75 Personal Finance Rules of Thumb

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A “rule of thumb” is a mental shortcut. It’s a heuristic. It’s not always true, but it’s usually true. It saves you time and brainpower. Rather than re-inventing the wheel for every money problem you face, personal finance rules of thumb let you apply wisdom from the past to reach quick solutions.

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I’m going to do my best Buzzfeed impression today and give you a list of 75 personal finance rules of thumb. Some are efficient packets of advice while others are mathematical shortcuts to save brain space. Either way, I bet you’ll learn a thing or two—quickly—from this list.

The Basics

These basic personal finance rules of thumb apply to everybody. They’re simple and universal.

1. The Order of Operations (since this is one of the bedrocks of personal finance, I wrote a PDF explaining all the details. Since you’re a reader here, it’s free.)

2. Insurance protects wealth. It doesn’t build wealth.

3. Cash is good for current expenses and emergencies, but nothing more. Holding too much cash means you’re losing long-term value.

4. Time is money. Wealth is a measure of how much time your money can buy.

5. Set specific financial goals. Specific numbers, specific dates. Don’t put off for tomorrow what you can do today.

6. Keep an eye on your credit score. Check-in at least once a year.

7. Converting wages to salary: $1/per hour = $2000 per year.

8. Don’t mess with City Hall. Don’t cheat on your taxes.

9. You can afford anything. You can’t afford everything.

10. Money saved is money earned. When you look at your bottom line, saving a dollar has the equivalent effect as earning a dollar. Saving and earning are equally important.

Budgeting

I love budgeting, but not everyone is as zealous as me. Still, if you’re looking to budget (or even if you’re not), I think these budgeting rules of thumb are worth following.

11. You need a budget. The key to getting your financial life under control is making a budget and sticking to it. That is the first step for every financial decision.

12. The 50-30-20 rule of budgeting. After taxes, 50% of your money should cover needs, 30% should cover wants, and 20% should repay debts or invest.

13. Use “sinking funds” to save for rainy days. You know it’ll rain eventually.

14. Don’t mix savings and checking. One saves, the other spends.

15. Children cost about $10,000 per kid, per year. Family planning = financial planning.

16. Spend less than you earn. You might say, “Duh!” But if you’re not measuring your spending (e.g. with a budget), are you sure you meet this rule?

Investing & Retirement

Basic investing, in my opinion, is a ‘must know’ for future financial success. The following rules of thumb will help you dip your toe in those waters.

17. Don’t handpick stocks. Choose index funds instead. Very simple, very effective.

18. People who invest full-time are smarter than you. You can’t beat them.

19. The Rule of 72 (it’s doctor-approved). An investment annual growth rate multiplied by its doubling time equals (roughly) 72. A 4% investment will double in 18 years (4*18 = 72). A 12% investment will double in 6 years (12*6 = 72).

20. “Don’t do something, just sit there.” -Jack Bogle, on how bad it is to worry about your investments and act on those emotions.

21. Get the employer match. If your employer has a retirement program (e.g. 401k, pension), make sure you get all the free money you can.

22. Balance pre-tax and post-tax investments. It’s hard to know what tax rates will be like when you retire, so balancing between pre-tax and post-tax investing now will also keep your tax bill balanced later.

23. Keep costs low. Investing fees and expense ratios can eat up your profits. So keep those fees as low as possible.

24. Don’t touch your retirement money. It can be tempting to dip into long-term savings for an important current need. But fight that urge. You’ll thank yourself later.

25. Rebalancing should be part of your investing plan. Portfolios that start diversified can become concentrated some one asset does well and others do poorly. Rebalancing helps you rest your diversification and low er your risk.

26. The 4% Rule for retirement. Save enough money for retirement so that your first year of expenses equals 4% (or less) of your total nest egg.

27. Save for your retirement first, your kids’ college second. Retirees don’t get scholarships.

28. $1 invested in stocks today = $10 in 30 years.

29. Inflation is about 3% per year. If you want to be conservative, use 3.5% in your money math.

30. Stocks earn 7% per year, after adjusting for inflation.

31. Own your age in bonds. Or, own 120 minus your age in bonds. The heuristic used to be that a 30-year old should have a portfolio that’s 30% bonds, 40-year old 40% bonds, etc. More recently, the “120 minus your age” rule has become more prevalent. 30-year old should own 10% bonds, 40-year old 20% bonds, etc.

32. Don’t invest in the unknown. Or as Warren Buffett suggests, “Invest in what you know.”

Home & Auto

For many of you, home and car ownership contribute to your everyday finances. The following personal finance rules of thumb will be especially helpful for you.

33. Your house’s sticker price should be less than 3x your family’s combined income. Being “house poor”—or having too expensive of a house compared to your income—is one of the most common financial pitfalls. Avoid it if you can.

34. Broken appliance? Replace it if 1) the appliance is 8+ years old or 2) the repair would cost more than half of a new appliance.

35. Used car or new car? The cost difference isn’t what it used to be. The choice is even.

36. A car’s total lifetime cost is about 3x its sticker price. Choose wisely!

37. 20-4-10 rule of buying a vehicle. Put 20% of the vehicle down in cash, with a loan of 4 years or less, with a monthly payment that is less than 10% of your monthly income.

38. Re-financing a mortgage makes sense once interest rates drop by 1% (or more) from your current rate.

39. Don’t pre-pay your mortgage (unless your other bases are fully covered). Mortgages interest is deductible, and current interest rates are low. While pre-paying your mortgage saves you that little bit of interest, there’s likely a better use for you extra cash.

40. Set aside 1% of your home’s value each year for future maintenance and repairs.

41. The average car costs about 50 cents per mile over the course of its life.

42. Paying interest on a depreciating asset (e.g. a car) is losing twice.

43. Your main home isn’t an investment. You shouldn’t plan on both living in your house forever and selling it for profit. The logic doesn’t work.

44. Pay cash for cars, if you can. Paying interest on a car is a losing move.

45. If you’re buying a fixer-upper, consider the 70% rule to sort out worthy properties.

46. If you’re buying a rental property, the 1% rule easily evaluates if you’ll get a positive cash flow.

Spending & Debt

Do you spend money? (“What kind of question is that?”) Then these personal finance rules of thumb will apply to you.

47. Pay off your credit card every month.

48. In debt? Use psychology to help yourself. Consider the debt snowball or debt avalanche.

49. When making a purchase, consider cost-per-use.

50. Make your spending tangible with a ‘cash diet.’

51. Never pay full price. Shop around and do your research to get the best deals. You can earn cash back when you shop online, score a discount with a coupon code, or a voucher for free shipping.

52. Buying experiences makes you happier than buying things.

53. Shop by yourself. Peer pressure increases spending.

54. Shop with a list, and stick to it. Stores are designed to pull you into purchases you weren’t expecting.

55. Spend on the person you are, not the person you want to be. I love cooking, but I can’t justify $1000 of professional-grade kitchenware.

56. The bigger the purchase, the more time it deserves. Organic vs. normal peanut butter? Don’t spend 10 minutes thinking about it. $100K on a timeshare? Don’t pull the trigger when you’re three margaritas deep.

57. Use less than 30% of your available credit. Credit usage plays a major role in your credit score. Consistently maxing out your credit hurts your credit score. Aim to keep your usage low (paying off every month, preferably).

58. Unexpected windfall? Use 5% or less to treat yourself, but use the rest wisely (e.g. invest for later).

59. Aim to keep your student loans less than one year’s salary in your field.

The Mental Side of Personal Finance

At the end of the day, you are what you do. Psychology and behavior play an essential role in personal finance. That’s why these behavioral rules of thumb are vital.

60. Consider peace of mind. Paying off your mortgage isn’t always the optimum use of extra money. But the peace of mind that comes with eliminating debt—it’s huge.

61. Small habits build up to big impacts. It feels like a baby step now, but give yourself time.

62. Give your brain some time. Humans might rule the animal kingdom, but it doesn’t mean we aren’t impulsive. Give your brain some time to think before making big financial decisions.

63. The 30 Day Rule. Wait 30 days before you make a purchase of a “want” above a certain dollar amount. If you still want it after waiting and you can afford it, then buy it.  

64. Pay yourself first. Put money away (into savings or investment accounts) before you ever have a chance to spend it.

65. As a family, don’t fall into the two-income trap. If you can, try to support your lifestyle off of only one income. Should one spouse lose their job, the family finances will still be stable.

