Mar 13 2013

Should You Refinance Your Mortgage?

By |March 13th, 2013|General Personal Finance|2 Comments|

If you own and home and are paying a mortgage, it’s probably the biggest expense in your budget.

That means it’s also one of your biggest opportunities to save money.

Interest rates are near historical lows right now and if you haven’t refinanced recently then you can probably save a bunch of money with a refinance.

If you have a $160,000 mortgage and you are sitting there with a 5.5% loan, you’re paying $908.46 a month. If you can reduce that to 3.5% you’ll only pay $718.47 a month.

That saves you $189.99 every month. That’s almost $2,300 every year just by getting a new loan.

Even if you already have a pretty low rate of 4% you’d still pay $763.86. The refinance would save you $45.39 a month, or $544.68 a year.

If you can find a lower rate it might seem like a no-brainer, but don’t go running to sign the paperwork just yet. Fox Business reports that it doesn’t always make sense to refinance.

Understand the Closing Costs and Fees

When you refinance a mortgage there are usually fees associated with closing the loan. These fees can cost many thousands of dollars and might make the refinance too expensive.

If it costs $2,000 to close the loan and you’ll be saving $2,300 every year then as long as you aren’t looking to sell the house right away you should go through with the refinance.

However, if it’s going to cost $2,000 to close the loan and you’re only saving $544 a year, you might not want to go through with the refinance.

Ask the Bank to Pay Closing Costs

If you found a rate that’s substantially lower than your current rate but you don’t have the money for closing costs, you should ask the bank if they will raise the interest rate in exchange for them paying the closing costs.

You won’t save as much money each month, but if the closing costs are paid then you can’t lose with a lower monthly payment!

Shop Around for the Best Deal

When you are looking for mortgage loans you want to shop around as if you were buying a car or a new refrigerator. The first one you find isn’t always the best one.

Talk to local banks and credit unions. Look online for low advertised rates. Find out if your employer has a deal with a bank where you get preferred rates.

Make sure as you are shopping that you aren’t actually applying for the loan; each time you apply your credit will be run and it will slightly lower your credit score.

Once you’ve found the best rate, do the math and figure out if the next interest rate is low enough, if you will stay in the house long enough, and if the closing costs are cheap enough for you to get it done.

Mar 12 2013

Should You Pay for Puppy Training?

By |March 12th, 2013|Blog, Personal Finance Tips|5 Comments|

I can’t believe it’s already been over a month since we bought our puppy!

Sydney came to us in the beginning of February weighing somewhere around seven pounds. Now she weighs about 13 pounds. She’s already almost doubled in size!

When we adopted Sydney, we also bought two different books about Australian Shepherds that specifically address how to train your puppy to be a good dog.

I also had some experience from training the puppy my family got when I was about 15 years old. Surprisingly I remembered quite a few of the commands and how they were taught.

I thought between the books and my experience over a decade ago that we didn’t need to pay for dog training. Tag, however, insisted that we take her to a puppy training class.

Surprise, surprise: Tag was right.

Puppy Training is Worth It!

Sydney has gone through three weeks of puppy training so far. She is only about 3 months old but she’s already very good at “sit”, “down”, “touch” (which is where she touches her nose to your hand, which is good for training loose leash walking and a foundation for agility if we go that route).

In the carShe hasn’t mastered but is doing a good job with “stay”, “drop it” (drop a ball or toy), “leave it” (stop paying attention to something interesting to her, like a treat or a dog barking in the distance), “shake” (a worthless command but fun party trick), “gentle” (stop biting hard, nice for giving treats), “go visit” (she waits for this command before going to see new people/animals), and more.

And we still have a few weeks left before this training is complete.

I thought I could train her myself, but all I really knew was sit and down. Dog training is not easy, and training a dog to be REALLY good and obedient is extremely challenging. We wouldn’t be this far if it weren’t for the training.

Socialization is Great for Puppies

One of the best side benefits of dog training is that Sydney gets to meet other puppies. There are about 10 other puppies in her class and she gets to play with them at certain times during the training.

We’ve read that she should meet at least 100 other dogs before she hits about 6 months if we want her to be really comfortable around other dogs when she is an adult. This is a great way for her to meet some new dogs.

We’ve also found that old dogs don’t really like her. She’s too wild and crazy for them, and they get annoyed easily with her energy level (heck, I don’t blame them!). However, the puppies in the class are just as crazy as she is and they love to play!

Finally, training a dog in a room full of other dogs really makes it stick. If your puppy can listen to you in the privacy of your own home that’s great. If she can listen to you in a room full of 10 dogs and 10 strange humans, she’s freaking awesome!

