Create a Financial Safety Net

Where do you turn when a financial emergency strikes? Do you resort to credit cards, borrowing money from friends and family, or do you have some money set aside?

How you respond to a financial crisis can significantly impact your finances for years to come. Tapping into resources that are meant for something else to cover an emergency can set your retirement back, take money away from a college fund, or even lead to bankruptcy. Creating a financial safety net lies at the foundation of any financial plan. We hope to never have to use it, but we're thankful when it's there in a time of need. Learn some of the ways you can create your own financial safety net.

View the original article here

Make the Most of Your Savings

Where is the best place to stash your cash? Under your mattress? In a cookie jar? Your checking account? Savings account? Certificate of Deposit? With so many choices, it's easy to throw up your hands and take the path of least resistance, but that can end up costing you money in lost interest.

It also doesn't help that lower interest rates are making it more difficult to find good rates of return on your money. Nevertheless, this isn't a time to abandon your emergency fund just because the rates are low. Your goal should be to maximize returns while maintaining the liquidity you need.

There are five common places that you can use to manage your short-term savings:
Checking Accounts
Savings Accounts
Money Markets
Certificates of Deposit
Savings Bonds

Learn more about where you should keep your savings, and check out the primer on U.S. savings bonds to help you make the most of your savings.

View the original article here

The Secret to Saving Money

I hate to break it to you, but there's no simple secret to saving money, but there are a few good money habits that can make it feel like you've discovered a secret. Granted, there's no silver bullet that will magically put money into your savings account, but there are a few things you can do to make saving money that much easier.

It really comes down to three things:
Budgeting
Paying yourself first
Spending less than you earn

Does it seem like common sense? Well, it really is, but that doesn't mean it's easy to do.

View the original article here

Adjustable Rate Mortgage Terms You Should Know – “ARM” Yourself with Knowledge

With interest rates on fixed-rate mortgages trending upward, adjustable rate mortgages (ARMs) can be an attractive alternative.  Several times over the last 30 years, consumers have turned to ARMs in market conditions that favored short-term rates over the traditional 30-year fixed.

However, while most consumers responsibly carry an ARM, there have been situations where the ARM did not make financial sense, and as a result, the loan earned a tarnished reputation.  News of negative amortization loans and optional payment plans overshadowed the true function of the ARM which involves neither.

The truth is, many consumers have benefitted from ARMs and prefer to use them as a tool to save money in the short-term while planning for the long-term.  Current market conditions are once again leaning in favor of adjustable rate mortgages and it’s important to understand their function.  Here’s information about ARMs, how to interpret the “lingo” and how to decide if it’s right for you.


Adjustable Rate Mortgage Definition
An adjustable rate mortgage is a home loan with an interest rate that adjusts on a predetermined basis.  Most ARMs begin with a fixed rate for a certain period of time and then adjust up or down according to the index on which it is based, after the fixed period expires.  For example, if you have a 5/1 ARM, the interest rate is fixed for the first five years and then the rate adjusts once each year beginning in year 6.

ARMs typically offer a lower initial interest rate than a traditional 30-year fixed mortgage.  After the fixed period, the interest rate can fluctuate based on market conditions but the loan agreement typically has a lifetime cap so the monthly payments cannot exceed a specific threshold.  When interest rates increase, typically, loan payments also increase and the same is true when rates go down.  However, each time the rate resets, it does so on the remaining years and the remaining balance of your loan, not the initial loan amount, which can help mitigate an extreme disparity between the previous payment and the new one.


Adjustable Rate Mortgages
To comprehend the functionality of ARMs, there are a few terms you should understand when talking to your mortgage banker to determine if this loan program is a good match for your financial situation:


Index: The economic indicator used to calculate interest-rate adjustments for ARMs. The index rate can increase or decrease at any time.


Initial Cap: This cap is the maximum amount the interest rate can adjust after the fixed-period.  (The initial cap and the periodic cap may be the same or different i.e. 2/2/5 or 5/2/5)


Periodic Cap: This cap puts a limit on the interest-rate increase from one adjustment period to the next.


Lifetime Cap: This cap puts a limit on the interest-rate increase over the life of the loan. All adjustable-rate mortgages have an overall cap.


Adjustable Rate Mortgage Loans
You should also be able to recognize these terms in their numerical form, as this is the way in which your lender will illustrate the type of ARM you qualify for.


5/1: The five represents the amount of years the interest rate is fixed.  The one indicates that the interest rate will adjust yearly after the fixed period.


