Home

Home
Apr 102017

Merchant Cash Advances: What You Need to Know

By |April 10th, 2017|Blog|1 Comment

dollar-1362243_640As you explore various business funding options, chances are you have (or soon will) come across something called a merchant cash advance. Below is a basic overview of this increasingly popular alternative to conventional bank loans and 401(k) loans; especially for startups and small businesses.

What is a Merchant Cash Advance?

A merchant cash advance is a type of business funding that is suitable if you conduct most of transactions by credit card (e.g. retail, restaurants, car repair, etc.). The loan amount can be anywhere from under $10,000 to over $100,000, and the term duration ranges as well from a few months to over a year. Generally, it’s a good idea to obtain a smaller amount than you anticipate, and then re-apply for additional funding later if your forecast turns out to be correct.

How do they work?

Now that we know what they are, you may be asking how do merchant cash advances work? With a conventional bank loan, a prescribed amount is paid back on a scheduled basis (usually monthly, but sometimes bi-monthly or weekly). However, a merchant cash advance handles repayment quite differently. Instead of a fixed amount, you’ll pay back a small percentage of your daily credit card sales.

For example, if the repayment amount is 2% and on a particular day you generate $400 in credit card sales, you would pay back $8. Or more specifically, $8 would automatically be transferred from your bank account to the lender. This is an important aspect, because it’s one less administrative task for you to do (or as is often the case, forget to do since you’re so busy trying to get other things done!).

Dynamic Repayment

Aside from being easy to administer, merchant cash advances are unique in that (as noted in the example above) the repayment amount is dynamic, and adjusts based on actual daily sales. As such, when sales are high and cash flow is ample, a bit more is paid towards your loan — and the needle moves closer to full repayment. Alternatively, when sales are slow and sluggish, a bit less is paid towards the loan – which means there’s more cash-on-hand for you to pay bills, and allocate towards revenue-generating activities and projects such as advertising, running promotions, extending business hours, and so on.

No Collateral or Long Credit History 

In addition, merchant cash advances typically don’t need to be secured with collateral, and you don’t need a long, virtually flawless credit history. Many lenders only need to see a few months of operational history. As long as they think your business has a future and are confident in your leadership abilities, there’s a very good chance that your application will be approved. Even a past bankruptcy typically isn’t a deal-breaker, provided that it’s discharged at the time of application.

Is a Merchant Cash Advance Right for You?

Naturally, it’s beyond the scope of this (or any other) article to confirm or conclude that a merchant cash advance is the right business funding option for you. However, if you do conduct most of your transactions through credit card, then it could indeed be a favorable option that helps your business survive, and thrive.

Disease Called Debt
Apr 52017

Are There Alternatives to Logbook Loans?

By |April 5th, 2017|General Personal Finance|0 Comments

logbook loans, alternative to logbook loans, other options for logbook loans, different types of loans

Nowadays, the thing that troubles a lot of families in the UK is overcoming their financial difficulties. Paying your monthly bills and covering all your needed expenses and purchases has definitely become more burdensome than it used to be. The rise and fall of the economic situation has wrecked the ship that carries many individuals to the shore of financial stability.

(more…)

Mar 312017

Improving on the Safe Withdrawal Rate

By |March 31st, 2017|Blog|2 Comments

One important concept in personal finance is financial independence.  You are financially independent when you no longer need to work for a wage in order to support your standard of living. 

Sound awesome?

How do you get it?

Well, you save enough money to create a portfolio of stocks and bonds which you can live off of instead of your wage. Turns out the money required to replace working for a living is quite substantial…

According to the trinity study withdrawing 4% of your starting portfolio and adjusting the figure upward for inflation every year would result in a hypothetical starting portfolio lasting at least 30 years in 95% of cases.  In most of those cases the portfolio ends up larger in real terms than you started with, ready for another 30 year stint.

For this reason you are generally considered to be financially independent once your portfolio is 25x as big as your annual living expenses.  This is to say you are financially independent when you could choose to retire and not have to change your standard of living.  I confirmed the trinity studies numbers by taking Robert Shiller’s inflation adjusted S&P 500 data (going back to 1870) and adjusting a hypothetical portfolio on a monthly basis for withdrawals and dividends as well as portfolio growth over a 30 year period.  I repeated this, starting the hypothetical portfolio at each year starting at 1870. This gave me over 100 runs which I plot below:

Portfolio-Based-Retirement

These are all of the portfolio runs just plotted on top of each other. I found a 98% success rate with the 4% rule.  I’m not quite sure what results in the discrepancy.  You can see that on the left side of the graph each portfolio starts at $1,000,000. On the right side you can see that results are very different.  Sometimes you end up with $20,000,000, sometimes you go bust and end up with nothing.  As a prospective retiree this chart looks pretty scary.