66. Every dollar counts. Money is fungible. There are plenty of ways to supplement your income stream.

67. Savor what you have before buying new stuff. Consider the fulfillment curve.

68. Negotiating your salary can be one of the most important financial moves you make. Increasing your income might be more important than anything else on this list.

69. Direct deposit is the nudge you need. If you don’t see your paycheck, you’re less likely to spend it.

70. Don’t let comparison steal your joy. Instead, use comparisons to set goals. (net worth).

71. Learning is earning. Education is 5x more impactful to work-life earnings than other demographics.

72. If you wouldn’t pay in cash, then don’t pay in credit. Swiping a credit card feels so easy compared to handing over a stack of cash. Don’t let your brain fool itself.

73. Envision a leaky bucket. Water leaking from the bottom is just as consequential as water entering the top. We often ignore financial leaks (e.g. fees), since they’re not as glamorous—but we shouldn’t.

74. Forget the Joneses. Use comparisons to motivate healthier habits, not useless spending.

75. Talk about money! I know it’s sometimes frowned upon (like politics or religion), but you can learn a ton from talking to your peers about money. Unsure where to start? You can talk to me!

The Last Personal Finance Rule of Thumb

Last but not least, an investment in knowledge pays the best interest.

Boom! Got ’em again! Ben Franklin streaks in for another meta appearance. Thanks Ben!

If you enjoyed this article and want to read more, I’d suggest checking out my Archive or Subscribing to get future articles emailed to your inbox.

This article—just like every other—is supported by readers like you.

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How This Former Zookeeper Paid Off Over $40,000 In Debt

Hey! Today, I have a great debt payoff story to share from Steffa Mantilla. She paid off $40,000 in debt so that she could be a stay at home mom and start a business. Enjoy!

My husband CJ and I have been married for over a decade.  You’d think with all that time married would come wisdom but it wasn’t until year 10 of our marriage before we really took stock in figuring out our financial life.

How This Former Zookeeper Paid Off Over $40,000 In Debt

How This Former Zookeeper Paid Off Over $40,000 In Debt

Like most people, we got into a routine and didn’t question what we thought was working.  We had surrounded ourselves with other couples who were living the same way we were. 

There was no impetus to change because we had created a comfortable echo chamber with a “Keeping up with the Jones’ mentality.”

Fast forward to today and we’ve paid off $100,000 in debt and are on track to pay off our mortgage within the next 3 years. 

While there’s no “easy button” on debt payoff, I hope that our story can help others see what’s possible and the steps we took to get there.  

More debt payoff stories:

Our Debts

In 2016, my husband and I were close to $200,000 in debt.  Around $165,000 was our mortgage, $12,000 in student loans, and $30,000 in consumer loans.  We were a dual income couple with no kids and lived like money was infinite.  Most of our friends had a similar lifestyle and seemed to be able to afford it.  

The problem was, we put our entire life on payments because we had the mistaken belief that we “deserved it” somehow.  Payments for already-experienced fancy vacations, new cars, and furniture ate up the majority of our paychecks.  

From the outside, we seemed like we were well off when in reality, we were one missed paycheck away from not being able to make the minimum payments on our bills.  

What Made Me Want To Change My Career

By the time 2016 rolled around, we had been married for 11 years and were ready to start a family.  I had also been in my zookeeping career for equally as long.

I had worked my way up from an Avian Intern all the way up through my ultimate goal of Senior Keeper for Carnivores.  While I had loved being a zookeeper all those years, I had reached the limit of upward mobility.  All higher positions were supervisory and were no longer working directly with the animals.  

When we were discussing our future family plans, it became apparent to me that my career wasn’t going to mesh well with my idea of motherhood.  Zookeepers work long hours, often starting at 6AM to get the exhibits ready by the time guests arrive.  They also work every weekend,  evening special events, and every holiday.  

I was also capped out on pay. 

Despite working a decade in this field, having advanced continuing education certifications, and the required degrees, I made merely $16 an hour (roughly $30,000/year).  The long, strenuous hours left me burnt out and wanting a change.

One day, my husband and I sat down to do our budget planning for a baby.  After looking at all of the costs, including childcare, if I continued to work in the same job, I would be making negative dollars

This, combined with rarely being able to have weekends or holidays off with my family, was a deal-breaker.  I’d essentially miss out on my child’s entire childhood if I stayed in this job.

I brought up the idea of becoming a stay at home mom and we set out to make a plan.

What Needed To Happen To Make This Work

In order for me to become a stay at home mom, our family budget had to be drastically altered.  Thankfully, while talking about finances was awkward in the beginning, we quickly set aside any embarrassment or feelings of guilt that we had.  

Open communication without judgement, finger pointing, or blame was the only way we were able to make a real plan that we could stick to.  While it was stressful since we were essentially broke despite both earning incomes, we instead used this to come together and strengthen our marriage instead of pull us apart.

By the end, we came to the conclusion that a few things needed to happen:

  • Pay off all our debt (except the mortgage)
  • Lower our frivolous household expenses
  • I’d need to get a job to make up the difference in our budget

Our Money Mindsets

As a wedding gift, we had received the book The Total Money Makeover.  Neither of us had heard of Dave Ramsey before and didn’t really have an interest in learning about him.  Thus, this book sat on our bookshelf for 10 years unopened.

It’s kind of interesting thinking back about how we had the tools for financial success right in front of our faces for literally 10 years without ever using them.  But, we weren’t mentally open to change at the time.  

I think the saying that “you can help someone who won’t help themselves” is especially true when talking about money.  Money is a personal topic that many people have hang ups about. In our case, I knew investing was good so we did that but never really had a problem with debt.  I assumed everyone had debt and all my friends confirmed that.

For CJ, he grew up in a household where you didn’t talk about money.  It was always a source of stress because there was never enough.  Then when he grew up and got his first adult job, there was a sigh of relief.  All restrictions were gone and he could spend how he wished instead of constantly being in a scarcity mindset.

Even though we came from very different money backgrounds, we both were missing solid financial knowledge.  Neither of us had been taught about building wealth or living a debt-free lifestyle.  

This was a huge paradigm shift that we each needed to overcome in order to truly get on the same page and work together.

How We Got On The Same Page As A Couple

I love reading so I quickly devoured The Total Money Makeover in one day.  But no matter what, I couldn’t convince CJ to read the book.  He thought of it as “work” and he’d rather read for relaxation.

So I used my training in operant conditioning to subtly leave hints and clues about.  CJ and I now joke how I “clicker trained” him into getting on board. 

During car rides together we’d listen to the Dave Ramsey Podcast. I’d talk about how neat it was hearing other’s debt-free screams and then we’d discuss what we’d do if that were us.  Could we ever achieve that?  How are these people able to do this and we can’t when we’re earning more money than them?  

The best persuasion was learning about others achieving their financial dreams.  Dreaming together and making plans for our financial future was instrumental in giving us an achievable goal.  

Now it wasn’t just some vague idea; we had concrete plans for how we wanted the next 20 years to go.  We could eliminate financial stress and truly live a life we never thought was possible.

Our Plan To Pay Off Debt

So back to the debt.  We had around $42,000 that needed to be paid off before I could become a stay at home mom.  We weren’t a brand new couple so we did have some savings and investments.  Everything was disjointed and not well organized though.

After looking at our current financial state, we saw that a lot of the debt could be wiped out fairly quickly with the money we had in various places.  

Here’s where we took money from:

  • Sold stock from my childhood mutual funds that my parents had set up as a teaching tool. (~ $2,000)
  • Sold company stock from CJ’s job that was bonus compensation. (~$3,000)
  • Emptied out our $15k Emergency Fund down to $1,000 ($14,000)

These were the immediate quick wins that we could do.  We now had $23,000 left in debt to tackle.  

Rearranging our budget was where we found our largest consistent monthly savings.  After tracking our spending for a few months, we saw that we were spending an insane $800 a month on eating out and for entertainment purposes.  This was on top of the $600 we already spent on groceries for two people.

While we do live in a city where things cost more, it wasn’t enough to justify hundreds of dollars every month.  We were going out for dinner or drinks with friends whenever we were invited.  We never said “no” and our bank account was weeping.  

I also started to take any overtime that was offered.  I’d either come in to work on my days off when coverage was needed or I’d volunteer to work extra evening special events.  This also made it easier to save because a lot of my free time was being used up so I couldn’t go out with friends.

After rearranging our budget and adding in overtime pay, we were able to free up around $1800/month to go directly towards debt. It took 12 months for us to pay off the remaining debt.  During this time I got pregnant and now had to figure out what to do about my soon to be eliminated income.

