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Apache is functioning normally

May 29, 2023 by Brett Tams

When it comes to retirement planning, the term “pension” is becoming almost archaic. According to the Office of National Statistics (ONS) only 35% of workers in the private sector paid into a company pension fund last year. Most employers have adopted 401k plans and put the responsibility on the employee’s shoulders to take care of funding their own retirement. While having control can be a blessing, it can also be a double-edged sword. Especially, for those that don’t take the time to fully understand all of their investment options. For those people, there just might be a solution. It’s called the DB(k) pension plan and here are the rules on how it works.

401(k) Match + Pension Plan = DB(k)

What exactly is a DB(k) pension plan? Essentially, it combines the benefits of an income stream of a pension with the matching of a 401(k) plan. Many boomers that still have pensions, love them because they know they have an income stream that they can depend on. The DB(k) offers the luxury of that stable income with a matching contribution to boot. Might be the closest example of having your cake and eating it too when it comes to retirement planning.

DB(k)s Could Be Popular to Employees

Many small businesses will bypass a Simple IRA or a SEP IRA and go straight to the 401(k) plan purely because of name recognition. Employees like perks and a potential employer with a 401(k) plan with a match sounds much more attractive that a SEP IRA. The DB(k) has the potential to be the next household name of retirement plans. Most workers that I come across that have 401(k)’s don’t really understand them. Having a pension-style income like the one Mom and Dad had, may be a safer and less complicated solution.

Are DB(k) Plans Expensive for Employers?

It’s tough to say. With the recent adoption of these plans, it doesn’t seem that employers are rushing off to get these started. I’m sure the slumping economy is the largest barrier. For those companies that do start these, they most likely have a very good cash reserve. However, it isn’t as if a business is funding two retirement plans at once. In fact, any businesses that offer both defined benefit plans and 401(k) plans may unite them in this new option.

Less Paperwork Makes Everybody a Happy Camper

Companies with 2-500 employees are eligible to have DB(k)s pension plans. Where 401(k) plans must meet certain “testing requirements” for top-heavy rules, the DB(k) is exempt and with a plan document and one simple form 5500, your business is ready to rock and roll DB(k) style.

These plans are exempt from “top-heavy” rules, and a company can put one in place with just one Form 5500 and one plan document. The cost of the overall plan is the question. Being new plans, it’s hard to say, but based on most reports I’ve read the cost should be cheaper compared to having both a 401(k) and a pension plan.

Employee Benefits from DB(k) Plans

An income stream, an employer match and a really neat tool to save for retirement. In brief, the DB(k) has four compelling attributes:

Monthly Paycheck for Life. The income stream won’t replace an employee’s end salary, but it certainly will help. Employees that have worked for the company for a longer period of time are rewarded: the pension income equals either

a) 1% of final average pay times the number of years of service, or

b) 20% of that worker’s average salary during his or her five consecutive highest-earning years.

Automatic Enrollment for 401k. That employees save for the future by default. (They can choose to opt out.)
The company automatically directs 4% of a worker’s salary into his or her 401(k) account. The company also has to match 50% of that amount, which is vested upon the match. (Employees do have the choice to alter the contribution level up or down from 4%.)
It only takes three years for an employee to become fully vested in a DB(k) pension plan. So even if they leave the company, the money is theirs.

Is the DB(k) the Retirement Savior?

For now, it’s too tough to say. The strongest benefits I see is the ability to offer more to your key employees. If you’re able to offer a sweet retirement package, it may help retain and gather more productive and easier to manage staff.

Source: goodfinancialcents.com

Apache is functioning normally

May 29, 2023 by Brett Tams

How This Couple Retired In Their 30s and Now Travel Around The World: An Interview With Go Curry Cracker

My monthly Extraordinary Lives series is something that I really enjoying doing. First up was JP Livingston, who retired with a net worth over $2,000,000 at the age of 28. Today’s interview is with Jeremy, Winnie, and Julian, also known as the family behind Go Curry Cracker.

With the goal of traveling around the world, Jeremy and Winnie were in their 30s when they retired around six years ago. Their 3-year-old son travels with them and has already been to 29 countries as well!

They were able to do this by saving intensively – over 70% of their after-tax income.

In this interview, you’ll learn:

How they retired in their 30s.
What made them want to retire early.
How they live comfortably, rent houses with private pools, fly business class, and travel a ton – as opposed to the myth that early retirees are boring and just eat beans and rice to survive.
How they decided on the amount they needed to retire.
What they do about health insurance in early retirement.

And more! This interview is jam packed full of great information!

I asked you, my readers, what questions I should ask them, so below are your questions (and some of mine) about their story and how they accomplished so much. Make sure you’re following me on Facebook so you have the opportunity to submit your own questions for the next interview.

Related content:

1. Tell me your story. When did you retire and HOW?!

We are Jeremy, Winnie, and Julian, also known as the family behind Go Curry Cracker!

Winnie and I retired about six years ago with the goal of traveling the world. Traveling more in retirement is a pretty common goal, so I suppose the interesting bits are that we were still in our 30s and our 3-year-old son has now been to 29 countries.

What made our location and financially independent lifestyle possible was a decade of intensive saving – we were literally saving 70%+ of our after-tax income. Instead of buying stuff or experiences, we were investing in our future freedom.

Alas, we had already succumbed to some lifestyle inflation so we sold the house and moved into a small apartment, sold the car and started walking and riding bicycles, and turned our home kitchen into the best restaurant in town.

Unwinding lifestyle inflation is a huge mental challenge, but we both grew up on the edge of poverty so we had some experience with prioritizing purchases and finding solutions that didn’t require money. Nowadays, our investments pay all of our bills, and we could buy a house, buy a car, live a typical life… we just happen to not want those things.

Instead, for the past many years, we’ve basically spent the summer in Europe, autumn in the US, and winter in Asia. It’s not quite a perpetual summer vacation, but close.

2. Was early retirement always something you were striving for? What made you want to retire early?

Prior to 2002, we were both essentially following the normal life script – go to school, get good grades, get a job, etc… Maybe the only unconventional thing is I had student loan payoff as the #1 priority. Every story I heard about debt while growing up had a tragic ending, so I wanted to be debt free ASAP. I even cashed out all of my vacation time for five years or so to get extra pay. We also did crazy things like using 0% interest credit card offers to accelerate student loan payoff. Literally every extra penny went to the student loans.

When I finally got my head above water, I took a vacation, my first as an adult. After three weeks of scuba diving, fresh seafood, and tropical drinks, I looked back at where life in the real world was headed and thought, “This is it? This is the American Dream?”

Within six months the house and car were gone and the early retirement plan was underway.

3. Would you say that you live comfortably?

If by comfortably you mean do we rent houses with private pools, fly business class, and enjoy an occasional Michelin Star restaurant, then yeah, that sounds about right. Combined with 52 weeks of vacation per year and full autonomy, we are probably at an above average comfort level.

That may sound a little smug, for which I apologize, but I think it is important to truly understand the power of deferred consumption. We can only live as we do today because we didn’t live like this yesterday.

By living well beneath our means for just a small part of our total lifetimes (10 years +/-), something many would consider “uncomfortable”, we are now able to live well above the standards of even high-income households – just without the need to consume all of our waking hours with a high-income job.

In summary – yeah, life is good.

4. What career did you have before you retired? Did that career help you to retire earlier?

Winnie was a Program Manager for a large PC company, and I was an Engineer at a large software company.

I do wish we had those insane technology salaries that I sometimes hear about in the news, but our average combined income over our hardcore saving years was only about $135k. I guess I should have studied harder.

I think more than the job, my degree helped us retire early. I basically applied engineering principles to our finances and our lifestyle, trying to optimize for quality of life and low expenses. I then used that same mentality in designing our investment portfolio (100% index funds) and minimizing our taxes ($100k income with $0 income tax.) If I had studied art history or interior design, I probably would have thought about these things from an entirely different perspective, perhaps one that required more expensive furnishings.

5. What advice do you have for the average person that doesn’t make six figures a year who wants to retire early?

The core principle to follow is living well beneath your means, aiming for at least 50% savings rates. Or in 1950s parlance, live off one income and save the other. This recipe for financial success has worked for much of recorded history.

Of course, this is easier when making $100k than it is when making $10k, all else being equal.

For many average income households, it helps to change perspective:
It isn’t that we can’t afford to save 50%, it is that we can’t afford our current lifestyle.

This is where we were when we got started, and some tough choices are ahead… it is necessary to either earn more, spend less, or wait (much) longer. Or all 3.

For households with incomes well below average, such as our families when we were growing up, it is absolutely necessary to grow income. Public assistance can help for a while (I’ve eaten a fair amount of government cheese), but ultimately skill development and probably even relocation to a job center are necessary.

6. Do you still earn an income in retirement?

We do. With all of this free time, it is fairly difficult to NOT do something that brings in some extra cash.

Last year Winnie published her first book (in Mandarin / Chinese) which was on the bestseller list in Taiwan for a while. About three years ago, Go Curry Cracker accidentally started to earn some affiliate income. I now actually try to run the site as a business, but limit myself to just a few hours per week.

I also employ a pretty aggressive long-term tax minimization strategy, which saves us thousands of dollars every year in taxes. I suppose that can also be thought of as extra income. We’ve actually reported about $100k annual income each of the last five years with income tax bills of $0.

For anybody who is interested, I do publish our full income statements and tax returns (business and personal) every year (linked to above). A lot of people have found those helpful to optimize their own finances.

7. How did you decide how much you needed to retire?

We set a target to have an investment portfolio worth 25x our desired cost of living in Seattle, where we were living at the time, although we were spending much less to turbocharge our savings.

25x is just the standard 4% Rule, which (in oversimplified terms) says you can annually spend an inflation adjusted 4% of your portfolio, probably forever. So, say if you wanted to spend $40k/year, you would need $1 million. That was our minimum.

When we hit that target, Winnie stopped working, and I continued on for about three more years, during which we were just living off dividends, so we were essentially investing 100% of my paycheck.

We also wanted the portfolio to continue to grow so we could leave a bit of a legacy, so even after we stopped working, we wanted to continue living beneath our means. We did this by living large in Mexico and Guatemala rather than Paris or Tokyo. And as luck would have it, the stock market performance over the past five years has been pretty good, so our portfolio just continues to grow, and we can’t spend it fast enough.

8. What sacrifices or hard decisions did you have to make?

This may sound cliché, but I don’t think of anything we did as a sacrifice – we just employed a suggestion my grandmother used to make all the time, “Hey there, you hold onto your britches now young man!” Roughly translated from the original Minnesotan, I think that means “slow down.” In other words, hold off on the lifestyle inflation for a while.

When people rush out to buy their dream house (with rented money) or a new car or a big vacation, they are sacrificing their future for immediate consumption. We just waited a little longer, and along the way we discovered that none of those trappings of success have any real meaning to us.

But of course, when society and advertisers are screaming at you that you need to consume and upgrade, it can be difficult to pause and reconsider. We avoided a lot of that by not owning a television and using the great outdoors for entertainment.

9. What do you do about health insurance in early retirement?

For many years, we were self-insured and just paid cash for any medical needs. We paid $3 for a doctor visit in Mexico, $20 for some dental care in Thailand, $50 for a chest X-ray in Taiwan, and $90 for a visit to the emergency room in Portugal. Medical tourism is your friend. What we weren’t spending on health insurance, we invested in more index funds, building our own healthcare fund.

If we were in the US, we would buy health insurance on the State or Federal Health Exchanges. The US health system is all kinds of messed up, so without insurance you are only one minor incident from total financial devastation.