You have to save $1,000,000 just to be able to spend $40,000, and then you still go bust a bunch!

Sure sometimes you end up with way more money, but you’ll probably feel pretty stupid sticking hard to that $40,000 budget, then dying with $20 million in the bank.  The number of busts are scary, many prospective early retiree’s try to be conservative they switch over to a 3% rule.  This means that to spend $40,000 they’ll have to save over $1.3 million!  This could mean adding a substantial amount of years to your working life.  It could possibly mean that you don’t mind earning an extra house worth of money before retirement, but hey, then you don’t really need to worry about most of this.

Improving on the 4% rule

What if, rather than viewing our portfolio as a pile of money, we viewed it as ownership of operating businesses?  If you owned a car wash chain, and every year the chain earned $60,000 in profit, how would you calculate the amount that you could spend year to year?

Would you think, “well I could sell the car-wash for $1,000,000 and 4% of $1 million is…”

NO!

NO!

You’d probably just say, “I earn $60,000 annually, I should save some to grow the chain, and provide some cushion against bad years.  I can probably spend like two-thirds of this. So I can spend $40,000 annually.”

You should look at your stock portfolio the same way!

Why?

When you own a stock you are really just a fractional owner of an underlying business.  You should act like it.  Don’t base your retirement on the size of your portfolio, base it on the accounting earnings of the underlying businesses!

Introducing the 2/3rds rule:

Let’s assume you have a portfolio consisting only of the S&P 500.  To apply our above rule, we decide that we’re financially independent once we hit a specific dollar value of accounting earnings.  Since we want to spend $40,000, we need $60,000 of accounting earnings from the S&P 500. (2/3rds of $60,000 is $40,000).

One “share” of the S&P 500 earned ~$16 in 1985.  Therefore, in order to have $60,000 in earnings from the S&P 500 we’d need 3750 “shares” of the S&P 500.  This isn’t necessarily easy as it sounds, as one of these “shares” cost $180 at the 1985 index level, this means that you’d need about $675,000 to retire based on this rule.  That’s a substantial difference than the 4% rule which would require $1,000,000.

It isn’t a free lunch however, because when the price per dollar of earnings is higher you would need more to retire than the 4% rule would indicate.  If you decided to retire in January of 1999, S&P earnings were $38, thus in order to have $60,000 in earnings you’d need 1579 shares of the S&P 500.  Given that the index level at that time was 1,280 that would, imply that you’d need a portfolio over $2,000,000, twice the level that the 4% rule would predict.

So how well does the 2/3rd’s rule actually perform?  I repeated the same study, only initial portfolio levels were set for constant accounting earnings ($60,000) of the S&P 500.

Earnings-Based-Retirement

There is more spread in the starting portfolio values (on the left) compared to the previous plot.  This is to be expected, the original plot started each run at $1,000,000, in this case we start each run at a variable portfolio size based on the trailing earnings of the S&P 500 for that month.

What’s more interesting is that there is less spread on the right end of the plot!  The highs are lower and the lows are higher.  This indicates that the result for the prospective retiree is somewhat less random if they base their retirement on accounting earnings rather than portfolio size.  The success rate using this method of retirement, 1% better than the 4% rule.  While I’ve been unable to reproduce the trinity study values precisely, I conclude that somewhere between 20% and 50% of the portfolio failure events that would have happened if you followed the 4% rule in a random month sometime over the last 130 years would not have happened if you were following the 2/3rds accounting earnings rule.

This isn’t the only benefit.  By applying this rule, not only does your portfolio fail to carry you through a 30 year retirement more rarely, you also need less money on average to retire.  Following the 4% rule requires a starting portfolio size of $1,000,000 every time, regardless of the underlying earnings of the S&P 500.  Following the 2/3rds rule required only $800,000 on average.  Sometimes, you do have to accumulate more money, because valuations are high and each dollar invested doesn’t buy you much in the way of earnings (like in 1998, or present day), but on average you can accumulate substantially less money and still retire with a greater level of safety.

Disease Called Debt
Mar 242017

Your Emergency Fund Helps Your Credit Score

By |March 24th, 2017|General Personal Finance|1 Comment

thousandaireretirementYour three-digit FICO credit score is a key number, one that lenders use to determine who qualifies for loans and at what interest rates.

How often you miss payments, how much debt you owe on your credit cards and how much of your credit you are using all help determine how high this score is. But, the amount of money in your savings account, though, has no impact on your score.