Making Up The Deficit In Our Budget

Fast forward to me having a baby and being out on maternity leave.  During this time I was still being paid since I had sick days accumulated from the past 5 years.  I was working with my boss to try and see if a part-time or few days a week position could be created.  

Ultimately, while they were willing to work with me somewhat, it still wouldn’t have been financially viable due to the cost of childcare.  

After switching gears, I started talking to other zookeepers who did pet sitting as a side job.  They mainly did weekend pet sits or before and after work drop-ins.  I picked their brains a bit and then decided to offer up my services on Rover.

The reason I chose Rover was that there was already a built-in client base.  I knew I could get clients by highlighting my experience with animals.  Who wouldn’t trust their dog with someone who worked with cheetahs and lions?  By using Rover, I didn’t have to do any outside marketing and ended up having a client wait list.

I also made it clear that I’d be bringing my baby along with me to all dog walks or cat sits so I only took on small or elderly dogs and cats.  I met all clients ahead of time to do behavioral observations and stroller testing to ensure it would be safe. 

In the end, I took on 2 mid-day dog walk clients and numerous cat sitting clients. Our budget was going to be $500 short once my maternity pay ended but with these pet sitting clients I was making $500 a month bare minimum.  And I didn’t need to worry about childcare.  

Paying Down The Mortgage

As I got into the hang of mom life and my child grew older, I started looking into creating my own business.  I was now a self-taught personal finance enthusiast  and Certified Financial Education Instructor (CFEI) so I started my blog Money Tamer.  I was able to write blog posts during my son’s nap time and learned as much as I could about online business.  

My blog is now monetized and the income I take from it goes directly towards our mortgage principle.  Any extra money that CJ earns also goes towards paying off our house early.  We’ve sold things we no longer want or need to consignment stores or used online marketplaces.  

Over the past three years, we’ve been able to put close to $55,000 towards paying down our home making our total debt payoff close to $100,000. 

Our next goal is to have our house paid off in an additional 3 years or so.  

Final Thoughts

Getting out of debt is possible even when you feel lost.  So many people grow up in households where money is taboo and many schools barely touch upon the subject.  Even if you think you’re too far gone, I’m here to tell you it’s never too late.

We had been married and spending with abandon for over 10 years before we got our act together.  The biggest factor in our success was our change in mindset.  We started seeing money as a way to build freedom into our lives rather than surrounding ourself with consumer goods.

If you’re in a couple, it’s paramount that you have meetings to dream together.  You both need to create a dream you’re both working towards so that you aren’t tempted to derail one another.  When one of you is struggling, the other is there to help keep you on course and vice versa.  

This is the route we took, and while it’s not complete yet, we’re well on our way to being able to reach our goal of financial freedom.

Author bio:  Steffa is a Certified Financial Education Instructor (CFEI) and founder of the personal finance website Money Tamer.  She is an online entrepreneur who built her business while being a stay at home mom to her toddler.  Steffa has paid off over $100,000 in debt and now teaches others how they can get their finances under control to do the same.

Are you trying to pay off your debt? What are your dreams for life after debt?

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Source: makingsenseofcents.com

Wealth Tax: Definition, Examples, Pros and Cons

Wealth Tax: Definition, Examples, Pros and Cons – SmartAsset

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A wealth tax is a type of tax that’s imposed on the net wealth of an individual. This is different from income tax, which is the type of tax you’re likely most used to paying. The U.S. currently doesn’t have a wealth tax, though the idea has been proposed more than once by lawmakers. Instituting a wealth tax could help generate revenue for the government but only a handful of countries actually impose one.

Wealth Tax, Definition

A wealth tax is what it sounds like: a tax on wealth. This can also be referred to as an equity tax or a capital tax and it applies to individuals.

More specifically, a wealth tax is applied to someone’s net worth, meaning their total assets minus their total liabilities. The types of assets that may be subject to inclusion in wealth tax calculations might include real estate, investment accounts, liquid savings and trust accounts.

A wealth tax isn’t the same as other types of tax you’re probably familiar with paying. For example, you might be used to paying income tax on the money you earn each year, self-employment tax if you run a business or work as an independent contractor, property taxes on your home or vehicles and sales tax on the things you buy.

Instead, a wealth tax has just one focus: taxing a person’s wealth. According to the Tax Foundation, only Norway, Spain and Switzerland currently have a net wealth tax on assets. But a handful of other European countries, including Belgium, Italy and the Netherlands, levy a wealth tax on selected assets.

How a Wealth Tax Works

Generally, a wealth tax works by taxing a person’s net worth, rather than the income they earn in a given year. In countries that impose a wealth tax, the tax is only levied once assets reach a certain minimum threshold. In Norway, for instance, the net wealth tax is 0.85% on stocks exceeding $164,000 USD in value.

Wealth taxes can be applied to all of the assets someone owns or just some of them. For example, the wealth tax can include securities and investment accounts while excluding real property or vice versa.

Every country that imposes a wealth tax, whether it’s a net tax or a tax on selected assets, can set the tax rate differently. It’s not uncommon for there to be exemptions or exclusions to who and what can be taxed this way.

A wealth tax can be charged alongside an income tax to help generate revenue for the government. The wealth tax rates are typically lower than income tax rates, in terms of the actual percentage rate, but that doesn’t necessarily mean paying less in taxes. Someone who has substantial assets that are subject to a wealth tax, for instance, may end up paying more toward that tax than income tax if they’re able to reduce their taxable income by claiming tax breaks.

Is a Wealth Tax a Good Idea?

In countries that use a wealth tax, the revenue helps to fund government programs and organizations. In some places, such as Norway, revenue from the wealth tax is split between the central government and municipal governments. It would be up to the federal government to decide how wealth tax revenue should be allocated if one were introduced here.

In the U.S., the concept of a wealth tax has been used to argue for a redistribution of wealth. Or more specifically, lawmakers who back the tax have suggested that it could be used to more fairly tax the wealthy while relieving some of the tax burdens on lower and middle-income earners. While wealthier taxpayers may take advantage of loopholes to minimize income taxes, a wealth tax would be harder to work around, at least in theory. That could yield benefits for less wealthy Americans if it means they’d owe fewer taxes.

That sounds good but implementing and collecting a wealth tax may be easier said than done. It’s possible that even with a wealth tax in place, high-net-worth and ultra-high-net-worth taxpayers could still find ways to minimize the amount of tax they’d owe. And the tax itself could be seen as unfairly penalizing wealthier individuals who own charities or foundations, invest heavily in businesses or save and invest their money instead of using it to buy things like luxury cars, expensive homes or other physical assets.

It’s important to keep in mind that a wealth tax is targeted at people above certain wealth thresholds, so most everyday Americans wouldn’t have to pay it. But it could cause problems for someone who unexpectedly receives a large inheritance that increases his wealth, even if his income remains at the lower end of the scale.

The Bottom Line

In the U.S., the wealth tax is still just an idea that’s being floated by progressive politicians and lawmakers. Whether a wealth tax is ever implemented remains to be seen and it’s likely that debate over it may continue for years to come. And enforcing one could be difficult if it were ever introduced, if for no other reason than there are many ways for the extremely wealthy to avoid taxes. In the meantime, talking with a tax professional may be the best way to manage your own personal tax liability.

Tips on Taxes

  • Consider talking to your financial advisor about the best ways to handle taxes as you grow an investment portfolio. If you don’t have a financial advisor yet, finding one doesn’t have to be complicated. SmartAsset’s financial advisor matching tool can help you connect with professional advisors online. It takes just a few minutes to get your personalized financial advisor recommendations. If you’re ready, get started now.
  • Managing taxes is an important part of growing wealth and creating an estate plan. The less you pay in taxes, the more money you have to save and invest toward establishing a legacy of wealth. A free income tax calculator is a good way to start figuring what you owe or to get confirmation that  your calculations are correct.

Photo credit: ©iStock.com/Serhii Sobolevskyi, ©iStock.com/svengine, ©iStock.com/FG Trade

Rebecca Lake Rebecca Lake is a retirement, investing and estate planning expert who has been writing about personal finance for a decade. Her expertise in the finance niche also extends to home buying, credit cards, banking and small business. She’s worked directly with several major financial and insurance brands, including Citibank, Discover and AIG and her writing has appeared online at U.S. News and World Report, CreditCards.com and Investopedia. Rebecca is a graduate of the University of South Carolina and she also attended Charleston Southern University as a graduate student. Originally from central Virginia, she now lives on the North Carolina coast along with her two children.
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30% of Americans Say COVID-19 Has Changed the Age at Which They Plan to Retire

New Northwestern Mutual Research Finds 20% of People Plan to Retire Later than Expected, and 10% Plan to Retire Earlier

MILWAUKEE, Dec. 3, 2020 /PRNewswire/ — The economic impact of the COVID-19 pandemic has changed the retirement timeline for 30% of Americans, according to research from Northwestern Mutual’s 2020 Planning & Progress Study. The study finds that 20% of U.S. adults age 18+ plan to delay retirement beyond what they expected, while 10% plan to accelerate their timelines and retire earlier than anticipated.

