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Are you thinking of buying a house? With pending home sales on the rise and new single-family purchases expected to increase over 18% through the end of 2019, you’re not the only one. However, the process may not be as straightforward as you might think.

Something as ordinary as financing your purchase is mind boggling with the number of options available. From private lenders to government-backed loans, it’s tough to know which is right for you.

Understanding the Different Types of Home Loans

Knowing what your budget is and saving for a down payment is only part of the equation. The real magic happens when you compare types of home loans to see what is best for your situation.

Before taking the bull by the horns, consider the pros and cons of each mortgage type. Doing your homework ahead of time will help you know what to expect when it’s time to submit an offer.

Fixed Rate Mortgages

Fixed-rate home loans are the easiest to understand. The interest rate stays the same over the entire term of the loan. Whether you have a 15, 20, or 30-year mortgage, your principal and interest payment won’t change.

Pros: Since it locks in your interest rate, there’s no need to worry about fluctuating rates affecting your payment amount. This makes budgeting your expenses from month to month easier because your mortgage payment remains the same.

Cons: The interest you pay with a fixed-rate loan is higher. With more money going toward interest fees, it can take longer to build equity in your home. And if the market plummets, you could get stuck paying a higher interest than the current going rate.

If you like to plan and have more control over your finances, the stability of paying a fixed-rate mortgage might be a perfect fit. Fixed-rate mortgages are also good for homeowners who plan to remain there for most of the loan period since it can take a while for equity to grow.

Variable Rate Mortgages

At the opposite end of the spectrum are variable rate home loans. Unlike with a fixed rate, variable rates can fluctuate with changes in the market. A popular option in this category is the adjustable-rate mortgage. With these, the starting rate is lower but can increase.

Pros: Paying lower interest fees can save you money each month, which can add up to significant savings over the life of the loan. Building equity becomes easier with a low interest rate, too.

Cons: If the market sees periods of increasing interest, your payment could skyrocket. The higher cost could cause you to struggle, leading you to default.

With lower interest helping to increase equity, variable rate home loans are great if you aren’t planning to live there more than a few years.

FHA Loan

As a government-backed loan, the Federal Housing Administration (FHA) helps more than a million people become homeowners each year.  An FHA mortgage features a lower down payment and more lenient credit requirements.

Pros: FHA loans are available to borrowers with FICO scores as low as 500, but you’ll need a 10% down payment if the score is less than 579. If your score is 580 or higher, you only need to make a 3.5% down payment. This makes it easier to get financing if you’ve had trouble getting other types of mortgages.

Cons: The FHA limits how much you can borrow based on where you live in the U.S. For a one-unit home, you can’t borrow more than $314,827 in a low-cost area or $726,525 in a high-cost area. There are some special exceptions, although it depends on where you want to buy a house.

With lower down payment requirements, FHA loans are popular with first-time buyers who might not have much money saved up. They’re also good for people with a less than stellar credit history who might not qualify for a conventional home mortgage.

VA Loans

Active-duty service members, veterans, and their families have an awesome resource for buying a house. If you qualify, getting a VA loan without a down payment and no mortgage insurance can become your reality. These loans have service requirements that are easy to meet. Generally, 90 consecutive days of service during wartime, 181 days during times of peace, or more than six years of service in the National Guard or Reserves is enough. Before applying to a lender, you’ll need a Certificate of Eligibility from the VA.

Pros: No down payment requirement makes it a piece of cake to jump into homeownership. In addition, not paying mortgage insurance could save you thousands of dollars.

Cons: VA loans are only available to veterans. And not having a down payment limits your initial equity, making it tough to sell unless you plan to stay in the home for most of the term of the loan.

Veterans looking to purchase their primary residence and who are committed to living in one place for several years are excellent candidates for a VA mortgage.

USDA Loans

Similar to FHA and VA mortgages, the U.S. Department of Agriculture (USDA) offers a program to provide loans to people with low-to-moderate income. To qualify, the home you want to purchase must be in an eligible area. If it is and you meet income qualifications, it’s an excellent option since there’s no down payment requirement.

Pros: Buying a house with zero down is an amazing opportunity if you’re low on savings. USDA loans come with lower income requirements than some other types of mortgages, and you’ll pay less for mortgage insurance.

Cons: Lenders prefer a credit score of at least 640, though alternative credit sources can help you qualify if you don’t meet those requirements. Establishing equity in your home takes a tremendous amount of time without a down payment.

If you have low or moderate income and are looking to purchase a home in a qualifying rural area, this could be an excellent option. A USDA loan can also help if you don’t have a lot in your savings account or your credit score doesn’t hit the mark.

Conventional Home Loans

Conventional home loans are issued by private lenders. Unlike FHA, VA, and USDA mortgages, conventional loans are not insured by the federal government. They have more rigid qualification requirements, but they can usually save you money over an FHA mortgage. Conforming conventional loans have a few rules set by the government. But non-conforming loans aren’t as regulated, making it even more important to shop and compare offers from different lenders.

Pros: Borrowers can qualify with a down payment of 3% to 20%. There’s no requirement for it to be your primary residence, making it a good option for any property purchase.

Cons: Conventional loans typically require a higher down payment than other types of mortgages, and that could disqualify some potential borrowers. Paying private mortgage insurance is necessary without putting at least 20% down, and that can be costly.

People with a decent credit score, stable income, and who will own the home for most of the term of the loan can benefit. Whether you’re planning to buy a house to live in, a second home, or investment property, a conventional mortgage can help you get the job done.

Reverse Mortgages

In order to be eligible for a reverse mortgage, you must be at least 62 years of age. Reverse mortgages may be an answer for a senior citizen who finds that he/she hasn’t saved enough for retirement. The lender will want to see that you have substantial equity in your home before agreeing to a reverse mortgage. Beware, there are good and bad aspects of reverse mortgages.

Pros: Unlike a traditional loan, you are not required to pay back the amount of the loan in monthly installments. Instead, the loan plus interest will be due when you sell the house or at the end of the agreed upon loan period.
Cons: The reverse mortgage may use up all of the equity you have in your home, meaning that there will be nothing left of your equity after the sale of your home.
How to Get a Mortgage

If you’re thinking of buying a home, take some time now to review your finances and credit history. You might not have the luxury of a good FICO score or a flourishing bank account, but you have options.

For instance, an FHA loan with a minimum 500 credit score requirement can open the door to homeownership for borrowers with a subpar history. Plus, mortgages from VA and USDA make it even easier by not requiring a down payment. There are also some additional strategies that can improve your chances at approval for a home loan. While we don’t recommend a 40-year mortgage, methods like the 80-10-10 mortgage may be a good option for your situation.

Knowing what your choices are and learning the ins and outs of different home loans isn’t as complex as you might think. It also gives you a significant advantage when comparing mortgage types and lenders to score you an even better offer.

The post Types of Home Mortgage Loans appeared first on Cash Money Life | Personal Finance, Investing, & Career.

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Are you thinking of buying a house? With pending home sales on the rise and new single-family purchases expected to increase over 18% through the end of 2019, you’re not the only one. However, the process may not be as straightforward as you might think.

Something as ordinary as financing your purchase is mind boggling with the number of options available. From private lenders to government-backed loans, it’s tough to know which is right for you.

Understanding the Different Types of Home Loans

Knowing what your budget is and saving for a down payment is only part of the equation. The real magic happens when you compare types of home loans to see what is best for your situation.

Before taking the bull by the horns, consider the pros and cons of each mortgage type. Doing your homework ahead of time will help you know what to expect when it’s time to submit an offer.

Fixed Rate Mortgages

Fixed-rate home loans are the easiest to understand. The interest rate stays the same over the entire term of the loan. Whether you have a 15, 20, or 30-year mortgage, your principal and interest payment won’t change.

Pros: Since it locks in your interest rate, there’s no need to worry about fluctuating rates affecting your payment amount. This makes budgeting your expenses from month to month easier because your mortgage payment remains the same.

Cons: The interest you pay with a fixed-rate loan is higher. With more money going toward interest fees, it can take longer to build equity in your home. And if the market plummets, you could get stuck paying a higher interest than the current going rate.

If you like to plan and have more control over your finances, the stability of paying a fixed-rate mortgage might be a perfect fit. Fixed-rate mortgages are also good for homeowners who plan to remain there for most of the loan period since it can take a while for equity to grow.

Variable Rate Mortgages

At the opposite end of the spectrum are variable rate home loans. Unlike with a fixed rate, variable rates can fluctuate with changes in the market. A popular option in this category is the adjustable-rate mortgage. With these, the starting rate is lower but can increase.

Pros: Paying lower interest fees can save you money each month, which can add up to significant savings over the life of the loan. Building equity becomes easier with a low interest rate, too.

Cons: If the market sees periods of increasing interest, your payment could skyrocket. The higher cost could cause you to struggle, leading you to default.

With lower interest helping to increase equity, variable rate home loans are great if you aren’t planning to live there more than a few years.

FHA Loan

As a government-backed loan, the Federal Housing Administration (FHA) helps more than a million people become homeowners each year.  An FHA mortgage features a lower down payment and more lenient credit requirements.

Pros: FHA loans are available to borrowers with FICO scores as low as 500, but you’ll need a 10% down payment if the score is less than 579. If your score is 580 or higher, you only need to make a 3.5% down payment. This makes it easier to get financing if you’ve had trouble getting other types of mortgages.

Cons: The FHA limits how much you can borrow based on where you live in the U.S. For a one-unit home, you can’t borrow more than $314,827 in a low-cost area or $726,525 in a high-cost area. There are some special exceptions, although it depends on where you want to buy a house.

With lower down payment requirements, FHA loans are popular with first-time buyers who might not have much money saved up. They’re also good for people with a less than stellar credit history who might not qualify for a conventional home mortgage.

VA Loans

Active-duty service members, veterans, and their families have an awesome resource for buying a house. If you qualify, getting a VA loan without a down payment and no mortgage insurance can become your reality. These loans have service requirements that are easy to meet. Generally, 90 consecutive days of service during wartime, 181 days during times of peace, or more than six years of service in the National Guard or Reserves is enough. Before applying to a lender, you’ll need a Certificate of Eligibility from the VA.

Pros: No down payment requirement makes it a piece of cake to jump into homeownership. In addition, not paying mortgage insurance could save you thousands of dollars.

Cons: VA loans are only available to veterans. And not having a down payment limits your initial equity, making it tough to sell unless you plan to stay in the home for most of the term of the loan.

Veterans looking to purchase their primary residence and who are committed to living in one place for several years are excellent candidates for a VA mortgage.