As of about six months ago, we are now all covered by the Taiwan national health system, which is a single payer universal healthcare provider. We pay about $25/person/month for great coverage, which includes dental. (Hot tip: marry somebody from a country with a good health system.)

10. Will you be planning a place for your child to make long term friendships and connections? Do you plan to continue travel when your child is school age?

We like the idea of homeschooling up to age 10 or 12 or so, but we are still figuring it out. Even so, it probably won’t be all or nothing (Julian is enrolled part time in a Montessori pre-school now.)

The pros/cons of life-in-place vs nomadic living is such an interesting discussion for us, because we are inherently a global family (our nuclear families are spread across 2 countries, 3 States, and 6 cities) and despite our very different backgrounds, we independently concluded that the idea of “home” for us isn’t really a place.

Our thinking comes from our existing communities – Winnie grew up in a big city (Taipei), and she has friends from back in the 3rd grade who all have kids around the same age as Julian. When we are in Taiwan, we all get together and it is like they never missed a beat. It’s a beautiful thing.

I grew up in a small town in Minnesota, and 99% of my childhood / high-school friends and family moved away for college and career. There is literally no one place I can go where all long-term friendships and connections exist, and yet I have them, just spread around the world. It’s also a beautiful thing.

We try to get quality time with all of our family every year, which is much easier now that we don’t have jobs. 2 years ago, we had 4 generations together for a week on a lake, with Grandma, my parents, my sister and 2 brothers and spouses, and their 9 kids. This year we took my Mom and Grandma on an Alaska Cruise, and also spent a couple weeks with all of Julian’s cousins. Next year will be something special again, and we all stay in touch via Skype. We also plan on having more kids, which means sibling connections.

What we do will change and evolve as we learn more and figure things out, but overall, we’ll listen to our kids, make sure we have regular quality time with family, and stay connected with friends and family via Skype. And everywhere we go, we build community with friends, family, and other adventurers. I think it will be the same for the next generation.

11. What hardships come up when traveling with a child and what do you do about it?

The hardships of traveling with a child are largely the same as the hardships of parenting. Kids have needs and wants, and if they aren’t addressed in a timely fashion then chaos ensues. As with most things, an ounce of prevention is worth a pound of cure – and even then, things go awry.

Where most families have to balance child rearing with a career and fixed schedules, we have a great deal of flexibility. Seldom are we schedule driven, and when we are (e.g. a flight departure time) we avoid other commitments. We also aren’t doing the quick 1 week vacation thing, with a lot of time getting from A to B and a whirlwind of tours and activities; that’s much too intense and exhausting. We are more so living our normal lives, just in different locations. We play at the park daily, take naps, explore by foot, and enjoy the local delicacies. If we are having too much fun at the park, we can always see the museum tomorrow. Somehow, we usually manage to see the highlights.

Since we aren’t always in one location with a regular schedule, we focus on having routine in the absence of routine. We have regular toys, regular nap time, and a bedtime ritual which involves a bath, songs, and books. Plus we all co-sleep, so we are together 24/7. It’s hard to provide a stronger sense of security than parental presence.

It all seems to be going well; Julian is a happy, healthy, normal kid. He loves being outside exploring, enjoys meeting new people, and is always ready for the next plane, train, or automobile.

12. If you were starting back in the beginning, what would you do differently from the beginning?

We made a lot of mistakes… buying a house, buying a car, spending money without a long-term plan, but I don’t know if I would change any of them. Those mistakes helped us grow and appreciate where we are today. For example, we are Renters for Life, but we probably wouldn’t really appreciate the total joy and financial advantages that come with not owning a deteriorating wooden box.

If I could go back in time and tell my younger self, “Hey, read this Go Curry Cracker blog, you’ll learn a lot!” we could probably have become Financially Independent 3 to 5 years earlier. That’s a lot, considering my entire career was only 16 years, but it’s not that that much in an 80 – 100 year life span.

But, what I would do differently:

invest only in index funds from the beginning
not waste my time dabbling in rental properties
always live within biking distance of work and prioritize biking and walking
always rent
learn to cook well sooner
start travel hacking sooner instead of paying for vacations

13. Lastly, what is your very best tip (or two) that you have for someone who wants to reach the same success as you?

Design your life so that saving a high percentage of income is the natural and ordinary outcome.

Aim for saving 50%+ of after-tax income, and minimize taxes

Do you have goals of retiring early?

Apache is functioning normally

May 29, 2023 by Brett Tams

Certificates of deposit (often simply called CDs), by definition are time deposits. You give your money to the bank and then promise not to touch it for a specific length of time. In general, the longer you agree to let the bank keep your money via a CD investment, the higher the interest rate you will receive.

If certificates of deposit offer higher returns than a savings account, then why doesn’t everybody use them? The primary reason is that a CD investment is less liquid than a savings account in that you can’t just move money in and out without penalty as you can in a savings account. You can take your money out of a CD before it “matures,” but you are docked interest when you do. In fact, it is typical for a bank to penalize the interest amount even if it hasn’t been earned (meaning you could lose part of your principal if you close your CD early).

Anatomy of a CD

I was fortunate to win a $1,000 6-month certificate of deposit from ING Direct recently. (I never win anything!) Looking at it might be instructive:

Reviewing this screenshot, you can see that a certificate of deposit has an initial value (in this case, $1,000), an interest rate (3.50%), and a term (6 months). In other words, this is very much like a loan that I am making to the bank.

You can also see that the bank has an “Early Redemption Policy” that states that I would sacrifice three months’ interest if I chose to redeem this CD early, whether the interest has been earned or not. Because I have held the CD less than a month, I would actually sacrifice part of my principal if I were to close the account now.

When this CD investment matures on April 9th, I will have $1,017.28. Obviously $17.28 isn’t a huge return, but it’s important to remember that interest rates are low right now. (Also consider that if my $10,000 emergency fund were all in CDs, I would earn $172.80 in six months.)

Another important difference to be aware of is that, unlike a savings account, a certificate of deposit ends after a set amount of time. What happens at the end of the term depends on the arrangements you have (or have not) made with your bank. (I explain this further below.)

CD Tips and Tricks

A certificate of deposit is a great way to put your savings on steroids, so to speak, but there are ways to make them even better. Here are a few tips and tricks that can help you get the most out of your investment.

Use CDs to beat falling interest rates. When the Federal Reserve cuts short-term interest rates, you feel the pinch in your savings account. Certificates of deposit are a great way to buy yourself “protection.”

When you see a rate drop coming, open another CD. For example, the Federal Reserve just cut short-term rates another 0.50 percent last week. I would be shocked if banks didn’t follow suit, lowering the interest on their savings accounts. ING Direct could go as low as 2.25 percent.

When you see an interest drop coming, take some money from your savings account and throw it into a 6- or 12-month certificate of deposit, locking in the higher rate. (My web research hasn’t revealed what causes CD rates to move, but they do not move in lockstep with savings accounts.)

Climb the CD investment ladder. Just as you might use dollar-cost averaging to profit from fluctuations in the stock market, you can use a “CD ladder” to profit from fluctuations in interest rates.

Say you have $5,000 to invest. To build a CD ladder, you would invest the money in CDs with staggered maturation dates:

$1,000 in a one-year CD
$1,000 in a two-year CD
$1,000 in a three-year CD
$1,000 in a four-year CD
$1,000 in a five-year CD

As each CD matures, you immediately invest your money in a new five-year CD, effectively maintaining the one-year stagger, or ladder. You won’t earn the best possible rate of return, but you will earn a good one, and your income will be relatively constant. The CD ladder is also a form of diversification: you’re not betting all your money on one interest rate.

Protect yourself with parallel CDs. One of the biggest risks to your investment in a certificate of deposit is the need for early withdrawal. What if something happens and you need to pull the money out? As we’ve seen, this can be expensive. Nickel at Five Cent Nickel suggests mitigating your risk with parallel certificates of deposit.

Again, assume have $5,000 that you’d like to put into CDs. Instead of opening a single certificate of deposit for the full amount, consider opening multiple CDs. You might open three CDs at once, for example: two $1,000 CDs and one $3,000 CD.

This gives you a buffer in case you need to get at the money early. If you find you need $500, you can break a single $1,000 CD and the rest of your money is safe from penalty.

Related >> Beginners’ Guide to Investing

Beware of auto-renewals. Nicole wrote last week because she was surprised to find that her certificate of deposit at Countrywide had automatically renewed at the maturation date. Many (most?) banks will do this unless you instruct them not to.

If you know you’re ready to pull your money out of a certificate of deposit, be sure to contact your bank to find out the proper procedure for doing so. Nicole found herself locked into another twelve month CD when she needed the money now. If she broke the contract, she would be forced to sacrifice 180 days interest, whether earned or not.

(Note that Nicole’s story had a semi-happy resolution. She knows to speak up when something seems wrong. Countrywide wouldn’t let her out of the CD investment entirely, but “I was able to negotiate a compromise to transfer the money to a 3-month CD, rather than the 12 month CD. Although the interest rate is lower, I will be out in 3 months, which isn’t too bad.”)

Shop around. As with any financial decision, it pays to shop around for CD rates. You may find that your local bank actually offers a better deal on certificates of deposit than the online banks.

For example, my local credit union only offers 0.35% on its regular savings account, but its CD rates are competitive with (and sometimes higher than) ING Direct. Since I keep my checking account at the credit union, it might make sense for me to hold my CDs there. (In this case, however, they’re not high enough to make me switch; I’d rather track everything in one place at ING.)

Here’s my list of current CD rates from online banks.

CDs in Practice

I’m new to the certificate of deposit, but I can already see some uses for it. My $10,000 emergency fund, for example, is currently earning 2.75%. I may instead create a series of parallel CDs, as described above.

Also, I’m saving for my Mini Cooper. That money is also earning 2.75%. I’m nowhere close to buying the car, though, so I might as well put it into a certificate of deposit, too.

Though certificates of deposit are new to me, I’m sure that most of you have been using them for years. What tips and tricks can you offer? Do you have favorite sources for CD investments? How do you decide which money to keep there and which to keep in a savings account?

Identifying the Best CD Rates

It is important to think through how best to use a certificate of deposit in your overall financial plan, but it starts with understanding your goals and how a CD can help you reach them. Interest rates change constantly, so having up-to-date rate information is critical to identifying the best CD rates and terms to make the most of your investment. We have made the whole process easier in a convenient page that is updated weekly with the most current interest rates.

Different strategies can help you capitalize on fluctuating interest rates too.
A CD ladder can help you maintain a relatively constant income no matter how current CD rates change. A parallel CD strategy can help you maintain some accessibility to your funds during the term. Richard Barrington’s post can help you understand how to find the right CD but do shop for the highest CD rates and terms regularly to maximize your return. Bookmark this page as well so you can easily come back to our table to check rates and terms as often as you want.

Current Certificate of Deposit Rates

An online account is arguably one of the most convenient ways to manage CDs and, generally speaking, online banks offer higher rates than traditional brick-and-mortar institutions. The following listings of online banks are updated weekly too, and a little more information about each bank is given next to each listing as well. Credit unions and savings associations are also sources of CDs and other deposit accounts.

CD Basics

A certificate of deposit, or CD, is a deposit account that is generally considered a very low-risk investment. You might also hear it described as a time deposit because it is not a liquid asset that can be accessed on demand. Instead, the amounts deposited into a CD are expected to remain untouched for a specific period of time, which is the term of the CD. In exchange, the bank will pay you a fixed rate of interest.
Example investment: You put $10,000 in a 5-year certificate of deposit at an interest rate of 1.75%. At the end of five years, with interest compounded daily, you would have $10,914.