Millennials are the most likely generation to move up their planned retirement date, with nearly one in six (15%) saying they would accelerate their plans. This compares to less than one in 10 among Gen Z (8%), Gen X (6%) and Boomers (4%). Meanwhile, Gen X (25%) is the most likely generation to say the pandemic has caused them to push back their planned retirement date, followed by Gen Z (22%), Millennials (19%), and Boomers (14%).

When asked what age people expect to retire, Millennials indicated the earliest target date, nearly seven and a half years younger than Baby Boomers:

  • Gen Z – 62.5
  • Millennials – 61.3
  • Gen X – 63.2
  • Boomers – 68.8

“These numbers illustrate what may be a distinct difference in the way generations view retirement,” says Christian Mitchell, executive vice president & chief customer officer at Northwestern Mutual. “Millennials appear to prioritize retirement earlier on, whereas other generations may be quicker to extend their retirement timelines outward. Much of this depends on individual circumstances, of course, but it also underscores that a long-term financial plan has to factor in the unexpected and be nimble enough to adjust course.”

Retirement Obstacles
The study finds that the greatest obstacles to financial security in retirement have flip-flopped during the pandemic. Before COVID-19 began to spread widely, lack of savings (42%) was the top obstacle followed by healthcare costs (38%) and the economy (34%). Now it is the economy (49%) followed by lack of savings (33%) and healthcare costs (32%).

Findings also reveal that people are relying heavily on Social Security as a funding source during retirement but don’t have great faith it will actually be there when they need it. Social Security ranked as the top source of retirement funding, accounting for an average of 27% of Americans’ overall retirement funding. But one-fifth (20%) of people believe it is not at all likely Social Security will be there when they’re ready to use it.

“This is a good reminder that there are always factors to consider that are outside of people’s control such as the economy, healthcare costs and Social Security,” says Mitchell. “That only underscores how important it is to focus on the things you can control such as saving, investing and protecting your assets. A solid financial plan and a trusted advisor can help.”

Working Longer
One in five (21%) U.S. adults expect to work past the traditional retirement age of 65. Among those who do, nearly half (45%) say it’s because of necessity and 55% say it’s because of choice.

Taking a closer look at those who plan to work out of necessity, the top reason cited was not having enough saved to retire comfortably at 60%. Other top reasons include:

  • I do not feel like Social Security will take care of my needs – 58%
  • I am concerned about rising costs like healthcare – 49%
  • I had an unexpected situation arise that has cut into my retirement savings – 20%

For those who plan to work past the age of 65 by choice, the top reason cited by nearly half (49%) is that they enjoy their job/career and would like to continue. Other reasons include:

  • I want additional disposable income – 43%
  • It is a social outlet that will help me stay active/prevent boredom – 34%
  • I want to do something that will let me give back to the community – 21%

“While the nature of retirement continues to change, it’s encouraging to see more people working past the age of 65 out of choice and not necessity,” says Mitchell. “Although that may not always be an option for all, having a tailored, diversified strategy with both insurance and investments can allow people to make informed choices regarding a retirement that suits their unique circumstances.”

About The 2020 Northwestern Mutual Planning & Progress Study
The 2020 Planning & Progress Study is a research series conducted by The Harris Poll on behalf of Northwestern Mutual. This wave included 2,702 American adults aged 18 or older who participated in an online survey between June 26 – July 10, 2020. Results have been weighted to Census targets for education, age/gender, race/ethnicity, region and household income. Propensity score weighting was also used to adjust for respondents’ propensity to be online. No estimates of theoretical sampling error can be calculated; a full methodology is available.

About Northwestern Mutual
Northwestern Mutual has been helping people and businesses achieve financial security for more than 160 years. Through a holistic planning approach, Northwestern Mutual combines the expertise of its financial professionals with a personalized digital experience and industry-leading products to help its clients plan for what’s most important. With $290.3 billion in total assets, $29.9 billion in revenues, and $1.9 trillion worth of life insurance protection in force, Northwestern Mutual delivers financial security to more than 4.6 million people with life, disability income and long-term care insurance, annuities, and brokerage and advisory services. The company manages more than $161 billion of investments owned by its clients and held or managed through its wealth management and investment services businesses. Northwestern Mutual ranks 102 on the 2020 FORTUNE 500 and is recognized by FORTUNE® as one of the “World’s Most Admired” life insurance companies in 2020.

Northwestern Mutual is the marketing name for The Northwestern Mutual Life Insurance Company (NM)(life and disability insurance, annuities, and life insurance with long-term care benefits) and its subsidiaries in Milwaukee, WI. Subsidiaries include Northwestern Mutual Investment Services, LLC (investment brokerage services), broker-dealer, registered investment adviser, member FINRA and SIPC; the Northwestern Mutual Wealth Management Company® (investment advisory and trust services), a federal savings bank; and Northwestern Long Term Care Insurance Company.

SOURCE Northwestern Mutual

For further information: JEAN TOWELL, 1-800-323-7033, mediarelations@northwesternmutual.com

Source: news.northwesternmutual.com

How To Start A Business With No Money

Starting a business is a dream for many people.

Whether it’s the freedom to pursue something you love, the flexibility to be the boss, or the challenge of growing something from scratch that motivates you, many of us have a strong desire to start and own a business.

Although the thought of being a business owner is appealing, there are a few significant hurdles that routinely prevent people from pursuing these dreams. Most businesses require capital to get started. That means you’ll need to have a lot of money to invest in a building, inventory, equipment, or employees. Getting the money is a challenge and borrowing the startup capital comes with the risk of failing and not being able to repay the debt.

As a result, most people simply never pursue their entrepreneurial dreams. However, it’s possible to start a business with no money and avoid taking on debt.

start a business with no money

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  • Write articles for blogs, websites, or printed publications
  • 3. Invest Once You Start Making Money

    As soon as you start making money, it’s ideal if you’re able to reinvest at least a portion of that money back into the business. You could use that money for:

    • Advertising
    • Software and tools that make your work faster, easier, or more effective
    • Outsourcing work to free up more time
    • Training

    You don’t need to spend money just for the sake of spending money, but you should be willing to reinvest money into your business when it makes sense. Investing in your business may produce a huge return by allowing you to make much more money in the future.

    how to begin a business with no money

    Businesses That Can Be Started With No Money

    Now, let’s take a look at some of the best opportunities for service-related business that could be started with just a small investment, or even no investment at all.

    Virtual Assistant

    One of the best business opportunities out there today is to work as a virtual assistant (VA). As a VA, you could offer a wide variety of services, but the best option is to focus on the things that you already have experience with. Maybe you’ve worked in administrative roles in the past and you’re good at things like managing a calendar, setting appointments, making travel arrangements, or responding to emails.

    Maybe you have experience with blogging and social media and you could moderate forums or Facebook groups, respond to blog comments and messages on social platforms, write or edit blog posts, or create social media posts for your clients.

    In the current environment, many businesses are more interested in outsourcing work to freelancers as opposed to hiring full-time employees. There is strong demand for quality virtual assistants, and that demand is likely to continue to increase.

    While there are a lot of companies that offer jobs for virtual assistants, these jobs typically do not offer the best income potential. If you want to maximize your income as a VA, starting your own freelance business is the better option.

    If you’re interested in learning how to start your own VA business, Fully Booked VA by Gina Horkey is a great resource.

    Freelance Writer

    With millions of websites and blogs publishing new content on a daily basis, there is a need for writers who can create that content. While the biggest companies may use full-time staff writers, most publications rely heavily on freelancers.

    One of the most attractive perks of working as a freelance writer is the fact that many of your clients will be ongoing. You may have weekly or monthly assignments for new articles from each client. That means that once you have enough clients, you won’t need to dedicate time or effort towards finding work. Instead, you’ll be able to devote all of your time to the work that actually brings in the money.

    There is work available in many different industries, so you can probably use your existing skills and experience to find work. You may even be able to turn one of your hobbies into a business by landing some writing gigs that cover the topics you enjoy most.

