formula:
Total assets – total liabilities = net worth
$444,589 – $284,234 = $160,355
Barbara has a positive net worth of $160,355.
Ways to Improve Your Net Worth
Ideally, you’ll have a positive net worth that keeps growing over time. Here are several ways to improve your net worth.
1. Keep Track of Your Assets and Debt
Tracking your assets and debt will give you an accurate picture of where you stand. That way, you’ll be able to see your progress and what you need to improve or keep doing to grow your net worth. For instance, if you notice that your debt keeps growing, you can use this information to help you figure out why and take steps to rectify the situation.
2. Pay Off Debt
The fewer liabilities you have, the more your net worth will grow. To improve your net worth, you can focus on making sure you’re making on-time payments and avoid taking out new loans if possible. If your budget allows, consider making extra payments toward loans to pay off your debt faster. Some loans, like mortgages, may have prepayment penalties, so check with your lender before sending that extra check.
3. Increase Your Income
Getting a higher salary will help you build wealth by paying off debt or putting money toward investment accounts. Ideally, you want to increase your income and pay off your debts as soon as you can. To increase income, you can consider negotiating for more in your current job, looking for a new one, or starting a side hustle to help you make more.
4. Invest
Sticking your cash in a savings or checking account can only get you so far. To accelerate your wealth-building journey, you’ll need to invest some of your money.
Start investing by contributing to your employer-sponsored account (bonus if they offer a match), and then branch out to other products as you see fit.
The Takeaway
Your net worth is a snapshot of your finances at a specific point in time and will fluctuate. It’s a good measure to see whether you’re on track with your financial goals. The more you track your assets and liabilities, increase your income, and decrease your debt, the more your net worth will grow.
A money tracker tool like SoFi Insights can make it easy to keep track of all of this, with a bird’s-eye view of your account balances and tools to track your spending.
Find out where your finances stand.
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The town of Newton, Massachusetts is working to comply with a new state law that requires the construction of new multifamily housing units in areas served by public transit, according to reporting from the Boston Globe.
The law, which went into effect in early February, requires 177 communities served by the Massachusetts Bay Transportation Authority (MBTA) to eliminate barriers that could restrict the zoning and construction of multifamily housing units.
As of February, just seven of the 175 initial communities that were required to submit preliminary compliance plans had failed to do so by the initial deadline.
“This new law requires that an MBTA community shall have at least one zoning district of reasonable size in which multi-family housing is permitted as of right and meets other criteria set forth in the statute,” according to information posted by the state government.
Other criteria include a minimum density of at least 15 units per acre; that a development be located no more than one-half mile from a transportation hub (such as a commuter rail station, ferry terminal, subway station or ferry terminal); and that the units have no age restrictions and are suitable for families with children.
However, the debate in Newton could be more contentious than in other parts of the state, according to the Globe.
“Newton, one of the region’s wealthiest enclaves, has to zone for more new units under the state rezoning law, MBTA Communities, than almost any other community,” the article states. “Should the rezoning overcome fledgling resident opposition and pass by the end-of-year deadline, it could serve as a model for other communities and represent a major turning point in the city’s attitude toward multifamily housing.”
The median home price for a single-family home in the area is $1.6 million, according to data from Warren Group.
The debate is due in large part to the way Newton is currently zoned, which is primarily for single-family homes. Some apartments have been constructed in recent years, but the construction level has been low.
Between 2010 and 2020, roughly 1,100 new housing units were added in Newton, accounting for just over 3% of the area’s total housing stock. This has led Newton to have some of the highest housing prices in the state.
In addition to the price concerns, most multifamily construction has been concentrated in commercial areas in recent years.
The current proposal would add an estimated 10,000 new units, depending on parking requirements, which is well above the 8,330 units mandated by the new law. The new unit construction would also impact only 3% of Newton’s land and is not expected to impact existing single-family neighborhoods.
This is the latest step being taken at the state level to temper the housing supply shortages occurring nationwide. In New York, Gov. Kathy Hochul is pushing the state’s government to override local zoning laws and mandate more housing construction in the state’s suburban counties.
In Washington state, Gov. Jay Inslee recently signed a series of bills designed to spur more affordable housing construction, including through the elimination of single-family zoning. Similar measures have been introduced in states like Florida and Minnesota, but have ultimately been reversed.