The Return on Investment is Immeasurable

We paid $150 for a six week puppy training course. That’s $25 each class which includes techniques for how to train the most basic and important commands, and built in socialization.

And this investment is going to last for the next 10-15 years. Find someone with a crazy dog that doesn’t listen to commands and doesn’t play nice with other dogs. Ask them if they would be willing to pay $150 for the dog to be well trained and socialized, and I bet you’d get about 100% say they’d pay it.

We spent $350 on her adoption fee and probably another $350 on toys, a crate, food, books, shots, and other stuff. It would be stupid to spend $700 upfront for a puppy, but be unwilling to spend $150 to help her be great for the next decade.

Readers: Have you ever spent money on training for your pets?

Mar 12 2013

How to Pick the Best Credit Card

By |March 12th, 2013|General Personal Finance|1 Comment|

Credit cards are very useful for people who want to earn rewards for their spending or build their credit history. They can also be a good way to get a low interest unsecured loan to make a purchase and pay off the balance in monthly payments.

Many people want to know how to pick the best credit card, but the answer will be different for everyone.

If you are looking for the BEST credit card, you need to understand what kind of credit card user you are. Once you know which category you fall under, it is easy to pick the best credit card.

You Need to Borrow Money

If you want a credit card because you want to buy something but can’t afford it right now, I recommend you re-evaluate if you really need whatever you are looking to buy. Chances are you can put the purchase off until you can save enough money to buy it.

However, if you really need to borrow money then the most important thing is the interest rate. If you are going to be paying interest on your credit card, you want the lowest interest rate possible, even if that means paying a small annual fee or giving up a rewards program.

You Need a Card for Emergencies

If you prefer to pay with cash or a debit card, you may still want a credit card for emergencies. You don’t want to be on a road trip with a broken down vehicle and no way to pay for repairs and a hotel.

An emergency credit card is also great because it builds your credit history.

The most important thing about an emergency card is the annual fee. You don’t want to pay an annual fee for something that is going to collect dust in your wallet. The next most important aspect is the interest rate. Chances are an emergency will be a large expense and you may not be able to pay it off right away.

Forget rewards programs for an emergency card; you don’t need them.

You Want to Earn Rewards

If you pay off your credit card bill every month then you should be looking for a card that earns rewards. Rewards are basically free money for responsible card users.

The most important thing in this case is the reward program. You want to get the maximum number of miles/points/cash back for each purchase.

The interest rate is the least important because ideally you will never pay interest on this card.

The annual fee is important, but in many cases a card will offer rewards that offset the cost of an annual fee if you spend enough each year.

Mar 7 2013

The Four Most Important Things in an Economic Collapse or Natural Disaster

By |March 7th, 2013|Blog, Economics / Politics|7 Comments|

If you’ve been reading this blog for a while then you know I’m not a fan of the spending that going on in Washington D.C. right now.

I’m also not a fan of the spending that is scheduled to happen over the next few years. The government not only plans to keep spending more, but we are going to add millions of baby boomers to the Social Security and Medicare dole and we don’t have a plan for it.

When an individual or a family gets in as much debt as our country they file for bankruptcy. However, our political leaders are acting like nothing is wrong and are ridiculing anyone who even suggests serious budget cuts.

I’m not going to go into a lot of detail about why I’m so worried about this. If you want more information on that I hope you’ll read these two articles: one from another personal finance blogger and my friend Len Penzo, where he talks about Economic Collapse 101. The other comes from PBS and talks about how the sequester won’t solve our problems.

I want to address what you can do to prepare for this happening without going overboard and buying a castle at least 400 miles from the nearest large city with an alligator filled moat.

Basics of Preparing for an Economic Collapse

First, I want to be clear that I’m not suggesting America will become a third world country and people will shoot you for a loaf of bread. Many countries have seen economic collapse recently and a large majority of people in those countries made it through just fine. (see the Soviet Union/Russia in 1991 and Argentina in 2001)

I’ve read a lot about people who have gone through economic collapse and made it through just fine. These people know what it takes to make it though, and now I want to share some of that info with you.

While I don’t expect a long period of civil unrest, I do expect a period of time where resources are scarce, people are thirsty and hungry, and it might not be very safe to go outside. Here are things to consider before we reach that point.

1. Water

If your water faucet stopped producing clean drinking water, what would you do? Do you have enough bottled water to last a week? What about a month? Three months? Did you know that people typically need about a gallon of water a day.

Economic collapse isn’t the only reason you may be lacking drinking water. A natural disaster could do it, and so could a terrorist or military attack against our country. Preparing to have drinking water in any emergency is just common sense.

dirty water

photo credit: hagge

Either you need to have a ton of it stored in large containers like food grade 55 gallon drums or you need a source of dirty water and a way to purify it.