    Check out the great 30 Days Or Less To Freelance Writing Success, included in the VA Foundations Skills Course from Gina Horkey.

    Graphic Designer

    If you have some design skills, you could put them to good use by working for clients. You could offer a wide range of services like:

    • Logo design
    • Brochure design (or other marketing materials)
    • Social media graphics
    • Label or product packaging design
    • And much more

    If you’re a designer, you probably already have the software that you’d need. If not, there are free alternatives to popular options like Adobe Photoshop and Illustrator.

    Web Designer

    Another way to put design skills to good use is to focus on websites. Obviously, every business and organization should have a website these days, so there are plenty of potential clients out there.

    Website builders like WordPress and Squarespace have definitely had an impact on the industry as it’s easier than ever for non-designers to create their own website. However, these tools have a learning curve and many business owners don’t have the time to create their own website.

    Many freelancers have responded by offering services to set up and customize a WordPress-powered website for a client who doesn’t want to tackle the project on their own.

    Web Developer

    While web designers focus on the visual aspect, developers handle the coding and technical aspects. If you have coding experience, working as a freelance web developer could be a great fit.

    In addition to a strong demand for the services, developers also benefit from excellent earning potential.

    Social Media Marketer

    Social media platforms like Facebook, Instagram, Twitter, and Pinterest can present outstanding opportunities for businesses. Unfortunately, most businesses are sitting on the sidelines and missing out on these opportunities.

    That’s where you come in.

    As a social media marketer, you could assist business owners by managing their social presence for them. This might involve posting regularly on select platforms, responding to questions or comments that arrive via social media, creating images and graphics to post, and even management of ad campaigns.

    In particular, managing Facebook ads is an excellent business opportunity with a lot of potential. Most businesses could benefit from Facebook ads, but they don’t have the experience or expertise to do it on their own.

    The Facebook Side Hustle Course teaches everything you need to know to start your own business running ads for clients. It’s a great option for a side hustle or a full-time business.

    Photographer

    There are a lot of hobbyist photographers out there, so I know that some people reading this article would love to be able to make money with their photography.

    If you have an interest in photography, you probably already have all of the gear you would need to get started with a simple photography business Really, you don’t need more than a camera, lens, and photo editing software to get started. Of course, you can invest in more gear as your business grows.

    There are several different types of photography that you could offer, including:

    • Engagement
    • Wedding
    • Maternity
    • Newborn
    • Family
    • Senior
    • Sports
    • Events
    • Business/Corporate
    • Real Estate

    Consultant Or Coach

    Here is an extremely flexible option that could allow you to take advantage of your existing skills or expertise. Consultants and coaches can work in just about any industry. Think about your strongest skills and your past work experience. Is there a way to incorporate that into a consulting or coaching business?

    One of the main benefits of working as a consultant or coach is the income potential, since rates for these services tend to be high.

    Bookkeeper

    If you’ve done any bookkeeping work at a previous job, you could start your own bookkeeping business. You don’t need to be a CPA or have accounting experience to work as a bookkeeper, and you can still earn a really nice hourly rate with this service.

    Proofreader

    If you have strong grammar skills and keen attention to detail, working as a freelance proofreader could be a great fit for you. As a proofreader, you can work from anywhere with an internet connection. With the amount of content being published today, there is plenty of demand for quality proofreaders.

    Proofread Anywhere is the leading course for anyone who is interested in learning how to make money as a proofreader.

    Flea Market Flipping

    If you enjoy shopping at yard sales and flea markets to find the best deals, perhaps you should turn it into a business. It’s possible to do really well as a flipper. Rob and Melissa from Flea Market Flipper run a six-figure flipping business and they offer a free workshop that shows how you can start your own reselling business.

    Getting started as a flipper could involve a small investment to purchase the initial products that you’ll be reselling. However, if you need to get started with no investment, you can find some items from around your house to sell. You’ll be able to start making money right away with no investment, and you can reinvest that money to purchase additional items.

    Trash Cleanup

    This is one of my favorite opportunities because it’s completely overlooked by most people, anyone can do it, and the income potential is outstanding.

    Brian Winch started a side hustle in the 1980s cleaning up trash in business parking lots and at shopping centers. In a very short time, he replaced the income from his full-time job. For more than 30 years, Brian has been earning a six-figure income cleaning trash.

    If you’re interested in starting your own business, be sure to check out Cleanlots, where Brian teaches the exact methods he uses. He refers to it as “America’s simplest business” because it requires very few tools and is so simple to do.

    Lawn Care

    A lawn care business will cost some money to start if you don’t already have the equipment. But if you do already have a mower, you could get started by simply canvassing your neighborhood and offering your service.

    Aside from mowing, you could also offer trimming, leaf cleanup, power washing, and other related services.

    Painter

    Painting is a relatively simple service to offer. Many people prefer to hire a painter because they don’t have the time or they simply don’t want to do their own painting. You could be painting interior walls, or exterior projects like fences and shutters.

    The equipment needed is minimal, an you can build the cost of things like paint, rollers, and brushes into your estimates.

    Handyman

    If you’re good with your hands and you enjoy fixing things, working as a handyman could be the right fit for you. There’s always work available and you can get started by talking to your friends and family or simply posting an ad on Craigslist.

    Dog Walking and Pet Sitting

    A good opportunity for pet lovers is to work as a dog walker and/or pet sitter. There is a strong need for these services and you can make a pretty good income doing it.

    To get started, you can create a free profile on Rover and make it possible for clients in your local area to find you.

    Tutoring

    Put your knowledge to good use by helping others. You could offer tutoring services in the subjects that you know best. Tutoring is something that can be done online or locally in-person.

    Starting A Business With No Money Is More Possible Than Ever

    Don’t let a lack of capital stop you from pursuing your dreams of starting your own business.

    A service-related business is a great option to start a business with no money upfront, and here we’ve covered a number of realistic possibilities.

    Consider your own interests and experience to determine what might be the best fit for yourself. Take action and you could begin making money almost immediately.

    Start a business with no money

    How To Start A Business With No Money

    Source: biblemoneymatters.com

    Here’s Why a Womb Chair is the Perfect Addition to Your Interiors

    Regardless of the direction you plan on taking with your overall home design, the color scheme, furniture and accents will all play a major role in creating that spotless look you’re going for.

    One element that can help you bring everything together is a carefully picked accent chair — which is one of the quickest ways to create a focal point. A beautiful piece of furniture will draw your eye as soon as you walk into the room or complement the space in a way that highlights the rest of its features.

    And when it comes to nice chairs, both modern and traditional styles offer plenty of options. Over the years, we’ve seen trends go from club chairs to Chesterfields, then back to tufted armchairs, and on to minimalist chairs. So choosing one style — that’s also likely to stick around and not fade in popularity — isn’t the easiest choice.

    But one style that doesn’t seem to lose appeal and can easily complement many types of interiors is mid-century modern. One particular piece that traces its roots to this timeless design — and has been growing in popularity within the past years, for all the right reasons — is the womb chair.

    The womb chair is an iconic mid century modern masterpiece designed by architect Eero Saarinen. Its designer status can hamper many homeowners from buying it due to their limited budgets. Here are the top 10 reasons why you should furnish your homes with the womb chair:

    A stylish addition to any home

    One of the top reasons to go for a Saarinen womb chair is that it’s the epitome of stylish. It’s understated, brimming with elegance, and yet still highly fun and quirky thanks to its unique shape. It’ll definitely ramp up the ambiance of your home.

    Works as a standalone piece

    One of the best things about the womb chair is that it can be used as a standalone furniture piece. You can use it in a freestanding capacity in any place in your home – be it next to a planter, next to a bookcase, next to a beautiful gallery wall or even a zen corner of your home.

    Also works as an accent piece

    The womb chair along with all of its replicas is designed to be an exemplary accent piece. It’s classy, sophisticated, and yet unique enough that it’d be a great accent to many interior design styles.

    With plain upholstery, it can bring tasteful contrast in modern, minimal, and contemporary spaces. With patterned upholstery, it can make a statement in eclectic, vintage, and retro interior designs.

    SEE ALSO: ‘Queer Eye’ Design Expert Bobby Berk Shares His Top 6 Choices for Wall Décor

    Very comfortable

    The body and anthropometry of the womb chair have been designed in a way that makes it the pinnacle of comfort.

    It’s stylish and trendy by default, but once you sit on it, you’ll realize that it’s also highly comfortable to boot. Therefore, you can set it up in spaces designed for you to relax – e.g. next to a fireplace, in your personal book nook, or even in front of a picture window.