USDA Loans

Similar to FHA and VA mortgages, the U.S. Department of Agriculture (USDA) offers a program to provide loans to people with low-to-moderate income. To qualify, the home you want to purchase must be in an eligible area. If it is and you meet income qualifications, it’s an excellent option since there’s no down payment requirement.

Pros: Buying a house with zero down is an amazing opportunity if you’re low on savings. USDA loans come with lower income requirements than some other types of mortgages, and you’ll pay less for mortgage insurance.

Cons: Lenders prefer a credit score of at least 640, though alternative credit sources can help you qualify if you don’t meet those requirements. Establishing equity in your home takes a tremendous amount of time without a down payment.

If you have low or moderate income and are looking to purchase a home in a qualifying rural area, this could be an excellent option. A USDA loan can also help if you don’t have a lot in your savings account or your credit score doesn’t hit the mark.

Conventional Home Loans

Conventional home loans are issued by private lenders. Unlike FHA, VA, and USDA mortgages, conventional loans are not insured by the federal government. They have more rigid qualification requirements, but they can usually save you money over an FHA mortgage. Conforming conventional loans have a few rules set by the government. But non-conforming loans aren’t as regulated, making it even more important to shop and compare offers from different lenders.

Pros: Borrowers can qualify with a down payment of 3% to 20%. There’s no requirement for it to be your primary residence, making it a good option for any property purchase.

Cons: Conventional loans typically require a higher down payment than other types of mortgages, and that could disqualify some potential borrowers. Paying private mortgage insurance is necessary without putting at least 20% down, and that can be costly.

People with a decent credit score, stable income, and who will own the home for most of the term of the loan can benefit. Whether you’re planning to buy a house to live in, a second home, or investment property, a conventional mortgage can help you get the job done.

Reverse Mortgages

In order to be eligible for a reverse mortgage, you must be at least 62 years of age. Reverse mortgages may be an answer for a senior citizen who finds that he/she hasn’t saved enough for retirement. The lender will want to see that you have substantial equity in your home before agreeing to a reverse mortgage. Beware, there are good and bad aspects of reverse mortgages.

Pros: Unlike a traditional loan, you are not required to pay back the amount of the loan in monthly installments. Instead, the loan plus interest will be due when you sell the house or at the end of the agreed upon loan period.
Cons: The reverse mortgage may use up all of the equity you have in your home, meaning that there will be nothing left of your equity after the sale of your home.
How to Get a Mortgage

If you’re thinking of buying a home, take some time now to review your finances and credit history. You might not have the luxury of a good FICO score or a flourishing bank account, but you have options.

For instance, an FHA loan with a minimum 500 credit score requirement can open the door to homeownership for borrowers with a subpar history. Plus, mortgages from VA and USDA make it even easier by not requiring a down payment. There are also some additional strategies that can improve your chances at approval for a home loan. While we don’t recommend a 40-year mortgage, methods like the 80-10-10 mortgage may be a good option for your situation.

Knowing what your choices are and learning the ins and outs of different home loans isn’t as complex as you might think. It also gives you a significant advantage when comparing mortgage types and lenders to score you an even better offer.

The post Types of Home Mortgage Loans appeared first on Cash Money Life | Personal Finance, Investing, & Career.

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Have you ever watched the reality television show Shark Tank, all the while wishing it was you pitching that small business idea to top investors?

Or, maybe you’ve been laid off and need to quickly find a way to cover living expenses for you and your loved ones.

Switching from employee to entrepreneur involves a huge leap of faith, especially when generating a set income isn’t guaranteed and achieving “success” in the business world is often compared to climbing Mount Everest.

Maybe your thought process is this: “All the good ideas have already been taken,” or “I’m just not creative enough to generate a product that would actually sell.”

No matter your background story, the modern age of technology has ushered in an intoxicating entrepreneurial spirit that’s taken some of the brightest minds by storm.

If you’re ready to take on the American Dream at its finest, then keep reading.

Quick Guide / Table of Contents:

Monetary Success and Strong Foundations

Yes, becoming your own boss sounds quite attractive, but without personal responsibility, drive, and a healthy dose of reality, those dividends will only be attainable in your dreams.

Before you should even start thinking about the profitability of a small business endeavor, ensure you’re building a solid structure from the ground up.

How can you enjoy the view at the top without a supportive base? With a strong foundation in place, fiscal success is just icing on the cake.

Keep in mind your idea doesn’t have to be the next internet sensation or QVC bestseller (if so, more power to you!). But, you can’t get around identifying a clear purpose and passion for making your dream a reality.

If you’ve been dappling in entrepreneurship for quite some time, then the following strategies are a good place to start:

Take the First Step

When it comes to tackling a small business idea, now is the time. Don’t give any weight to the “I just need more time” mentality that plagues so many well-meaning entrepreneurs.

By the time they actually commit to their idea, they’ll watch it flash before their eyes on Shark Tank or some other television infomercial. The opportunity slipped out of their hands when it was just within reach.

Don’t let this be your story 5-10 years from now. Even if you do make some hasty decisions or underestimate a business deal, at least you didn’t give up.

You don’t have to pursue your business in leaps and bounds at first – taking conscious baby steps is often the best route to take.

Sometimes you can only do so much planning, though. If you don’t take that first defining step, then who will?

Outline Attainable Goals

Self-reflection is really the mother of invention, gently guiding us toward achieving dreams and aspirations we didn’t even think possible.

With this in mind, take a minute and reflect on the following questions:

  • Am I starting my own small business from scratch, or am I buying an existing business, such as a profitable franchise?
  • Do I want to slowly transition a current side hustle into a main gig? For example, you could successfully work from home by offering online, one-on-one personal training or tutoring sessions in your living room.
  • Which skills, both mental and physical, have I already attained and mastered?
  • What do I make time for on a daily basis? In other words, what do I prioritize when time is of the essence?
  • Can I realistically stick it out for the long haul – through thick and thin?
Bulk Up Your Savings

Before you venture into the small business world any further, make sure you can afford to do so.

Taking this endeavor figuratively off the ground may mean your dream vacation fund will need a new name. Or, maybe you can tap into some inheritance funds to help absorb large hits in the embryonic stages.

If you’re a visionary and can see an expansion or even outsourcing in the future, then build up your capital reserves now.

Cash flow may also be quite slow in the beginning, and you could experience a sudden dry spell in the middle of a prosperous year. It’s better to be safe than sorry.

Secure a Loan or Line of Credit

You may be able to find industry-specific loans, or loans designated for different causes.

This could translate into loans specifically tailored for female entrepreneurs, or those with first-time business owners in mind.

Or, maybe a preset line of credit would better suit your immediate needs. Draw from the amount when you need to without exceeding limitations. You, the borrower, are held responsible for any associated interest.

Only consider working with reputable investors, though. You don’t want to be stuck with a deal you end up regretting (and that possibly ends up hurting your established credit) down the road.

Anticipate Risk and Failure

This may sound cliché, but it’s not if you fail – it’s how you handle the failure that matters.

As your small business has matured and progressed over time, have you possibly overlooked the foundational principles that sparked growth in the first place?

The more faith you have in the success of your small business, the more liability (and potential failure) you’re willing to take on. You’ll also be better equipped whenever unforeseen obstacles or setbacks arise.

Sometimes a golden opportunity is worth the risk – it’s just the timing and approach that should be assessed.

Steps Toward Fiscal Gains

Funding a startup and implementing the necessary precautions seems pretty straightforward, right? Well, don’t bite more than you can chew – with a strong foundation comes significant responsibility.

If you’re ready to experience fiscal gains, the following steps will help pave the way toward real success:

Acknowledge Market Demand

This goes back to that simple economic principle of “supply and demand.” If you don’t have the demand, there is no reason to manufacture supply. If you do, you’d simply be throwing away resources at your own expense.

It’s also a red flag when there is too much inventory and not enough demand (this is often why car dealerships seem to have so many “sales” going on).

Visually, you could picture the concept of supply and demand as a figurative “seesaw,” where it’s quite obvious when one end is pulling more weight. Find the right balance for your business and maintain that equilibrium to avoid unforeseen drops or spikes.

But, market research is not even close to being one-dimensional. You should also set aside the time to analyze your purpose and target audience.

Who are you trying to reach? What type of demographic will this product or service attract? Are there any outlier elements to consider? What specific need or want does this product or service fulfill?

You’ll also want to be mindful of your overhead costs and competition. Most business gurus advise keeping any overhead costs as low as possible. For instance, review the financial ramifications of contracts before signing, or downsize to a smaller facility if you have a simple operations process.

When it comes to the competition, know who you’re working with and what they’re offering. Be creative, vigilant, and one step ahead as much as you can.

Construct a Solid Business Plan

Look to profitable franchises, such as Chick-Fil-A or Planet Fitness, for inspiration. Research how they market their brand, what standards they uphold as an organization, or how they handle overhead costs and expense projections.

To construct a solid business plan, think about your service or product, organizational management, marketing, and a financial blueprint. Also, identify scenarios you could potentially find yourself in and analyze how you’d approach them corporately.

While in the drafting process, you may even want to consider copyrighting and protecting your work, especially if the product is an original idea. Take advantage of the opportunity while you can before someone else does.

The intellectual property debate often means treading through murky waters. But, if it results in peace of mind and long-lasting protection for both you and your business, then tread on.

Even if you don’t have any employees yet, go ahead and put together an operations handbook. Make small business accounting a habit from day one, and establish connections with a local law firm and a bank you can trust early on.

Go Virtual

Once you’ve determined your target audience and fleshed out your product or service, it’s time to go virtual.

To reach your target audience effectively (and potentially expand your customer base), create an engaging website, set up a thriving social media account, or start a focused blog.

There are so many free, quality resources out there that business owners can take advantage of, such as Wix or Weebly.

It may take some time to craft your brand identity and marketing strategy, but developing and protecting these critical assets will be worth every penny.

But, don’t spread yourself too thin. Be authentic and relatable while building an authoritative voice in your specific niche.

You may even want to venture into affiliate partnerships with like-minded businesses or organizations.

Thanks to our advanced technologies, distance is not a defining factor anymore when it comes to meaningful collaborations. You can bring in some extra cash by using your platform to endorse other products or services you believe in.

Going virtual also makes it easy for you and your customers to contribute to worthy organizations across the globe. Build rapport with customers by donating a percentage of sales to a nonprofit organization. Determine how you want your small business to be perceived by others and act upon it.

Listen to Your Gut

You probably heard this phrase over and over again when you were younger. Surprisingly (or not), this adage becomes even more relevant in adulthood and can be easily applied to business ethics.