Early withdrawal penalty – The full value of the CD (your principal plus the interest earned) is accessible when the term has been reached; however, there is usually a penalty if you withdraw your funds before the end of the term. This means that the bank will keep a portion of the interest earned, which could also cut into the original principal balance if the CD has not accrued enough interest to satisfy the entire penalty yet.

For example, if a depositor wishes to close a one-year CD account after two months but the bank’s policy states that an early withdrawal penalty equal to three months’ interest would be due in that event, then the bank will dip into the depositor’s principal balance to make up for the shortfall between the interest earned and the penalty. Early withdrawal penalties vary from bank to bank, and this is another important item to consider as you shop for the best CD rates and open your new account.

Fixed interest rates – Even though interest rates change regularly, banks usually offer a fixed interest rate that doesn’t fluctuate, allowing you to lock in that particular rate for the entire term of your CD. Banks are willing to fix the interest rate, which is generally higher for certificates of deposit than for most savings accounts, because the funds remain on deposit with the bank untouched for that specific period of time. (In general, the longer the term, the higher the interest rate for a CD.)

FDIC insurance – The Federal Deposit Insurance Corporation insures most certificates of deposit so that the balance of your CD will be paid to you even if the banking institution becomes insolvent for some reason. The standard deposit insurance coverage limit is $250,000 per depositor, but it is important to verify the amount of FDIC insurance that applies to the particular CD accounts you open.

High Interest CDs that Can Double Your Interest Income

According to the FDIC, five-year CD rates (certificates of deposit or CDs) are currently averaging just 0.75 percent nationally. Fortunately though, not all CDs are created equally. Here are 10 CDs that offer at least double the interest income that today’s average account provides:

iGOBanking. Forget the awkward name and focus on the rate: Annual percentage yield (APY) is 0.35 percent on a five-year CD. iGOBanking is the online division of Flushing Bank. Though Flushing Bank is quite small, with deposits of less than $600 million according to FDIC data. The minimum deposit is just $1,000, so the iGOBanking CD is readily accessible. The penalty for early withdrawal is 12 months now. (Rate as of July 5, 2016.)
EverBank. EverBank has made a commitment to offering high interest rates by pledging to keep its CD rates in the top 5 percent of comparable products. With a 1.76 percent APY on its 5-year CD, it seems to be living up to that pledge. (Rate as of July 5, 2016.) EverBank’s 17 branches are all in Florida, but its products are available to a national audience online, and with more than $10 billion in deposits, they have built up a fairly substantial customer base. The minimum to open is a reasonable $1,500, but the only catch is a hefty penalty for early withdrawal — equal to 900 days of interest on its five-year CD.
Nationwide Bank. This online banking affiliate of the insurance giant offers a five-year CD with a 1.95 percent APY for balances between $0 and $9,999.99 and a minimum of $500 to open. That APY bumps up to 2.00 percent for deposits of $100,000 or more. These strong rates do require a long-term commitment, since the early withdrawal penalty is 360 days of interest. (Rates as of July 5, 2016.)
Barclays Bank. Barclays is an international banking powerhouse, and it offers a very competitive five-year CD with a 2.65 percent APY. This rate applies to its online CD, which has the added advantages of having no minimum balance requirement and the penalty for early withdrawals is 180 days. (Rate as of 05 March 2018.)
GS Bank. GS Bank’s five-year CD has a 2.00 percent APY and a user-friendly $500 minimum deposit to open. There is a 270-day early withdrawal penalty, so make sure you are committed for at least a couple years if you choose this product. (Rate as of July 5, 2016.)
BBVA Compass. Though most of these highest-yielding CDs are found at online banks, BBVA Compass also offers a traditional, branch-based alternative with 716 locations. The account minimum is just $500, and the rates may reach as high as 2.00 percent APY for a four-year term, depending on which branch location you visit. Rate collected within: Birmingham, AL: 0.50%(Rate as of July 5, 2016.)
Ally Bank. One of the leaders in online banking, Ally has built itself up to more than $40 billion in deposits. The 1.65 percent APY on its five-year CD is well over twice the national average, but there is a 150-day early-withdrawal penalty. Still this CD is an excellent choice even if you think that rates might rise within the next five years. (Rate as of July 5, 2016.)
Sallie Mae. Sallie Mae is probably better known for student loans, but it also offers online deposit products, including a five-year CD with a 1.80 percent APY and a $2,500 minimum deposit. The early withdrawal penalty is equal to 180 days of interest. (Rate as of July 5, 2016.)
Discover Bank. Though the Discover name is more commonly linked to credit cards, Discover Bank also has more than $40 billion in deposits. Its five-year CD rate offers an APY of 1.85 percent with a $2,500 minimum deposit to open and an early withdrawal penalty equal to what can be up to 18 months of interest. (Rate as of July 5, 2016.)

The above are not necessarily the 10 highest-yielding five-year CDs in the country. They were chosen because their rates are at least twice the national average, they are available in multiple states and they have relatively user-friendly websites. You may find additional options in your area, but the points discussed above can still provide you with some framework for what criteria to consider — including rates, minimums and penalties — when choosing a CD.

Have you been able to find CD rates that rival these? If so, please add a comment below. Don’t forget to include the details: name of the bank, state, rate, when you opened the account with this rate, and whether you can open the account online or must appear in person.

Source: getrichslowly.org

Apache is functioning normally

May 29, 2023 by Brett Tams

Today we’re going to talk about the “home equity loan,” which is quickly becoming all the rage with mortgage rates so much higher.

In short, many homeowners have first mortgages with fixed interest rates in the 2-3% range.

Now that a typical 30-year fixed is closer to 6%, these homeowners don’t want to refinance and lose that rate in the process.

But if they still want to access their valuable (and plentiful) home equity, they can do so via a second mortgage.

Two popular options are the home equity line of credit (HELOC) and the home equity loan, the latter of which features a fixed interest rate and the ability to pull out a lump sum of cash from your home.

What Is a Home Equity Loan?

A home equity loan allows you to borrow against the value of your property to access needed cash.

That cash can then be used to pay for things such as home improvements, to pay off other higher-interest loans, fund a down payment for another home purchase, pay for college tuition, and more.

Ultimately, you can use the proceeds for anything you wish. The home equity loan simply allows you to tap into your accrued home equity without selling the underlying property.

Of course, like a first mortgage, you must pay back the loan via monthly payments until it is paid in full, refinanced, or the property sold.

Similarly, you can obtain a home equity loan from a bank, credit union, or direct mortgage lender.

The application process is comparable, in that you must provide income, employment, and asset documentation, but it’s typically faster and less paperwork intensive.

Additionally, your credit report will be pulled to determine your credit scores and overall creditworthiness.

Home Equity Loan Example

Property Value $650,000	First Mortgage	Home Equity Loan	Cash Out Refinance
Interest Rate	3.25%	6.75%	5.75%
Loan Amount	$450,000	$70,000	$520,000
Monthly Payment	$1,958.43	$532.25	$3,034.58
Total Cost		$2,490.68	$3,034.58

Home equity loans are typically second mortgages, taken out by an existing homeowner who already has a first mortgage.

This allows the borrower to access additional funds while maintaining the favorable terms of their first mortgage (and continue to pay it off on schedule).

Imagine a homeowner owns a property valued at $650,000 and has an existing home loan with an outstanding balance of $450,000. Their interest rate is 3.25% on a 30-year fixed.

Obviously they don’t want to lose that low, low rate, so they turn to a home equity product instead.

They would have $200,000 in home equity, though not all of it is necessarily available to tap into.

Most home equity loan lenders will limit how much you can borrow to 80% or 90% of your home’s value.

That means a maximum loan amount of $135,000 if maxed out at 90%.

But we’ll pretend you take out just $70,000, or 80% of your property’s appraised value.

Assuming the loan term is 20 years and the interest rate is 6.75%, you’d have a monthly payment of $532.25.

The loan would amortize like a traditional mortgage, with equal monthly payments until maturity.

Each payment would consist of a principal and interest amount, which would change as the loan was paid off.

You would make this payment each month alongside your first mortgage payment, but would now have an additional $70,000 in your bank account.

When we add the first mortgage payment of $1,958.43 we get a total monthly of $2,490.68, well below a potential cash out refinance monthly of $3,034.58.

Because the existing first mortgage has such a low rate, it makes sense to open a second mortgage with a slightly higher rate.

Do Home Equity Loans Have Fixed Rates?

A true home equity loan should feature a fixed interest rate. In other words, the rate shouldn’t change for the entire loan term.

This differs from a HELOC, which features a variable interest rate that changes whenever the prime rate moves up or down.

To that end, a home equity loan provides safety and stability, similar to a 30-year fixed mortgage.

However, home equity loans have higher interest rates to compensate for that lack of an adjustment.

Simply put, HELOC interest rates will be lower than comparable home equity loan interest rates because they may adjust higher.

You effectively pay a premium for a locked-in interest rate on a home equity loan. How much higher depends on the lender in question and your individual loan attributes.

Home Equity Loan Rates

Similar to mortgage rates, home equity loan rates can and will vary by lender. So it’s imperative to shop around as you would a first mortgage.

Additionally, rates will be strongly dictated by the attributes of your loan. For example, a higher combined loan-to-value (CLTV) coupled with a lower credit score will equate to a higher rate.

Conversely, a borrower with excellent credit (760+ FICO) who only borrows up to 80% or less of their home’s value may qualify for a much lower rate.

Also keep in mind that interest rates will be higher on second homes and investment properties. And maximum CLTVs will likely be lower as well.

All that being said, at the moment home equity loan rates may range from as low as 5% to as high as 12% or more.

As a rule of thumb, you should expect a rate 1-2%+ higher than a comparable 30-year fixed given the increased risk of a second mortgage.

But this spread can shrink or widen depending on market conditions.

Do Home Equity Loans Require a Down Payment?

Now let’s discuss some home equity loan requirements.

While no down payment is required on a home equity loan, since you already own the property, a required amount of home equity is necessary to get approved.

After all, the home equity loan relies upon your property as collateral, and if you don’t have any equity, there’s nothing to lend against.

In other words, you need to have a certain percentage of home equity available to get a home equity loan.

Typically, this is at least 20% of your property’s appraised value to allow for an additional loan against the property.

For example, if you own a home valued at $500,000, you’ll want to have at least $100,000 available.

This would mean an existing first mortgage with a balance of $400,000 or less to allow for more borrowing capacity.

Assuming the home equity loan only allowed for a CLTV of 80%, you’d need even more equity.

For example, a $350,000 existing first mortgage that would allow you to borrow an additional $50,000 via the home equity loan.

Do Home Equity Loans Require an Appraisal?

While it will depend on the company, an appraisal isn’t always required for a home equity loan.

The same is even true of first mortgages these days thanks to advancements in technology.

This may save you some money and make the home equity loan process significantly faster.

However, the bank or lender will still need to determine the value of the property to ensure it is a sound lending decision.

Whether you pay for an appraisal, or are paid a visit by a human appraiser, are entirely different questions.

Either way, understand that the company offering the home equity loan will base the loan amount and APR on some kind of appraised value.

This allows them to determine a LTV or CLTV for which to base pricing adjustments, interest rates, maximum loan amount, and so on.

Do Home Equity Loans Have Closing Costs?

As with the appraisal question, it may depend on the company offering the home equity loan.

Some charge origination fees and other closing costs, while others do not charge any fees.

For example, Discover Home Loans says it doesn’t charge appraisal fees or origination fees.

However, it’s important to look at the big picture, aka the interest rate, to determine what the best deal is.