That doesn’t mean, though, that having money stocked away to cover the cost of unexpected emergencies won’t have a positive impact on your credit score.

(more…)

Mar 162017

Relocating Abroad? How to Prepare Financially

By |March 16th, 2017|General Personal Finance|2 Comments

travel-164574_640This is a guest post from Pauline of InvestmentZen.com

In the past 12 years, I have lived in four foreign countries, on three continents. While it has been amazing for the most part, there are also things I wish I had known before relocating, and that is why today I would like to share my tips with anyone who is thinking about taking the leap and moving to another country.

Relocating abroad is an amazing experience. So much is involved in terms of logistics, finding a new place, learning the language, making friends, … that it is easy to forget about money matters. But if you are not careful, that international experience can cost you a lot. Here are a few tips.

Research the country you are moving to

I would suggest before relocating abroad that you spend at least a couple of weeks in the country you want to move to. You know, just to make sure you really like it before moving all your belongings and pets to the other side of the world. The romantic idea you may have of Thailand might not be what you’d experience in reality. Paris is a city of lights, but also of air contamination and traffic jams!

Join expats forums on Facebook and dedicated sites to make sure you can afford to live there, and that your expectations match people’s experience on site. Finding expats from your country will be easier to know what they miss from home and how they deal with it.

Talk to a tax lawyer

There are many tax benefits on relocating abroad. Talking to an international tax lawyer should pay for itself the first year. You might be eligible for the Income Tax exemption if you spend less than 35 days in the US each year. Ask them how you should handle your US investing accounts, your 401k, Roth IRA, and rental property if you are renting your house while you are away.

US citizens are required to pay taxes to the IRS even if they live abroad, but nothing prevents you from opening a company in your new country, which will be taxed locally. Again, these are just a few examples of things you should consider, and only a professional can give you advise fitting your precise needs.

Master international banking

One of the main concerns of expats is how to send money home or bring money to their new country. It can be tricky if you are unprepared. On the US side, I would not recommend closing any account you own. Even if they stay a bit dormant while you live abroad, re-opening them when you come back will be complicated. Same thing for your lines of credit, brokering accounts, and credit cards. It’s more, you can apply for a travel credit card to start earning free miles and hotel nights, as well as a credit card that doesn’t charge you a transaction fee when you use ATMs or buy things abroad. Expat forums are again a good place to ask for the latest cards and their perks.

Your local bank may have branches in your new country, so that might make things easier to talk to your branch manager and explain your plans of relocating abroad. Otherwise expect to have only a savings account in the new country, with a debit card at most, and plan accordingly.

Many companies have emerged lately offering affordable international money transfers, but if you have an account in US dollars in your new country, you can simply deposit a check from home and bring your money free of charge. There might be a delay of a few weeks for them to confirm the check though.

Live like a local

When I first moved to the UK, I though everything was so amazingly expensive, I got concerned my salary wouldn’t allow me to live well. Then, I talked to my coworkers who had lived there for years. They told me about the loyalty card at the supermarket, and the reduced meat you can buy after 5pm. They gave me the dates of the farmers’ market, and the URL of a money saving site that always sends tips and special offers. By month 2, I was living large on less than when I arrived.

Living like a local may also mean that instead of having milk and cereals in the morning, that are expensive goods, you could try the local breakfast. Splurge once in a while on the things you miss from home, but if you expect to live exactly like you do in the US, maybe relocating abroad wasn’t such a good idea.

Finding accommodation

If you are relocating abroad and have little information on your new city, renting a furnished place for a month might save you a lot of problems compared to directly signing a one year lease. Yes, it will be a bit expensive. But it gives you a month to get to know the city, the best neighborhoods, where your new friends live, where you’d like to go to the gym, and so on.

I have generally found that for stays over three months, getting a long term lease and buying furniture is worth it. Just get basic things until you’re sure you are going to stay. You can always donate it to charity if it won’t sell.

Relocating abroad is a wonderful way to experience new things, and if you are careful with your finances, it can also be a great move, allowing you to live cheaper and save a lot!

 

Check out some of our popular posts for more PF sense:

Mar 152017

Blue Apron Review

By |March 15th, 2017|Blog|2 Comments

IMG_1855To function well in today’s culture of fast-paced living, our bodies must be fueled with great food, all the time. For millions of Americans, however, this isn’t always possible and many are suffering for it.

Poor food choices as result of being almost constantly on the go are slowly eroding the health of young and old alike. But fear not, America – a viable and welcome solution to this problem has arrived at a front door (and dinner table) near you. Enter: Blue Apron. Here’s my review of how the Blue Apron service works.

What is Blue Apron?