2/2/5: (Note: Caps can be different depending on the term of the loan.  For example, you may find that a 7-year ARM has a 5/2/5 cap structure). But for this example, the first two means that the most a rate can change is two percent the year after the fixed period expires.  The second two means that the rate can change two percent every year thereafter, and the five means the maximum percentage that can be added to the initial rate for the lifetime of the loan.

For example, the maximum rate and payment you would experience for a $200,000 5/1 loan (2/2/5) at 3.99% would be:

8 (rate increase 1% more because 5% is the lifetime cap)

It’s important to note that while interest rates can rise, they can also decrease, making your payments smaller.  The example above reflects the most you would pay if rates increased to the maximum or lifetime cap.  Knowing the maximum amount you could end up paying on your ARM is important, because it will help you decide if it’s best to refinance prior to the expiration of the fixed rate, or continue to allow the rate to adjust because it is still cost-effective.  Even with the adjusted rates, the average rate on this loan is 5.365%, which is comparable or lower than a 30-year fixed rate.  In addition, the ARM gives you the opportunity to save thousands of dollars the first five years of the loan (money you would have spent on the fixed-rate loan) and gives you greater equity in your home because you reduce your principal faster.  Being the financially savvy client that you are, you realize that the savings could be used to pay down additional debt, add to your retirement fund or something more creative!
View the original article here

How To Live Without Borrowing Money

A few short years ago, consumers had a very different outlook on debt and personal finance. After decades of excessive consumerism, many people grew accustomed to living in debt. Unlike previous generations who had a real understanding of saving money and avoiding debt, a noticeable shift away from a more frugal lifestyle evolved. Of course, the recession has taught us several important lessons regarding personal finance, one of which is the need to reduce or eliminate debt. Here we look at how you can pay off existing debt and move forward without having to borrow money in the future.

Before you can embrace a life without more debt, you have to pay off any debts you currently owe. Depending on the type of debts you owe and the amount, this could take as little as a few weeks or as long as several years. The key is taking inventory of any debts you currently owe and developing a plan to pay off these debts in as short a period of time as possible.

Living free of debt may require sacrifice on your part. This is especially true for those who have become accustomed to a lifestyle that exceeds their income level. Living beyond your means is the easiest way to get in debt, therefore any chance of living without having to borrow money from one source or another will require lifestyle changes that reflect your income.

If you truly want to avoid borrowing money for the rest of your life, you will have to be serious about saving money from this point forward. Not only will you need money to live off of today and tomorrow but also have money set aside for emergencies and big ticket items in the future. A life without debt requires an individual to have both short and long terms goals which allow the person to save money in advance for major purchases in the future. Learn as much as possible about different savings and investment vehicles to get the most bang for your buck.

Just because you want to live debt free doesn’t mean you have to eliminate any chance of qualifying for credit in the future. Consider the ramifications of living a cash only life, one of which is the absence of credit history. If for any reason you find yourself needing to apply for credit at some point in the future, you may not qualify if you have successfully eliminated any history of credit. It is possible to maintain a good credit score and history without going into debt. This is an important element of personal finance that should not be overlooked in your quest to live without borrowing money.

There are some things that require the use of a credit card. For example, traveling without a credit card could be next to impossible. You need to book hotel rooms, rent cars and reserve airline tickets. Although not all debit cards are accepted in lieu of credit cards, you will find life is much easier if you have a debit card for many of these situations. Debit cards will offer many of the same conveniences of a credit card without owing anyone a balance when it is all said and done.

It is not impossible to live without borrowing money, however it does require a certain level of discipline and patience that is not common in our fast paced society. Understand that you can manage your money in a way that supports your lifestyle if that lifestyle is within your budget. To do this, many changes will have to take place and a new approach given to money management.

View the original article here

Top 5 Reasons to Choose a Personal Loan

In this time of financial uncertainty, more and more people are reaching out to their family, their friends, and even to people they don’t even know when they need a loan.  Some of these people think it’s easier to get money, while others have become suspicious of banks and other lending institutions. Whatever the reason individual borrowers give, there’s no doubt that personal loans are making a comeback. If you feel skeptical about jumping into one, here are some things to think about.


5. Fixed Repayment Time Frame
If you’re thinking about using a credit card instead of getting a personal loan, think about this: most personal loans have fixed repayment terms, while minimum credit card payments are designed to keep you in debt longer. Most personal loans have a term of 1, 2, 3, or 5 years, and when you’ve made all the payments, you’re done. You can go into the process knowing exactly how long your debt will take to pay off, instead of watching it stretch into the future.