For example, don’t pursue a business idea because it’s in line with the latest fad. Like fashion trends, your trendy product will soon fade out of the spotlight, and you certainly don’t want to experience financial hardship so early on in the game. There are also many moving parts to consider before owning a franchise.

That being said, also listen to your gut when it comes to multi-level marketing opportunities. While some of these opportunities may be legitimate and worth your time, others may simply be too good to be true. If something doesn’t sit right with you, then go with your gut.

Many entrepreneurs apply a SWOT analysis to any potential business ventures before making a final decision. In simple terms, this means examining the strengths, weaknesses, opportunities, and threats that would be involved with said venture.

Work (and Whistle) as You Wait

This doesn’t mean you aren’t going to observe immediate success in the first few years – this is just a guaranteed income safety net in case your business does tank.

Maybe you studied a foreign language in college and you want to provide interpreting services, or you’re good with your hands and could take on home improvement projects for friends or family.

Sometimes it’s best to find a side hustle that’s not in your target market so you avoid pigeonholing yourself. Or, maybe you just want to sit back and invest in stocks in your spare time.

Either way, be productive as you wait. You could end up fostering some important business relationships that contribute to your entrepreneurial success in a meaningful way.

Bottom Line

No matter if you end up making a fortune from your small business or not, stay true to your vision and convictions – remember why you started your own business in the first place.

Treasure both the good and bad experiences you have along the way, and observe how these formative moments molded and shaped you into the aspiring entrepreneur you are today.

If establishing your own enterprise interests you, then go ahead and research different low-cost business ideas.

Identify problems that need to be solved, and conceive tangible solutions to those problems.

Establishing a small business is often not a walk in the park, and there are tactics you should avoid at all costs. Nevertheless, it’s never a bad idea to see where your creativity takes you.

If the price is right, you may just end up hitting the jackpot overnight.

The post How to Make Money From a Small Business Endeavor appeared first on Cash Money Life | Personal Finance, Investing, & Career.

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Gearing up to purchase a home is an exciting time in anyone’s life, although the process can also be stressful. From picking the right lender to underwriting and closing costs, getting a loan to buy a home is a huge undertaking.

With the cost of real estate skyrocketing, your home is probably going to be the biggest purchase you’ll ever make as well. The more you understand when it comes to the terms and types of home loans, the easier your decision will be to find the one that’s right for you.

Whether you want a house with a white picket fence or a high-rise condo, here’s what you need to know to make your dream a reality.

How Home Loans Work

Home loans let you borrow money to purchase a property. You can apply for a mortgage with most major banks, credit unions, and mortgage companies.

When you take out a mortgage to purchase a home, you are ultimately using the home as collateral. This provides some security to your lender because it allows them to foreclose on your home if you fall behind on your payments.

When you’re ready to start house shopping, the first step is getting pre-approved for a home loan. This step also lets you know how much a lender will let you borrow.

However, you don’t have to borrow every penny a lender qualifies you for. Always keep in mind you know your budget better than anyone. Just because the bank thinks you can afford a $350,000 house doesn’t mean you can.

Understanding the Language of Home Loans

Buying a home requires you to learn new lingo. If you aren’t familiar with these common terms or don’t know what they mean, it can make the process more difficult than it already is.

Plus, this is your money on the line. Any mistakes you make could cost you a lot of cash.

Here are the main mortgage terms you need to know and understand:

  • Annual Percentage Rate – Representing the true cost of borrowing money to buy a home, the annual percentage rate or APR is the interest you’ll pay. The lower the rate, the less interest you’ll pay over the duration of the loan.
  • Earnest Money – Once you find a home you like, giving earnest money shows you’re serious about wanting to buy it. Usually, earnest money works out to around 1% to 2% of the home’s purchase price, but it can be a lot more. This money goes into escrow until it is applied toward closing costs or your home’s down payment.
  • Title Insurance – Title insurance makes sure there aren’t any unpaid taxes, pending legal action, errors, fraud, or undisclosed heirs that might have a claim to the property.
  • Closing Costs – The money you need to bring with you to close on your home loan is known as closing costs. These fees average out to around $7,000 in the U.S., and can include title insurance, home inspection fees, appraisal fees, commissions for real estate agents, transfer taxes, and recording fees.
  • Underwriting – Underwriting is the process lenders use to approve or deny your mortgage. During this process, they review your loan application, credit history, and the value of the home.
  • Escrow – Your escrow account acts as a neutral third party that is responsible for handling exchanges of money between the buyer and seller. Money that’s put toward the purchase of the home before closing, such as earnest money, is put into escrow.
  • Mortgage Insurance – To protect the lender against financial loss, you’ll usually pay private mortgage insurance if you don’t put at least 20% down when buying your home. Once you build up enough equity, you may be able to have PMI removed from your loan.
Different Types of Home Loans

Not all home loans are created equal. Depending on your budget, credit score, and down payment, one might work better than another. Most mortgage products come with an interest rate that’s fixed or adjustable and a term that spans from 5 to 30 years.

Fixed Rate Home Loan

Offering the most consistent monthly payments, a fixed rate mortgage has the same interest rate for the duration of the loan. This is the most popular type of mortgage since it’s easier to manage your money when you can predict your house payment.

Variable Rate Home Loan

A variable rate home loan has interest that fluctuates. As rates change, your monthly payment can swing up or down with little warning.

Variable rate mortgages are sometimes called adjustable rate mortgages, or ARMs. This option can be cheaper for some borrowers, especially if you’re planning to live in the house for a short time.

Conventional Home Loan

When buying a home, conventional home loans are a popular choice. They aren’t backed by the government. Instead, private lenders provide conventional mortgages for purchases of primary residences, secondary homes, or investment property purchases.

A down payment of as little as 3% is possible. To qualify, you’ll need a higher minimum credit score than you would with an FHA, VA, or USDA loan.

FHA Loan

The Federal Housing Administration (FHA) opens up the opportunity for homeownership to people who might not qualify for a conventional home loan. The government backs FHA loans, and they have lower down payments and closing costs. This can help if you have a lower credit score.

VA Loan

If you’re a Veteran, on active duty, or are a National Guard or Reserve member, a VA loan could be just what you’re looking for. VA loans have come with favorable terms such as no down payment and no requirement for private mortgage insurance.

USDA Rural Development Loan

Perfect for rural borrowers with a low-to-moderate income, a USDA loan can help people buy a primary residence in qualifying areas. Income requirements vary by location and the number of people in your household, and you have to buy a home in a rural area to qualify.

How to Get Mortgage Quotes Online

With so many lenders, it’s hard to know where to start. The process will run more smoothly if you check out a few options and compare them based on their terms and interest rates.

Asking family and friends and relying on industry reports, such as the 2018 Primary Mortgage Servicer Satisfaction Study from J.D. Power, can give you insight, too.

No matter which you choose, most lenders will supply you with a free no-obligation mortgage quote if you answer a few simple questions.

Buying a home can be a fantastic experience if you weigh each option before jumping in. The decision you make now can affect you for the next 15 to 30 years.

Whether you’re looking for a conventional loan, a FHA loan, or another type of mortgage, comparison shopping is key.

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The 2019 tax season is upon us (for 2018 filing). If you’re thinking about preparing your own taxes, you’re probably ready to research the best tax software programs available.

We’re saving you the trouble!

Below is a summary review of 10 of the most popular tax software programs available.

While all tax software programs provide similar services, they all include different versions providing various service levels.

The secret is to find the most appropriate version for the lowest price that best fits your unique tax situation.

How We Compared Tax Software Programs

All of these tax software programs allow taxpayers to file a basic tax return for free. However, free tax preparation is generally limited to basic tax returns or those who have lower income. And, most tax software programs charge a fee for state tax returns.

You will find the cost often increases as the complexity of your tax return increases. You will want to compare each of these software programs to see which plan works the best for your specific tax needs.

Factors we considered in this review:

  • Ease of Use
  • Features
  • Pricing
  • Guided Support/Customer Service
  • Audit Support (if any)

Most of these tax software programs do a pretty good job at the basics. So, if you have a basic return and you are already familiar with one of these programs, you may not need to find another tax software solution.

1. TurboTax – Our Top Choice for #1 DIY Tax Software

TurboTax is practically the gold standard when it comes to tax software programs.

The software is very user-friendly, and absolutely no tax knowledge is necessary on the part of the user. The program asks you all the necessary questions and you simply enter the information.

Some of the features provided by TurboTax include:

QuickBooks Interface. If you’re self-employed and use QuickBooks for bookkeeping, you can import that information directly into TurboTax. It will simplify document collection and return preparation.

Audit Support Guarantee. If your return is audited, you’ll be entitled to free one-on-one audit guidance from a trained tax professional. You’ll be instructed on how to prepare for the audit, and what to expect. By paying an additional fee, you can even get full-service audit representation through the TurboTax Audit Defense program.

100% Accuracy Guarantee. If you receive a notice from the IRS or your state that you’re required to pay interest and penalties because of a TurboTax calculation error, TurboTax will pay the cost.

If you used TurboTax last year, easily access your previous return’s information or upload a PDF of your return from a software competitor.

You can get more information or sign up for the service at TurboTax’s website.

TurboTax Versions

TurboTax offers 5 different versions, each based on the type of return you need to file or the level of service you prefer. However, remember that state returns involve an additional fee for all versions other than Free:

TurboTax Free. $0 for federal, $0 for state, $0 to file. Formerly known as Absolute Zero, this is TurboTax’s Free version. It is only available for the simplest tax returns – 1040EZ or 1040A. That includes those who earn less than $100,000 and are paid by W-2. It includes all the basic tax preparation capability TurboTax is known for. It even offers their Snap. Tap. Done. tool, which enables you to take a photo of your W-2 with a mobile device for automatic input.

TurboTax Deluxe. This is TurboTax’s most popular version. It’s ideal for those who have incomes in excess of $100,000 and itemize their deductions. It includes all taxpayers, except those who are self-employed or have real estate investments. You can make the most of your charitable donations while the software searches 350+ tax deductions and credits. It comes with one-on-one help, where a TurboTax specialist provides answers to your tax questions.

TurboTax Premier. This version provides all of the features of the Deluxe version, but it’s designed specifically for those who have real estate investments, as well as other investment income, such as stocks, bonds, or employee stock plans. Investment income, including capital transactions, can be imported with this version for easier preparation.

TurboTax Self-Employed. This is the version for anyone who is a business owner, freelancer, or independent contractor. It provides everything you need to prepare your taxes, including full integration with QuickBooks Self-Employed. This version also searches for industry-specific deductions other software might overlook.