Similar to a first mortgage, closing costs may not be charged, but the interest rate could be higher as a result.

You would then need to weigh the upfront cost versus monthly interest expense to determine what’s the better deal.

Also note that some lenders may ask that you reimburse them for any waived closing costs if you pay off your home equity loan within 36 months.

This is sort of like a prepayment penalty, though there may be a cap and certain states are exempt.

Just something to keep in mind if you pay off your loan ahead of schedule.

Some home equity loans may have a nominal annual fee, such as $50 per year. And if your loan amount is quite large, title insurance could even be required.

Minimum Credit Score for a Home Equity Loan

Chances are you’ll need at least a 620 FICO score to get approved for a home equity loan these days.

Some lenders may even require a higher credit score, such as a 660 FICO score, in order to get approved.

Also note that your borrowing capacity may be limited by your credit score.

For example, if you have a 620 FICO score, you might only be able to borrow up to 80% of your home’s value.

Meanwhile, a borrower with a 660 FICO might have access to up to 90% of their home’s value.

Additionally, the interest rate will also be dictated by your credit score.

Like a first mortgage, the higher your score, the lower the interest rate. And vice versa.

Do Home Equity Loans Affect Your Credit?

Yes, like a first mortgage, the home equity loan will appear on your credit report.

This includes when the loan was taken out, the outstanding loan balance, and the monthly payment.

Your payment history on the loan will also be tracked over time, which can help or hurt you.

Obviously, if you miss a payment (generally by more than 30 days) it can negatively impact your credit score.

Because it’s a home loan, the impact can be quite severe.

Conversely, if you exhibit a lengthy history of on-time payments, it can bolster your credit scores over time.

How to Get a Home Equity Loan

Similar to a mortgage, many banks and independent mortgage lenders offer home equity loans.

However, they aren’t as readily available as first mortgages, so you’ll need to dig a little deeper.

Simply put, just about all mortgage companies offer 30-year fixed mortgages, but only a handful offer home equity loans.

Chase and Wells Fargo, two of the biggest mortgage lenders out there, don’t offer them at the moment.

That could change as they become more popular, but chances are they’ll be a bit harder to come by.

Additionally, because the terms of home equity loans can vary quite a bit, it’s important to speak to several different companies during your search.

For example, some lenders may only offer home equity loans with loan terms as long as 20 years, or with a minimum credit score of 660. Or their loan amounts might be too small for your needs.

The Rocket Mortgage home equity loan recently launched, but requires a median qualifying FICO score of 680 or higher.

Others come with unique options. The PNC home equity loan allows borrowers to switch between a fixed and variable rate. In that sense, it works as a home equity loan and a HELOC in one loan.

Because this type of product can be a lot more diverse than a standard 30-year fixed, shopping around is probably a good idea.

Rates can also range quite a bit from lender to lender, so put in the time to speak with a local credit union, bank, online lenders, and even mortgage brokers.

Home Equity Loan Advantages

Fixed interest rate
Flexible loan terms (5 – 20 years)
Can borrow large amounts
Little or no closing costs
Fast approvals and fundings
Potential tax write-off
Doesn’t disrupt your first mortgage (e.g. a low rate)

Home Equity Loan Disadvantages

Entire loan amount must be borrowed upfront
You pay interest on the full lump sum
No additional draws permitted
Interest rates higher than HELOCs and first mortgages
Have to manage multiple loans
May have annual fee
Potential early closure fees

Are Home Equity Loans a Good Idea?

As seen in my example above, a home equity loan could be a great idea versus a cash out refinance.

But that assumes you need additional cash and your existing first mortgage features a super low interest rate that is fixed.

This might not always be the case, and it will also depend on the rate you receive on the home equity loan.

Additionally, there might be other options to consider instead of a HEL, such as a HELOC or even a 0% APR credit card.

In the past, I’ve made the argument that a credit card could be used to pay for home renovations.

At the end of the day, a home equity loan is still a loan, and likely an additional loan taken out on top of whatever you’re already paying.

So you need to consider if you really need more cash and if tapping your home equity is the way to go.

Read more: Cash Out vs. HELOC vs. Home Equity Loan

Source: thetruthaboutmortgage.com

Apache is functioning normally

May 29, 2023 by Brett Tams

Incenter Diligence Solutions, a provider of due diligence and document management services for the mortgage industry, announced on Wednesday that it has expanded offerings for the mortgage servicing rights (MSR) trading market.

These new offerings complement the trading services provided by Incenter Mortgage Advisors, which is another member of the Incenter LLC family of companies focused on improving mortgage operations.

“In an active trading market, participants must be able to quickly identify and manage their short-term and long-term risks so that they can transfer assets with agility and seize new revenue opportunities,” said Pamela Hamrick, president of Incenter Diligence Solutions. “Incenter Diligence is streamlining obstacle-ridden diligence processes without making them cookie-cutter. We are customizing each engagement to address the unique goals, strategies, and best-execution practices of every client.”

Incenter Diligence’s due diligence team creates a tailored review scope for each buyer or seller based on factors such as seasoning, geography, performance, and other key portfolio attributes. The firm also offers individualized reporting and document delivery services.

These services encompass various MSR-related tasks, including acquisition reviews, data to document validation, compliance reviews, document inventory, trailing document reconciliation, servicing boarding audits, and pay history reviews.

In situations where loan servicing institutions are selling the servicing rights to thousands of loans at once, it becomes crucial to identify any potential issues that could affect the long-term collectability of these assets. Incenter Diligence addresses this need through its document management solutions, which involve scanning and automated data extraction using advanced technology.

This process allows for the rapid ingestion of all loan files, scraping critical data from the documents, and identifying discrepancies and omissions.

“Buyers and sellers need a diligence firm that can customize reporting in a timely manner. Sellers also benefit from a system for maintaining data consistency to ensure that they have all the elements regulators require—for CCAR purposes, for example. Our clients consider Incenter Diligence an invaluable partner in both these areas,” Tom Piercy, managing director of Incenter Mortgage Advisors, said.

Additionally, Incenter Diligence aims to enhance sellers’ visibility into their assets by transforming “information blobs” that contain hundreds of pages of variously formatted loan documents into one clearly indexed, easy-to-search resource in a single format.

Incenter Diligence Solutions provides due diligence and document management services for the mortgage industry, enabling originators and investors to streamline operations, reduce risks, and capitalize on growth opportunities with speed and agility. The firm specializes in supporting the MSR trading ecosystem and tailors its review scope and document delivery services to clients’ unique requirements.

This content was generated using AI, and was edited and fact-checked by HousingWire’s editors.

Source: housingwire.com

Apache is functioning normally

May 29, 2023 by Brett Tams

How Amanda Paid Off $133,763 In Debt in 43 months #debtpayoff #payoffdebt

My monthly Extraordinary Lives series has been a lot of fun, and I’m back with another inspiring interview. First up was JP Livingston, who retired with a net worth over $2,000,000 at the age of 28. Today’s interview is with Amanda, who is now living debt free after paying off $133,000 in three years and seven months.

I’ve been following Amanda – @debtfreeinsunnyca – on Instagram for quite some time, and I’m so happy that I was finally able to interview her!

In this interview, you’ll learn:

How Amanda got into debt.
Why she decided to get out of debt fast.
The expenses she cut so that she could pay off her debt quickly.
What she thinks about the cash envelope method.
The sacrifices she made to reach her goal.
What she did to stay motivated.

And more! This interview is packed full of valuable information!

I asked you, my readers, what questions I should ask her, so below are your questions (and some of mine) about Amanda’s story and how she has accomplished so much. Make sure you’re following me on Facebook so you have the opportunity to submit your own questions for the next interview.

Related content:

Tell me your story.

Hey Michelle! Thank you for the opportunity. Here is my story.

I was 22 years old and working as a massage therapist on a cruise ship when I was diagnosed with carpal tunnel and cubital (elbow) tunnel. The career that I had trained for was no longer an option. I had to start over and pick a new career. Tired of working commission jobs where your paycheck depends on how good of a salesperson you are, I sought out an in demand, well-paying career in cyber security.

Like any normal person would do, I took out student loans to cover my tuition. I didn’t pay any attention to how much I was borrowing or the interest rate. I figured I would be making the big bucks when I graduated and could afford the payments. To make that happen, I worked hard to get into my field and landed an internship during my first year in school. By the time I graduated, I had already been in the IT field for several years.

So, was I making the big bucks now? Nope, not even close. There was no big, fat pay raise when I graduated. Reality slapped me hard in the face when I realized I wasn’t going to be able to afford my student loan and car payments with my small salary in California.

I knew I had to do something to clean up my mess. Years before I had tried to get out of debt by following Dave Ramsey’s plan, but reverted to my old ways after going through some personal things. Wanting to give it another try, I enrolled in Financial Peace University. I also went back to school for my master’s degree. This allowed me to defer my loans while cleaning up my mess. The best part was the company I now worked for reimbursed tuition for degrees that are related to your field.

My debt was over $80,000 and consisted of student loans, a car, and a small credit card. Once I committed to doing a zero-based budget, I started to see some great progress. I was sharing all my progress with my then boyfriend, now husband. I tried to get him on board, but he wasn’t interested at the time. After a few months of hitting it hard, I started to get mad that my balance wasn’t going down as fast as I wanted it to. It was going to take me forever to get out of debt!

That’s when I had my second “I’ve had it” moment where I was now ready to take action. The Prius I was upside down on had to go. It was a drastic, but necessary move. I quickly saved up $5,000 for a used Honda Civic and sold my car. With one transaction I got rid of $17,000 worth of debt. It felt like I was getting somewhere now! Because of my past, dumb mistakes, I had to take out a $7,000 loan to cover the difference I was upside down on. Owing $7,000 is WAY better than owing $24,000. I consider this to be the best financial decision I’ve ever made. It catapulted my debt snowball and provided the motivation I needed to continue.

After seeing my progress and going through FPU, Josh got on board and started paying off his debt. He cash flowed my engagement ring and proposed several months later! We paused our debt free journey and cash flowed $14,000 in six months for our wedding and honeymoon.

With the wedding behind us, it was time to get to business. Together we had a total $133,763 in debt. Josh added a truck and multiple credit cards to the pile of debt. We combined our accounts, started doing a zero-based budget, and utilized cash envelopes to stay on track. We both worked to increase our income while keeping the same lifestyle. After three years and seven months of hard work, we became debt free on July 5th, 2018!

How much debt did you have and what was your debt from?

Our debt totaled $133,763 and consisted of 16 student loans, 8 credit cards, 2 vehicles, and 1 personal loan. Nearly half of our debt was my student loans from my associate’s and bachelor’s degrees.

Why did you want to get out of debt fast?

It’s an awful feeling not having enough money to pay your bills or having to tell your friends/family you can’t go out because you’re broke. I wanted to get out of debt fast so I could afford my bill and have money to do the things I enjoy.

My why evolved over time when Josh and I started talking about our future together. He almost bought a sailboat when he got out of the Army years ago. Josh ended up moving back to San Diego instead, and then we met. He shared his dream with me, and I was immediately on board. I had been obsessed with tiny house living, and having worked on cruise ships, I loved the water. Getting a sailboat and one day quitting our jobs to travel became our new why.

How long did it take you to pay off your debt and reach debt freedom?

We spent three years and seven months working on paying off all our debt. The first year I was on my own. We weren’t married yet, and it took some time to convince Josh to get on board. After getting engaged, we paused our debt payments for six months to cash flow our wedding. We finished up the remainder of our debt a year and a half after we were married.

