I’ve Paid For This Twice Already…

Frugal living and debt reduction tips for a better financial future. This is one family’s story.

January 21st, 2014

Cost Effective Housing Options For Veterans

Living frugally is dependent on the way consumers are able to extract benefits from economic situations. Veterans are dependent on federal incentives to manage their fiscal routines. However, specific finance options are also available for veterans and they can be used for financial security.

Two financial authorities are particularly relevant to veterans: Veterans Administration (VA) and Federal Housing Administration (FHA). A recent reform paper on Housing Finance System analyzes the market since the recession and also looks at how legislative reforms have affected investors. The report highlights the role of financing through the Department of Veteran Affairs and mortgage backed securities from the FHA.

A congressional report on Veterans and Homelessness indicates that property acquisition within the community is a tough task and there is a need for better usage of incentives to manage financial affairs.

Veterans should therefore keep tabs on schemes and grants such as the 2014 FHA grant program, which was recently announced. Through this program, veterans can apply for government based incentives with regard to property ownership.

Two important incentives within the program are the Returning Veterans Grant Program and the Veterans Purchase Grant Program. Both grants are in excess of $7,000 and can serve as a viable financing option. The grant program is applicable to both serving and qualified veterans. The only thing to be checked is the income guideline, which is used as a yardstick to determine the amount of the grant.

With multiple options available for home buying and home loan options for veterans, there is a need for streamlining the incentives. The comparison should be made with respect to individual financial conditions and the kind of incentive that would be most rewarding.

Comparison of VA and FHA

Advocates of sustainable living is utilizing the best finance options. While both the VA and FHA facilitate property ownership, there is a need to make a cost benefit analysis.

The first thing to understand is that interest rates have been at historic lows in the last couple of years. This means that the market is conducive for buying, and both FHA and VA are able to provide mortgages/loans for veterans at lesser rate than general institutions. However, VA has a higher benefit rate, a fact highlighted by Lowvarates.com.

Another point is that VA loans need no down payment as opposed to FHA, where it is mandatory. Furthermore, the loan approval procedure is far less taxing owing to its specific nature.

Another factor is that VA loans are distributed through private entities, making the process competitive and cost friendly. Private entities would offer even further low rates. With low interest rates, benefits of VA are compounded greatly.

This is owing to the fact that VA is reserved for veterans and there are options to offer lesser rates than even FHA. The FHA, while being extensive, has to cater to other communities within the U.S. as well.

It is still true that home ownership is a tough ask within today’s economy. However, using appropriate routes such as VA programs, the process can be made easier and the fiscal situation of veterans can improve over the years.

This is a guest post by Katherine! Kat is an avid finance reader and aspiring blogger. Katherine’s usual writing topics are on her own personal finances and you can read more of her post on Veterans at Military Bases Blog!

January 15th, 2014

Bonds Cut Both Ways

Bad news: The government is up to its ears in debt.

Good news: The government is up to its ears in debt!

While it may seem strange to get excited about your government’s overspending, it actually can be a boon to investors. Many people don’t understand the basics of government debt. A government doesn’t simply overdraw its bank account, nor does it sell itself to the Chinese as some pundits claim.

When a government needs money, it issues bonds. Those bonds are famous for many purposes, particularly war efforts and for a huge array of construction projects. So when you hear that a government is bonding a project, it is creating an investment opportunity.

And many people don’t even realize that they are buying government bonds. Savings bonds aren’t just long-term savings accounts. They are borrowing tools of the government.

So bonds are all around us, and we have many opportunities to buy them. As a result, if you use good bond investment tips to make educated choices, you can take advantage of the government’s expenditures.

It’s actually parallel to borrowing by individuals. If you need something and don’t have the cash for it, you can pay with a credit card. Of course, the big difference in your borrowing and the government’s borrowing is interest rates.

Your credit card is going to charge you a whole lot more interest than the government will pay on its bonds. That’s why consumer debt is bad.

The government is essentially the rooster in charge of the hen house: It sets the interest rates that it will pay to those from whom it’s borrowing money.

Try that with your mortgage.

So although you’ll never get a very high rate of return on a government bond, they are a good investment for several reasons. First, they are secure. If you want to escape the volatility of a stock market, with a 12% gain one year and a 12% loss the next, you can safely ensconce your money in bonds. You won’t make tons of money, but you will not lose any.

Second, they are readily available. A little time online and you can purchase bonds for yourself, or even give them as a gift. Bond purchases are also simple. You make the transaction and you can access your bonds electronically at any time. Upon their maturity, you can redeem them for cash.