In addition, some personal loans can be paid off early without a penalty for prepayment. Many loans via financial institutions have this penalty, and thus are designed in the best interests of the lenders, not the borrowers.


4. No Collateral Necessary
Considering a home equity loan or another traditional type of loan through an institution? You’ll definitely need collateral. Whether this is your house, as with a home equity line of credit, your car, or something else of value, traditional lenders ask you to put something on the line in case you can’t repay the loan. Personal loans, though, don’t require this, so the valuable possessions that you’ve worked so hard to obtain are not on the line.  However, be aware that your credit history will most likely be damage significantly if you default on a personal loan.


3. Get Rewarded for Good Credit
Many loans that you can get via traditional means, as well as credit cards, have standard interest rates. No matter how good your credit is, you’ll pay the same amount of interest on your loan as someone with a poorer credit history. This is not so with personal loans. These loans offer a variety of interest rates, and you’ll be rewarded with a lower one of your credit score is high. That means you’ll pay back less money overall and there will be more in your pocket along the way.


2. Fixed Rate = Fixed Payment
In addition to offering lower interest rates for good credit, the interest rates on personal loans are fixed. Once you’ve qualified for a low rate, it’s locked in for the life of the loan. This separates personal loans from both credit cards and lines of credit, where the interest rate can go up or down at any time.

Having a fixed rate means that your monthly payment is fixed, too. This allows you to accurately plan ahead and include your loan payments in your budget, knowing that the amount won’t suddenly skyrocket and leave you scrambling for cash.


1. A Personal Loan Makes Things . . . Well . . . Personal.
When you take out a personal loan from a direct lending network like Lending Club, there’s no big financial institution behind the money that you get. There are just people like you who happen to have money available and who are willing to consider your need as their own investment. This adds motivation for making your payments in full and on time, because your money is going toward individuals with names and faces, not to a bank or a large corporation.

Even if you’re not a financial guru, you can see that this is a game-changer. With many people feeling suspicious of large institutions, personal loans allow you to take them out of the equation entirely and still get the money you need.

These are only a few of the reasons why you might want to consider a personal loan instead of a credit card, a line of credit, or a traditional loan the next time you need money. Not only will you get a better financial deal that way, but you’ll get rewarded for your good credit while connecting with investors instead of feeling anonymous and at the mercy of a large institution.

View the original article here

How to Save Your Empty Home From “Mansion Squatters”

When visualizing “squatters,” you may imagine down-and-out bums sleeping in condemned buildings on the scruffy outskirts of town.

But in a troubled housing market where large numbers of homes in pricey suburban areas are vacant, the pickings for squatters are far more upscale.

Since the housing market tanked, cases of “mansion squatting” have been popping up in metropolitan areas like Chicago, Los Angeles and Seattle — to name a few. On Jan. 6, a Newport Beach couple was arrested after allegedly breaking into a vacant Newport Coast home, according to an Orange County District Attorney’s Office media release. The couple even contacted the local gas and electric company and — claiming to be renting the home – requested that the utilities be turned on. When the owner sent an appraiser to the home in order to sell it, authorities say the couple changed the locks to keep the appraiser out.

Roughly 2.5 percent of American homes — excluding rental properties — were vacant in the third quarter last year, including 1.9 million homes that were up for sale, according to the U.S. Census Bureau. That’s down from the peak of 2.9 percent in 2008, but still high compared to five years ago and earlier when the vacancy rate was under 2 percent.

Leaving a home vacant increases risk of vandalism by squatters and others. That’s why most insurance companies drop coverage on homes that are unoccupied for more than 30 days. But some will grant a vacancy permit if it’s requested before the 30-day expiration date, according to the Insurance Information institute (III).

But a permit provides less coverage than a standard home insurance policy. Vacancy home insurance is available from some insurers, but it will cost much more than standard home insurance policy, according to III.

Showhomes, a home staging company based in Nashville, Tenn., offers one solution. Targeting the high-end housing market, the company provides live-in home managers who take care of the home and keep it up to par for real estate showings. Because the home is occupied, owners can keep their standard homeowner insurance policy.

Here’s how it works: The homeowner pays the company a set-up fee, which varies depending on the market (usually somewhere between $750 and $2,000 and it can be paid at closing). The company then finds in-home managers to live inside the home. They pay the company rent to live there, but the cost is only a third of what they’d normally pay to live in a home of that quality. For instance, it may only cost $1,200 a month to live in a $1 million home. The home is staged with a combination of the in-home managers’ furniture and the company’s own furnishings.