How did you manage to get out of debt so fast?

Getting out of debt can be broken down into two areas: increasing your income and cutting your expenses. We did both during our journey.

Our income increased by $75,000 during our debt free journey. This was from raises, overtime, and on-call pay. How did we do this? I attribute a lot of my success to working while I was going to school. I landed a part-time internship when I was in my first year of school. It allowed me to work my way up the ladder faster and increase my income. While in my master’s program, I managed to get into the IT Security department at my company. It came with a significant pay increase and each yearly raise has been a generous amount.

Josh also works in IT. He doesn’t have a degree, but his eight years of experience in the Army and his drive more than make up for it. Josh manages critical applications and is one of the go-to people in the IT department. He’s on-call and often working overtime. His skills and work ethic have earned him well deserved pay increases over the years.

Cutting expenses also helped us reach debt freedom faster:

Housing

For most of our journey, we lived in a small 550 sq. ft house to keep rent low. This saved around $400 a month for the 2.5 years we lived there. That’s $12,000 saved!

Vacations

Other than a honeymoon, we didn’t go on a vacation during our whole debt free journey. We had a few small trips: graduation, a wedding, Christmas in Tennessee with my family, which my mom paid for because she wanted to see us while supporting our journey.

Instead of traveling, we found free things to do in San Diego. Going hiking with the dogs was one of our favorite things to do. We also hung out with friends at their house instead of going out. We would cook dinner and watch a movie or TV series.

Hobbies and fun

Josh has a lot of expensive hobbies that he put on hold during our debt free journey: spear fishing, fishing, tech stuff, etc. I didn’t have any hobbies since my life was consumed by work and school. We cut out restaurants, date nights, movies, and excessive clothing. If we wanted to go out to eat or buy booze, it would come out of our budgeted spending money. There were a lot of Netflix and chill nights! Our date nights consisted of grilling out in our yard and sitting by the fire pit. We did budget for date nights whenever we hit a big milestone.

Work perks

Josh and I work at the same company, which allowed us to carpool to save money. Additionally, our company has amazing benefits. Our health and dental insurance are extremely affordable, both of our cell phones are paid for because we’re on call, and we’re able to make up missed hours instead of taking PTO if we need to leave work for some reason.

Can you tell me about cash envelopes? How does it work and why do they help?

Cash envelopes are a budgeting method where you take out cash for specific categories instead of using your debit/credit card for purchases. Each payday we take out money for groceries, gas, spending money, and any sinking funds we’re saving for. For that two-week period, all groceries come out of the grocery envelope. Same with gas and spending money. Once it’s gone, it’s gone! There’s no money left in our accounts because it’s all been paid to debt, so you better spend the money wisely! We had our emergency fund in case anything happened, but spending too much on groceries is not an emergency.

This method really helps curb your spending because you feel it more when you use cash. It’s also easy to look in your wallet and see how much money you have for each category to stay on track. Josh is a spender and he’s had great success with cash envelopes. I had a wallet with several dividers made for him to make it easy.

A lot of people are scared to carry around cash. I think the benefits of using cash outweigh the risk of losing it or it being stolen. I suggest only carrying around the amount that you need and leaving the rest at home in a safe until you need it. If anything were to happen, you always have your emergency fund to fall back on.

What is your response to people that say, “You should invest that money instead of paying off the debt, you’ll earn more in the long run…” etc.?

Ahhh the age-old argument! My response is do what works best for YOU! Everyone’s situation and priorities are different.

When I started, I didn’t have a choice because I wasn’t going to be able to afford the minimum payments on my debt! As we got further into our journey, sure we could have invested, but paying off debt was more important to us. Becoming debt free is a sure thing and will force you to change your spending habits for the better. I never want to get in a bind and have to pull out investments early because of debt or bad spending habits.

What sacrifices did you have to make in order to become debt free?

The biggest sacrifice I made to become debt free was selling my beloved Prius for a 2005 Honda Civic. At first, I didn’t want to sell it. I was going to try and get out of debt while keeping the car. After eight months of paying down my car loan and not making a lot of progress, I realized I had to make some bigger sacrifices, otherwise I would fall back into my old spending habits and go further into debt. I still miss the ability to get into my car without taking the keys out of my purse and the convenience of Bluetooth! My used Honda is old and janky, but it’s paid off!

Often people paying off loads of debt feel they have to choose between “living life” and making payments. Were there any times during the journey that you chose to “splurge”?

There were a few times we splurged! We got sick and tired of living in a small house, so we moved into a bigger rental with office space and a yard for the dogs. Before moving we did a cost analysis on the expenses to determine if it was worth it to us to push back our debt free date by a few months or stick it out and continue living the same way.

Our new place was so empty when we moved in. Imagine going from 550 sq. ft to over 1,300! We didn’t even have a table. We spent a few weeks buying furniture and things that we needed for the house before getting back into the swing of things.

Another big splurge was a complete surprise to me! I had been eyeballing this nice Canon DSLR camera and planned on getting it as a debt free gift to myself. Right before I graduated with my master’s degree, my mom was in California on a travel nursing assignment. She knew we were on a strict budget and would say no to most things that cost money. My mom told me she won $150 gift card and wanted to use it to take us out to eat.

I agreed because who passes up free!? During dinner, I kept making comments about us going all out because we have to use up the gift card. Avocado eggrolls, pizza, and several beers later, Josh said he forgot his wallet out in the truck and went to grab it. He came in the door behind me and set a big present on my lap! I immediately knew it was the camera!

So, how did Josh get this big purchase by me? He’s a veteran and was in school at the time. Veterans get a housing allowance each month while in school per the Post-911 GI Bill. The money was deposited into his personal checking account, and then he moved it to our joint checking every month. He told me that the allowance was delayed that month because of paperwork! I completely bought it. Josh used the money to go in on my graduation gift with my mom.

And the gift card? There was no gift card! They knew the only way to get me to a restaurant during our debt free journey was to lie to me and say she had a gift card. The total with tip came out to just over $150.

What did you do to stay motivated?

It’s so important to find ways to stay motivated when you have years of work ahead of yourself. Because I had fallen off track once before, I knew I had to find better ways to stay motivated and focused.

Visuals were by far my favorite way to stay motivated. I had multiple charts, spreadsheets, and countdowns going at home and work. Every time we made a payment towards debt, I would get to color in charts, change Excel spreadsheets, and update the whiteboard at work. Having reminders where you’ll see them every day is extremely motivating.

I also sought to find other people on the same journey. Back in 2014, there weren’t a lot of people on Instagram sharing their progress and journey. I found a small group of people from searching #debtfree and #daveramsey, and started following them. The hashtags started to get polluted by people selling those skinny teas and weight loss wraps. I put out a call to the small community, and we decided to vote on our own hashtag. That’s how the #debtfreecommunity was born!

It’s so motivating to talk to people who are going through the same thing. In real life, none of my friends or coworkers were trying to get out of debt. Their eyes would gloss over when talking about budgets or paying off a debt. Every time I opened Instagram, I would immediately be motivated by another person’s journey or the lovely comments left on my posts.

If you were starting back at ground zero, what would you do differently?

There are so many things I would do differently! First off, instead of getting a $12,000 car when I was 16, I would save up a few thousand and buy a used, reliable car. That one decision would set my life on a much better path! I’d be able to save up money and pay for school upfront, which is my next point. I would spend more time figuring out what I want to do in life and researching schools. I’d make sure to pick a career that is not commission based and makes a great salary. I would start investing early in life, even if it was only $100 a month. I would continue to pay cash for purchases, save money, and invest.

What is your very best tip (or two) that you have for someone who wants to reach the same success as you?

Hands down the best tip I can give is to create a zero-based budget and stick to it. A budget doesn’t sound sexy or fun, but it gives you freedom to spend money on the things that matter to you. Budgeting doesn’t mean you have to cut out all your fun! Put it in the budget. The point is to know where your money is going and to spend it intentionally. Don’t resist the budget!

The second tip I can give is to find your people! It’s hard to stay motivated to pay off debt or save when all your friends are spending money left and right. Having a supportive group of people that get you is priceless.

What’s your next financial goal?

Our next financial goal is to save $25,000 for our 6-month emergency fund. We want to be prepared for anything that comes at us!

We keep $2,000 in a local savings account and the rest will be in a high interest savings account. Transferring money from our large emergency fund to our checking account takes a few days, which is great because it helps prevent us from dipping into it for non-emergencies.

The emergency fund will cover all of our expenses for six months with minimal cuts to the budget. It’s going to be a huge relief to have money set aside just in case. No more money fights when something unexpected happens!

Where can my readers go to learn more about you?

You can learn more about us by following along on Instagram.

Do you have any other questions for Amanda? Are you trying to pay off debt?

Apache is functioning normally

May 29, 2023 by Brett Tams

The average person probably wants to learn how to get rich.

The average person wants to learn how to get rich. If that's you, read more here so that you can learn how to become rich with no money, at any age, etc. Read this if you want to learn how to get rich quick and fast, make more money, learn new ideas, how to get rich young, my best tips, and more!

The average person wants to learn how to get rich. If that's you, read more here so that you can learn how to become rich with no money, at any age, etc. Read this if you want to learn how to get rich quick and fast, make more money, learn new ideas, how to get rich young, my best tips, and more! While many think figuring how to get rich may be impossible, I’m here to tell you that it isn’t. And no, you don’t need to win the lottery or become a professional athlete.

The meaning of wealth and being rich means something different to everyone. For some, it means having lots of money, for others it may mean having a positive net worth, and for others it may be to retire one day.

Whatever your definition of “rich” is, everyone has the potential to build and improve their financial situation.

If you want to be rich one day, then you’ll have to form good financial habits now, work hard, and reach outside of the norm.

Learning how to get rich won’t be easy – but what good things come easy anyways?

For many people, learning how to get rich may seem impossible and completely unattainable, but that’s simply not true.

Building wealth and learning how to get rich is about your mindset, and figuring out how to get rich now is better than waiting any longer.

Related posts about how to get rich:

Here’s how to get rich– for anyone and at any age.

Don’t wait until tomorrow to learn how to get rich.

Instead of thinking that you’re invincible and that you have all the time in the world to improve your finances, you should stop procrastinating and learn how to build your wealth now.

Many people push things off and/or spend their money carelessly because they think they can start tomorrow, start next month, and so on. However, for everyday that you push off improving your finances the further away and harder you’ll have to work towards your goal.

Stop wasting time and take control of your financial situation now.

Related tip: I recommend looking into Digit if you want to trick yourself into saving more money. Digit is a service that looks at your spending and transfers money to a savings account for you. Digit makes everything easy so that you can start saving money with very little effort.

Be better than average if you want to learn how to get rich.

If you want to build your wealth, whatever that might mean to you, then you’re going to have to go outside the norm, be better than the average, and do new things.

When learning how to get rich, you should always strive to do your best as sometimes “average” is not good enough for you to build wealth. Keep in mind that the average person is not the greatest with money, and many are wrecked with stress and hardship due to their unfortunate financial situation.

68% of people live paycheck to paycheck.
26% have no emergency savings.
The median amount saved for retirement is less than $60,000.
The average household has $7,283 in credit card debt.
The average student loan debt is $32,264.

To be better than average, you’ll have to work hard, learn how to manage your money better, and perhaps take some risks (such as starting a business or applying for your dream job) as well.

Give yourself great goals.

Those who set goals are much more likely to be successful than those who do not. Due to that, if you want to be rich, you’ll want to start setting goals for yourself.

Setting goals is important because without a goal, how do you know where you’re heading? Goals can keep you motivated and striving for your best.