TurboTax Live. This is TurboTax’s top-of-the-line software version and was just rolled out recently. Even though it has all the functions of the other four versions, it provides you with on-demand live support from a CPA or an enrolled agent who provides a final review of your return. Versions include Basic live, Deluxe live, Premier live, and Self-Employed live.

TurboTax is our Choice for the Top DIY Tax Software Program. You can compare TurboTax versions and find more information at TurboTax’s website.

2. H&R Block – Best Support (In-Person and Online)

The name “H&R Block” is virtually synonymous with income tax preparation. They have thousands of on-site tax preparation offices located across the country. But, they also offer one of the most successful tax preparation software programs available.

One of the biggest advantages of H&R Block’s software is that the Basic version accommodates more complicated tax situations. We’ll get into the details of versions offered shortly.

In order to import last year’s tax information into the software, you have to upload a PDF of last year’s tax return. That’s not the same as simply importing the information, but it’s not a more complicated process either.

You can start out using the Basic version, but if you include an income source or tax situation that isn’t covered within that version, you’ll be advised to upgrade to one of the paid versions. In either case, payment won’t be required until you actually complete and file your return.

Even though all versions require a fee per state return filed, every version includes 5 free federal returns along with unlimited federal preparation services.

The Deluxe, Premium, and Premium & Business versions include one personal state program download (for an additional cost, one state e-file is available per return).

Audit Assistance. All H&R Block versions provide free audit support. That includes representation before the IRS.

H&R Block Versions

H&R Block has 4 distinct software versions:

H&R Block Basic. This software is more comprehensive than free versions offered by other major tax software programs. For example, you can use this version even if you file Form 1040. You can also itemize deductions, as long as they are more basic deductions, like mortgage interest, charitable donations, or state and local income taxes paid. This version also enables you to import your W-2 from many employers, and will even import last year’s tax return from either TurboTax or Quicken.

H&R Block Deluxe. The Deluxe offers all of the features and functions of the Basic version, but it’s more specifically targeted for homeowners or investors. It accommodates investment, stock sales, home sales, and retirement income along with capital gains and real estate taxes. You’ll also receive guidance on how to maximize mortgage interest or real estate deductions.

H&R Block Premium. Best for those self-employed or rental property owners, this version accommodates more complicated tax situations, as well as self-employment and estate or trust income. Along with access to exclusive tax calculators deciphering the cost basis of critical assets, users receive advanced Schedule C guidance to maximize deductions stemming from their self-employment income.

H&R Block Premium & Business. This version includes all the features of the other plans, but specializes in filing Schedule C for small businesses. The software accommodates preparing and filing S corporation, partnership/LLC, nonprofit, and estate or trust tax returns. With this version, you can create payroll and employer forms, and users take advantage of unlimited business state programs.

You can get more information or sign up for the service at H&R Block’s website.

3. TaxAct – Best Low-Cost Solution (tie)

Probably the biggest advantage with TaxAct is that the software costs less than competing tax preparation software plans. Much like TurboTax, TaxAct offers several versions and can accommodate virtually any degree of tax return complication.

You can either complete your taxes online or purchase downloadable software. Fees for state and federal returns vary depending on the version you’ve chosen.

Other than a standard Maximum Refund and 100% Accuracy guarantee, attractive features and benefits you can expect with TaxAct include:

Free Phone Support. Some tax preparation software plans offer libraries or databases you can research to get answers to your tax questions. TaxAct offers free phone support, which can be especially encouraging to someone who has little or no knowledge in tax preparation.

TaxAct Alerts. This feature provides two benefits. First, it inspects your return for errors and omissions that might trigger an IRS audit. Second, it finds opportunities for tax savings that you might miss on your own.

TaxAct Price Lock Guarantee. You can purchase a TaxAct version at lower cost early in the season, and your price will be guaranteed regardless of when you file your return. This is an important price protection feature, since many tax software plans increase their fees as April 15 approaches.

TaxAct 7 Years Access. With TaxAct, you’re guaranteed access to your returns for 7 years in accordance with the original filing date. This also means access to print copies of prior returns.

FAFSA Assistance. If you or a family member will need to apply for a government loan or assistance to attend college, you will have to complete a FAFSA application first. Since much of that information comes from your tax return, TaxAct enables you to prepare and print a worksheet with the information needed to complete an application.

You can get more information or sign up for the service at TaxAct’s website.

TaxAct Versions

Like other tax preparation software plans, TaxAct offers different versions specifically designed around the degree of complication required in your tax situation:

TaxAct Free. If you only need to file Form 1040EZ or 1040A, then the Free online version is your best bet. It’s $0 for federal returns and $0 to file with an additional state fee. You can easily import W-2 data, along with prior year tax information from TurboTax or H&R Block. The Free version includes all basic preparation options of premium versions, including preparation, printing, and e-filing returns (now accommodating retirement income). There’s also unlimited chat, email, and phone support.

TaxAct Basic+. This version is ideal for filers needing to claim credits and/or deductions for named dependents. Along with all of the features included with the Free version, you’d receive support from tax specialists via in-app email. If you do purchase the downloadable Basic version, you can take advantage of 5 federal e-files. For both versions, there is an additional fee for filing state returns.

TaxAct Deluxe+. If you’re a homeowner with deductions, credits, or adjustments, then Deluxe+ is for you. You can report additional income, adjustments, or credits in accordance with Schedules 1-6 and maximize itemized deductions in line with Schedule A. You can also enter charitable donations using TaxAct’s Donation Assistant tool. For the online version, there is an additional fee for filing state returns. If you purchase the downloadable Deluxe version, you’ll have access to 5 federal e-files along with 1 state return.

TaxAct Premier+. This is the most popular TaxAct version. You can use this version if you need to itemize your tax deductions, take advantage of certain tax credits, or have investments or rental properties. It might even be the go-to tax software if you own rental real estate since it has one of the lowest fees of any tax software for that kind of investment. This version also supports a dedicated phone line for users along with screen share capabilities with tech support. Similar to all the software versions already mentioned, Premier+ also includes an additional state return fee. When you purchase the downloadable Premier version, you can take advantage of 5 federal e-files and 1 state return.

TaxAct Self-Employed+. This is the TaxAct version for the self-employed, including freelancers and independent contractors. Along with access to TaxAct’s Deduction Maximizer tool, this version offers tax guidance for reporting both business and farming income in accordance with Schedules C and F. There’s also year-round tax planning you can take advantage of. You can expect an additional state return fee with Self-Employed+. If you purchase the downloadable Self-Employed version, you’ll gain access to 5 federal e-files and 1 state return.

TaxAct supports various software versions specifically for business and professional tax situations. You can also experience peace of mind when you enroll in TaxAct’s audit defense program – Protection Plus. It covers your return for the next three years and provides comprehensive resolution strategies, correspondence with trusted tax authorities, and representation in contacting the IRS for both federal and state audits.

Start your tax return today at TaxAct’s website.

4. E-file – Accessible Filing for All

With a user-friendly interface and flexible payment options, E-file is a great option for users wanting to save a little cash this tax season.

Some of the features and benefits you can expect with E-file include:

Quick and Easy Filing. When you choose to file your taxes with E-file, you’re ensured accuracy and efficiency while bypassing physical forms (unless you choose to print and mail your forms). File electronically in less than 15 minutes and get your federal tax refund fast.

User Data Privacy. Over a million users have easily completed their returns using this software, and user data privacy is of top priority throughout the entire filing process. As you complete each section, you’ll be tasked to fill out relevant forms while also adhering to the schedule that best fits your current financial situation.

Convenient Data Import. For return users, you can easily import your return information from the previous year. If you’ve used different tax preparation services in years past, you’ll more than likely encounter issues importing similar data.

Audit Assistance. Similar to other tax preparation services, E-file offers IRS audit assistance at no additional cost to the user, communicating on your behalf if and when audits arise.

Software Perks. Better yet, if you qualify for E-file’s Basic software, you could file your federal tax return for free. You can even choose to pay with a portion of your tax refund (additional fee required).

However, if you consider free state returns and customer service options non-negotiables, you may want to research comparable tax preparation software. Although you must pay up to $20 for state tax filing, the fee is not applied per state return.

E-file Versions

For those interested, E-file offers 3 different software versions:

Free Federal Basic. This is E-file’s most popular software, especially since federal e-filing is free and complete filing support is included for both single and joint filing. The software is also intuitive, meaning your account is downgraded to the Free version if eligibility is detected.

Deluxe Plus E-file. For customers bringing in up to $100,000 annually, this software accommodates deducting mortgage interest and filing with dependents. The Deluxe Plus version also includes retirement income. Nonetheless, this version readily encompasses all of these features plus what’s included with the Free version. The intuitive software will also upgrade your account to the Premium Plus version if a moderate to complex tax return is detected.

Premium Plus E-file. Along with all features included with Free Federal Basic and Deluxe Plus, the Premium Plus software supports all deductions and credits. This version is ideal for users with complicated tax returns, such as incorporating itemized tax deductions or business and personal income.

You can get more information or sign up for the service by visiting E-file’s website.

5. FreeTaxUSA – Best Low-Cost Solution (tie)

The biggest advantage of FreeTaxUSA is that you can complete complicated returns using the Free version.

This includes returns for those who are self-employed, own rental properties, take a home office deduction, or have K-1 income from a partnership, LLC, or S corporation.

Each version of the software enables you to file your federal return for free, though there is an associated fee for each state income tax return you need to file.

FreeTaxUSA Versions

FreeTaxUSA has 3 versions – Simple, Basic and Advanced – and they’re all free to the user:

  • Simple – This is the preferred version for first-time users and those with simple tax situations.
  • Basic – This version is for those who own homes and need to itemize deductions, make HSA contributions, and take advantage of the earned income credit.
  • Advanced – This version is for the self-employed, including those who have 1099 income.

FreeTaxUSA Deluxe. This is the lone paid version of the software, but it costs under $10 to file your federal income tax return (plus an additional fee per state return filed). Additional features with this version include live chat during tax season along with amended federal tax returns for free (there is a charge per amended state return).

Deluxe also comes with FreeTaxUSA Audit Assist, giving you access to audit specialists who can help you if you’re audited or if you receive a notice from the IRS imposing additional charges. You won’t get actual representation before the IRS, but they will help you prepare for an audit.

You can get more information or sign up for the service at FreeTaxUSA’s website.

6. Liberty Tax – File Returns with Ease

Capable of processing even the most complicated tax returns or audits, Liberty Tax has been a popular choice among filers of all experience levels since 1997.

Although the company only offers paid tax preparation services, time and time again users speak to the software’s accuracy and ease of use, especially for first-time filers. But, opinions on software affordability do vary from user to user.

