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Mar 252013

Life Insurance: Benefits of Buying in Your 20’s

By |March 25th, 2013|General Personal Finance|3 Comments

When asked, financial experts will generally recommend that you make a life insurance purchase when you’re gearing up to start a family. However, if it’s your intention to start a family in your 30’s there are definitely some significant play-it-smart financial advantages to purchasing earlier, in your 20’s.

After all, what are your 20’s for if not to structurally set up a foundation for your future success and limit, as much as possible, any future financial strain that will only make life that much harder down the road, not to mention far less fun!

The important thing to remember is that it’s always worthwhile taking the time to compare life insurance policies. There are a lot of subtle differences between your choices & you can end up saving a surprisable amount of money in the long run.

WHOLE TERM & TERM POLICIES

To start, it’s substantially imperative that you know the difference between the two main types of life insurance policies. Here is a short breakdown of each:

  • Whole Term: This policy is a life-long policy that provides ways for you to accumulate tax-free cash through investment incentives. Despite this, it is not a policy generally recommended by financial experts unless you have circumstances that dictate a need for a life-long policy, such as an illness or a handicapped child. This lack of recommendation comes from all of the commissions, fees, and highly expensive forfeiture costs that are associated with this type of policy.
  • Term: This policy is the preferred option and would be the policy you would buy in your 20’s, so to be able to change it up later in life, as it offers coverage for a set amount of years. While there are no investment incentives attached, you are afford a fixed-rate that with no extra fees attached—you’ll always pay the same amount, for the full duration.

Tony Streur, a life insurance consultant and author, explains the benefit of a term policy over whole here saying, “Term coverage is the appropriate coverage for most individuals, as their needs are for a certain term of years, while their other assets accumulate, such as retirement savings.”

Q&A: ANSWERS ABOUT BENEFITS & COVERAGE OPTIONS

Q: I’m in my 20’s and don’t have a lot of money; is it reasonable for me to spend money on life insurance?
A:
Yes, it’s very reasonable! Your youth provides you excellent rate options that you will not see again and you can set up an affordable policy now that will carry through for a few decades.

Q: Just how affordable is affordable?
A:
You can pick up a $500,000 30-year term policy that will cost you $350 to $400 per year and that premium is fixed for all 30 years. If you start a family in your 30’s, you won’t have to worry about paying higher rates right when you have all kinds of other expenses starting up.

Q: Do I really need $500,000-worth of life insurance at this point?
A:
Not necessarily. That example was a high-end example, which just goes to show how affordable rates are for you right now. At this point, you only need 4 to 5 multiples of your income, but if it’s your intention to plan ahead, you might want to consider including coverage for what your assets will be within the next 5 to 10 years (i.e. when you have a family). You can click here to learn more.

Mar 212013

How New Windows are Saving Me Money

By |March 21st, 2013|Blog, Personal Finance Tips|7 Comments

As the Texas summer is fast approaching, one of the things I’m worried about in my home is my electricity bill. First of all, I have a 23 year old AC unit that isn’t nearly as efficient as newer models. Secondly, I have 23 year old aluminum frame windows that do very little to keep out the crazy Texas heat.

While I’m just hoping the AC units survive so I don’t have to replace them, I had a unique opportunity to do something about the windows.

I had a company knock on my door and offer discounted windows in exchange for my home being a “marketing home”. That means they are going to market their product in my neighborhood and tell people to go look at my house for an example.

I got a competitor’s quote and this program is legit; I’m definitely getting a great deal! I’d tell the price and specifics, except part of my participation in the “marketing home” deal is that I don’t disclose the price.

So how am I paying for brand new energy efficient windows when I’m trying to save up for a wedding?

I’m Using a Balance Transfer on a Credit Card

One of my credit cards that I don’t use (and haven’t used for years) offered me a balance transfer at a 0% interest rate until January 1, 2014. There is a 3% balance transfer fee and they send me a check directly.

Let’s pretend I’m spending $5,000 on new windows and will take a balance transfer for that amount. The 3% fee means I’ll owe $5,150 when I pay back the loan, and then I’ll pay 6.99% APR on any balance left over after January 1st of 2014.

I hope to have it paid off before I pay any interest, but 6.99% is a low enough rate that I’m not opposed to paying interest on a small balance, especially when you consider how much money I’m saving in energy costs (which will be way more than the interest at 6.99%).