“Our goal is to stage the entire home so it looks great but doesn’t look like a staged home,” says Thomas Scott, vice president of Showhomes. “It has food in the fridge and clothes in the closet — well organized — and looks like a homeowner who loves the home lives there. Having life in the home is really important. Buyers can sense — even smell — a vacant home.”

Scott says homes staged by the company often sell in four to five months when comparable homes take an additional year to sell.

When Charles Schudson and his wife decided to move to Sedona, Ariz., they first wanted to sell their home in Milwaukee, Wis. It should have been easy because their Wisconsin home was in a high-demand neighborhood where homes typically sold almost instantly.

But that was before the housing market slump. The couple tried to sell the home quietly for a couple of years and then aggressively for several months. Still, they couldn’t find a serious buyer.

“To our surprise we found ourselves in the uncomfortable predicament of possibly moving out of a home and leaving it vacant,” he says.

Because they didn’t want to rent out their home or leave it vacant due to home insurance issues, they hired Showhomes. Three months later, they found a buyer.

The typical in-home manager is generally in transition after moving out of his or her own high-end home — like after a divorce or a short sale. The person provides most of their own furniture. He or she doesn’t show the home, but must keep it prime condition for the showing.

Thomas says Showhomes conducts background and credit checks before accepting an in-home manager. In addition to the home owner’s insurance policy, the company also carries substantial liability insurance and a series of specially underwritten property damage insurance policies that feature replacement costs. Thomas says that demand for home staging companies has grown as the housing market has weakened. Thomas says business was up 41 percent in 2010, compared to the previous year.


View the original article here

Brazil’s New Top Dog

World leaders routinely bog themselves down in the legislative mundane, promoting small social programs or new economic incentives for minute “Us vs. Them” political gains. However, neither Dilma Rousseff nor Alexandre Tombini are interested in petty politics, and as their terms begin, they’re ready to get things done.v

Banco Central do Brasil's new President Alexandre Tombini: out for blood?

Rousseff’s Fast Start

BRIC relations, as we have seen, are generally relatively cozy. Each country knows their role in the new economic powerhouse, and each are usually “polite” enough to keep the serious public discussion to a minimum. However, this is not the case for the newly elected president Rousseff. No, Rousseff wants a serious talk about China’s currency advantage.

Rousseff believes, as do many, that an artificially low Renminbi is hurting Brazil’s exports to China. Such artificially low currency values mean an unbalanced trade benefit, one that has propelled China’s foreign currency reserves to become the fastest growing stockpile in the world.

However, she’s not stopping at China, either. Her new proposals call for a cut in spending and a cut to inflation, two actions which are generally considered to be recession creating. Rousseff, however, sees opportunity in shrinking government and controlling monetary policy, allowing for Chinese-Brazil discussions to make waves in the currency markets. A new budget and central bank president will cool otherwise crippling inflation.

Alexandre Tombini’s Mission Impossible

Alexandre Tombini is the new president of Banco Central do Brasil, otherwise the Bank of Brazil, or more commonly, Brazil’s central bank. Early indicators suggest Tombini is out for blood, hoping new central bank goals will help reduce internal inflation and keep Brazil on a path for growth.

The first goal is to aim lower, one that should be easily achieved. While annualized inflation of 4.5% is the bull’s eye for the government, Tombini wants to go lower, shooting for a target of roughly 2% plus or minus 2% fluctuations. Such low inflation isn’t commonly seen in the emerging markets, but in contrast to the current inflation rate of nearly 6% annually, 2% doesn’t seem so bad after all.

The “Selic” interest rate, the Brazilian benchmark, is expected to take a hike on January 18th and 19th. The rate currently rests at 10.25%

Emerging Market Austerity?

The new presidential duo looks more like developed world dignitaries than the leaders of the Latin American emerging market. However, now may be the time to prepare Brazil for a future of world leadership.

The country maintains a healthy trade surplus that will allow it to exhaust some of its pricey government debts that currently amount to roughly 40% of annual GDP. A policy implemented years earlier exchanged foreign debt obligations for currency-linked debt products, a move that saved the country billions of dollars and averted a growing trade imbalance. Later investments in infrastructure meant oil independence and made Brazil one of the greatest uses of hydroelectric power.

Wall Street would be wise to watch this new duo. Their plans, should they come to fruition, will set Brazil up for an internalized national debt, reasonable inflation rate, and real, positive economic growth while continuing the upside in the Brazilian Real. This is a pro-growth administration in an economy that, even without government intervention, was already set for explosion.

View the original article here