Keeping in line with Liberty Tax’s motto of “You do life. We do taxes,” users can meet with customer representatives face-to-face at over 3,000 different branches.

Unlike E-file, you can import your previous return’s information from any outside source, and you don’t have to work through returns section by section.

However, what makes this software stand out is its in-depth audit assistance tools, free tax return amendments, and tax refund advance eligibility. There are also various free resources at one’s disposal, such as estimation calculators and tax tools. But, you must pay separately for state returns with all software versions.

Customers can also earn..

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Too often, people approach the concept of a budget with the rarely kept promise to start one tomorrow.

While budgeting might seem like a daunting, or at the very least, monotonous task, it’s crucial to reaching your financial goals.

No matter how old you are, what your income is, or what financial goals you hope to accomplish, a budget can be the vehicle to your success.

In this guide, you’ll learn how to budget from start to finish, with all the tips and tools you need to get the ball rolling.

How to Make a Budget Set Goals

The reason you create a budget, to begin with, will have a major impact on how you structure it.

Maybe you’re tired of living paycheck to paycheck and want to create healthier spending habits, or similarly, you want to build an emergency account.

If so, your budget will likely look different than if your aim is to strategically invest in your retirement or pay down your college debt quickly.

Or perhaps you’re looking to repair or replace your car or buy a vehicle for your teen.

Whatever your goals are, map them out from day one. Knowing why you’re tracking your spending and altering your habits can be highly motivating.

Establishing your financial goals early on will help you to set realistic standards you can actually meet.

To really budget effectively, set concrete, definitive goals. Rather than simply setting out to save for college, decide how much money you need to save and set a deadline.

Assess Your Current Finances

With a goal in mind, you need to take a hard look at your finances to see what your daily money management currently looks like.

There are a few different numbers you need to take note of as you set out to create a budget:

  • Income: As you begin your financial inventory, the first amount you need to consider is your income. Knowing what you have coming in each month will help you determine how much to spend and save. Factor in your wages, investment income, side hustles, child support, and any other payments you get.
  • Spending: The next step, which might be a bit more arduous, is to track your spending. For this activity to be effective, you need to track your spending for at least a month. The longer the better.
  • Regular Expenses: You also need to identify your recurring expenses, like rent, student loan payments, childcare, and mortgage.

There are a number of ways to track your spending, from using a pen and paper to typing them up in a spreadsheet. One of the easiest ways to keep track is with budgeting apps.

With an app like Mint or Personal Capital, you can connect your cards and bank account, allowing the app to log and categorize your spending.

Then they’ll break down your spending habits for you. All you have to do is check your phone.

Keep Irregular Expenses In Mind

A lot of people build a budget around their daily and monthly expenses and income, only to be caught off guard by annual or other infrequent fees.

Be sure to factor in some of the following expenses:

  • Vacation: The best vacation is one that you’ve saved money for. If you know you’re going on a trip, allocate some money for it.
  • Holidays: Whether it’s Christmas, Hannukah, Valentines Day, or a birthday, you’ll want to set aside money for gifts throughout the year.
  • Annual fees: This could include dues to a professional organization, taxes, vehicle registration, insurance premiums, and physicals. Be mindful of these annual fees as you prepare your budget.
  • Auto Repairs: This is always a frustrating topic for any family. Whether it is a simple fix like a new battery, or something bigger like a new timing belt, the unexpected expense of car repair can really throw you for a loop if you havent set aside the funds in your budget.
Set Priorities

With your goals, income, and expenses mapped out, it’s time to build your budget. One of the first steps you need to take is to determine which of your expenses are wants and which ones are needs.

You may enjoy eating out several nights a week or grabbing Starbucks on the way to work, but you don’t necessarily need to.

Your daily needs include expenses such as:

  • Gas
  • Groceries
  • Clothing
  • Mortgage
  • Medication
  • or anything else that you need to survive

While it’s okay to splurge sometimes, your wants shouldn’t override your needs, savings, and debt repayment. By all means, you should build money into your budget for entertainment, but make sure you fit it realistically into your budget.

At this stage in the game, you may realize you need to make bigger changes, depending on how aggressive your goals are, like moving into a more affordable home or taking on another job.

Choose the Right Budget

Financial experts recommend a number of budgeting strategies, each of which comes with unique benefits. You should choose the budget that you can accomplish most realistically. Let’s take a look at a couple of options:

  • 50/30/20 budget: This budgeting method proposed by Elizabeth Warren suggests you allocate 50% of your income to needs, as defined above, 30% towards your wants, and the final 20% towards savings. This budget provides you with the flexibility to spend your given percentages however you see fit, which is beneficial for some budgeters but may be too lax for others.
  • Zero-based budget: On the opposite end of the spectrum, Dave Ramsey’s zero-based budget gives every dollar you earn a specific task. This type of budget is highly regimented and helps to guarantee you don’t spend more than your budget allows.
What About Irregular Income?

If you’re an entrepreneur or freelancer, you may be wondering how the budgeting tips above fit into your ever-changing finances. While your earnings may fluctuate every month, you don’t have to live paycheck to paycheck.

You just need to create a budget to see you through the months where you’re making bank and the ones where you’re scraping by.

To do so, you still need to walk through all of the steps above, establishing goals, looking at your income, and tracking your expenses. The added step for you will be to take both your highest and your lowest monthly earnings into account to build a conservative budget.

The next step is to reevaluate all of your fixed expenses. The more of those you can trim down, the more money you’ll have to float you through less profitable months.

For you, that might look like refinancing your home, paying down debt, or cutting down on subscription services.

Another crucial part of your budget is padding your emergency fund. While everyone should dedicate resources to savings, you’re at an increased risk of needing to use those funds with inconsistent resources.

6 Tips to Make Your Budget a Success

The steps above will help you to create a budget, but that’s only half the battle. Below are a few tips to help you faithfully stick to your budget, even when the going gets tough.

#1 – Keep Tracking Your Spending

Don’t simply use a budgeting app or spreadsheet to map out your past expenses. If you continue to track the money you’re spending, you can stay on top of your budget and see if you need to make any changes at the end of the month.

#2 – Try Envelopes

While it may be becoming less popular to carry cash around, if you need help staying on track, envelopes are a great way to go. When you use the envelope method, you’re creating a physical version of your zero-based budget. Once you’ve used all the money in your entertainment envelope, for instance, that’s it.

Envelopes provide budgeters with a very practical way of spending mindfully.

#3 – Automate Your Payments

The benefits of setting up autopay can’t be emphasized enough. When you stop paying your bills manually, you don’t have to worry about missing a due date. Automating your payments also allows for easy tracking with your budgeting app.

In addition to keeping your budget on track, automating your payments can help keep your credit score on track. As a bonus, automation declutters your finances, allowing you to go paperless and stress less.

#4 – Shop Strategically

Single item shopping trips, where you run to the store for x,y, or z, can completely derail your budget. When you aren’t following a shopping list, you run the risk of buying beyond your limits.

And it’s very unlikely that you’ll walk out of the store with only the item you went in to purchase.

Instead of standing in the checkout line with an unexpected new outfit and wondering if you should buy it or not, you should create a list, set aside a certain amount of money, and shop intentionally.

#5 – Involve Your Family

Budgeting becomes a bit more complicated when you aren’t single. Your budget expands from your rent, auto insurance, and student loan repayments to shared bills, tuition, childcare, sports, and more.

If everyone in your household isn’t on board with your new budget, you’re far less likely to stick with it. Your budget should be something that you share with your spouse and kids, setting goals together and encouraging everyone to participate.

Even if you’re dating, unmarried couples can help keep each other accountable by being upfront about their budgeting goals.

#6 – Attack Your Debt Wisely

Debt repayment can put a damper on your budget and financial goals. Rather than blindly throwing money across all of your debts or merely paying the minimum, you should prioritize your debt. There are two tried-and-true debt repayment strategies:

  • Debt snowball: Another of Dave Ramsey’s favorites, the debt snowball challenges you to pay the minimum on all of your debts except for the lowest one, then use the extra money to pay off your lowest debt. Is it the quickest strategy? Not necessarily, but it sure is motivating.
  • Debt avalanche: The debt snowball tackles debt by aiming to pay off the highest interest rate first, which ultimately saves you more money in the long run.

Whichever method you choose. prioritizing your debts and working them into your budget strategically can totally transform your finances.

Bottom Line

A budget isn’t meant to hold you back, but to help you thrive financially. With some planning, realistic expectations, and diligence, you can successfully create and stick to a budget.

Take advantage of budgeting apps, recruit friends and family, and put some thought into the way you’re spending.

Cutting your spending and boosting your savings may seem difficult in the beginning, but you’ll be glad you did in the future.

Other Fun Budgeting Topics For Reference!

The post Budgeting Tips to Help You Succeed appeared first on Cash Money Life | Personal Finance, Investing, & Career.

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A generation ago, most consumers put pen to paper to track their monthly expenses. Back then, a simple math error or brief a moment of forgetfulness could wreak havoc on your check register.

With today’s modern budgeting apps, anyone with a smartphone can budget for the future, track expenses in real time, and generate intuitive reports.

Now, for many people, the biggest budgeting problem comes from having too many choices for budgeting apps. How do you decide which one to use?

Finding the Best Budget App for You

Modern budgeting apps can do a lot more than budgeting. They’re:

  • Intuitive: Most apps monitor your spending with no input from you because they connect to your bank. Some even predict your financial behavior based on your past tendencies.
  • Goal-Oriented: Many services encourage you to save money by setting goals and reminding you to follow through. Some even save money for you.
  • Future Conscious: Some apps even help you invest either by directing spare change into a special account or connecting directly to an online broker.

The simplest budgeting apps help you track your expenses. They let you visualize your current financial situation. More elaborate options track expenses and help you decide how to shape your financial picture. A few apps can even decide for you.

To find the budgeting app (or desktop equivalent) best suited for you, decide first whether you want a simple option or something more elaborate. Some of the more robust options charge user fees, but if a specific service can save more money in other areas, you may not mind paying for it.

Some of the Best Options for Budgeting Apps

When you have a pretty good idea what you want your app to do, you’re ready to start looking at different options.

Here are seven of our favorites, in no particular order. We’ve tried to include a variety of services:

You Need a Budget

Many benefits of budgeting your money unfold from one concept: Creating the habit of paying attention to your spending.

Recording every dollar you spend makes you much less likely to spend money mindlessly.

The app You Need a Budget (YNAB) ushers this central tendency of budgeting into the digital age.

The app prompts you to assign every dollar in your account a specific job which discourages unplanned purchases.

You’d think this kind of scrutiny could slow down an app’s user experience, but You Need a Budget syncs directly to your bank and credit card accounts, creating a seamless interface.