Last Updated: May 25, 2023 BY Michelle Schroeder-Gardner – 64 Comments
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When we bought our first (and current) house, our whole process went by very quickly and smoothly. Our mortgage company and real estate agent both told us that our mortgage was the quickest process they’ve ever done. We got pre-approved and bought a house less than one month from start to finish.
It took around 2 weeks for us to find the perfect house, and we probably looked at over 20 houses in person. We also looked at hundreds online so the 20 that we looked at we thought were for sure buys. Our agent probably HATED us. Luckily she was a family friend so I hope she got over her hatred quickly 🙂
We are sort of in the home buying process again as you all know. We keep going back and forth with what type of house we want, where we want it located, and how much we want to spend.
Our current house is fine for now. There is definitely nothing wrong with it, I guess we just want something a little nicer that also has a little more room. So we could: a) stay in our current house and save a lot of money; or b) buy a house within the next year and finance the majority of it (probably with a 25% down payment).
If we did stay in our house for longer, we would spend some money on making it perfect. I definitely would want to change some things in our bathroom (such as adding a nice glass shower door), make our front and backyards perfect (possibly add a garden) and finish decorating everything to the way we want it. This is a whole ‘nother post in itself!
Anyways, when we bought our current house, we followed all of the steps below, except for the fact that we didn’t realize that the total monthly cost would be that much higher than what the mortgage company quoted us. That is something that we were naive about. Learn from our mistake!
1. Get pre-approved for a mortgage!
This is definitely one of the first steps you should take. Looking at houses without getting pre-approved can be disastrous because you might just be wasting your time. You might not get approved, get approved for less than you think, etc.
Wouldn’t it really stink if you spent a ton of time looking at houses that turned out to be way more than what you can be pre-approved for? That can be a major letdown.
2. Buy less than what you are approved for.
I think we were approved for around $200,000. We were 20 years old and this seemed like a ton since we made hardly any money then. We were shocked and we looked at one house that was around this price range, but then we realized that this was a bad idea as we wanted to be more comfortable with our bills.
Also, something that our real estate agent told us, is to not show the seller how much you are pre-approved for. We showed our real estate agent our real pre-approval amount of course, and our agent said that when this happens, it can not be good. She said that if some sellers can see what we can actually “afford,” that they know how flexible that you can be with your pricing and negotiating. You can get your mortgage lender to lower the amount on the piece of paper and this is what we did. We asked our lender to say that our pre-approved amount was $150,000 (everyone, please keep in mind that I live in the Midwest and housing is cheaper here).
3. Buy a house that’s a good size for you.
Also think about the future you are planning when you think about the size of the house you might buy. Remember my post on how we Bought Too Much House? Keep that in mind! While before our house seemed way too big for us, we now want something bigger. Eventually of course we would want kids, but it’s mainly that we want a bigger yard.
Do you plan on living in this house for awhile, or just a short amount of time such as 5 years? Do you want a house and neighborhood/city that is good for kids to grow up in? There are many questions to ask yourself.
4. Get a realtor!
This is something that I definitely recommend. Our realtor saved us a lot of money and was a great negotiator. We got the seller to pay all closing costs (which were around $5,000). And she also got them to fix a lot of little things around the house. Realtors do a lot of work and are skilled in buying/selling houses. They know where to begin, what to look for and have tons of tips.
5. Make sure you look around and don’t settle.
The market is great right now for people who are looking. There are a lot of houses out there and most have a great price (all of course depending on your city! Some cities are in a housing bubble). You will be living in this house most likely for a long amount of time, so you don’t want to regret your decision.
6. Hire an inspector.
This is something that is definitely needed as well. An inspector will be able to find things that might sway you from NOT buying the house. If you’re buying a house, then you can most likely shell out another $300 for an inspection. It is a good investment.
7. Figure out the WHOLE cost.
Not just want the mortgage would be. Figure out if there will be any PMI, what the homeowners insurance will be, and property taxes. This all can add up quickly, and it added around $300 to our mortgage.
8. Save!
Now that you know you want a house, try and save as much as you can before you move into your new home. Your new costs will most likely be higher than what you think, and any extra savings will be extremely helpful.