6 Viable Passive Income Sources

July 26, 2021

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Denise and Chris Arand

Denise and Chris Arand

Executive Vice Presidents/Financial Strategists

2173 Salk Ave
#250
Carlsbad, CA 92008

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July 14, 2021

Is Refinancing Worth It?

Is Refinancing Worth It?

What do you think of when you hear the word “refinancing?”

If you’re like most people, your first thought might be that it has something to do with a mortgage. And you’re not wrong! However, refinancing can apply to many different types and forms of loans. In this article we will explore what refinancing is, how it works, and when it can work to your advantage.

What is refinancing?

Refinancing is the process of transferring all or part of an existing loan from one loan to another. This is done in order to achieve a…

  • Lower interest rate
  • Lower monthly payments
  • More favorable repayment period
  • Or all of the above

Let’s consider an example. Say you have a $10,000 loan with a 5% interest rate and a 10-year term. You’ll pay $106 every month to service the debt, and over $12,000 in total once interest is included.

But you think you can do better! You find someone else who’s willing to loan you $10,000 at a 2.5% interest rate over a 10-year term. You’d save more than $1,000 in interest and pay less every month. That’s a far better deal.

So, you would borrow money from your new creditor and use that sum to eliminate your existing loan. You’ve used another loan to decrease your interest burden and increase your cash flow. That’s the power of refinancing in a nutshell. It’s often worth the effort if you can decrease your interest rate without increasing your term.

But it may not be a silver bullet for your debt.

Refinancing only works if you can score a new loan with a more favorable contract. There may be times when interest rates are high and finding lower rates simply isn’t possible. Even then, a lower interest rate may not offset the costs of a longer loan term.

That’s why it’s always best to work with a financial professional before you refinance any loan. Their expertise can help you determine whether refinancing will help or hinder your progress towards your financial goals.

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This article is for informational purposes only and is not intended to promote any certain products, plans, or strategies that may be available to you. Any examples used are hypothetical. Before taking out any loan or enacting a funding strategy, seek the advice of a licensed and qualified financial professional, accountant, and/or tax expert to discuss your options.

July 12, 2021

What’s Happening In The Housing Market

What’s Happening In The Housing Market

By now, you’ve heard the housing market horror stories.

Chances are you know someone who thought they’d found the perfect home at the perfect price, only to be wildly outbid at the last minute. Maybe you’ve been that someone.

So what’s going on? How did the housing market go from a pandemic-fueled lockdown to a frenzy?

It’s simple—the tight housing market has a lot to do with supply and demand.

It started in 2020 during the darkest days of the COVID-19 pandemic. To combat the economic crisis sparked by shutdowns, interest rates plummeted to an all-time low. At the same time, workers in cities started flocking to states with more reasonable costs of living. After all, their work situation was almost entirely remote—why shell out $2,000 per month for a broom closet in Manhattan when you could pay the same for a 4 bedroom, 2 bathroom house in Iowa?

Millennials were especially driven by the favorable market conditions. They were eager to buy houses and establish roots.

That’s the demand side. What about the supply?

Even before 2020, there was a drastic housing shortage in the United States to the tune of 2.5 million units.¹ Toss in shutdowns of construction companies and lumber mills, and you had a recipe for an even worse shortage. That equates to a sellers market—those selling can often expect massive payouts while buyers may have to face bidding wars and skyrocketing prices.

So what should you do?

The answer depends on the individual. Those looking to buy should be prepared for a lengthy (and expensive) process, and buying might not make sense unless you’re planning on staying in your new home for at least five years or more.

There’s no telling how long the market will continue its hot streak. Just make sure you have your finances in order and a clear strategy before you commit to making a massive purchase like a home in this climate.

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¹ “The U.S. Faces A Housing Shortage. Will 2021 Be A Turning Point?” Natalie Campisi, Forbes, Jan 4, 2021, https://www.forbes.com/advisor/mortgages/new-home-construction-forecast/

July 7, 2021

Keeping the House

Keeping the House

Life insurance can save your house.

Picture this…

A couple owns a beautiful home out in the suburbs. It’s where they’ve raised their children and made memories that will last a lifetime.

Until one of them passes away too soon. Suddenly, the whole picture shifts. See, they are a two income household. They relied on both income streams to buy groceries, cover children’s education… and pay the mortgage.

Now, the surviving partner isn’t simply coping with grief. They’re facing the potential loss of their house, with all of its memories and meaning, as well.

It’s not a far-fetched scenario. Death is one of the Five D’s of foreclosure—the others are divorce, disease, drugs, and denial.

Life insurance can help. It’s the safety net to have in place to protect your family from financial uncertainty and provide for their future.

That’s because the death benefit that’s paid out to your loved ones can cover the cost of mortgage payments, or possibly even pay off your mortgage entirely.

What does that look like in the scenario from earlier?

First, it prevents a personal tragedy from becoming a financial crisis. The last thing a grieving person needs is to have to cope with financial stress.

Second, it means that the grieving partner could keep the house if they so desire. After some time has passed, they can make plans on what the future of their life should look like, without undue financial restrictions.

If that’s a peace you would like to help provide to your family, contact me. We can review what life insurance would look like for you and your budget.

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May 12, 2021

A Beginners Guide to Saving and Shredding Documents

A Beginners Guide to Saving and Shredding Documents

It’s time to manage all those papers that are taking up space in your filing cabinets!

But how? Which documents should you preserve? Which ones should you shred? Here are 11 helpful tips on what to do with tax documents, legal documents, and property records.

Documents to keep <br> At the top of this list? Estate planning documents. Your will, your living trust, and any final instructions should be carefully labeled, stored, and protected. Your life insurance policy should be safeguarded as well.

Records of your loans should be preserved. That includes for your mortgage, car and student loans. Technically, you can shred these once they’re paid off, but it’s wise to keep them around permanently. Someday you may have to prove you’ve actually paid off these debts.