And, goal-setting puts the details into a context which can keep you from getting bogged down in the minutiae.

  • Best for: Someone who wants a thorough and detailed picture of his or her personal finances at any given moment.
  • Cost: Free for a 30-day trial period then about $7 a month if paid annually.

Compare more in-depth, YNAB vs. Quicken!

Intuit Mint

If you like TurboTax, you’ll probably like using the tax software’s sister product, Mint, to manage your monthly budget.

You’ll get one of the most seamless user experiences on the market. You’ll also see a broader perspective on your monthly budget compared to You Need a Budget.

Mint focuses more on the bigger picture, and you can tie other accounts — your investments, mortgage balance, and credit cards, for example — into your dashboard to get an even broader view of your financial picture.

  • Best for: Someone who wants a cutting edge interface and a broader view.
  • Cost: Free

Read more about some great alternatives to Intuit!

Compare more in-depth, Intuit vs. Personal Capital.

Wally

For an even more basic approach to budgeting, check out Wally. This app doesn’t connect directly to your bank account. Instead, you’ll have to enter your expenses and deposits manually.

This more hands-on approach appeals to people who want to keep a finger on the pulse of their finances.

And believe it or not, the interface is easy enough to use. You can set up repeat transactions and even scan receipts which makes the data-entry process less tedious.

If you can enter your calories into a nutrition app, you can handle Wally.

  • Best for: Someone who wants to use an app to track expenses but doesn’t want to connect the app to financial accounts.
  • Cost: Free
Mvelopes

Back in the day, people who wanted to control their spending might cash their paycheck and distribute the bills into a series of envelopes.

You might have a groceries envelope, a gas envelope, and an envelope for eating out, for example.

When you’d emptied an envelope, you either quit spending or took some money from a different envelope.

The app Mvelopes replicates this system except without the paper envelopes or the paper money. Instead, Mvelopes connects to your accounts, including your credit cards, to track your spending.

The platform lets you set specific goals and customize plans to get out of debt. You can even get one-on-one coaching sessions with an upgrade to the most expensive option.

Mvelopes isn’t the slickest platform on the market, but its simple approach appeals to some users.

  • Best for: Someone who wants a simple, categorical approach with the ability to visualize goals.
  • Cost: Free for the basic plan; $100 a year for an upgrade; higher fees for one-on-one coaching.
Digit

The growing variety of budgeting apps has led to more specialization. Apps need a way to distinguish themselves in the crowded marketplace.

The app Digit appeals to people who want to save money but don’t necessarily have the discipline to make it happen.

The service analyzes your spending habits and identifies good opportunities to transfer small amounts of money into savings.

The app guarantees it won’t overdraft your checking account, and you can access the saved money at all times.

Typically, the app will move small amounts into savings every few days.

Digit works best if you use your debit card frequently because a higher volume of transactions gives the app more chances to observe your spending habits.

  • Best for: Someone who wants to save money but can’t identify a pattern for regular deposits into savings.
  • Cost: $3 a month after 30-day free trial
PocketGuard

PocketGuard analyzes your spending habits and suggests ways to cut back. The service will even look for better deals if it senses you’re paying too much for a service.

You won’t be able to create a long-term plan or track every detail of your financial life with PocketGuard.

But the service will quickly answer the most basic of financial questions: How much money can I spend right now?

  • Best for: Someone who tends to overspend and would like some electronic oversight.
  • Cost: Free
Clarity Money

This app stands out because it can take action for you. If you’re paying too much for cable or for digital subscriptions you never use, Clarity Money can negotiate with your service provider for a lower bill.

Clarity Money can even cancel your unwanted services for you.

The idea is to move beyond the most basic function of budgeting apps — tracking your past spending — and focus more on shaping the coming months’ finances.

The app also excels at integrating your credit card, savings, and checking accounts in one place. You can even transfer money between accounts from inside the app.

  • Best for: Someone who wants help cutting expenses while tracking current spending.
  • Cost: Free to use but the app will take 33 percent of the money it saves each year by renegotiating bills or canceling services.
How to Choose the Best Budget App for You

Whether you’re considering an app on this list or another service, find out some basic information before you sign up and connect your banking accounts:

  • Does the service address my need? If you have a specific need such as saving or planning for the future, make sure the app can help.
  • Is the service free? It’s OK to pay a monthly fee if you’re getting a service you need to save money month to month, but hey, we understand, free budgeting apps are always nice.
  • Does the app work on my phone? All the apps listed above work on Android and iOS. If you’re looking at another service, check your phone’s app store before signing up online. For iPhone users, make sure your version of iOS is supported.
  • What about privacy? Connecting your financial accounts can put you in a vulnerable position. Read the fine print to be sure the app won’t sell insights about your spending habits to third parties.

Budgeting takes time, but it can also create more financial freedom. Finding the right app can save you time and money, here’s an inside look as to which personal finance resources we like to use!

The post The 7 Best Budget Apps for 2019 appeared first on Cash Money Life | Personal Finance, Investing, & Career.

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Starting a successful small business is no easy feat. Having the guts to make your dreams a reality is step one.

Once you’ve accomplished that goal, there are a number of steps to take along the way to ensure your business soars legally and financially.

From tracking expenses to taking inventory and preparing for taxes, you’ll have plenty of accounting and bookkeeping tasks on your to-do list.

With a solid plan in place and a handful of helpful tools and resources, you can creatively and effectively manage your business.

Use this guide as a starting point to get your legal and accounting considerations on track so your small business can be a flourishing one.

Our Top 5 Legal and Accounting Tips for Small Businesses

There are more components to running a successful small business than the steps presented here, but they are critical to establishing a strong foundation for your company.

With the tools and tips below, you can strategically manage your business’s finances.

Open a Business Account

Mixing personal and professional finances can be tricky, especially when you’re the owner of a small business.

If you haven’t done so already, you need to open a separate checking account for your business. Period.

In fact, if you become an LLC or a corporation, you’ll be required to have a separate account. Even if you’re a sole proprietor, you should open one to simplify your bookkeeping and save yourself a headache at tax time.

A lot of the best banks offer business checking and savings accounts optimized for small businesses’ tax and accounting needs. When you register for an account, you’ll be asked to provide legal proof of your business, so be sure to check the bank’s requirements.

You can also get a debit card or business credit card to streamline your company’s spending and expense tracking. Compare accounts to be sure you’re getting the best rates available.

Hire a Professional

Sometimes, financial matters are better left to professionals. With so much at stake, your small business could benefit from hiring an expert advisor, especially in areas where you’re less adept.

There are primarily two types of professionals every small business could benefit from having on the payroll: a lawyer and an accountant.

From putting a solid system in place to manage your day-to-day finances and safeguarding your company legally to putting out fires when they arise, good lawyers and accountants are an invaluable asset to small business owners.

Lawyer: While you may not have any legal issues today, small businesses are constantly at risk of being sued. Rather than waiting until you’re being served papers, you should protect yourself early on by hiring a lawyer for your small business. The fees you pay for a lawyer today could be far lower than the legal fees you could be slapped with if you leave yourself unprotected.

Accountant: You may want to look into hiring a CPA (Certified Financial Planner) if your finances are complex, or if you’re inexperienced with recording and interpreting business finances. Hiring an accountant can remove one more stress factor from managing your business and help to ensure your spending and earning are properly recorded on the books.

Track Your Expenses

Tracking expenses is one of the most critical components of small business accounting. At any given time, you should be able to quickly identify any one of your purchases without rummaging through a drawer full of receipts.

You should also be able to access all of the payments you’ve made, from invoices to biweekly checks to your employees.

Apps and software can simplify expense tracking (more on that below), allowing you to spend more time doing what you love.

Effective expense-tracking helps you to pinpoint the way your company spends, categorize your expenses, and get the most out of tax credits and write-offs.

Some common expense categories include entertainment, business travel, dining, vehicles, office purchases, and gifts. Itemizing your expenses goes a long way in terms of simplifying your finances and supporting your tax claims.

Plan Your Payroll

Even if your business is a one-man show, you’ll need to put some thought into how you want to receive payments. Old-fashioned checks or a service like Venmo may suit your needs in the early days, but as your business grows, you’ll probably want to consider a more robust merchant service to process your payments.

As you expand and begin to hire more employees, you need to establish a payment plan for employees. You may have a combination of freelance contractors, part-time employees, and full-time employees. You’ll also need to decide on hourly rates and salaries for each of those employees.

Beyond that decision, you’ll be tasked with determining the schedule for your payroll and be mindful of tax withholdings. There are a number of payroll systems that can help streamline all of these considerations for you, which we’ll cover below.

Take Advantage of Apps for Small Businesses

From bookkeeping to bankrolling your operations, the online market is filled with platforms tailor-made to meet small businesses’ accounting needs.

Here’s a quick look at some of the best services to help you manage your businesses’ finances.

  • PayPal Business: PayPal is one of the most popular apps for processing payments, and its business accounts come with low transaction fees and quick access to your funds. Platforms like PayPal and Dwolla offer a secure and affordable merchant service to small and medium-sized businesses.
  • Expensify: Expensify is a newcomer to the accounting software game, simplifying expense tracking for new business owners with an easy-to-use platform that takes the heavy lifting out of Expensify.
  • FreshBooks: FreshBooks is a versatile platform that can track your expenses, invoices, hours, and payments. It can also be linked to apps like Gusto, Quickbooks, and Xero. If you’d like to give FreshBooks a go on a trial basis, it comes with a 30-day free period. After that, you can decide whether or not to upgrade to a more comprehensive package.
  • Quickbooks Online: Offered by Intuit, Quickbooks Online provides expense tracking, easy account syncing, and reporting features that help you assess your profits and spending, along with tax preparation tools that allow you to easily transfer your records to Turbotax.
  • Xero: Xero offers its accounting services through the cloud, managing expenses, payroll, invoicing, and payments, with a 30-day free trial and affordably priced packages for businesses at every level.
  • Gusto: Formerly known as Zen Payroll, Gusto is another one-stop shop for small business accounting, compatible with other leading accounting software. Gusto comes with workers comp management, payroll, benefits, and HR services with some plans.
  • Paychex: Much like Gusto, Paychex offers full-service legal and accounting assistance to business. With Paychex, you can access business insurance. HR and compliance, retirement accounts, benefits, payroll, and tax services.
Bottom Line

Your day-to-day business shouldn’t be hindered when tax time rolls around or an unexpected legal battle comes your way.

With a plethora of apps and software custom-made for small business accounting and professionals trained to deal with small business needs, you can rest assured that your business’s finances are in order.