Most people know you can use bleach to purify water, but few people know that pool shock (calcium hypochlorite) is a much better solution. A 1-pound bag of calcium hypochlorite costs less than $5 and will purify over 10,000 gallons of water. I personally got 5 pounds for about $15 at Home Depot, or you can get it for about $22 on Amazon.

Pool shock can be stored for a very long time, while bleach is only good for a few months.

Clean drinking water preparation is very easy.

  • Find a few different sources of water (stream, pond, lake, fountain, pools, etc) you could access by foot in an emergency.
  • Get some coffee filters to filter out sediment (especially if the water is coming from a stream or other natural body of water).
  • Get some pool shock and directions on how to use it to clean water.

There’s no reason not to spend $15 on an clean drinking water insurance policy. Please get this today.

2. Food

Food is obviously important, and again it’s useful to have food stored not just for economic collapse, but also for natural disasters, war, drought, crazy bugs that eat up all the plants, or anything else that would cause a food shortage.

I personally like dehydrated food because it’s cheap and it stores for a very long period of time. I bought some Augason Farms emergency buckets (which even come with a water purifying water bottle) and keep them safe in my house. I actually opened one up to try the food and make sure I know how to prepare it, and it’s actually not bad. They run about $100 a bucket and provide enough food for 30 days for one person.

My buddy Len has a great post about different food storage options, so if you are interested in some other options I strongly suggest his post about Emergency Food Supplies.

3. Safety in Numbers

If people start getting violent, all the guns and ammo in the world aren’t going to stop a gang of people from overtaking one individual. Talk to your family and close friends about what you would do in an emergency situation and how you could band together to protect each other.

You can even pose it as a “zombie apocalypse” question if you are afraid they will think you are insane. Just make sure you have a few people you can trust in the back of your mind.

It’s important to remember that if your family and friends aren’t preparing themselves with food and water that you are going to have to prepare extra to account for them. You’re going to want to take them in because you love them and because you need a large group to remain safe.

Based on what I’ve read from people who have been through economic collapse, you can really only trust your family and very best friends. Your survival group needs to be like a family. If times get really hard, you have to know you can trust everyone and you won’t feel like someone is looking out for themselves more than they are looking out for the entire group.

4. Safety in General

Even when you have a group of people, you’ll need to be able to defend yourselves somehow. The best means of self defense would be firearms in the hands of trained shooters. If you aren’t a gun person then martial arts, baseball bats, and anything else you can find will be useful.

Again, I really don’t expect the crazy time period where there is no food on the supermarket shelves to last very long. Hopefully it is so short that nobody resorts to violence for food and water. However, if it lasts too long then you will want to be able to protect yourself and your family.

5. Things to Trade (bonus!)

As a bonus, keep in mind that the longer the economy is devastated and currency is worthless, the more important it will be to have valuable stuff. Extra food, water, or firearms/ammo will be exceptionally valuable. So will medicine, lighters, clothing, alcohol, and a lot of other everyday items.

Don’t be afraid to stock up on stuff you use every day. If a collapse happens, you have something to trade. If it doesn’t you’ll just use it in your everyday life anyway. This is a no-lose situation.

Good Luck

I make mistakes every now and then and I hate when it happens. This is an exception. I hope to God that I’m misunderstanding the economic signs and that we will have a truly healthy economy for many decades.

I also hope that we are never in a situation where a natural disaster or conflict disrupts our ability to go to the grocery store for food and our kitchen sink for tap water.

However, I sleep much better at night knowing that if things get crazy, I have the basic supplies and skills to provide food, water, and protection for myself and those I love most.

Readers: Are you prepared for a disaster? If not, what would you do in the event of an economic collapse or severe natural disaster where there is no help from the government?

Mar 4 2013

How Much Can You Make With Lending Club?

By |March 4th, 2013|Blog, Personal Finance Tips|12 Comments|

As you all know I think Lending Club is a great place to invest money; I like it much better than investing in the stock market. I was actually talking with a friend who recently signed up for Lending Club and he asked, “How much will I really make with these investments?”

It’s actually a really good question.

There are actually three really important questions that are not very clear when you buy a note on Lending Club:

  • How much money will I make when the note is fully paid?
  • What is my overall return percentage?
  • How long will it take for me to get my initial investment back?

Answers to these questions aren’t given when you are trading notes on Lending Club. That’s why I built the Lending Club Profit Calculator (my very first javascript calculator!) to help.

Lending Club Calculator

You give it four pieces of information (interest rate, remaining payments, outstanding principal, and asking price) and it tells you how much money you’ll make, your return %, and how long it will take until you break even.