Tax returns <br> Here’s a trick—keep tax returns for at least 7 years. Why? Because there’s a 6 year window for the IRS to challenge your return if they suspect you’ve underreported your income.¹ Keep your records around to prove that you’ve been performing your civic duty by properly reporting your income.

(Check your state’s government website to determine exactly how long you’re supposed to keep state tax returns.)

Property records <br> Keep all of your records pertaining to…

  • Your ownership of your house
  • The legal documents for buying your house
  • Commissions to your real estate agent
  • Major home improvements

Save these documents for a minimum of 6 years after you move out of your home. If you’re a renter, keep all of your records until you’ve moved out. Then, fire up your shredder and get to work!

Speaking of your shredder…

Annual documents to destroy <br> Every year, you can shred paycheck stubs and bank records. Just be sure of two things…

First, make sure that you’re not shredding anything that might belong in your tax records.

Second, be sure that you’ve reviewed your finances with a professional who will know which documents may need preserving.

Once you’ve done that, it’s fine to feed your shredder at your discretion!

Credit card receipts, statements and bills <br> Once you’ve checked your monthly statement against your bank records and receipts, you’re free to shred them. You may want to hold on to receipts for large purchases until the item breaks or you get rid of it.

When in doubt, do some research! It’s better than tossing out something important. And schedule an annual review with a licensed and qualified financial professional. They can help you discern which documents you need and which ones can be destroyed.

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¹ “Save or Shred: How Long You Should Keep Financial Documents,” FINRA, Jan 27, 2017, https://www.finra.org/investors/insights/save-or-shred-how-long-you-should-keep-financial-documents

May 5, 2021

Why You Should Care About Insurable Interest

Why You Should Care About Insurable Interest

First of all, what is insurable interest?

It’s simply the stake you have in something that is being insured – and that the amount of insurance coverage for whatever is being insured is not more than your potential loss.

To say things could become a bit awkward might be an understatement if your insurable interest isn’t considered before you’re deep into the planning phase of a project or before you’ve signed some papers, like a title or a loan.

It’s better for your sanity to understand insurable interest beforehand. Where the issue of insurable interest often arises is in auto insurance. Let’s look at an example.

Let’s say you have a car that’s worth $5,000. $5,000 is the maximum amount of money you would lose if the car is stolen or damaged – and $5,000 would be the most you could insure the car for. $5,000 is your insurable interest.

In the above example, you own the car, so you have an insurable interest in it. By the same token, you can’t insure your neighbor’s car. If your neighbor’s car was stolen or damaged, you wouldn’t suffer any financial loss because it wasn’t your car.

Here’s where it might get a little tricky and why it’s important to understand insurable interest. Let’s say you have a young driver in the house, a teenager, and it’s time for him to go mobile. He’s been saving up his lawn-mowing money for two years and finally bought the (used) car of his dreams.

You might have considered adding your son’s car to your auto policy to save money – you’ve heard how much it can cost for a teen driver to buy their own policy. Sounds like a good plan, right? The problem with this strategy is that you don’t have an insurable interest in your son’s car. He bought it, and it’s registered to him.

You might find an insurance sales rep who will write the policy. But there’s a risk the policy won’t make it through underwriting and – more importantly – if there’s a claim with that car, the claim might not be covered because you didn’t have an insurable interest in it. If you want to put that car on your auto insurance policy, the car needs to be registered to the named insured on the policy – you.

Insurable Interest And Lenders If you have a mortgage or an auto loan, your lender is probably listed on your policy. Both you and the lender have an insurable interest in the house or the car. Over time, as the loan is paid down, you’ll have a greater insurable interest and the lender’s insurable interest will become smaller. (Hint: When your loan is paid off, ask your agent to remove the lender from the policy to avoid any confusion or delays if you have a claim someday.)

Does Ownership Create Insurable Interest? Excellent question! It might seem like ownership and insurable interest are equivalent – they often occur simultaneously. But there are times when you can have an insurable interest in something without being an owner.

Life insurance is a great example of having an insurable interest without ownership. You can’t own a person – but if a person dies, you may experience a financial loss. However, just as you can’t insure your neighbor’s car, you can’t purchase a life insurance policy on your neighbor, either. You’d have to be able to demonstrate your potential loss if your neighbor passed away. And no, it doesn’t count if they never returned those hedge clippers they borrowed from you last spring!

Now you know all about insurable interest. While insurable interest requirements may seem inconvenient at times, the rules are there to protect you and to help keep rates lower for everyone. Without insurable interest requirements, the door is open to fraud, speculation, or even malicious behavior. A little inconvenience seems like a much better option!

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April 12, 2021

Home Buying for Couples: A Starter Guide

Home Buying for Couples: A Starter Guide

Buying your first home is an exciting, yet daunting process.

You and your significant other already have a lot on your plate in planning this huge purchase—from deciding how much house you need to fitting it all into a budget. Read on for some tips that will help ease the process of buying a house as well as help you save money in the long run!

Evaluate your financial situation before you start house hunting. It’s important to know what kind of mortgage payment is feasible for the income in a household. You’ll also have to contend with hidden housing costs like property taxes, renovations, and repairs. Calculate your total income, and then subtract your current expenses. That’s how much you have at your disposal to handle the costs of homeownership.

Improve your credit score. If you’re a first-time homebuyer, your credit score is important—it can profoundly affect your ability to get approved for loans and mortgages! The higher that number goes up, the easier it may become to get approval from lenders. You can help yourself out by paying off any outstanding debt balances such as student loan payments, medical bills, and credit card debt before going house hunting.

Start saving for a downpayment. As a rule of thumb, you’ll want to put down at least 20% of the home’s purchase price. This can take years, especially if your budget is tight! However, it’s well worth it—you may avoid the hassle of paying private mortgage insurance (PMI), which can substantially add to your monthly housing payments. A sizeable downpayment can also lower your interest rate and reduce the size of your loan.¹

Decide how much house you need. This is a tough question to answer, but it’s crucial that both partners are united on this front. Otherwise, one partner might feel like a house doesn’t meet their needs. Sit down with your partner and discuss what exactly you desire out of your home. How many bedrooms will you need? Do you want a big yard or a small one? How close to work do you want to live? Hammer out the important details of what you want in a home before the shopping begins!