Whether you need to hire a lawyer or enroll in a payroll service, take the steps today to ensure your small business accounting is in order.

The post Small Business Accounting & Legal Tips appeared first on Cash Money Life | Personal Finance, Investing, & Career.

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It’s a big job, so a lot of us put off retirement planning.

When you have a mortgage, car payments, insurance premiums, children, and so many other demands, retirement planning may seem impossible.

But help is abundant:

  • Tax-friendly accounts can give you an incentive to save. These incentives can pay off on your next tax return.
  • Smart investments and contributions from your employer can enhance your savings.

In this post we’ll look at some of the most common tools you can use to build a retirement plan that grows without you having to deposit every single penny.

For best results, work with a retirement planner to make sure you’re getting the most out of these tools. And, start planning now.

Employer-Sponsored Plans

Decades ago, many employers managed pension plans on behalf of their employees. Some employers still offer pensions, but not many. Retirement planners call pensions “defined benefit plans.”

If your employer manages a pension, your participation may be mandatory, and the pension should be a helpful source of income later in life.

Chances are, though, your employer offers only “defined contribution plans.” You, as an employee, can control these plans. If you have access to one, you can start retirement planning right away by contacting your human resources department.

Your 401(k) Plan

The most common defined contribution plan is the 401(k). With help from your employer’s human resources staff — or without help if your employer has an online benefits portal — you can direct money from your regular paychecks into your company’s 401(k).

A lot of companies will match your 401(k) contributions up to a certain percentage. If you see “company match” in your HR paperwork, by all means, sign up. Try to save at least the amount your company matches.

This will double your deposits. It is essentially free money to fund your future, and you’ll be well on your way to a more stable financial future.

Some 401(k) FAQs

What are the 401(k) tax Implications? You’ll be saving for your future but also helping in the present because your 401(k) contributions will not be taxed as regular income, up to a limit. The limit is reset each tax year. In 2019 you can shield up to $19,000 of your income from taxation ($25,000 if you’re 50 years old or older) by depositing it into your 401(k) account. When you withdraw money later in life, you’ll pay taxes on that income.

What happens if you change jobs? The money in your 401(k) is your money but it’s held by your employer, or more likely by a third party on behalf of your employer. When you change jobs, you can roll the money over into your new employer’s 401(k) program or into your own individual retirement account (IRA) which we’ll get into below.

Can I access 401(k) money? The money’s yours, but you shouldn’t plan to access it until retirement. There are ways to withdraw money from your 401(k) before retirement but you’ll face a penalty because of the tax break you got when you saved the money to begin with, and you’ll have to pay taxes on the money. In most cases your employer will let you borrow against the funds if you get into a bind.

What happens to the money while it’s in the 401(k)? Most employers work with investment firms to manage employees’ 401(k) contributions. You have some control over where and how the money is invested. Many retirement planners like target-date funds which change investment strategies as you get closer to retirement age. For example, when you’re five years away from retirement, a target-date fund will invest your money more conservatively to guard against losses.

Related Posts:

How to Take a 401k Loan – And Why You Shouldn’t

Best Places to Open a Roth IRA Account

Plans Similar to 401(k)

If your employer doesn’t offer a 401(k) it may offer something similar:

  • 403(b): Employees of non-profit organizations including schools and hospitals may have a 403(b) plan instead of a 401(k) plan. You’ll get the same result using a 403(b) as you would a 401(k).
  • 457: Also very similar to 401(k); typically offered by governmental agencies.
  • Roth 401(k): A Roth 401(k) plan defers your tax break until you withdraw funds from your 401(k) later in life. Your annual contributions will not be tax sheltered.
  • IRAs: Some smaller employees prefer to direct retirement contributions directly into their employees’ Individual Retirement Accounts which are typically managed by the employee. IRAs have different tax rules. We’ll get into the different kinds of IRAs next.
Individual Retirement Accounts

An Individual Retirement Account (IRA) works a lot like a 401(k) plan except you own and manage everything about the account yourself.

Anyone old enough to work can open an IRA with a bank, credit union, or broker. Each year you can contribute a certain amount of money into your IRA tax-free. In 2019, IRA owners can deposit up to $6,000 ($7,000 if you’re 50 or older) into an IRA.

With a traditional IRA, you deposit money tax-free, up to the IRS’s annual limit, but pay taxes on the money when you withdraw it later in life, after age 59-½. (If you withdraw funds early you’ll face a 10 percent penalty.)

Since you own and manage your own IRA, these accounts serve as a home base of sorts for your retirement planning. When you leave an employer, for example, you can roll your 401(k) contributions into your IRA.

As these accounts have grown in popularity, they have also grown more diverse. Variations of the IRA include:

Roth IRA

Roth IRAs, named after Sen. William Roth who sponsored the 1997 legislation creating them, reverse the traditional IRA tax situation: Rather than depositing pre-tax money, you contribute money after it’s been taxed.

In exchange for the immediate tax break, you gain a future tax advantage: When you withdraw money later in life, you won’t be taxed on the money.

Spousal IRA

If you do not work, the IRS will allow your working spouse to contribute his or her earnings into a separate IRA for you. For this to work you’ll have to file a joint tax return. Contribution limits mirror traditional IRA limits.

SEP IRA

Your employer may set up a SEP IRA — the SEP stands for simplified employee pension — as an alternative to a 401(k) plan. Like a traditional IRA, your deposits will not be taxed but your withdrawals will be taxed at the ordinary rate later in life.

The good news here: The deposit maximums are higher than a traditional IRA. Your employer could put 25 percent of your income, up to $56,000, into your SEP IRA tax free each year.

The bad news: You can’t submit money from sources other than your employment into this kind of IRA.

Simple IRA

A Simple IRA isn’t all that simple. The word “simple” is an acronym for Savings Incentive Match Plan for Employees.

These plans mimic a 401(k) plan’s ability for an employer to match employee contributions: In fact, employers must match your contributions up to 3 percent. Employers can also make unmatched contributions, meaning they contribute even when you don’t, up to 2 percent of your earnings.

These plans currently cap tax-deferred deposits at $13,000 a year ($16,000 if you’re 50 or older).

Accounts Options for Self-Employed People

From an employer’s point of view, the last two options above — SEP IRA and Simple IRA — have distinct advantages for the self-employed and small business owners.

You can contribute to your own retirement both as the employer and the employee within certain limitations. For example, if you own a company with a handful of employees and set up a SEP IRA for yourself, you have to offer and contribute to a SEP IRA for your other qualifying employees.

Other retirement account options for independent contractors, self-employed, and small business owners include:

  • Solo 401(k): If you do not have any employees, you can set up a Solo 401(k) and contribute both as employer and employee up to $56,000 tax free. (The amount is so high because you’re contributing money as an employer and an earner.) You can also include your spouse if he or she earns income from your business. Setting these up can be a little tricky: You’ll need an IRS Employer Identification Number and you’ll need to work with a broker.
  • Traditional or Roth IRA: Since you own an IRA and it’s not associated with an employer, these accounts make sense for self-employed people, especially if you’re saving less than $6,000 a year. However, you can save more tax-free by setting up a SEP IRA or a Solo 401(k).
  • Regular savings account: Some independent contractors prefer a regular savings account. It’s better than nothing, but the tax breaks you get from more advanced options are typically worth the trouble to set them up, especially when you’re paying those sky-high self-employment taxes.
What to Do With Your Retirement Accounts

When you’ve set up a retirement account and you’re making regular contributions, you’re officially planning for retirement while also saving money on taxes. It’s a win-win.

But a retirement account, whether a 401(k) or some kind of IRA is just that: an account. As with a checking or a savings account, your retirement account means very little if its balance isn’t healthy and growing.

Making tax-deferred contributions into your retirement account is only half a plan. Tax laws also allow money in your account to grow tax free. This can add a third dimension to your ability to save for the future.

Investing 401(k) Money

With a 401(k) or a similar account, your employer will work with an investment firm to direct your contributions into mutual funds, stocks, or bonds. Your employer controls a lot about the process, but you can usually make choices about how your money is invested.

It’s your money and you should feel responsibility over it, though. Read your annual statements and ask questions to your plan administrator as needed.

Keep in mind: Investing is a long-term process. If your holdings lose value this year, don’t freak out, especially if you’re young and have decades to go before retirement.

Still, if you want more control over how your money is invested, you could roll over the funds into your own IRA which gives you more control over investing.

Investing IRA Savings

Since you own and manage your own IRA, you can have direct control over how you invest the money. Here are some common approaches:

  • Stocks: Though potentially volatile, many IRA owners like investing their savings in stocks because of the potential for a high rate of return. Earning, say, 8 percent on your savings in one year without paying capital gains is tempting.
  • Mutual Funds: A safer bet, mutual funds limit your potential for loss while also taming your potential for gain. Retirement planners advise anyone, regardless of age, to mix in some mutual fund investments at all times. As you get closer to retirement, you should depend even more on safer investments.
  • CDs: Since you don’t plan to touch your IRA money anyway, a certificate of deposit — which requires you to leave the money alone for a specific amount of time — dovetails nicely into your IRA. Better yet, create a ladder of CDs to optimize compounding interest.

Someone who doesn’t know much about investing and doesn’t have time to learn should let a professional manage his or her IRA investing. Or, you could go this route:

  • Robo-advising: You can open an IRA within a leading robo-advisor such as Wealthfront or Betterment. You can set your own tolerance for risk which should reflect your age and inclinations. Then, the robo will invest your tax-sheltered money for you, primarily in exchange-traded funds (ETFs) which resemble mutual funds.

A Roth IRA is a particularly powerful tool because your money can grow tax-free and you can withdraw from those earnings tax-free during retirement — this is a potential for incredible savings.

Other Retirement Planning Tools

For many of us, retirement planning begins and ends with tax-friendly accounts fed by regular contributions and gains from wise investments.