If you trade notes on Lending Club, this is a really great tool that I recommend you use when trading.

Why Are My Returns So Small?

How much money can you really make with each Lending Club note? My new calculator lays it out, and I go over how you reinvest to increase returns.If you invest in a note at 15.99% that has 58 remaining payments, $24.00 in outstanding principal and a $24.50 asking price, your total return will only be 8.54%.

But why do I only get 8.54% when the interest rate is 15.99%? Is Lending Club lying?

No they aren’t lying. The reason the return LOOKS low is because every month your borrower makes payments and they will pay interest on a lower balance.

If you lend $25 at 15.99% APR, the borrower will pay about $0.33 cents of interest on the next payment. If the balance is only $10 at 15.99% APR, the borrower will only pay about $0.13 cents of interest on their next payment.

As the value of the loan goes down, so does the amount of interest the borrower pays. You are still getting 15.99%, just on a smaller balance.

How Do I Increase My Returns?

If you really want to get a full 15.99% return on your investment, you can do it on Lending Club. The key is to REINVEST!

Every month your borrowers (hopefully) make payments and you have extra cash on hand. If you don’t reinvest that money then you’re getting 0% on it. However, if you reinvest it at 15.99% again, then obviously you will make more money if your new borrower pays on his loan.

If you want to keep your returns high then you’ll want to reinvest. If you would rather have the cash in your pocket then you don’t need to reinvest. If you don’t want a return but don’t want to reinvest in Lending Club, you can pull it out and put that money in the stock market or a savings account. It’s entirely up to you.

If you are interested in opening an account with Lending Club, you can sign up on their website. You may want to read my tutorial about trading notes on Lending Club and remember to use my new Lending Club Profit Calculator!

Readers: If you are using Lending Club, what kinds of loans are you investing in? If you’re not using Lending Club, what else are you investing in?

Feb 26 2013

What Does Sequestration Really Mean?

By |February 26th, 2013|Blog, Economics / Politics|16 Comments|

If you have been watching the news then you know that the federal government is going to be required to cut $85 billion out of their budget unless congress passes a law to avoid or change it before March 1st.

$85 billion is a heck of a lot of money. It’s so big it’s hard to understand what it really means. Here are a few comparisons that might make sense.

With $85 billion the government could buy UPS, which currently has a market cap of about $78 billion. That’s about the 70th largest company in the world. Wowzers.

It’s also enough to send every single household in America a check for $642.42. Instead of cutting that spending, the government could reduce spending elsewhere by $85 billion, and then send everyone those unique personal checks. Talk about stimulating the economy!

$85 billion is also enough money to pay off 10% of the total American consumer credit card debt. Imagine how awesome people with credit card debt would feel if the government wiped out 10% of their credit card debt!

This $85 billion sounds like a whole lot of money. Heck, it sounds like so much maybe this will solve our debt problem and return America to financial sustainability.

Or maybe not.

$85 Billion is a Drop in the Bucket for the U.S. Government

Let’s pretend that we actually go through with cutting $85 billion out of the federal budget (which I personally can’t possibly see happening. Politicians always kick the can down the road).

To make it easier to understand, let’s scale the numbers to reflect a typical American family.

us capitol

photo credit: ThatMakesThree

The U.S. Government is like a family that currently has $166, 217 in debt. That’s a lot of debt, and unfortunately the family only makes $29,000 a year (tax revenue). To make matters worse, this family spends $38,000 a year (federal spending), meaning they have to go $9,000 deeper in debt every year (federal deficit) just to pay their bills.

If this “family” were to bite the bullet and go through sequestration cuts, it would cut a whopping $850 out of their budget. They would go from spending $38,000 a year to $37,150 a year. They would still have to borrow $8,150 and add that much to their debt (which is already at $166,000!).

If a family came to you and said they had $166,000 in debt and wanted to borrow another $9,000, would you give it to them? I would hope not! Is borrowing $8,150 really much better? Again it’s pretty clear the answer is “no”.

The Government Isn’t Serious about Fiscal Responsibility

Unfortunately the federal government isn’t serious about fiscal responsibility. The sequestration cuts are less than 10% of our current deficit. We’d still need to cut another $815 billion just to stop borrowing money.

This has a serious impact on your personal finances. If the government becomes financially insolvent then you and your family won’t get social security or medicare when you get older. If US government debt gets downgraded again then many “safe” investment vehicles like treasury bonds will become very risky and could lose money.

The US government needs to make drastic spending cuts to become financially solvent (and no, $85 billion isn’t drastic) or else we could be in for a world of trouble when our federal government can’t pay its bills.

Readers: Are you worried about the US government’s spending problem? If not, how much further in debt can the country go before you’ll start to get worried?