Decide on your budget. Knowing how much you can afford before shopping for a home will help narrow down the options. Typically, housing costs should account for no more than 30% of your budget. That includes your mortgage payment, repairs, HOA fees, and renovations. Spending more than 30% can endanger your financial wellness if your income ever decreases.

Buying a home can be an exciting time for couples. But it’s important to take the necessary steps before you start house hunting. Remember, you want your new home to be a source of joy, not financial stress! Do your homework, talk with your partner, and start saving!

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“Do you need to put 20 percent down on a house?,” Michele Lerner, HSH, Sep 2, 2018, https://www.hsh.com/first-time-homebuyer/down-payment-size.html

March 15, 2021

What You Need To Know About Life Insurance

What You Need To Know About Life Insurance

Buying life insurance is something that many people put off.

But it’s important to take the time to learn about what type of policy you may need and how much coverage you should buy. If you have a family, buying enough life insurance might be the most important part of your financial strategy.

Here are 4 things you need to know before you buy life insurance.

What is life insurance? Simply put, life insurance is an agreement between an insurer and a policyholder. When the policyholder dies, the insurer is legally obligated to pay a set amount of money, called a death benefit, to whomever the policyholder had predetermined.

Do you need life insurance? If people you love are dependent on your income, you may need life insurance. The death benefit can serve as a replacement for income that would vanish in the case of your passing. A personal tragedy doesn’t have to become a financial crisis!

What if I don’t have any dependents? Then life insurance may not be for you! However, you should note that life insurance might be useful if you’re carrying high levels of debt like student loans or a mortgage.

How much coverage should I get and how long should my policy last? As a rule of thumb, your life insurance coverage should be worth 10X your annual income. That should provide your family with a financial cushion while they grieve and plan for the future.

If you buy a term policy, be sure that it lasts through periods of high financial responsibility like paying a mortgage or raising a family.

If you want to learn more about life insurance, let me know! I can help you evaluate your financial situation and what a policy would look like for you.

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This article is for informational purposes only and is not intended to promote any certain products, plans, or policies that may be available to you. Any examples used in this article are hypothetical. Before enacting a savings or retirement strategy, or purchasing a life insurance policy, seek the advice of a licensed and qualified financial professional, accountant, and/or tax expert to discuss your options.

March 1, 2021

How to Find Your Net Worth

How to Find Your Net Worth

Usually when we think of net worth we imagine all the holdings of a wealthy tycoon who owns several multi-million dollar businesses.

Net worth is just a balance sheet of a person’s assets and liabilities, not unlike the balance sheets used in business. You also have a net worth, and it’s important to know what it is.

Calculating your net worth is simple. First, you’ll want to tally up all your assets. These would include:

  • Personal property and cars
  • Real estate equity
  • Investments
  • Vested retirement plans
  • Cash or savings
  • Any amounts owed to you
  • Cash value of life insurance policies

Next, you’ll calculate your liabilities (what you owe someone else). These would include:

  • Loans
  • Mortgage balance
  • Credit card balances
  • Unpaid obligations

Your total liabilities subtracted from your total assets equals your net worth.

The number could be positive, or it could be negative. Students, for example, often have a negative net worth because they may have student loans but haven’t had a chance to build any personal assets.

It’s important to realize that net worth isn’t always equal to liquid assets. Your net worth includes non-liquid assets, like the equity in your home.

Measuring your net worth regularly can be a strong motivation when saving for the future—it can mark progress toward a well-reasoned financial goal.

When you’re ready to put together a personalized strategy based on your net worth and (more importantly) your future goals, reach out! We can use your current net worth as a starting point, while keeping focused on the real target: your long-term financial picture.

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February 24, 2021

2 Strategies to Build Credit When You’re Young

2 Strategies to Build Credit When You’re Young

The sooner you establish your credit score, the better positioned you’ll be for financial success.

Why? Because your credit score touches every aspect of your financial life—a high score can help you obtain a lower interest rate on mortgages and car loans, insurance payments, and even your rent!¹ That can help free up more cash for building wealth.

So, where do you start?

Apply for a credit card… and then use it responsibly! Credit cards are excellent tools for building your credit history. If you attend a university, you might be able to score a student credit card. However, just remember that credit cards are not free money. The less you use your credit card, the higher your credit score. Choose a few recurring expenses, and limit your credit card usage to those. Then make sure you pay off the balance every month, on time.

Use automatic payments on all your debts. Missing payments on your debt obligations can torpedo your credit score. It’s absolutely critical to pay on time for your credit card bill, student loan payments, and anything else you owe.

Consider automating all of your debt payments. It’s a simple, one-time move that can steadily reduce your balances and help boost your credit score.

As you build your credit history, you’ll be able to apply for credit in larger amounts, and you may even start receiving pre-approved offers. But beware. Having credit available is useful for certain emergencies and for demonstrating responsible use of credit—but you don’t need to apply for every offer you receive!

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January 25, 2021

How Your House Can Earn You Money

How Your House Can Earn You Money

If you’re a homeowner, your house can do more than just consume cash flow–it can generate it as well!

Here’s how…

Rent out a unit, basement, or room of your house at a price that helps offset the cost of your mortgage. It’s really that simple!

Let’s consider an example that demonstrates why this strategy is so effective.

Suppose you’ve saved enough money to put a down payment on your first home. Good for you! You’ve done the legwork, and discovered that your mortgage payment will be around $1,000 per month. You’ll also need cash for property taxes and homeowners insurance, too. Even though you’re glad you’re in a home of your own, you might start wondering if you’ve bought a money pit that will consume your cash flow for the next 15 to 30 years.

But you’ve also bought a potential source of income, if you think a little outside the box.

See, your house has a finished basement that’s begging to be transformed into a rentable space. All told, you could rent it out to a friend and put those funds toward your mortgage.