Finally, there’s a positive social cost with bonds. You’re not day-trading somebody out of their retirement funds. And you’re doing something positive to help your community. The money you invest in municipal bonds might be financing a school, bridge, or government facility that will benefit you. And you’re helping make it happen.

Somebody makes money on every type of debt. If you buy bonds, you’re the lender. You have taken over the bank’s role, and you get the privilege of receiving money in return for letting someone else use your money for a little while.

Bonds hold appeal to investors because they are secure, simple, and socially beneficial.

December 6th, 2013

The Correlation Between Financial Security & Educational Outcome

When it comes to personal finance, a lot tips and budgeting maneuvers have already been highlighted. However, the most significant point (and the most neglected one) is that of financial literacy.

The notion of financial literacy and economic security for children has a positive correlation with their educational outcome. Secondly, by having a solid understanding of the finances, initiatives such as budgeting and managing student debt become easier in later years.

Impact of financial literacy on a student

The aforementioned assertion is not a vague assumption, but an inference that is backed by extensive studies. The Florida State University conducted a research project with the notion of financial literacy as the main component. One important highlight of this project was that student debt is not merely a result of the failure to properly budget, but rather a result of the lack of financial guidance.

Another valid point is that of financial literacy at students’ age translating to better financial outcomes in their professional lives.

Two important things that come to mind with this analysis are the changing economic paradigm and the enactment of an informed choice. Firstly, the recession had a trickledown effect on literally every individual.

The government was forced to bring in legislature such as the Budget Control Act of 2011, which also included cuts for education. Student grant programs were either reduced or modified. Now, a student well versed with financial jargon is in a better position to survive and prosper.

Informed choice and financial guidance

An ‘informed choice’ and how it relates to financial literacy is the second important factor. In the current era, attaining financial literacy is more convenient due to internet tools and consolidated resources.

When researching consolidated resources, the student money saving guide by Jon Fritz sheds light on financial decisions. From discussing the broader topic of tax deduction to the more targeted subject of financial aid, such guidelines can serve as an ideal resource for financial guidance.

More specifically, an informed choice is better not only as an academic attribute but also as an indicator of productivity in terms of employment. A student with better financial literacy can make intelligent choices on his/her own rather than over-dependence on peer advice.

Moreover, financial literacy in the case of a student evolves. It starts off with a combination of awareness and knowledge, which later adds skills and behavior to the financial repertoire of the student.

With the kind of technological revolution we are seeing, monetary systems are being revised. Financial products are becoming diverse, requiring appropriate knowledge for optimal usage. So, financial literacy for student means better range and accessibility of financial products and services.

For instance, student grants or research project grants help students not only to explore their academia with more diversity, but also to ensure better financial survival. Such grants can be easily obtained if the student has a decent rate of financial literacy.

A study conducted few years ago also revealed that the overall academic ability of student is strongly related to financial literacy, as are the student’s educational aspirations. So for parents, that is like killing two birds with one stone.

November 18th, 2013

7 Lesser Known Methods to Pay Less in Taxes

For any individual running a small business, quarterly tax time is approaching and it’s time to look at the year and assess what you’ve earned. Collectively, Americans will claim over $1 trillion in itemized deductions over the tax year. Those who miss out on deductions are leaving money on the table. If you’re looking for methods to push your deductions past the standard, here are a few less utilized ways individuals manage to do so.

Job Hunting Expenses

If you were one of the millions without work this past year, you can claim the expenses you incurred hunting for employment. This includes printing costs for your resume or business cards, transportation costs incurred getting to interviews and any charges you take when your search takes you away overnight. You can claim up to 2% of your total income in job hunting expenses, so save those receipts!

Remember that as long as the expense qualifies as a deduction, you can claim it whether you landed the job or not. That’s more motivation for you to keep putting yourself out there.

Moving Costs

Did you move during the course of the year for employment purposes? If so, you can deduct those costs from your overall income for the year, but there are a few rules to keep in mind. You must have a job that is at least 50 miles away from your current location, but if you qualify for this deduction you can take it regardless of whether you itemize. You can also deduct the cost of using your car to move to the new destination, great for cross country moves.

Tax Prep Fees

The cost of preparing your tax forms can be deducted from your income for the year. You can also deduct any convenience fees that may come from paying with a credit or debit card. Services like H&R Block or Turbo Tax all count toward this deduction. It’s usually a small deduction, but when you’re itemizing everything counts and they all add up.