    Matches the rest of the furniture nicely

    The design of the womb chair is as understated as they come. It’s simple in its complexity.

    Its molded plywood design is simply upholstered in padding and fabric, and looks really beautiful with all sorts of furniture pieces. You can use yours to complement your living room sofa, your bedroom furniture, and even your desks in the office. 

    Iconic mid-century design

    The idea of the womb chair is totally inspired and is one of Eero Saarinen’s best works. To this day, it remains truly iconic. The Eero Saarinen womb chair has been designed to bring that iconic vibe in your spaces at an affordable price.

    It’s a great piece for making a statement in your home – though admittedly, it works just as well in commercial spaces such as hotels, offices, air-port resting lounges, and more, which just stands to show how versatile it is.

    A great chair for relaxing

    A womb chair is perfect for spending a relaxing day on. You can place one in your study rooms – preferably next to you bookshelf or cabinet – so you can simply lean back and enjoy some great books from your to-read pile.

    You can even add a small back-pillow to make the leaning experience all the more relaxing while you’re at it. Also, placing a floor lamp right next to it would look pretty good.

    A statement piece

    The womb chair is a true icon, so it’s a statement-worthy furniture piece. If you’re going for an instant visual impact, a womb chair replica is a great choice.

    You can place it as a free-standing object in front of a plain or continuous backdrop as in this image. It would contrast with the background and make your ambiance feel all the more eye-catching.

    Customize your fabric

    The great thing about going for a womb chair is that you can always customize its upholstery. If you want to emulate pattern contrast in your home interiors, you can choose one that has a very unique pattern. If you want to emulate simple high-contrast in your spaces, then you’ll have a lot of options with simple or textured fabrics as well.

     Creates contrast

    A good womb chair will imitate the classic high-contrast aura of its predecessors. This means that just these chairs will have a great high-contrast aesthetic that will make your homes pop with color, vibrancy, and uniqueness. You can place them at a focal point in your rooms so that they immediately catch the eye of anyone who enters the room.

    There are a lot of reasons why you should furnish your home with a womb chair. You won’t just be investing in a typical furniture object – you’ll be investing in long-lasting comfort and timeless style.

    Keep reading

    10 of the Most Stylish Minimalist Wall Clocks You Can Buy on Amazon
    6 Smart Home Devices to Keep Your Pets Safe, Well Fed and Entertained While You’re Away
    The 15 Best Luxury Candles to Brighten your Home & Complement your Decor
    Here are 10 of the Coolest Housewarming Gifts You Can Buy for Your Bookworm Friends

    Source: fancypantshomes.com

    How do Life Insurance Companies Make Money?

    • Life Insurance

    Life insurance seems like a pretty good deal. You pay $30 a month for 20 or 30 years and in the event of your death, your family gets a sizeable cash sum, often in excess of $250,000. Every 12 seconds someone dies in the United States and these deaths occur across all demographics (although the majority are over 70) and from a myriad of causes.

    Find the Right Life Insurance for You!

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    Compare free personalized quotes from the nation’s top providers.

    If a life insurance company can afford to pay a $500,000 sum on a policy that’s collected less than $20,000, how can it afford to stay in business when life is so fragile, death is always a certainty, and they’re in it for the profit?

    Contrary to what you might think, insurance companies don’t rely entirely on luck or underhanded tactics to stay in the black. There are actually three ways that an insurance company makes money and ensures those profits remain stable.

    Underwriting

    Underwriting is the process of taking a calculated financial risk in exchange for a fee. The word was coined as the underwriter, the “risk-taker”, would sign their name underneath a detailed outline of all risks they were willing to take.

    Underwriting is performed by all life insurance companies and it’s a careful, considered process through which they can balance their profit and loss. There is no guarantee with the underwriting process and it’s not uncommon for them to lose money over the course of a financial year. However, what they lose one year may be offset by what they earn in another year.

    How Insurance Companies Profit from Underwriting

    Insurance is based on statistical analysis and probability. If you’re a healthy 20-year old with no preexisting medical conditions and no genetic issues, you’re considered to be very low risk. 

    An insurance company may offer you a $500,000 payout on a 30-year term in exchange for a policy that costs less than $1,000 a year. They’re only making $30,000 over the term, but they know there’s a good chance you’ll live well beyond your 50th year, which means all of that $30,000 is profit.

    In fact, statistically speaking, a 20-year old has a less than 6% chance of dying within 30 years and this applies to the general population. Once you account for medical issues, family health problems, smoking, drug use, dangerous jobs, and a plethora of other high-risk conditions, that figure drops to an infinitesimal sum.

    The insurance company knows that if they have 50 healthy 20-year-olds on 30-year $500,000 policies, there’s a good chance that between 0 and 2 will collect. This means they will collect $1.5 million and payout between $0 and $1 million. 

    The odds of a 20-year-old dying within that term increase if they have abused drugs/alcohol in the past, have a preexisting medical condition or their parents died of genetic disorders before they turned 50. In such cases, the underwriters will calculate the risks and create a policy that allows them to cover their costs.

    By the same token, a life insurance company may refuse to provide a 30-year term to a 52-year-old, because according to the statistics, one out of every two will die within that term and they simply couldn’t offer realistic premiums.

    Of course, these are just rough estimates, but it gives you a general idea of how life insurance companies operate. It’s also the reason why your premiums increase significantly if you are a smoker (smokers live 10 years less on average) are obese (obesity is considered to be as much of a mortality risk as smoking) or have a problematic medical history.

    Canceled and Lapsed Coverage

    Your life insurance policy can stop or be canceled at any time. Let’s return to the example of the 20-year-old paying premiums worth $1,000 a year. They may have taken out the life insurance policy because they just got married or they experienced a bout of paranoia after learning about a friend who died young.

    But what happens when that relationship ends and that paranoia fades away; what happens if they go from being comfortably employed, to unemployed and desperate? They’re not the ones who will benefit from that payout, so they may decide that they’re just wasting their money, in which case they stop making the payments and the policy lapses. If this happens, the life insurance company gets all of the premiums and none of the liability.

    Whole life insurance policies can also be cashed out. They build money through dividends and this entices the owner to give it all up for a big payday. If they’re struggling financially and realize they have a big balance waiting for them on their life insurance policy, they may be tempted to cash the check, close the account, and walk away with the windfall, thus removing all liability from the insurance company.

    Refusing to Pay Out

    Life insurance companies can also make money by refusing to pay out and pointing to a discrepancy. This is not part of their business strategy, and they don’t actively seek to scam their customers because, quite simply, they don’t need to. Thanks to underwriting, cash outs, lapse policies and investing, life insurance is a profitable enterprise without needing to resort to underhanded tactics.

    However, they can and will refuse payouts if they determine that the contract was somehow breached. This can happen in any number of ways and for a myriad of reasons:

    The Cause of Death Wasn’t Covered

    Most causes of death are covered by most life insurance policies. However, there are some exceptions, including suicide. Many policies refuse to cover suicide at all, while others refuse to cover it if it occurs within the first 2 years of the policy.

    More than 40,000 people take their own lives every year in the United States and it’s a common issue across all demographics. It’s also on the increase and is now the 10th biggest killer in the United States. 

    As heartless as it might seem for an insurance company to refuse a payout for someone who took their own life, it’s important to remember that their underwriting is based purely on probability, and because suicide is one of the biggest killers in young men, it’s something that has to be considered.

    The policy should state clearly which causes of death are covered and which ones are not. It’s also something you can discuss with the insurance company when you take out your policy.

    Important Information was Not Disclosed

    This is the most common reason for a payout to be refused. In some cases, the applicant is looking for cheaper premiums and knows that a few seemingly innocent lies will shave tens of dollars off their premiums. 

    The policyholder may also assume that certain information isn’t relevant or be too ashamed to disclose it. For instance, if they were cautioned for driving under the influence of drugs or alcohol it may not seem relevant to the underwriting process, but if they die in a road traffic accident it could prevent a payout.

    In the majority of cases, however, they simply forget. A life insurance policy is something you fill out in one sitting and something that requires you to list all previous medical conditions, hospital visits, and health complaints. It’s easy to forget a few things here and there.

    There is No Beneficiary

    A life insurance policy can only be paid directly to an heir when they are named as a beneficiary. If there is no beneficiary, it will be paid to the policyholder’s estate, from which their heirs can make their claim.

    This becomes problematic if the policyholder has a lot of debt, as the debtors will then line up to take their share from the estate. It can also make life difficult for loved ones trying to make a claim on that estate. It’s always recommended, therefore, to name beneficiaries on the life insurance policy and to back this up by writing a will.