By simply utilizing space that you already own, you can unlock a revenue stream that can help offset your mortgage payments!

That extra cash flow can cover daily expenses, pay down the house faster, or help you begin saving and investing.

This strategy, called “house hacking”, may not be for everyone–it favors homeowners with duplexes or finished basements. Plus, it requires the homeowner to become a landlord, a role some may not care for.

If you have the space, consider renting out a slice of your home to someone you trust. It’s a simple way to leverage resources you already have to generate the cash flow you may need!

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¹ “Forget coffee and avocado toast — most people blow nearly 40% of their money in the same place,” Lauren Lyons Cole, Business Insider, Apr 26, 2019, https://www.businessinsider.com/personal-finance/how-to-save-more-money-2017-8#:~:text=Housing%20accounts%20for%20about%2037,further%20limiting%20his%20housing%20expenses.

January 18, 2021

3 Strategies to Increase Your Credit Score

3 Strategies to Increase Your Credit Score

Is your credit score costing you money?

A recent survey found that increasing a credit score from “Fair” to “Very Good” could save borrowers an average of $56,400 across five common loan types like credit cards, auto loans, and mortgages.¹ That’s roughly $316 in extra monthly cash flow!

If your credit score is anything but “Very Good,” keep reading. You’ll discover some simple strategies that may seriously help improve your credit score and increase your cash flow.

Pay your bills at the strategic time. <br> Credit utilization makes up a big portion of your credit score, sometimes up to 30%.¹ The closer your balance is to your credit limit, the higher your credit utilization. The lower your utilization, the less you’re using your available credit. Creditors view a lower utilization as an indicator that you’re responsible with managing your credit.

Here’s a simple way to lower your credit utilization–ask your creditors for when your balance is shared with credit reporting agencies. Then, automate your bill payments to just before that day. When credit reporting agencies review your balances, they’ll see lower numbers because you just paid them down. That can result in a lower credit utilization and a higher credit score!

Automate debt and bill payments. <br> Late payments for your credit card bill, phone bill, and utilities can negatively affect your credit score. If you have a habit of paying your bills late, consider automating as many of your payments as possible. It’s a convenient and simple way to make your finances more manageable and help increase your credit score in a single swoop!

Leave old credit accounts open. <br> So long as they don’t require a monthly fee, leave old and unused credit accounts open. Any open line of credit, even if it’s unused, increases the amount of available credit you have at your disposal. And not using that credit lowers your overall credit utilization, which can help increase your credit score.

Closing unused credit accounts does the opposite. It lowers your available credit and spikes your credit utilization, especially if you have large balances in other accounts. So if you have credit cards you don’t use anymore, leave those accounts open and hide the cards in a place where they won’t tempt you to start spending!

The best part about these strategies? You can act on them all today. Ask your creditors when your balance is shared with credit reporting agencies, then automate your deposits to go through right before that day.

When you’re done automating your payments, put your unused credit cards into a plastic bag and put them deep into your freezer. In just a few hours, you’ll have set yourself up to increase your credit score and save money!

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January 13, 2021

Is the RV Life Right For You?

Is the RV Life Right For You?

2020 was the year of the RV.

You might have noticed as you scrolled through social media that more of your friends, family, and maybe even your in-laws are moving out of their homes and living on the open road. Don’t believe it? Search #vanlife on Instagram and see what comes up!

It’s not hard to see why. The RV lifestyle pairs material minimalism with adventure. The possessions and mortgage payments that can weigh you down are replaced by bare essentials and the open road.

People crave freedom. A bigger house and lots of toys can’t promise happiness. If you’re a born adventurer, exploring the country in an RV might be the opportunity for escape that you’ve been waiting for.

But it’s not a decision to be made lightly. RVs cost anywhere between $60,000 and $600,000.¹ Beyond that, you’ll have to buy gas, food, and pay for vehicle maintenance. Unless you have a job that allows you to work remotely, you’ll need to save diligently in order to afford life on the road.

That fact has made the RV lifestyle an attractive retirement choice. It’s increasingly common for retirees to sell their homes and use the proceeds to buy a van or RV.

So if you are an adventurer, love freedom, and have the career or savings to afford it, life on the road might be the choice for you!

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¹ “Is an RV the Perfect Retirement Lifestyle for You?,” Margo Armstrong, The Balance, July 21, 2020, https://www.thebalance.com/retire-in-an-rv-2388787

December 21, 2020

Permanent or Term Life: Which is right for you?

Permanent or Term Life: Which is right for you?

Life insurance has many benefits.

Most people purchase life insurance to serve as a safety net for the financial health of their family if something happens to them as the primary provider. A life insurance policy in such cases could be used for funeral costs, medical bills, mortgage payments, or other expenses.

You’re finally convinced you need a life insurance policy, and you’re ready to buy. But what do you need exactly? What type of life insurance is best for you?

When preparing to purchase life insurance, there are two main types of policies to consider – permanent and term. Read on for a short primer on the differences and which one may be right for you.

Term life insurance at a glance <br> Term life insurance offers life insurance coverage for a set amount of time – the “term”. If you pass away during the term, the policy pays out to your beneficiary. A term policy is sometimes called a pure life policy because it doesn’t have financial benefits other than the payout to your dependents should you die within the term.

There are different terms available depending on your needs. You could purchase a term life policy for 10, 20, or 30 years.

Term life insurance pointers <br> When purchasing a term life policy, consider a term for the number of years you’ll need coverage. For example, you may want life insurance to provide for your child in case you die prematurely. So, you may select a 25-year term. On the other hand, you may want a life insurance policy to help with the mortgage should something happen to you. In this case, you may opt for a 30-year term which will expire when your mortgage is paid off.

You’ll need to purchase enough insurance to cover your family’s needs if something happens to you and you cannot provide for them. Term life insurance benefits could serve as income replacement for your wages, so buy enough to pay for the expenses your paycheck covers.