When building your wealth, you should always make sure that any goal you set is SMART.

A SMART goal is:

Specific – What is your goal? Is it specific enough or is it too broad? What needs to be done for you to achieve your goal? Why do you want to reach your goal?
Measurable – How can you measure your progress? How will you know if you’re on track?
Attainable – Is this a goal that can be achieved?
Realistic/relevant – Can you achieve your goal? Is the goal worth it?
Time – What’s your time frame for reaching your goal?

To reach your financial goals and learn how to get rich, you’ll want to:

Write down your goals and objectives.
Create a plan to reach your life goals.
Break your goal apart into smaller goals.
Keep track of your goal setting progress and make changes (if needed).
Find small ways to stick to your goal.
Find ways to motivate yourself when setting goals.
Make reaching your goal a friendly competition.

Read further at The Best Way To Set Goals And Reach Success in 2017.

Create a realistic budget.

To learn how to get rich, you’ll want to create a budget. Yes, even the rich have budgets!

The average person has a lot of financial stress and may be dealing with student loans, credit card debt, a mortgage, car loans, and sometimes even other forms of debt.

However, not many people have a budget. In fact, more than 60% of households in the U.S. do not have a budget.

Budgets are great, because they keep you mindful of your income and expenses. With a monthly budget, you will know exactly how much you can spend in a category each month, how much you have to work with, what spending areas need to be evaluated, among other things.

Remember, even those with high incomes have a budget. The rich stay rich because they have learned how to manage their money better than the average person, which includes being aware of your spending and saving.

When creating your budget, be sure to include all of your income and expenses.

Here are some expenses you may want to include when creating a budget, but don’t forget any expenses you have that aren’t listed:

Home – House payment, rent, maintenance, utilities, insurance, property taxes, etc.
Car – Monthly car payment, gas, maintenance, insurance, license plate fees, and so on.
Television, cable, Netflix, Hulu, etc.
Cell phone.
Internet.
Food – Groceries, restaurant spending, snacks, etc.
Clothing.
Entertainment – Entertainment can include many things, such as going to the movies, going out for drinks, concert tickets, sports, and so on.
Charity – If you regularly donate to charity, then this should be an area you budget for.
Savings funds – This can be for your retirement fund, wedding, travel, etc.
Taxes – If you are self-employed, then taxes may consist of a large part of your budget.
Health insurance.
Miscellaneous – Pet expenses, fees, childcare, school, gifts, etc.

You can get a free budget printable by signing up below.

Realize that a good life can be affordable.

As you all know, I really dislike the myth that people who save money are boring. That’s not true at all.

I believe that you can balance living a good life along with saving a comfortable amount of money.

There are plenty of ways to live an awesome life while saving money. Yes, you can still see your friends, have fun with your loved ones, go on vacations, and more, all while staying on a realistic budget.

Here’s a list of some great early retirees who are leading great lives. I definitely recommend reading about them:

If you want to learn how to get rich, then learning how to be happy with yourself and figuring out affordable ways to enjoy life are key.

Related: How To Become Rich – It’s More Than Millions In The Bank

Pay off your debt if you want to learn how to get rich.

If you want to learn how to get rich, then you’ll most likely want to figure out how to eliminate any debt that is preventing you from reaching your financial goals. For the average person, this probably means any high interest debt, any debt that’s causing you stress, and so on.

Paying off your debt can lessen your stress levels, allow you to have more money to put towards something else (such as retirement), stop paying interest fees, and more.

The first step to eliminating debt is to realize why you have debt in the first place. I believe that if you don’t understand where your problem with debt stems from, then it would be hard to make a positive change.

Yes, it is great to just start attacking your debt, but you also don’t want to fall into the same cycle of going into debt over and over again.

After you realize why you are in debt (or why you keep going back into debt), the next step is to figure out how you will eliminate it. There are many different ways to attack your debt, and I prefer a mixture of everything.

To pay off your debt and learn how to get rich, you should:

Quit adding more debt to your life. You may want to cancel or freeze your credit card, think harder before your next purchase, and avoid spending temptations like the mall.
Be realistic with your income and spending. If you have debt, then you either have an income or spending problem. You may need to start earning more money and/or start spending less if you want to learn how to become wealthy.
Decrease your spending and expenses. Depending on how quickly you want to get rid of your debt, there are different things that you may want to cut out. You could cut out Starbucks (I know, I know), lower your restaurant spending, find a cheaper way to workout, sell your car for something cheaper/more affordable, cook from scratch, and so on.
Make more money. The extra money that you earn can be put towards your debt to help you pay it off more quickly.
Pay more than the minimum. If you have debt, you should always be paying more than the minimum so that you can lower the amount you are paying towards interest.
Put little amounts toward your debt. For example, whenever you get an extra $25 (such as by selling something), then you should just throw that extra money (that you won’t even miss!) towards your debt.

Related: How To Take A 10 Day Trip To Hawaii For $22.40 – Flights & Accommodations Included

Start investing as one of the ways to get rich.

One of the best ways to figure out how to get rich is to start investing. After all, you need to have your money work for you!

The sooner you start saving, the more it becomes a habit and the easier it becomes. By investing money now, you will learn good investing habits that will help you well into the future.

I always say that the first thing you need to do if you want to start investing is to just jump in. However, what if you don’t even know how to start investing?

If you are like many out there, you may not know how to start investing your money.

Investing your money can be a scary, stressful, and overwhelming topic to tackle. You want to invest so that you can:

Retire one day.
Prepare for unexpected events in the future.
Allow your money to grow over time.
Learn how to get rich.

Remember, time is on your side, and due to the powerful impact of compound interest it can change your life. This means the sooner you invest, the more you will earn.

Compound interest is when your interest is earning interest. This can turn the amount of money you have saved into a much larger amount years later.

This is important to note because $100 today will not be worth $100 in the future if you just let it sit under a mattress or in a checking account. However, if you invest, then you can actually turn your $100 into something more. When you invest, your money is working for you and hopefully earning you income.

For example: If you put $1,000 into a retirement account that has an annual 8% return, 40 years later that would turn into $21,724. If you started with that same $1,000 and put an extra $1,000 in it for the next 40 years at an annual 8% return, that would then turn into $301,505. If you started with $10,000 and put an extra $10,000 in it for the next 40 years at an annual 8% return, that would then turn into $3,015,055.

A great article that explains the power of compound interest is Mr. Money Mustache’s The Shockingly Simple Math Behind Early Retirement.

Here are the easy steps to take so that you can start investing your money:

Start saving your money. In order to invest your money, you need to start setting aside money specifically for it. The amount of money you save for investing is entirely up to you, but in general, the more the better.
Do your research. Before you start dumping your money into the stock market and other investments, it’s a good idea to know what you’re putting your money towards. Reading about various investment-related tips and research will help you become more informed about your investing decisions, which will then help you make better decisions well into the future.
Find an online brokerage or someone to manage your investments. There are two main ways to invest your money. You can either invest your money yourself through a brokerage or you can find someone to manage your investment portfolio for you. You will need to take part in one of these options to actually start investing your money. Personally, I like to do everything myself through Vanguard.
Decide how you will invest. Now that you’ve opened an investment account, you will want to decide where you will put your investments. How you invest depends on your risk tolerance, the time period for which you are investing (when will you retire?), and more. Generally, the sooner you need your funds the less risk you will take on, whereas the longer your time period is, then the more risk you may be willing to take on.
Track your investment portfolio. The next step when learning how to get rich by investing is to regularly track the things you have invested in. This is important because you may eventually have to change what you are invested in, put more money towards your investments, and so on.
Continue the steps above over and over again. To invest for years and years to come, you will want to continue the steps above over and over again. Now that you know the steps it takes to invest your money, it only gets easier.

Related tip: I recommend using Motif Investing if you are looking to invest your money. Motif Investing allows individuals to invest affordably. This approachable investing platform makes it easy to buy a portfolio of up to 30 stocks, bonds or ETFs for just $9.95 total commission.

Start making more money.

Figuring out how to get rich usually means that you’ll have to find ways to make more money than you currently do.

On Making Sense of Cents, I talk a lot about how to make extra income because I believe that earning extra income can completely change your life. You can stop living paycheck to paycheck, you can pay off your debt, and more- all by learning about the many different ways to make money.

Trust me when I say that making more money is important. I was able to pay off $38,000 in student loans within 7 months, I was able to leave my day job in order to pursue my passion, travel full-time, and more!

The great thing about finding ways to make more money is that your income potential is unlimited. There’s no cap on how much money you can make- it all depends on what you decide to do and how much time you plan on devoting to it.

Making more money can change your life in great ways, such as:

You can pay off your debt.
Save for big purchases, such as a vacation.
Stop living paycheck to paycheck.
Reach retirement sooner.
Become more diversified with your income sources.

Whether you have just one free hour a day or if you are willing to work 40 to 50 hours a week on top of your full-time job, there are many options when it comes to earning more money. Finding ways to make more money will only help you as you learn how to become rich.

Some ways to make more money include:

Find a part-time job.
Make money online such as creating a blog, becoming a virtual assistant, etc.
Become an Uber or Lyft driver – Spending your spare time driving others around can be a great money maker. Read more about this in my post How To Become An Uber Or Lyft Driver. Click here to join Uber and start making money ASAP.
Maintain and clean yards. You can make money by mowing lawns, killing/removing weeds, cleaning gutters, raking leaves, and so on.
Answer surveys. Survey companies I recommend include Swagbucks, Survey Junkie, Clear Voice Surveys, VIP Voice, Pinecone Research, Opinion Outpost, Survey Spot, and Harris Poll Online. They’re free to join and free to use! You get paid to answer surveys and to test products. It’s best to sign up for as many as you can as that way you can receive the most surveys and make the most money.
Move furniture and find jobs on Craigslist. Movers can earn a broad range when it comes to hourly pay, but it’s usually somewhere around $50 an hour if you run your own business.
If you love animals, then you may want to look into how to make extra money by walking dogs or pet sitting. With this side hustle, you may be going over to your client’s home to check in a few times a day, you may be staying at their house, or the animals may be staying with you. Rover is a great company to sign up with in order to become a dog walker and pet sitter. Learn more about this at Rover – A Great Way To Make Money And Play With Animals.
Babysit and/or nanny children.
Sell your stuff.
Rent a spare room in your home to someone else.

As you can see, the list is endless when it comes to making more money.

Related posts on how to make extra money:

Diversify your income streams to learn how to be rich.

One thing that separates the rich from those who aren’t is that the rich and successful tend to have many different forms of income streams.

They may have a day job, a business, rental properties, dividend income, and more. This allows them to bring in more money.

They also do this because the rich know that one source of income may not last forever, and they are also able to lessen their risk by having multiple income streams.

So, if you want to learn how to get rich, then you may want to add more income streams to your life.

If you ever feel too reliant on one source of income, then you know how important this is. Maybe you are afraid that one day you will lose your job or that something will happen to your main source of income.

If you work towards building up multiple income streams and diversifying your income, then you won’t have to worry as much if something happens to one of your income streams.

By diversifying your income with multiple income streams you will have a backup plan, you may be able to retire easier, you will learn how to get rich, and so on.

Note: I recommend that you check out Personal Capital (a free service) if you are interested in gaining control of your financial situation. Personal Capital is very similar to Mint.com, but 100 times better as it allows you to gain control of your investment and retirement accounts, whereas Mint.com does not. Personal Capital allows you to aggregate your financial accounts so that you can easily see your financial situation, your cash flow, detailed graphs, and more. You can connect accounts such as your mortgage, bank accounts, credit card accounts, investment accounts, retirement accounts, and more, and it’s FREE.