Of course, you can also dig deeper in the retirement planning toolbox as your situation requires it:

  • Social Security: For nearly a century, Social Security has been a staple of retirement planning for Americans. Your political outlook may influence your willingness to depend on Social Security. Some pols claim the fund is doomed while others say it’s in great health. What does the money say? The variety of tax breaks you can get for retirement savings means Uncle Sam wants you to save.
  • Thrift Savings Plan: Federal employees including members of the armed services participate in this defined benefit (pension) plan which has more than $5 billion in assets and is designed to mimic private sector 401(k) plans. Federal employees can opt in, directing 3 percent of their annual pay into the fund.
  • Annuities: An annuity, which is a life insurance product, serves as an alternative to a pension. You’ll fund the annuity with a large, up-front lump sum. Later in life, the annuity will pay you a regular income, guaranteed, until you die or until you reach an advanced age specified in the policy, even if your payouts surpass your initial payment.
  • HSAs: On the surface, health savings accounts have almost nothing to do with retirement. Yet people are contributing money each year tax free with plans to spend the money on medical expenses during retirement. You’ll need a high deductible health insurance plan to make it work, and you can’t have an HSA if you have Medicare.
  • Your home: Every time you pay a mortgage payment, you’re potentially putting that money toward retirement when you consider owning your own home means not paying rent when you’re retired. Or, you could sell the home when you retire and live off the proceeds.
  • Life insurance: Whole life insurance policies include a cash value you can use later in life. More advanced policies such as universal life let you borrow against the death benefit.
Bottom Line: Get Started and Get Help

Retirement planning tools seem to grow even more diverse, adaptable, and powerful every few years. They also grow more complicated. But you don’t have to be an expert on these tools to start using them.

Just like with any building project, you’ll need more than tools to build a strong retirement fund. You’ll also need building materials — also known as money in this case — and you really can’t start compiling that soon enough.

If you haven’t already done so, stop by your company’s HR office and opt into a 401(k) or it’s equivalent so you can start saving, tax-deferred, and capturing your company’s match.

When you’re ready for the next step, check out a post like this one for ideas. And, unless you’re 100 percent sure what you’re doing, find a good retirement planning expert to work with.

Retirement planning is a multi-million industry for good reason: because retirement planning is complicated and people need help. The money you spend in fees will pay off when you’re able to enjoy a steady stream of income without working.

The post Which Type of Retirement Account is Best For You? appeared first on Cash Money Life | Personal Finance, Investing, & Career.

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Unless you know the future, buying a new home can feel like a gamble.

You’re betting you’ll have the money to pay the mortgage every month for decades. You’re also betting you can afford the taxes, the insurance premiums, and the home maintenance.

If something goes wrong and you can’t pay, your lender could kick you out and sell your home to someone else. Or, if you couldn’t afford to fix a major problem, your home could lose value or become unsafe.

Renting a home seems a lot less risky.

Renting vs. Buying: A Comparison

You should listen to these fears, to a point. Home ownership is a big responsibility. You shouldn’t buy a home without first considering all the costs.

But for most people, home ownership costs less than renting in the long run. In the short term, though, you may see only the costs of buying a home: Down payments, lender’s fees, a home inspection, appraisals, closing costs — these fees create hurdles to home ownership.

Clearing these hurdles will be worth the effort if you keep the home long enough to capitalize on your investment.

How long does that take? The answer depends on your break-even point.

Finding Your Break-Even Point

In every home transaction, there’s a break-even point. Before you reach the break-even point, it will make more financial sense to rent. After the break-even point, you’ll save more by buying, and your savings can grow with each passing year.

To determine your break-even point, compare your buying costs to rent prices for a comparable home in your area.

Let’s look at an example: a $200,000 home financed at 4 percent interest for 30 years with a 10 percent down payment. With such a home your monthly payment would be about $860. We’ll add $100 for insurance, $100 for taxes, and $60 for repairs to get your payment up to $1,100.

Let’s compare this purchase to a similar home rented for $1,500 a month.

Time in HomeRenting CostsBuying Costs
After Year 1$18,000$35,200
After Year 2$36,000$48,400
After Year 3$54,000$61,600
After Year 4$72,000$74,800
After Year 5$90,000$88,000
After Year 6$108,000$101,200
After Year 7$126,000$114,400

As you can see, after the fifth year in this example, you’d start to save money by owning the home. Before the fifth year, you’d save by renting.

We’ve kept things simple for this example on purpose. In reality, your rent would probably increase a couple of times within seven years, making the total rent cost even higher. Likewise, in the buyer’s cost column, you may need to consider a big home repair or a property tax increase.

Break-even points vary. Depending on the rent amounts in your area or the amount of your down payment, you could break even as soon as the second year. In other cases, it may take 10 years to break even.

If you’re not sure you plan to stay in the area for long, it’ll be worth your time to determine your break-even point before buying.

A Bigger Benefit of Buying vs. Renting

Homeownership eventually pays off in most markets if you’re planning to stay in the home indefinitely. But so far we’ve talked about only out-of-pocket costs.

In addition to saving money in the long run when you buy, you can also amplify the power of the money you’re spending because a home is an investment:

  • Property Value: Historically, real estate prices increase over time. The value of your home should increase along with the overall market. If you keep the home for 40 years, it could be worth significantly more than you paid for it. Selling the home could help fund your retirement.
  • Benefits of Ownership: As a homeowner, you can live rent-free, or you can charge someone else rent to live in your home. When you’ve paid off the mortgage these benefits will kick into overdrive because you’d no longer be making a house payment.

When you rent, your monthly rent payments create these same benefits for someone else: your landlord.

Initial Costs of Buying a Home

As you’re deciding whether to buy a home, consider the up-front costs. They seem intimidating, but paying them can lead to more financial stability in the future if you stay in the home long enough to cash in.

Down Payments

Your mortgage lender will probably require you to spend some of your own money along with the money you’re borrowing to buy your home. Lenders call your portion a down payment.

A subsidized loan may require only 3.5 percent of the home’s price as a down payment. For a $200,000 home, 3.5 percent would equal $7,000. A conventional loan may require 10 to 20 percent down. Veterans can usually get a loan with no money down.

Paying a down payment requires money out of your pocket, but the money applies directly to your home purchase, meaning you can borrow less.

Lender’s Fees

Expect to pay a loan origination fee of at least 1 percent of your loan amount. Additionally, your lender may charge to appraise the value of your new home. Appraising the home makes sure your loan doesn’t exceed the value of your home.

Unlike your down payment, these costs will not go toward your home’s purchase.

Then, there’s the biggest lending fee of all: your interest charges. The interest you pay gets added to each month’s house payment. The higher your interest rate, the more you’ll pay. You can lower your interest charges by paying off the home early.

Realtor’s Fees

Your real estate agent will receive a sales commission that’s already included in the sales price. A typical commission is 6 percent of the home’s selling price.

After the home’s sale, your agent will split the commission with the seller’s agent. If only the seller has an agent, the seller’s agent could claim the entire commission. If neither party has an agent, there’s no commission. The seller will keep that money or will lower the sales price which means you keep it.

A Realtor may also ask you for earnest money. This is a mini-down payment which tells the seller you’re serious about buying the home. Earnest money can range from $500 to a couple thousand dollars. Ultimately it goes toward the purchase of the home.

Inspector’s Fees

Before finalizing your purchase, get the home inspected from the roof to the basement and everywhere in between. If the home has structural or safety issues you’ll want to know before buying it.

The cost of a home inspection can vary among markets, and it will depend in part on the size of your home. An inspection will cost around $500.

Closing Costs

You’ll need to work with an attorney to finalize your home purchase. Paying the attorney for his or her time and for other legal fees such as researching the home’s deed will add a few thousand dollars known as closing costs.

Sometimes the buyer and the seller split closing costs. You’ll have to work this out when you enter a contract to purchase the home. As a buyer, you should expect to pay some if not all of the costs. It’s possible to finance closing costs in with the mortgage loan, but doing so adds to your debt.

Ongoing Expenses of Homeownership

Once you’ve closed on the home and started making payments, the costs of home ownership start to balance out. As the years go on, you’ll pass the break-even point. Owning the home will make more and more sense.

But you’ll still have costs to manage:

Property Taxes

Most counties and cities charge property taxes based on the value of your home. New homeowners often add this cost to their monthly house payments by using an escrow account managed by the mortgage company.

The taxes you pay support:

  • Public Safety: Your community’s police, fire, and emergency medical personnel likely get paid through your property taxes.
  • Public Education: Even if you don’t have kids in your area’s public schools, we all benefit from a better educated society.
  • Public Parks: Your area parks and street maintenance make your neighborhood more livable and can add to your property values.
Homeowners Insurance

Your homeowner’s insurance premiums can also be added to your monthly house payments.

Getting insurance is a no-brainer when you own a house. For a couple thousand dollars a year you can buy protection to replace your entire home or fix major damages from storms or fires.

Home Repairs

As a homeowner, you can’t call the landlord when the AC breaks down or the sink won’t drain.

To prepare for a major repair, you should start a savings account and set aside $100 a month or so. You could also borrow money for home repairs, but paying outright gives you more control.

Some homeowners use home warranties to control repair costs, especially for appliances and major systems. But warranty contracts can be confusing and frustrating. If the seller throws in a warranty, that’s great. But check it out closely so you’ll know exactly what to expect.

For a major repair, renovation, or addition, consider a home equity loan. Equity loans give you access to the value within your home without you having to sell the home. Give yourself a few years to build equity before considering this kind of borrowing.

Home Maintenance

As the homeowner you’re also responsible for maintaining the home, inside and out:

  • Lawn Care: Will you hire a lawn care company? Even if you don’t, you’ll have to buy your own mower and other equipment.
  • Pest Control: In warmer climates, paying a professional pest control company could be a good idea.
  • Professional Cleaning: You can save money by cleaning the house yourself, but if you don’t have time, a professional service can help. Some homeowners call in the pros once or twice a year to get everything sanitized and sparkling.
How Much Should You Spend on a House?

All housing-associated costs — the mortgage, the taxes, and insurance, the maintenance and repairs — will be higher when you buy a bigger or more valuable house.

The location of your home will determine your home’s value, but the size of your home and lot will also impact the price.

As you shop, look for a home large enough to meet your needs within your price range. Conventional wisdom says you shouldn’t pay more than 25 percent of your monthly budget on housing costs.

You may need to adjust this general rule depending on the reality of your life:

  • Other Major Debt: If you have a lot of extra student loan debt, or if you pay child support or private school tuition, you may need to spend less on housing.
  • Few Other Commitments: Someone with very few bills may be able to dedicate more money to housing.
  • Goal-Based Investing: If you’re determined to buy a home in a specific area because you expect increases in market value, you may be willing to spend more.

Finding a home within your budget will increase your ability to keep, maintain, and improve your property which will help your investment pay off.

Bottom Line: A Home and an Asset

Home ownership isn’t for everyone. Temporary residents should almost always rent. If you’re not sure how long you’ll live in a city, find your break-even point so you can get a better idea about the costs of renting vs. buying.

But if you plan to live in the area for the foreseeable future, buying a home can make your monthly housing money go a lot farther. As the years pass and you continue to make payments, you’ll be moving closer to owning the home outright.

When you get there, you’ll have a home of your own and a big financial asset to build on in the future.

The post Home Ownership: Savings In The Long Run appeared first on Cash Money Life | Personal Finance, Investing, & Career.

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