For example, if you cover the mortgage, car payment, and child care, make sure the term life policy you purchase can cover those expenses.

Term life insurance policies when appropriately used should expire around the time the need for them goes away, such as when your children are self-sufficient, or your mortgage is paid off.

Permanent insurance at a glance <br> This type of policy can provide coverage for your entire life, unlike a term policy that expires at a set time. A permanent life policy also contains an investment benefit which is known as the policy’s cash value. The cash value of a permanent life policy grows slowly over time but is tax-free (provided you stay within certain limits), so you don’t pay taxes on the accumulating value.

A permanent life policy can be borrowed against. You can borrow against the cash value, but you must abide by the repayment terms to keep the policy payout unchanged.

Some permanent life insurance policies offer dividends. The dividends are paid to the policyholders based on the insurance company’s financial profits. Policyholders can take dividends in the form of cash payouts or use them to earn interest, payback a loan on the policy, or purchase additional life insurance coverage.

Some of the key points regarding permanent life insurance include: <br>

  • The premium can remain the same throughout the policy term if you abide by the conditions and terms in the policy
  • The policy offers a guaranteed death benefit

Cost of life insurance <br> Term life insurance is generally less expensive than permanent life insurance because the policy has a pre-selected term. Permanent life insurance, on the other hand, covers the insured for their entire lifespan, so you can expect premiums to be higher.

Which life insurance policy is right for you? <br> If you aren’t sure which policy is right for you, talk to a qualified financial professional who can help you find the right type of life insurance policy to meet your goals and budget.

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This article is for informational purposes only and is not intended to promote any certain products, plans, or strategies for saving and/or investing that may be available to you. Market performance is based on many factors and cannot be predicted. Before investing or enacting a savings or retirement strategy, seek the advice of a financial professional, accountant, and/or tax expert to discuss your options.

November 11, 2020

How Much Should You Pay For a Car?

How Much Should You Pay For a Car?

Cars will drain your wealth.

In 2019, Americans were spending about $773.40 per month on their vehicles, or $9,281 annually.¹ That’s like owning a tiny house whose value nosedives the instant you buy it!

That’s not even counting the opportunity cost of throwing that money at a car. How much could that cash grow if it were invested or saved?

That’s why you should follow this simple rule for guarding your wealth from a car.

It’s called the 20/4/10 rule, and it’s composed of three parts. Let’s explore them one by one.

Start with at least a 20% downpayment.

Committing a hefty downpayment to a car curbs how much you’ll lose in interest later down the road. It’s always best to cover as much as you can up front with cash.

Finance the car for no more than 4 years.

How long would you want to dump money into an “investment” that doesn’t grow in value? Not long! Keep your financing period short and sweet and then get back to saving for your future.

Dedicate no more than 10% of your income to car expenses.

Your cash flow is a powerful wealth building tool if it keeps, well, flowing. Don’t let a car divert it somewhere else that it won’t grow and won’t build wealth.

Remember, this is not a bulletproof strategy.

You might be facing substantial mortgage or credit card debt obligations that make it difficult to afford the car you want. It’s always a good idea to meet with a licensed financial professional before you commit to buying a new vehicle.

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¹ “Average American Now Spends Nearly $800 A Month On Their Car,” Angel Sergeev, Motor1.com, Sep 13, 2019, https://www.motor1.com/news/370609/average-american-monthly-car-spendings/#:~:text=More%20precisely%20%2D%20%24773.50%20a%20month.&text=According%20to%20the%20AAA%20research,equals%20to%20%24773.50%20a%20month.

October 26, 2020

Is Your Home An Investment?

Is Your Home An Investment?

It’s a law of the universe that your house is an investment, right?

Just ask your grandparents who bought a $250,000 home for $50,000 during the 1950s. Better yet, listen to your savvy landlord buddy who rules an urban real estate empire that they gobbled up following the Great Recession. We’re surrounded by evidence that conclusively demonstrates the power of houses as investments… or are we?

Hmmm.

It turns out that buying a place of residence may not actually pay off in the long run like it might appear on paper. Here’s why you might want to rethink having your primary residence be an investment only.

Houses (usually) don’t actually grow more valuable <br> Think about that suburban mansion your grandparents snagged for $50,000 that eventually “grew” to be worth $250,000. On paper, that looks like an awesome investment; that house quintupled in value! But remember, $1 in 1950 had about the purchasing power of $10 today. Four gallons of gas or two movie tickets were just one buck!¹ That means $50,000 at that time could buy a $539,249 house today. Your grandparents actually lost money on that house, even though it looked like they made off like bandits!

It’s all because of one simple feature of economics: inflation. Prices tend to rise over time, meaning that your dollar today doesn’t go as far as it would have in 1950. So while it looks like your grandparents netted a fortune on their house, they actually didn’t. They lost over half its value! Unless your neighborhood suddenly spikes in popularity with young professionals or you start renting, your house probably won’t accrue any real worth beyond inflation.

Houses have to be maintained <br> But it’s not just that houses usually don’t actually appreciate in value. They also cost money in property taxes, utilities, and maintenance. Homeowners spend, on average, $1,105 annually to maintain their dwelling places.² You can expect to pay $12,348 annually on the average mortgage and $2,060 for utilities.³ & ⁴ That comes out to a total of $15,513 per year on keeping the house and making it livable. Let’s say your home is worth about $230,000 and appreciates by 3.8% every year. It will grow in value by about $8,740 by the end of the year. That’s barely more than half of what it costs to keep the house up and running! Your house is hemorrhaging money, not turning a profit.

It’s important to note that homeownership can still generally be a good thing. It can protect you from coughing up all your money to a landlord. Buying a property in an up-and-coming neighborhood and renting it out can be a great way to supplement your income. Plus, there’s something special about owning a place and making it yours. But make no mistake; unless you strike real estate gold, your place of residence probably shouldn’t be (primarily) an investment. It can be home, but you might need to rely on it to help fund your retirement!