Begun in 2012 and headquartered New York City, Blue Apron is a subscription-based weekly meal delivery service that helps even the most novice home chefs make great meals, in short amounts of time. For a fee, the company packages simple recipes and only the freshest ingredients to make those recipes and ships them direct to you.

How does it work?

After creating a username and password, you’ll register with your name, shipping address and credit card. From there, you select a plan type – two person or family – and your protein preferences or “taste profile” according to your personal preferences or dietary restrictions. The current options are vegetarian, beef, poultry, fish, lamb, pork and shellfish; you can select or opt-out of as many options as you choose. Finally, you select your preferred delivery day from a choice four – Wednesday, Thursday, Friday or Saturday.

IMG_1860

Blue Apron takes it from there. When your order ships, they send you an email notifying you it’s on the way. Your items will arrive before 8 pm on your preferred delivery day packed with large ice packs and wrapped in what looks like thermal bubble wrap. Sealed tightly, your order arrives ice cold and stays that way for several hours until you arrive home to unpack it.

What’s the cost?

The 2-Person Plan consists of 3 recipes delivered weekly and costs $9.99/serving or $59.94/week. The Family Plan lets you choose between 2 or 4 recipes a week and costs $8.74/meal. For the 2 recipe plan, it’s $69.92/week or $139.84/week for 4 recipes. Shipping is always free regardless of the selected plan.

Benefits and Drawbacks

IMG_1904

-Simple, from start to finish: Everything about Blue Apron – from the setup process to the actual meal prep – is easy to understand and even easier to execute. The blue and white interface of its website, mobile website and app are easy to navigate. If I had a question, the answer was easy find as headings and topics are well displayed. True to its mission, it makes the process of getting great food to your table as easy as possible with no extra effort on your part.

-The recipe cards are detailed yet simple: The recipe cards give detailed instructions that leave very little – if any – questions unasked. Each one gives a brief introduction of the recipe, a pictorial ingredients list followed by step-by-step instructions accompanied by step-by-step photos.

-There are no hidden fees or allusive “fine print:” Blue Apron doesn’t shy away from the details and no information is buried in fine print. The cost of the service is clearly displayed, there are no additional hidden fees and the terms of use are easy to find and understand.

-The bonus options and materials are phenomenal: Blue Apron offers an incredible set of bonus materials and options that are just as great the rest of the service. Its wine service provides a broad selection of wines that pair very well with the meals and can also be delivered to your door as often as you like. In addition to recipe cards, Blue Apron sends bonus materials. For example, I received a card entitled “Extra Helpings” that offered useful information on fennel and a bonus recipe to prepare it. The iOS app offers instructional videos and personal interest stories of their food suppliers.

-You can discontinue or “skip” meals at any time: Unlike subscription-based services of the past, Blue Apron allows you to “skip” any number of meals or discontinue the service at any time. No questions asked, you can opt out for as long as you’d like.

-The ingredients and food are spectacular: Simply put, the food tastes great. A home chef is only as good as the ingredients he or she is using and Blue Apron scores mega points for providing high quality ingredients. The flavor profile for each item is deep and rich making each dish a culinary delight time after time.

-It has limited alternatives: Nothing is ever perfect and Blue Apron is certainly no exception. Blue Apron falls short in that it offers few menu options for people with alternative diets. For example, there are no dairy or gluten-free options. While it offers consumers the option to change the week’s selected recipes, there are only a few additional options outside of setting your protein preferences and you may not find a recipe that fits your specific diet.

My meals: unusual but stellar

IMG_1892

For this particular week, I was sent three recipes – Moroccan Chicken, Chipotle Glazed Meatloaf and Spicy Shrimp Coconut Curry – with the latter being the crowd favorite. While each recipe offered something a bit out of my normal food routine, they all were a welcome change and opened my taste buds (and mind) up to delicious new options.

Blue Apron: A welcome guest at America’s dinner table

In a world inundated with take-out and highly-processed convenience foods, Blue Apron offers a refreshing alternative for home chefs all across America that are stuck in a recipe rut or repeated cycle of eating out too often. While Blue Apron certainly isn’t the most cost effective way to have home cooked meals, it’s a viable option for individuals and families with a budget that can accommodate it. The company has done the leg-work of finding the freshest and best-tasting ingredients for you; all you have to do is follow simple instructions to provide your friends and family with high-quality meals, each and every time.

Although Blue Apron is rather expensive, you can use this link to get $30 off your first order! Give it a try yourself and let us know what you think with your own Blue Apron review!

Now, you tell me: if Blue Apron were a potential dinner guest at your table, wouldn’t you want to invite it in to your home?

Photos courtesy of Katie Buys.