    The Contestability Period

    The above issues become more prevalent during something known as the contestability period. This begins as soon as the policy goes into effect and it can last for 1 or 2 years, depending on the policyholder’s state of residence.

    If the policyholder dies during this period, the life insurance company will seek to contest it by looking at all of the details and ensuring they match. They will check the cause of death against previously filed medical reports and will make sure the correct information was supplied at the time the policy was filed and that there are no discrepancies.

    Once this period passes, it’s unlikely there will be any issues, but they can still occur. The insurance company may, for instance, investigate the claim if they believe it was purchased for the sole benefit of the beneficiaries (for example, the policyholder purchases it knowing they were going to commit suicide or were about to die).

    Summary: Payouts are Rare

    Studies suggest that as few as 2% of all term policies pay out, and the most common reason for non-payment is that the policyholder survives the term. This is a statistic that detractors like to quote and it’s often followed by a claim that life insurance is just institutionalized gambling. 

    To an extent, they’re right. You’re essentially gambling against a house that always wins and, like a casino, it always wins because, for every player that wins, 10 others will lose. The difference is that life insurance provides some much-needed peace of mind while you’re alive and ensures your loved ones are covered in the event that anything happens to you.

    Source: pocketyourdollars.com

    Have You Met Mr. Market?

    Share the Best Interest

    Do you know the allegory of Mr. Market? This useful parable—created by Warren Buffett’s mentor—might change everything you think about the stock market, its daily prices, and the endless news cycle (and blogs?!) built upon it.

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    The Original Mr. Market

    The imaginary investor named “Mr. Market” was created by Benjamin Graham in his 1949 book The Intelligent Investor. Graham, if you’re not familiar, was the guy who taught Warren Buffett about securities analysis and value investing. Not a bad track record.

    Graham asks the readers of his book to imagine that they have a business partner: a man named Mr. Market. On some days, Mr. Market arrives at work full of enthusiasm. Business is good and Mr. Market is wildly happy. So happy, in fact, that he wants to buy the reader’s share of the business.

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    But on other days, Mr. Market is incredibly depressed. The business has hit a bump in the road. Mr. Market will do anything to sell his own shares of the business to the reader.

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    Of course, the reader is always free to decline Mr. Market’s offers. And the reader certainly should feel wary of Mr. Market. After all, he is irrational, emotional, and moody. It seems he does not have good business judgement. Graham describes him as having, “incurable emotional problems.”

    How can Mr. Market’s feelings fluctuate so quickly? Rather than taking an even emotional approach to business highs and lows, Mr. Market reacts strongly to the slightest bit of news.

    If anything, the reader could probably find a way to take advantage of Mr. Market’s over-reactions. The reader could buy from Mr. Market when he’s feeling overly pessimistic and sell to Mr. Market when he’s feeling unjustifiably euphoric. This is one of the basic principles behind value investing.

    But Mr. Market is a metaphor

    Of course, Mr. Market is an imaginary investor. Yet countless readers have felt that Mr. Market acts as a perfect metaphor for the market fluctuations in the real stock market.

    The stock market will come to you with a different price every day. The market will hear good news from a business and countless investors will look to buy that business’s stock. Will you sell to them? But a negative headline will send the market tumbling. Investors will sell. Please, they plead, will you buy my shares?!

    Don’t like today’s price? You’ll get a new one tomorrow.

    Is this any way to make rational money decisions? By buying while manic and selling while depressive? Do these daily market fluctuations relate to the true intrinsic value of the businesses they represent?

    “Never buy something from someone who is out of breath”

    Burton Malkiel

    There’s a reason why Benjamin Graham built Mr. Market to resemble an actual manic-depressive. It’s an unfortunate affliction. And sadly, those afflicted are often untethered from reality.

    The stock market is nothing more than a collection of individuals. These individuals can fall prey to the same emotional overreactions as any other human. Mr. Market acts as a representation of those people.

    “In the short run, the stock market is a voting machine. Yet, in the long run, it is a weighing machine.”

    Benjamin Graham

    Votes are opinions, and opinions can be wrong. That’s why the market’s daily price fluctuations should not affect your long-term investing decisions. But weight is based on fact, and facts don’t lie. Over the long run, the true weight (or value) of a company will make itself apparent.

    Warren Buffett’s Thoughts

    Warren Buffett is on the record speaking to Berkshire Hathaway shareholders saying that Mr. Market is his favorite part of Benjamin Graham’s book.

    Why? Because:

    If you cannot control your emotions, you cannot control your money.

    Warren Buffett

    Of course, Buffett is famous for skills beyond his emotional control. I mean, the guy is 90 years old and continues his daily habits of eating McDonalds and reading six hours of business briefings. That’s fame-worthy.

    Warren Buffett

    But Buffett’s point is that ignoring Mr. Market is 1) difficult but 2) vitally important. Your mental behavior is just as important as your investing choices.

    For example: perhaps your business instincts suggested that Amazon was a great purchase in 1999—at about $100 per share. It was assuredly overvalued at that point based on intrinsic value, but your crystal ball saw a beautiful future.

    But Buffett’s real question for you would be: did you sell Amazon when the Dot Com bubble burst (and the stock fell to less than $10 per share)? Did Mr. Market’s depression affect you? Or did your belief in the company’s long-term future allow to hold on until today—when the stock sits at over $3000 per share.

    The Woefully Ignorant Sports Fan

    I know about 25 different versions of this guy, so I bet you know at least one of them. I’m talking about the Woefully Ignorant Sports Fan, or WISF for short.

    The WISF is a spitting image of Mr. Market.

    When Lebron James has a couple bad games, the WISF confidently exclaims,

    “The dude is a trash basketball player. He’s been overhyped since Day 1. I’m surprised he’s still in the starting lineup.”

    Skip Bayless: ESPN's different rules for me and Stephen Smith
    Stephen A. Smith and Skip Bayless: Two Gods of the WISF world

    Wow! That’s a pretty outrageous claim. But when Lebron wins the NBA finals and takes home another First-Team All-NBA award, the WISF changes his tune.

    “I’m telling you, that’s why he’s the Greatest of All Time. The GOAT. Love him or hate him, you can’t deny he’s the King.”

    To the outside observer, this kind of flip-flop removes any shred of the WISF’s credibility. And yet the WISF flip-flops constantly, consistently, and without a hint of irony. It’s simply his nature.

    Now think about the WISF alongside Mr. Market. What does the WISF actually tell us about Lebron? Very little! And what does Mr. Market tell us about the true value of the companies on the stock market? Again, very little!

    We should not seek truth in the loud pronouncements of an emotional judge. This is another aphorism from The Intelligent Investor book.

    But I Want More Money!

    Just out of curiosity, I logged into my Fidelity account in late March 2020. The COVID market was at the bottom of its tumble, and my 401(k) and Roth IRA both showed scarring.

    Ouch. Tens of thousands of dollars disappeared. Years of saving and investing…poof. This is how investors lose heart. Should I sell now and save myself further losses?

    More articles about investing & COVID

    No! Absolutely not! Selling at the bottom is what Mr. Market does. It’s emotional behavior. It’s not based on rationality, not on the intrinsic values of the underlying businesses.

    My pessimism quickly subsided. In fact, I began to feel silver linings. Why?

    I’m still in the buying phase of my investing career. I buy via my 401(k) account every two weeks. And I buy via my Roth IRA account every month. I’ve never sold a stock. The red ticks in the image below show my two-week purchasing schedule so far in 2020.

    If you’re investing for later in life, then your emotions should typically be the opposite of the market’s emotions. If the market is sad and prices are low and they want to sell…well, great! A low price for you increases your ability to profit later.

    And Benjamin Graham agrees. He doesn’t think you should ignore Mr. Market altogether, but instead should do business with him only when it’s in your best interest (ooh yeah!).

    “The intelligent investor shouldn’t ignore Mr. Market entirely. Instead, you should do business with him, but only to the extent that it serves your interest.”

    Benjamin Graham

    If you log into your investment accounts and see that your portfolio value is down, take a step back and consider what it really means. You haven’t lost any money. You don’t lock in any losses unless you sell.

    The only two prices that ever matter are the price when you buy and the price when you sell.

    Mr. Market in the News

    If you pay close attention to the financial news, you’ll realize that it’s a mouthpiece for the emotional whims of Mr. Market. Does that include blogs, too? In some cases, absolutely. But I try to keep the Best Interest out of that fray.