Market performance is based on many factors and cannot be predicted. This article is for informational purposes only and is not intended to promote any certain products, plans, or strategies for saving and/or investing that may be available to you. Any examples used in this article are hypothetical. Before investing or enacting a savings, investment, or retirement strategy, seek the advice of a licensed financial professional, accountant, and/or tax expert to discuss your options.

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Market performance is based on many factors and cannot be predicted. This article is for informational purposes only and is not intended to promote any certain products, plans, or strategies for saving and/or investing that may be available to you. Any examples used in this article are hypothetical. Before investing or enacting a savings, investment, or retirement strategy, seek the advice of a licensed financial professional, accountant, and/or tax expert to discuss your options.


“7 Things You Could Buy For $1 in 1950,” Megan Elliott, Showbiz Cheatsheet, Oct 9, 2016, https://www.cheatsheet.com/money-career/things-you-could-buy-for-1-dollar.html/

“How Much Should You Budget For Home Maintenance,” Paula Pant, The Balance, May 26, 2020, https://www.thebalance.com/home-maintenance-budget-453820

“National Average Monthly Mortgage Payment,” Hannah Rounds, LendingTree, July 11, 2018, https://www.lendingtree.com/home/mortgage/national-average-monthly-mortgage-payment/#:~:text=What%20is%20the%20average%20monthly,the%20typical%20homeowners’%20monthly%20income

“How much is the average household utility bill?,” Nationwide, https://www.nationwide.com/lc/resources/personal-finance/articles/average-cost-of-utilities#:~:text=The%20typical%20U.S.%20family%20spends,climate%2C%20and%20your%20usage%20patterns

September 28, 2020

So You Want to Buy Life Insurance for Your Parents...

So You Want to Buy Life Insurance for Your Parents...

Playing Monopoly as a young kid might have given you some strange ideas about money.

Take the life insurance card in the Community Chest for instance. That might give the impression that life insurance is free money to burn on whatever the next roll of the dice calls for.

In grown-up reality, life insurance proceeds are often committed long before a policy holder or beneficiary receives the check they’re waiting for. Final expenses, estate taxes, loan balances, and medical bills all compete for whatever money is paid out on the policy.

If your parents don’t have a policy or if you think their coverage won’t be enough, you can plan ahead and buy a life insurance policy for them. Your parents would be the insured, but you would be the policy owner and beneficiary.

A few extra considerations when buying a life insurance policy for your parents: <br>

  • Insurable interest still applies. If your parents already have a significant amount of life insurance coverage, you may find that some insurers are reluctant to issue more coverage. Insurable interest requires that the amount of coverage doesn’t exceed the potential financial loss. (In other words, if your parents already have enough coverage, a company may not want to insure them for more.)
  • Age can limit coverage amounts. Assuming that your parents are older and no longer generating income, coverage amounts will be limited. If your parents are younger and still have 20 or more years ahead of them before they retire, they can qualify for a higher amount of coverage.
  • Age can limit policy types. Certain types of life insurance aren’t available when we get older, or will be limited in regard to length of coverage. Term life insurance is a good example. Your options for term life insurance will be fewer once your parents are into their sixties. The available term lengths will also be shorter. Policies with a 30-year term aren’t commonly available over the age of 50.

How Can I Use The Life Insurance For My Parents? <br>
Depending on the amount of coverage you buy – or can buy (remember, it may be limited), you could use the policy to plan for any of the following:

  • Final expenses: You can expect funeral costs to run from $10,000 to $15,000, maybe more.
  • Estate taxes: Estate taxes and so-called death taxes can be an unpleasant surprise in many states. A life insurance policy can help you plan for this expense which could come at a time when you’re not flush with cash.

Can Life Insurance Pay The Mortgage Or Car Loans? <br>
It isn’t uncommon for parents to pass away with some remaining debt. This might be in the form of a mortgage, car loans, or even credit card debt. These loan balances can be covered in whole or in part with a life insurance policy.

In fact, outstanding loan balances are a very big consideration. Often, people who inherit a house or a car may also inherit an additional mortgage payment or car payment. It might be wonderful to receive such a generous and sentimental gift, but if you’re like many families, you might not have the extra money for the payments in your budget.

Even if the policy doesn’t provide sufficient coverage to retire the debt completely, a life insurance policy can give you some breathing room until you can make other arrangements – like selling your parents’ house, for example.

You Control The Premium Payments. <br>
If you buy a life insurance policy for your parents, you’ll know if the premiums are being paid because you’re the one paying them. You probably wouldn’t want your parents to be burdened with a life insurance premium obligation if they’re living on a fixed income.

Buying insurance for your parents is a great idea, but many people don’t consider it until it’s too late. That’s when you might wish you’d had the idea years ago. It’s one of the wisest things you can do, particularly if your parents are underinsured or have no life insurance at all.

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September 23, 2020

Who Needs Life Insurance?

Who Needs Life Insurance?

Life insurance is important… or so you’ve been told.

But do you really need it? And how can you know? Let’s take a look at who does and doesn’t need the family and legacy protecting power of life insurance and some specific examples of both.

Protecting your dependants <br> Is there anyone in your life who would suffer financially if your income were to vanish? If so, then you have dependents. And anyone with financial dependents should buy life insurance. Those are the people you’re aiming to protect with a life insurance policy.

On the other hand, if you live alone, aren’t helping anyone pay bills, and no one relies on you financially to pursue their dreams, then you still might need coverage. Let’s look at some specific examples below.

Young singles <br> Let’s say you’ve just graduated from college, you’ve started your first job, and you’re living in a new city. Your parents don’t need you to help support them, and you’re on your own financially. Should you get life insurance? If you have serious amounts of student or credit card debt that would get moved to your parents in the event of your passing, then it’s a consideration. You also might think about if you have saved enough in emergency funds to cover potential funeral expenses. Now would also potentially be a better time to buy a policy early while rates are low, especially if you’re considering starting a family in the near future.