How I’m Saving Money on This Transaction

The great thing about a balance transfer where it’s more like a cash advance (they send me a check) is that I can put the purchase on a credit card and get rewards, then just use the balance transfer to pay off my credit card. I have a card that gets 2% back on all purchases, so I’ll get $100 in rewards when I pay for these windows.

That effectively makes the balance transfer fee only 1%, or $50. So how am I going to save $50 over the next 9 months? Easy. According to a University of Minnesota study I will save at least 23% of my cooling costs with these new windows. Considering how expensive it is to cool homes in the Texas summer, I think we are talking about at least a few hundred dollars a year.

I can also get a $200 tax credit for installing new windows from the federal government according to the Energy Star government website.

Finally it’s important to consider the increase in my home’s value. Angie’s List says I should get at least a 70% return on investment for new energy efficient windows, but that’s for people who are paying full price. When you consider the fact that I’m paying much less than a non marketing home would have paid (remember I did comparison shop and this really is a killer deal), I could see a 100% or more ROI when I go to sell.

Spending Money Never Saved So Much

I’m getting 2% of the purchase price back in rewards, saving hundreds of dollars in energy every year I live in the house, getting a $200 tax credit, and raising the value of my home by about as much as the cost of the windows.

That’s what I call a darn good deal!

This definitely isn’t our forever home, so we will be looking to sell it in the next few years after all our renovations are complete. I do fully expect to get all this money back when I go to sell.

Now I just need to find someone who is willing to buy a house with a 25 year old AC unit!

The windows get installed next Monday, so I’ll post pictures when everything is finished.

Readers: Have you ever done home renovations that saved money on electricity and/or drastically increased the value of your home? How did you take out a loan to pay for them?

Mar 142013

The End of a Car Lease Sucks

By |March 14th, 2013|Blog, Personal Finance Tips|13 Comments

Three years ago I leased a new car and thought it was a pretty darn good idea. I loved the fact that I could just basically “borrow” a car for three years and then give it back without any questions asked.

On Monday my lease expired and I turned it in.

Many of the benefits I listed in that first article still apply. The residual value in my contract was around $14,000. According to Kelley Blue Book, my car would only sell for about $13,000 if I tried to sell it on craigslist. That’s a great deal for me.

However, there are some really crappy things about a lease that I hadn’t considered when I first got the car. I will never lease a car again, and here’s why.

Minor Body Damage Can Mean Major Costs

When you sign up for a lease you understand that you have to give the car back in three years. That means you have to take care of the car and make sure it’s in good enough shape that you won’t get charged when you turn it in.

Personally I couldn’t care less about little dents, dings, scratches, and other cosmetic issues. The dealer does care. A lot.

toyota camry

photo credit: stradablog

In my opinion I turned the car in with only normal wear and tear (which shouldn’t cost anything), but I won’t know if Toyota agrees for a few weeks after they do the inspection. And if they say I owe them $1,000 for repairs I don’t know how I can fight it. What about $2,000? $4,000?

Maybe I’m just not very trusting, but I HATE the idea of some huge corporation telling me how much I have to pay them to fix up their car.

Oh, and remember how the dealership tried to screw me out of $1,000? I can’t help but wonder if there’s a little note in my file that says, “We tried to get an extra $1k from him and he wouldn’t budge. Get it back when he returns it.”

The next car I buy will be a used car that probably already has some minor body damage. I actually WANT a car that I can ding up a bit and not feel bad.

No One Wants to Pay Taxes, Title, and Licensing Every 3 Years

The other reason I really don’t like leasing a car is because the government doesn’t differentiate between leasing and buying. When you lease a new car, you have huge upfront costs of taxes, title, and licensing.

Paying that every three years would be worse than eating Kevin McKee home cooked meals every three years.

The government gets enough of my money from income and property taxes. I don’t need to give them even more by buying a car every three years.

Again, the next time I buy a car it’s going to be a used car that I will keep for as long as it stays alive.

No More Leases for Me

As I’m sure you can tell I will not be leasing a new car. I will be sharing Tag’s car for the immediate future. That means we have no car payment, our insurance has been cut in half, and we’ll be using less gas.

I’m hoping we can make it until we start having children before we need to buy a second car, but who knows if we’ll even last a month? We certainly CAN live with one car, but it would be CONVENIENT to have two. Only time will tell whether saving money or convenience will win.

When Toyota lets me know how much (if any) they are going to charge me for the “wear and tear” on my car I will post another update. In the meantime:

Readers: Have you ever leased a car? If so, would you do it again?

Mar 132013

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 122013

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 122013

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.