    For example, here are two headlines from September 29, 2020:

    Just imagine if these two headlines existed in another space. “Bananas—A Healthy Snack That Prevents You From Ever Dying” vs. “Bananas—A Toxic Demon Food That Will Kill Your Family.”

    The juxtaposition of these two headlines reminds me of Jason Zweig’s quote:

    “The market is a pendulum that forever swings between unsustainable optimism (which makes stocks too expensive) and unjustified pessimism (which makes them too cheap).”

    Jason Zweig

    More often than not, reality sits somewhere between unsustainable optimism and unjustified pessimism. As an investor, your most important job is to not be duped by this emotional rollercoaster.

    Investing Based on Recent Performance

    Out of all the questions you send me (and please keep sending them!), one of the most common is:

    “Jesse – I’m deciding between investment A, investment B, and investment C. I did some research, and B has the best returns over the past three years. So I should pick B, right?”

    Wonderful Readers

    Great question! I’ve got a few different answers.

    What is Mr. Market saying?

    Let’s look at the FANG+ index. The index contains Twitter, Tesla, Apple, Facebook, Google, Netflix, Amazon, NVIDIA, and the Chinese companies Baidu and Alibaba. Wow! What an assortment of popular and well-known companies!

    The recent price trend of FANG+ certainly represents that these companies are strong. The index has doubled over the past year.

    Mr. Market is euphoric!

    And what do we think when Mr. Market is euphoric?

    How do you make money?

    Another one of my favorite quotes from The Intelligent Investor is this:

    “Obvious prospects for physical growth in a business do not translate into obvious profits for investors”

    Benjamin Graham

    You make money when a company’s stock price is undervalued compared to its prospects for physical growth. You buy low (because it’s undervalued), the company grows, the stock price increases, you sell, and boom—you’ve made a profit.

    I think most people would agree that the FANG+ companies all share prospects for physical growth. But, are those companies undervalued? Alternatively, have their potentials for future growth already been accounted for in their prices?

    It’s just like someone saying, “I want a Ferrari! It’s such a famous car. How could it not be a great purchase?”

    The statement is incomplete. How much are you paying for the Ferrari? Is it undervalued, only selling for $10,000? Or is it overvalued, selling at $10 million? The product itself—whether a car or a company—must be judged against the price it is selling for.

    Past Results Do Not Guarantee Future Performance

    If investing were as simple as, “History always repeats itself,” then writing articles like this wouldn’t be worthwhile. Every investment company in the world includes a disclaimer: “Past results do not guarantee future performance.”

    Before making a specific choice like “Investment B,” one should understanding the ideas of results-oriented thinking and random walks.

    Farewell, Mr. Market

    Mr. Market, like the real stock market, is an emotional reactionary. His daily pronouncements are often untethered from reality. Don’t let him affect you.

    Instead, realize that only two of Mr. Market’s thoughts ever matter—when you buy from him and when you sell to him. Do business with him, but make sure it’s in your best interest (oh yeah!). Everything else is just noise.

    If the thoughts of Benjamin Graham, Warren Buffett, and the Best Interest haven’t convinced you, just look at the financial news or consider the Woefully Ignorant Sports Fan. Rapidly changing opinions rarely reflect true reality.

    Stay rational and happy investing!

    If you enjoyed this article and want to read more, I’d suggest checking out my Archive or Subscribing to get future articles emailed to your inbox.

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    Source: bestinterest.blog

    What Is a SEP IRA and How Does It Work?

    SEP IRA stands for Simplified Employee Pension Individual Retirement Account. (Many people mistakenly think “SEP” stands for “Self-Employed”.) It’s a retirement plan that an employer or self-employed individuals can establish.

    SEP

    This account is primarily for self-employed individuals, small-business owners, entrepreneurs, and those who work as freelancers or on a contract basis.

    Essentially, most entrepreneurs and business owners don’t have access to a traditional 401(k) with an employer match because they employ themselves. So, a SEP plan is an alternative to a 401(k) retirement plan. Additionally, if small-business owners have employees of their own, they can set up a SEP for their employees.

    SEP IRAs have many benefits for entrepreneurs, which I’ll explain below.

    How does it work?

    It works similarly to a traditional IRAs. Business owners can set aside money for themselves in a SEP plan for retirement. According to the IRS, if a business owner has employees, they also must set aside an equal percentage of their employees’ pay into a SEP plan for their employees.

    An important distinction is that the business owner pays for this contribution; it is not money that comes directly from the employees’ salaries.

    To put it another way, money is not withheld from employees’ salaries. The employer provides the SEP contribution in addition to their employee’s regular pay. The employee’s income is only used as a metric to determine how much to put into the SEP account.

    So, if an employer wants to set aside 15% of their own salary for themselves, they must put 15% of their employees’ salaries into a SEP plan for them too. However, they do not withhold 15% of their employees’ salary; the SEP contribution is in addition to their income.

    That’s why a SEP IRA is likely more beneficial to a solopreneur or someone with very few employees. Otherwise, it could be far too expensive for an employer to maintain.

    SEP IRA Rules for 2021

    One of the major benefits of a SEP IRA plan is that you can contribute up to 25% of your compensation into the account or up to $58,000 for 2021 – whichever is less. The same goes for your employees if you set up a SEP IRA for them too. You can only contribute up to 25% of their income or $58,000, whichever is less.

    This is why so many people who are self-employed like using a SEP IRA. Plus, they have low operating costs and are not expensive to open. They are available to any size business whether you are a one-person operation or have dozens of employees.

    Who can have a SEP IRA?

    There are two types of people who can participate according to the IRS: Employers and employees who meet specific criteria.

    Employers can be:

    • Small-business owners.
    • Solo-entrepreneurs.
    • Contractors with independent businesses.

    Employees eligible are individuals who are:

    • Age 21.
    • Worked for their employer 3 out of the last 5 years.
    • Received a minimum of $600 in compensation for the year.
    • Have employers who have willing to open and contribute to a SEP IRA.

    SEP IRA vs Roth IRA

    With a Roth IRA:

    • You can’t deduct your contributions like you can with a SEP or traditional IRA.
    • You deposit funds into a Roth IRA after you pay taxes upfront.
    • Because you pay taxes upfront on the money you deposit, your investments grow tax-free.
    • You can only use a Roth IRA if your gross income is $206,000 or below for a married couple and $139,000 or less for someone who is single. These are new limits for 2021.
    • You can only deposit up to $6,000 per year in a Roth IRA or $7,000 if you’re age 50 and older.

    With a SEP IRA:

    • According to the IRS, “The most you can deduct on your business’s tax return for contributions to your employees’ SEP-IRAs is the lesser of your contributions or 25% of compensation.” This is subject to a $285,000 compensation cap.
    • You deposit funds into a SEP IRA before you pay taxes on it, so the tax is deferred until you make withdrawals in retirement.
    • You can use a SEP IRA if you are self-employed, own a small business, or are an independent contractor who earns above $600 per year.
    • You can deposit up to 25% of your compensation or $58,000, whichever is less, for 2021.

    So, as you can see, a Roth and SEP IRAs are both retirement accounts but with very different rules. The biggest benefit of a Roth is that it’s a tax-advantaged account because you pay your taxes upfront.

    However, business owners benefit from SEP IRAs because you can deduct your contributions (where permitted) on your taxes, which is helpful when running a business with considerable expenses.

    How to Open a SEP IRA

    Saving for retirement is a wise idea, and it pays to take the time to research which investments you put inside the account will work best for your retirement goals.

    There are many options when it comes to choosing where to open your SEP IRA as well. Several of the low-cost brokerage firms like Charles Schwab, Vanguard, and Fidelity offer SEP accounts as well as advisors to help you along the way.

    Can I contribute to a SEP IRA and a 401k?

    If you work a 9-5 job that offers a 401(k) plan and you own your own business that’s completely separate from your 9-5 job, yes. As long as the two entities have no overlap, you can open a SEP IRA for your side business while still contributing to your 401(k) for your primary job.

    Additionally, your employer may offer both a 401(k) and a SEP plan. If they do, just know that there are limits to the total contributions you can make, including your employer match. And, if you’re self-employed, you can have a solo 401(k) and a SEP IRA, but again, you’ll have to pay close attention to the total contributions to make sure they don’t exceed the limits.

    Bottom Line

    A SEP IRA is a retirement account predominately for entrepreneurs, solopreneurs, and small-business owners. They can be a great vehicle for saving for retirement. However, if you own multiple businesses or work a 9-5 in addition to having a side business, spend time doing your research to make sure you don’t exceed your contribution limits to ensure you don’t get penalized.

    Source: crediful.com