Married without children <br> What if your family is just you and your spouse? Do either of you need life insurance? Remember, your goal is to protect the people who depend on your income. You and your spouse have built a life together that’s probably supported by both of your incomes. A life insurance policy could protect your loved one’s lifestyle if something were to happen to you. It would also help them meet lingering financial obligations like car payments, credit card debt, and a mortgage, even if they still have their income.

Single or married parents <br> Anyone with children must consider life insurance. No one relies on your income quite like your kids. It’s what clothes them and feeds them. Later on, it can empower them to pursue their educational dreams. Life insurance can help give you peace of mind that all of those needs will be protected. Even a stay-at-home parent should consider a policy. They often provide for needs like childcare and education that would be costly to replace. Life insurance is an essential line of defense for your family’s dreams and lifestyle.

Business owners <br> No one wants to think about what would happen to their business without them. But entrepreneurs and small business owners can use life insurance to protect their hard work. A policy can help protect your family if you took out loans to start your business and are still paying down debt. More importantly, it can help offset the losses if your family can’t operate the business without you and has to sell in poor market conditions.

Not everyone needs life insurance right now. But it’s a vital line of defense for the people you care about most and should be on everyone’s radar. The need might not be as urgent for a young, debt-free single person, but it’s still worth it to start making plans to protect your future family. Contact a financial professional today to begin the process of preparing!

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September 9, 2020

Life Insurance Myths

Life Insurance Myths

We love facts.

Maybe it’s a byproduct of the modern age, but many of us desire an accurate worldview that’s based on evidence and data. Who wants to live with their head in the clouds, believing myths or superstitions?

Unfortunately, there are those of us who have fallen prey to certain life insurance urban legends. Here are some common myths that many people believe and some cold, hard facts to debunk them!

Myth: Life insurance is less important than my other financial obligations <br> Here’s how the story goes. You have a spouse you love, a house you’re proud of, a reliable car, and kids you care for. All of that takes money; date nights, mortgages, and tuition aren’t cheap! It can be hard to swallow taking on another financial obligation like life insurance on top of the bills you’re already paying.

But life insurance isn’t simply another burden for you to carry. It’s an essential line of protection that empowers you to provide for your family regardless of what happens. The payout can act as a form of income replacement that can help your loved ones maintain their lifestyle, pay their bills, and pursue their dreams when they need financial help the most. Life insurance isn’t less important than your other financial responsibilities. It’s an essential tool that helps the people in your life meet their financial obligations if something were to happen to you!

Myth: Life insurance is unaffordable <br> This is an incredibly common myth, especially among Millennials; 44% overestimated the cost of life insurance by five times!(1) 65% of people who don’t have life insurance say they can’t afford it.(2) But life insurance is far more affordable than you might think. A healthy, non-smoking 25 year old could only pay $25 per month for a policy.(3) That’s about what a subscription to three popular streaming services would cost!(4) Do some online shopping and be amazed by how affordable life insurance really is!

Myth: My employer-provided insurance is enough <br> Just under half the workforce has life insurance from their employer.(5) That’s great! The more life insurance you have available to you the better. But it simply might not be enough to fully protect your family. Professionals typically advise that you purchase about 10 times your annual income in life insurance coverage. Most employer-provided life insurance gives only one to three years of protection.(6) That’s not to say you should refuse a policy through work. But you might need to get some extra protection!

Contact a financial advisor if you still have doubts or concerns. They’re full-time myth busters who will help you navigate the sometimes confusing world of financially protecting your family!

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(1) Nupur Gambhir, “9 common life insurance myths debunked,” Policygenius, March 13, 2020 https://www.policygenius.com/life-insurance/common-life-insurance-myths-debunked/

(2) “Is Life Insurance Tomorrow’s Problem? Findings from the 2020 Insurance Barometer Study,” LIMRA, June 16, 2020 https://www.limra.com/en/newsroom/industry-trends/2020/is-life-insurance-tomorrows-problem-findings-from-the-2020-insurance-barometer-study/

(3) Sterling Price, “Average Cost of Life Insurance (2020): Rates by Age, Term and Policy Size,” ValuePenguin, Aug. 10, 2020, valuepenguin.com/average-cost-life-insurance

(4) Joe Supan, “Americans already subscribe to three streaming services on average. Is there room for more?,” Allconnect, Jun 20, 2020, https://www.allconnect.com/blog/average-american-spend-on-streaming#:~:text=One%20poll%20from%20The%20Hollywood,at%20just%20over%20%2414%2Fmo.

(5) Marvin H. Feldman, “4 Things You Probably Don’t Know About Your Life Insurance at Work,” Life Happens, Sept. 22, 2017 https://lifehappens.org/blog/4-things-you-probably-dont-know-about-your-life-insurance-at-work/#:~:text=Press-,4%20Things%20You%20Probably%20Don’t%20Know,Your%20Life%20Insurance%20at%20Work&text=For%20the%20first%20time%20ever,to%20a%20new%20LIMRA%20study.

August 24, 2020

Renting vs. buying a home: Which is right for you?

Renting vs. buying a home: Which is right for you?

100 million Americans live in homes they or their families rent.

Which means about 250 million live in homes that are owned by themselves or their families.[i]

What about you? Are you a renter or an owner? If you’re thinking about making a change, take a look at these important factors when deciding to rent or own.

The Case for Ownership One very oft-cited benefit of owning over renting is building up equity. When one rents, the entire rent payment goes to the landlord, and the tenant does not own any part of the dwelling at all. With a mortgage, on the other hand, the payer receives some percentage of ownership after every payment (assuming the payment is going towards the principal rather than interest alone), eventually leading to full ownership of the property.

For those with enough capital to outright purchase a property, ownership is almost certainly the best decision financially: no money is paid to a landlord for a service that is consumed but non-saleable in the future. Even for those without sufficient capital, mortgages tend to offer low interest rates (compared to other loan products), and the buyer can usually justify the mortgage interest in return for eventual full ownership. Even if the owner decides to move before the mortgage is completely paid off, the equity that was built thus far can be recouped and used later.