Even the rich find ways to save money.

Finding ways to save more money may allow you to pay off your debt a little faster, improve your financial habits, help you reach your dream sooner, and more.

And yes, even the rich find ways to save money.

Sure, there are stories about rich people who spend their money like crazy and end up in bankruptcy. But surprisingly, the average millionaire is frugal, and they know how to manage their money well.

Don’t believe me? Here are some examples of millionaires and billionaires who still find ways to save money:

Warren Buffett lives in a house that he bought in 1958 for around $30,000.
Mark Zuckerberg drives an Acura.
John Caudwell (worth $2.7 billion) rides his bike 14 miles to work every day and even cuts his own hair.
Jim C. Walton (son of Walmart founder) drives an old truck with no air conditioning.

Another interesting statistic is that the average couponer is someone who earns over $100,000 a year. Surprisingly, those who earn less than $100,000 a year rarely use coupons compared to those with high incomes!

By finding ways to save money, you’ll be able to keep more of your money, learn how to get rich, add more to your investments, and so on. You worked hard for your money, so you may as well find ways to keep more of it!

Find ways to save money at 30+ Ways To Save Money Each Month.

Stop trying to impress others.

When was the last time you bought something that was mainly purchased to impress someone else?

Sadly, this is something that the average person does quite often.

If you want to start building wealth and understand how to get rich, then you’ll want to stop trying to impress others and start living your own life.

The rich tend to live below their means. Yes, many of them still spend money extravagantly, but many aren’t living paycheck to paycheck in order to do so. Many millionaires buy items used, they drive “normal” cars like Toyotas, and they aren’t buying things with the sole purpose of impressing others.

This is drastically different from those who aren’t rich.

Many people try to keep up with others and fall for lifestyle inflation, which can prevent a person from being a good money manager.

When trying to keep up with the Joneses, you might spend money you do not have. You might put expenses on credit cards so that you can (in a pretend world) “afford” things. You might buy things that you do not care about. The problems can go on and on.

Instead, you should focus on what you want and need. This will help you to save more money, be more realistic with your income and spending, and to build wealth.

Do you want to learn how to get rich? What does “rich” mean to you?

Apache is functioning normally

May 29, 2023 by Brett Tams

In January, I accompanied Kim to an appointment with Paul, her investment adviser from Edward Jones. Paul’s brother was my best friend in grade school and junior high, and we have many mutual friends. I sat and listened while Kim and Paul talked about her investments and how she ought to invest for retirement. I didn’t participate much, though, because this is Kim’s money, and I didn’t feel like it was right for me to take an active role.

I did ask some questions about index funds, though. Kim’s money is entirely in individual stocks (like Apple) and expensive load-bearing funds such as VFCAX (Federated Clover Value Fund), which has an expense ratio of 1.19 percent and a sales load of 5.5 percent.

Paul argued against index funds, saying:

Mutual-fund managers earn back the sales load (and high expense ratio) in time so that, long term, actively managed mutual funds outperform index funds. (Note: Studies show that, in general, this is not true.)
Part of the reason people pay him to manage their investment accounts is because he protects them from making foolish emotional decisions about the market and he alerts them to possible opportunities.

Afterward, I asked Kim what she thought of the meeting. She got the gist of things, but found a lot of it confusing. No surprise. I know this stuff and still found some of the presentation confusing.

“What do you think I should do?” she asked.

“Well, I still think you should be in index funds,” I said, but I didn’t push it. Again, we’ve been dating almost two years, but it’s not like we’re married. I didn’t feel comfortable making this decision for her.

Over the next few weeks, I wrote the investment chapter for my ebook. And then I rewrote the chapter. And then I rewrote it again. (This ebook will finally see the light of day at the end of April, by the way.)

As I wrote, I realized that I truly believe index funds are the right way for most people to invest. And it’s not just me. Warren Buffett believes this, as do many other well-known investors. The evidence is overwhelming. The smartest way for the average person to invest is to put all of their money in broad-based, low-cost index funds and never touch it. End of story.

Meet the New Adviser — Same as the Old Adviser

Between January and March, Kim switched jobs. Her new employer also contributes to retirement, but uses a different investment adviser. Last week, we met with the new guy, Evan. This time, I asked Kim how she viewed my role before the meeting. “I want you to speak up,” she said. “I want you to act like you’re my husband.” Well then, OK.

The meeting with Evan started very much like the meeting with Paul. Evan talked about how much Kim needs to save to meet her retirement goals (answer: a lot!). He also talked about where she should put the money. He agreed with me that it’s probably best not to shift around Kim’s existing investments (although I can’t help thinking we’re falling victim to a sunk-cost fallacy by not moving to index funds). He recommended that all of her new money should go into shiny new mutual funds that his company sells — funds that carry loads of 5.75 percent.

Note: These mutual funds are from American Funds, and I’m very familiar with them. When I was married, Kris put a lot of her savings into the American Funds family.)

“How are you compensated?” I asked.

“Great question,” Evan said. “I’m paid out of the sales charge, out of the front-end load of the mutual funds. A part of that goes to me, a part of that goes to my company, and a part of that goes to the mutual fund company itself.”

After a few minutes of discussing these new funds, I decided to speak up.

“Look,” I said. “I write about money. I’m not an investment guru and I don’t have any specific training, but I’ve read and written a lot about investing over the past few years. Everything I’ve read says that the only reliable indicator of future mutual fund performance comes from a fund’s fees. The lower they are, the better the fund is likely to perform in the future.”

“That may be so,” Evan said, “but that’s only part of the story. With proper management, a traditional fund can outperform an index fund. Besides, index funds only work if you’re able to control your emotions. Studies show that most investors earn returns far below those of the market because they make poor choices under the influence of emotion.”

“Sure,” I said. “The Dalbar study shows that every year.” I cite this study over and over again in the articles and books I write. “But investor behavior is only one part of the problem. The other part is costs.”

Evan protested. I didn’t blame him. His livelihood is tied up in this. Besides, I think he truly believes in his funds.

“If Kim were to buy index funds through Vanguard or Fidelity, how would you be compensated?” I asked.

“I’d take 1 percent,” Evan said.

“One percent up front?” I asked. “Or 1 percent per year?”

“One percent per year,” he said. With the roughly 0.25 percent expense ratio for a typical index fund, that would give her a cost of 1.25 percent annually. That beats the expense ratios from the funds Evan was proposing, especially when you factor in the 5.75 percent sales load.

Following My Own Advice

At the end of the meeting, Kim smiled and shook Evan’s hand. “Thanks for your help,” she said. “We’ll go home and figure this out.”

We walked next door to have a glass of wine while gazing out at the stormy Willamette River. “What do you think I should do?” she asked.

“Do you want to know what I would do if this were my money?” I asked.

“Yes,” she said.

“First, I’d contribute as much to retirement as needed to get the match from your boss. I’d have that put into an index fund, and I’d pay Evan his 1 percent per year. I don’t like it, but that’s your best option to get the match from work.”

“For everything else, though, I’d invest on my own. I wouldn’t do it through Evan. I’d open an account at Vanguard or Fidelity and schedule monthly contributions. He says you need to be putting away $920 per month for the next 20 years in order to have the equivalent of $50,000 per year at retirement. Do that. To be honest, I’d rather you didn’t pay me rent or utilities. I don’t need that money. I’d rather see you put it directly into an investment account every month. It’ll still feel like you’re paying me rent, but it’ll be going to your future instead. Does that make sense?”

Kim nodded. “It does,” she said, “but I still don’t like it.” (We’re still hammering out the financial side of our relationship. She wants to pay her half of things — which I appreciate — but I don’t want to take her money. When she pays me for rent or utilities or anything else, I tuck the money into a “secret” savings account at Capital One 360. That makes both of us happy.)

Unconventional Success

After our meeting with Evan, I began to have bouts of self doubt. It’s one thing to make decisions with my own money; it’s another to make them for somebody else.

To boost my confidence, I turned to books. I re-read the rationale behind investing in index funds. In particular, I turned to David Swensen’s Unconventional Success. During our meeting, Evan had pointed to the Yale University endowment as an example of investing success. Swensen is the mastermind behind that endowment. He’s also a passionate supporter of passive investing.

Unconventional Success contains nearly 400 pages laying out the arguments for index funds as “a fundamental approach to personal investment.” It explores asset allocation, market timing, and security selection before ultimately concluding that “overwhelming evidence proves the failure of the for-profit mutual-fund industry.”

Note: You can read a much shorter version of Swensen’s arguments in his 2011 New York Times editorial about the mutual fund merry-go-round.

Refreshing myself about the evidence in favor of index funds allowed me feel much better about our second meeting with Evan. On Monday night, we returned to his office to explain our decision. In short, we wanted to put all of Kim’s future funds into the following asset allocation using Vanguard index funds:

45% into VTSMX, the Vanguard Total Stock Market index fund
25% into VGTSX, the Vanguard Total International Stock index fund
20% into VBMFX, the Vanguard Total Bond Market index fund
10% into VGSIX, the Vanguard REIT index fund (a REIT is like a mutual fund for real estate)

“That’s great,” Evan told us. “We can do that. But there’s just one problem. Our investment platform requires a $25,000 minimum in order to make this happen. Otherwise, it’s not worth our time.”

At first, I thought this was a barrier. Kim doesn’t have $25,000 in new money to invest. But then I hit upon a couple of solutions.

First, we could move our shared “dream fund” from the Capital One 360 savings account where it currently resides. Instead, we could place it in index funds. Sure, this would introduce greater risk, but I’m OK with that. By the time we’re ready to tap this fund, the stock market should be higher than it is today — and it should outperform savings accounts in the meantime.

Second, we could liquidate Kim’s existing mutual funds and move the money to Vanguard funds instead. That’s probably the smartest move anyhow. We had planned to leave her existing accounts at Edwards Jones, but this makes more sense.

In the end, Kim came up with a fun plan. Here’s what we’re going to do:

We’ll move all of her investment accounts from Edward Jones to the new company.
We’ll sell half of her existing funds in order to meet the minimum requirements to begin putting money into a Vanguard retirement account. (And because index funds are the better choice.)
We’ll keep half of her existing funds as they are and allow her new adviser to manage them as he sees fit. Let’s see if he can actually beat a portfolio of index funds.
Meanwhile, she’ll funnel $460 per month into her employer-sponsored retirement account.
Finally, she’ll open a personal Roth IRA account at Vanguard. Into this, she’ll contribute $460 per month. This will give her a chance to see what it’s like to manage an investment account on her own.

This process illustrated some of the problems the typical investor faces. First, she receives self-serving advice from advisers (even when they don’t intend to be self-serving). Second, even when she knows the right thing to do, it can be tough to stick to her guns in the face of trained expertise. Third, there can be barriers to making smart choices, barriers like high minimums and additional fees.

In the end, it’s important to make your own informed investment decisions. Remember: Nobody cares more about your money than you do. If you don’t take the time to educate yourself, you can’t expect anyone else to make the right decisions for you.

Source: getrichslowly.org

Apache is functioning normally

May 28, 2023 by Brett Tams

Save more, spend smarter, and make your money go further

April is Financial Literacy Month. So there’s no better time than now to get the 4-1-1 on your personal finances. Mint is teaming up with popular personal finance experts for a live Twitter chat to share their tips and tricks on how to successfully manage your money and answer those burning questions about saving, investing, budgeting and the dreaded “D” word, debt.

Pull up a keyboard and join us on Tuesday, April 21^st at 12pm PT/ 3pm ET for a live, hour-long #Money411 Twitter chat to hear from Mint and other consumer financial experts on better money habits for today and the future.