Charitable Mileage

In addition to any charitable contributions you make throughout the year, you can deduct supplies you use for charitable purposes. This includes the mileage of your car when you drive for charity (like delivering supplies or dropping workers off at a site), but you can deduct supplies you use as well. Say that you bake a cake for your school’s booster club or volunteer to make juice for your local women’s club. These non-profit contributions toward charity all count as tax deductions.

Retirement Savings

Contributions toward your retirement savings can be deducted from your income for the year. Contributions toward a Roth IRA can be withdrawn without taxes later in life. The lower your income, the higher the deduction you receive from the saver’s credit. This also works for 401k plans, which are now open to individuals. Start saving for retirement – it literally pays for you to do so.

Financial Planning Expenses

If you paid any financial advisors to review your books and help keep you in shape, you can deduct those expenses as well. It’s common for small businesses to hire a consultant early in development so that they can plan projections and sales goals properly. These deductions also include attorneys who may prepare a living will or a trust for your family.

A Word on Deductions

Keeping track of your deductions is much easier if you have a system set up to do so. You can utilize a mobile app like Expensify to track mileage and receipts, or do it the old fashioned way with receipts in a filing cabinet. Be prepared to either show proof of expenses or reconstruct them when it comes time to file. Big deductions come to those who save receipts.

September 25th, 2013

4 Good Reasons Why You Should Open and Invest Actively in an IRA

An individual retirement account, or IRA, is one of many possible savings avenues that you can build toward your retirement. IRAs put the investment decisions on the account holder, you, so you’ll need to educate yourself on some investment basics before you start. If you’re under 50, you can contribute up to $5,500 of your income to an IRA tax-deferred each year. Check out Sunwest Trust, Inc., for more information on updated IRA contribution limits. If neither you nor your spouse can take advantage of a retirement plan through your workplace, then any contributions you make are deductible from your tax returns.

You can also contribute to an IRA whether you have a retirement plan through your workplace or not assuming that you have an earned source of include. In general, if you want to help build extra savings for the future, then IRAs are one of the most flexible individual savings plans that you should consider.

1. Liquidity

Most workplaces offer some form of retirement or pension saving plans to go along with other benefits of your employment. If you’ve been employed for most of your life, then your savings might be locked up in a pension account that may have additional restrictive rules limiting when you can pull out your funds for such things as a down payment on a second home or on a new car. Worse yet, you may be locked into a low rate of return and further limited as to where and when you can invest those funds.

2. Self Managed IRA Arrangements

While attempting to grow your nest egg, a self managed IRA arrangement provides you a host of additional non-standard investment options to invest in, so it’s possible to benefit in more ways than one. Since you are not restricted to public offerings, you should research private ventures to see if there are any companies that you like and could be profitable. It’s just like a venture capitalist looking to get in on the ground floor of a brand new business idea, your IRA can help a promising business grow by pumping cash into it early during its lifecycle. If your investment is successful over time and depending on your contractual arrangement and the profitability of the venture, then you may stand to gain a nice return on your investment.

3. Individual Investment Real Estate, Not REITs

Buying an investment property with an IRA may be one of the investments that you would like to do with your retirement funds. It can be a long-term investment that you can sell whenever you’re ready, and you can put money into it to increase its value. With self directed control of your retirement plan, it places you in charge of the direction of the investment activities and opens up the real estate market to you as a possible investment opportunity. You can use the funds not only to buy an investment property, but also you can draw on funds within the account to improve the property. When you’re ready if you have purchased the investment property right, you have done your homework and know the market, then you can hopefully sell your asset for a decent return.

Single-family investment property isn’t the only potential market up for grabs. Assuming you are savvy enough, investing in an apartment complex can give you long term income as you age. Although, you will need to devote IRA resources toward maintenance and repair, you can use the property for rental income to build your retirement savings account.

4. More Diverse Investment Options, Including Franchises

Your IRA can also help you get involved in other alternative investments that are outside the standard model of owning the traditional stocks, bonds, mutual funds and REITs. Investing your funds in a franchise may give you the chance to own an established business in a highly trafficked area, and it can be great for building your retirement savings, so at or after the age of retirement you can build up enough cash to replace your job income. One thing that should be pointed out before investing in a franchise, is that most franchises is that although they are proven, they also can take three to five years for you to see returns, so you must be willing to wait sometime to see a return on the investment. However, if you are patient and are willing to take a risk, then you could wind up as a big winner.

Save Now for the Future

For the forward-looking person, an IRA represents a temporary tax haven during your working years to divert a portion of your personal income into savings on a tax-deferred basis. An IRA gives you lots of options for controlling your money and building for your retirement and hopefully it inspired you to learn more. Can you think of any more reasons to open an IRA? I’d love to hear about them in the comment area.