Other reasons to own may include more privacy and greater ability to customize the property. There is also the feeling of stability that you won’t have to renew a contract or potentially pay higher rent during the next cycle when your lease renews.

One of the biggest drawbacks of ownership is the potential that the property value may decline, particularly when still under mortgage. If the value of the property goes down – possibly due to a natural disaster or a lot of foreclosures in your neighborhood [ii] – the equity that was built by the owner may decline, not the amount owed on the loan. Thus a substantial decrease in prices as happened in the late 2000s, could cause an owner to be in the same position financially as a renter – that is, with no equity to speak of.

The Case for Rentership For those who cannot meet ownership’s capital requirements, renting is not a choice – it’s a necessity. However, even those who would qualify for a mortgage may be better off renting, especially if they insist on flexibility. Selling a property is an involved, complex financial transaction that may take many months to complete. If you’re renting and you need to move, finding a subletter (if allowed) is a possibility, and even when not, a standard rental agreement usually only lasts one year, after which the renter may decline to renew. Thus flexibility is one of the most important factors for those who wish to rent.

And while there is usually much less customization allowable at rental properties, there may be significant benefits included in rent with utilities paid, maintenance performed, and communal facilities like gyms, pools, or laundry facilities available. For owners, maintenance, utilities, and tax bills are solely the responsibility of the owner, whereas for renters, these may be paid in part or in full by the landlord. Regarding the investment side, renters do not own the property, so they do not have to worry about losing equity if the property market decreases in value.

Some drawbacks of renting may be less privacy, not being able to build equity, and the uncertainty of future rental prices or even availability. Of course, if the rent increases too much, the renter has the flexibility to leave the property at the next cycle.

So whether you’re thinking of renting or buying, before you sign on the dotted line, examine your short and long term goals, the risks you’re willing to take, and your budget.

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August 17, 2020

Dig yourself out of debt

Dig yourself out of debt

I hate to break it to you, but no matter what generation you are – Baby Boomer, Generation X, or Millennial – you’re probably in debt.

If you’re not – good on you! Keep doing what you’re doing.

But if you are in debt, you’re not alone. A study[i] by the financial organization, Comet, found:

  • 80.9 percent of Baby Boomers are in debt
  • 79.9 percent of Generation X is in debt
  • 81.5 percent of Millennials are in debt

There are some folks whose goal is to eliminate all debt – and if that’s yours, great! But one thing to keep in mind while you’re working towards that finish line is that not all debt is created equal. Carrying a mortgage, for example, may be considered a “healthy” debt. Student loan debt may feel like an encumbrance, but hopefully, your education has given you more earning power in the workforce. A car loan may even be considered a healthy debt. So, there are some types of debt that may offer you advantages.

Any credit card debt you have, however, should be dealt with asap. Credit card debt can cost money every month in the form of interest, and it gives you nothing in return – no equity, no education, no increase in earning potential. It’s like throwing money down the drain.

So, let’s get to work and look at some of the best tips for paying down credit card debt.

1. Get to know your debt
Make a commitment to be honest with yourself. If you’re in denial, it’s going to be hard to make positive changes. So take a good, hard look at your debt. Examine your credit card statements and note balances, interest rates, minimum monthly payment amounts, and due dates. Once you have this information down in black and white you can start to create a repayment strategy.

2. Get motivated
Taking on your debt isn’t easy. Most of us would rather not confront it. We may make half-hearted attempts to pay it off but never truly get anywhere. Need a little motivation? Getting rid of your credit card debt may make you happier. The Comet study asked respondents to rate their happiness on a scale of one to seven.[ii] It turns out that those who selected the lowest rating also carried the highest amounts of credit card debt. Want to be happier? It seems like paying off your credit card debt may help!

3. Develop your strategy
There are many strategies for paying off your credit card debt. Once you understand all your debt and have found your motivation, it’s time to pick a strategy. There are two main strategies for debt repayment. One focuses on knocking out the highest interest debt first, and the other method begins with tackling the smallest principal balances first. Here’s how they work:

  • Start with the highest interest rate: One of the items you should have noted when you did your debt overview is the interest rate for each account. With this method, you’ll throw the largest payment you can at your highest interest rate debt every month, while paying the minimum payments on your other debts. Utilizing this method may help you pay less interest over time.

  • Start with the smallest balance: As opposed to comparing interest rates, this method requires you to look at your balances. With this strategy, you’ll begin paying the smallest balance off first. Continue to make the minimum payments on your other accounts and put as much money as you can towards the smallest balance. Once you have that one paid off, combine the amount you were paying on that balance with the minimum you were paying on your next smallest balance, and so on. This strategy can help keep you motivated and encouraged since you should start to see some results right away.

Either strategy can work well. Pick the one that seems best for you, execute, and most importantly – don’t give up!

4. Live by a budget
As you begin chipping away at your credit card debt, it’s important to watch your spending. If you continue to charge purchases, you won’t see the progress you’re making, so watch your spending closely. If you don’t have a budget already, now would be a good time to create one.

5. Think extra payments
Once you are committed to paying off your debt and have developed your strategy, keep it top of mind. Make it your number one financial priority. So when you come across “found” money – like work bonuses or gifts – see it as an opportunity to make an extra credit card payment. The more of those little extra payments you make, the better. Make them while the cash is in hand, so you aren’t tempted to spend it on something else.

6. Celebrate your victories
Living on a budget and paying off debt can feel tedious. Paying off debt takes time. Don’t forget to take pride in what you’re trying to accomplish. Celebrate your milestones. Do something special when you get that first small balance paid off, but try to make the occasion free or at least cheap! The point is to reward yourself for your hard financial work. (Hint: Try putting up a chart or calendar in your kitchen and marking off your progress as you go!)

Reward yourself with a debt-free life Getting out of debt is a great reward in and of itself. It takes discipline, persistence, and patience, but it can be done. Come to terms with your debt, formulate a strategy, and stick to it. Your financial future will thank you!

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