Host

@Mint

Participants

Mint’s own (@hperez), CNBC’s senior personal finance correspondent (@sharon_epperson), popular blogger of Budgetsaresexy.com (J. Money) and author of the forthcoming book Make Your Kid a Money Genius (Even If You’re Not) and member of the President’s Advisory Council on Financial Capability for Young Americans (Beth Kobliner).

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May 28, 2023 by Brett Tams

With the never-ending changes and challenges affecting the U.S. financial landscape, multiple community development entities are helping to counter some of their adverse effects by fostering community development initiatives.

Some examples include Community Development Financial Institutions (CDFIs) and Community Development (CD) Banks. These play a significant role in promoting economic growth and inclusion for underserved communities.

This article thoroughly explores CDFIs and the institutions that support CDFIs, outlining their significance, objectives, and how they meet capacity building initiative requirements. We also highlight the federal government’s involvement, explaining its role evolution and the numerous related economic development activities available to those who need them.

What is a Community Development Financial Institution (CDFI)?

Community Development Financial Institutions (CDFIs) are a type of financial institution that provides products and services to financially disadvantaged communities for economic development purposes.

They are essential and critical in promoting inclusion and economic growth to marginalized communities in urban and rural communities countrywide. Legislations like the Community Reinvestment Act help encourage these programs. However, the Community Reinvestment Act is not the only reason for their existence.

CDFI Certification

To become a CDFI, a financial institution must apply for a CDFI certification. This certification ensures that the institution can receive the right federal assistance resources and allows people to benefit from the CDFI fund’s programs.

How did the concept of CDFIs start?

The roots of Community Development Financial Institutions (CDFIs) extend to the 1880s, when minority-owned banks began serving economically disadvantaged communities. These organizations provided essential financial services to areas that mainstream financial institutions neglected or could not reach.

As the years progressed, new types of mission-driven financial institutions emerged. For example, the development of credit unions in the 1930s and 1940s offered alternatives to the traditional community bank that had limited services.

Moreover, new community development corporations emerged in the 1960s and 1970s, providing additional resources and support for underserved areas. These institutions gradually paved the way for the rise of nonprofit loan funds in the 1980s, establishing the groundwork for today’s modern CDFI model.

The Riegle Community Development and Regulatory Improvement Act of 1994 recognized the need to support the growing community development finance sector. With that in mind, it established the Community Development Financial Institutions Fund (CDFI Fund). This fund aimed to promote economic revitalization and community development in low-income areas by investing in and providing assistance to CDFIs.

Since its inception, the CDFI Fund played a substantial role in the growth and impact of CDFIs, enabling them to serve the financial needs of economically disadvantaged communities and contribute to their overall development and prosperity.

Types of CDFIs

Currently, multiple types of Community Development Financial Institutions (CDFIs) exist, each catering to the unique needs and challenges economically disadvantaged communities face. We explore their types and roles below.

Community Development Banks

Community Development Banks are for-profit, federal government supported and regulated financial institutions. These institutions have a board of directors that includes community representatives. CD banks provide affordable banking services, loans, and other financial products to economically distressed and underserved communities.

Operating in these communities creates jobs, improves infrastructure, and promotes economic growth. They also help increase access to capital for small businesses, including affordable housing projects and community service facilities.

Community Development Credit Unions

Community Development Credit Unions (CDCUs) are nonprofit financial cooperatives owned and controlled by their members. As is the case with traditional credit unions, they provide financial services such as savings accounts, checking accounts, and loans.

CDCUs only cater to low-income and underserved communities, offering affordable rates and financial education programs to promote inclusion and help people build credit and assets. The National Credit Union Administration (NCUA), an independent federal agency, regulates these credit unions.

Community Development Loan Funds

Community Development Loan Funds, or CDLFs, are nonprofit entities that finance community development projects by offering loans and technical assistance to marginalized communities. They facilitate access to affordable housing, promote small businesses, and help establish community service facilities to sustain growth. They also serve as an alternative source of capital for those who cannot access traditional bank financing services by offering flexible terms and underwriting criteria.

Community Development Venture Capital Funds

Community Development Venture Capital Funds offer equity and debt-with-equity investments to small and medium-sized businesses in economically distressed areas. They can be for-profit corporations or nonprofit entities.

By offering long-term capital, they help businesses grow, create jobs, and foster innovation. They also provide technical assistance, mentoring, and business development support to maintain the long-term success of their portfolio companies.

Microenterprise Development Loan Funds

Microenterprise Development Loan Funds are loan funds that provide small-scale loans, or microloans, to entrepreneurs and small businesses that might not qualify for traditional financing. They offer small capital amounts that range from hundreds to a few thousand. These loan funds help low-income people, women, and minority entrepreneurs who need smaller loan amounts and more flexible terms.

Community Development Financial Institution (CDFI) Consortia

CDFI Consortia are collaborative networks of CDFIs that pool resources, experience, and capital to increase their impact on community development services. They can access larger funding opportunities and share best practices to serve their target communities by working together. They can also provide joint technical assistance and support services, helping to strengthen individual CDFIs that are part of the network.

Understanding Community Development Financial Institutions

The main goal of CDFI fund programs is to provide affordable loans, community development banking services, financial help, and technical assistance to low-income communities. They foster economic development and empower small business owners, minorities, and marginalized communities by offering access to investment capital and other resources with fewer demands than traditional finance institutions.

CDFIs differ from traditional financial institutions because they focus on community development and serving minority communities. They also collaborate with religious institutions, community service organizations, and rely on federal funding and agencies to address the needs of their target populations.

What’s the federal government’s role in CDFIs?

The Federal Reserve Bank supports CDFIs through various initiatives, tax credits, and programs. One such program is the CDFI Fund, which the U.S. Department of the Treasury administers. The CDFI Fund provides financial, technical, and other resources to CDFIs, casting a wider net to help low income people and communities access their services.

In addition to the CDFI Fund, the Federal Reserve Bank supports CDFIs through programs and training initiatives such as:

Bank Enterprise Award Program
Capital Magnet Fund
CDFI Bond Guarantee Program
CDFI Equitable Recovery Program
CDFI Program
Rapid Response Program
Native Initiatives
New Markets Tax Credit Program
Small Dollar Loan Program

These initiatives by the Federal Reserve Bank provide financial incentives and resources for CDFIs and community development entities to invest in eligible community projects, promote economic growth, and create jobs.

How has that federal role changed over time?

The federal government’s role in supporting the CDFI industry changes over time to respond to the changing needs of disadvantaged communities and the growing recognition of the importance of financial inclusion.

Early efforts, for example, provided seed capital and technical assistance to establish and grow CDFIs. With the maturation and evolution of the industry, the government started focusing on building capacity, collaboration, and supporting innovative endeavors.

Recent changes emphasize leveraging private sector investments, regulatory relief, and encouraging partnerships between the CDFI industry and other financial institutions. Examples include minority depository institutions (MDIs) and mainstream banks.

CDFIs’ Role in Financial Inclusion

Financial inclusion is an essential part of CDFI initiatives. Access to affordable financial products and services helps bridge the gap between poor communities and mainstream financial institutions. CDFIs also promote financial knowledge, support small businesses, finance affordable housing activities, and facilitate economic development initiatives.

CDFIs also ensure that economically distressed communities can access essential community services facilities like healthcare centers, schools, and childcare. Their work helps contribute to these communities’ overall well-being and stability. It creates a solid foundation for long-term economic growth.

Business Model

CDFI business models are unique in combining traditional financial services with a strong emphasis on developing and positively impacting the communities they cater to.

They generate revenue by collecting interest and fees on loans, investments, and other financial products. However, they also rely on grants, donations, and especially government funding like the CDFI fund to support their operations.

CDFIs collaborate with organizations like government agencies, nonprofits, and private sector partners to attain their goals. Additionally, they leverage tax credits, guarantees, and other financial tools to attract more investment capital and support their lending activities.

CDFIs Provide Opportunity for All

CDFIs provide real opportunities by addressing the financial needs of underserved communities to help them succeed and promote their economic growth. To do this, they offer access to affordable financial products and services to communities that experienced systematic lockouts from these programs.

By emphasizing their needs and giving them more accessible and affordable ways to prosper, low-income individuals and businesses have access to essential financial tools. These tools were traditionally out of reach for mainstream financial institutions.

Moreover, CDFIs support small businesses owned by women, minorities, and individuals in economically distressed communities. By offering tailored financing solutions, technical assistance, and business planning resources, CDFIs help these entrepreneurs overcome barriers to entry, create jobs, and contribute to local economies.

Another significant aspect of CDFIs’ work is their focus on affordable housing and community development projects. They finance the construction and rehabilitation of affordable housing units and invest in community facilities like schools, healthcare facilities, and childcare. These are essential to the well-being and stability of low-income communities and help them worry less about factors beyond their control or that are too expensive to access otherwise.

CDFIs also promote financial education and empowerment by providing resources and training to help people develop financial literacy skills, manage their finances, and build assets. These initiatives contribute to breaking the cycle of poverty and promoting economic self-sufficiency.

By partnering with various stakeholders, such as government agencies, nonprofit organizations, and private sector partners, CDFIs leverage resources and expertise to maximize their impact. This creates a ripple effect that extends beyond the immediate recipients, fostering inclusive and resilient communities.

Types of CDFIs

Many community development financial institutions focus on addressing the needs of economically disadvantaged communities. These include community development banks, credit unions, loan funds, and venture capital funds.

Federal agencies like the Federal Deposit Insurance Corporation (FDIC) and the National Credit Union Administration (NCUA) regulate community development banks and credit unions. They offer various banking services, from deposit accounts to loans, catering to low-income communities.

Loan funds make affordable housing possible, support small businesses, and help community facilities. On the other hand, venture capital funds offer equity investments that support small businesses and startups in underserved communities.

“Newer” CDFI Resources

As community development financial institutions evolve, multiple resources and programs are emerging to support their growth and impact. Examples include:

CDFIs as Capital Plus Institutions

Sometimes, community development financial institutions are called “Capital Plus” institutions. This is because they provide investment capital, development services, technical assistance, and financial education to support the long-term success of their clients.

This approach allows community development financial institutions to significantly impact low-income and economically distressed communities, promoting economic opportunity and inclusion.

Emergency Capital Investment Program (ECIP)

The Emergency Capital Investment Program (ECIP) is a federal initiative that provides capital to CDFIs and MDIs to support their lending activities after the economic challenges caused by COVID-19. This program helps ensure that these institutions have the resources to continue providing essential financial services to underserved communities, small businesses, and minority-owned businesses during times of crisis.

Paycheck Protection Program Liquidity Facility (PPPLF)

The Paycheck Protection Program Liquidity Facility (PPPLF) is another federal initiative that supports the lending activities of CDFIs and other financial institutions participating in the Small Business Administration (SBA) Paycheck Protection Program (PPP). By providing liquidity to these institutions, the PPPLF enables them to continue offering loans to small businesses needing financial assistance during challenging economic times.

CDFI Rapid Response Program

The Rapid Response Program from the CDFI Fund provides immediate financial assistance during crises or natural disasters. CDFIs can quickly access funds for disaster recovery, emergency relief efforts, and other needs, serving as “financial first responders” for the communities they support.

These newer resources and programs demonstrate how the federal government, private sector, and other stakeholders support the work of CDFIs and promote financial inclusion and economic opportunity. By leveraging these resources, CDFIs can better address the needs of low-income communities nationwide and foster economic development in urban and rural communities.

Source: crediful.com

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