What are the Pros and Cons of Home Ownership.

Home is where the heart is. So went the adage. It has always been drilled into our brain that growing up and buying a home was the smartest financial move ever. In fact, buying a home was and is considered as a very good investment opportunity. Sounds too good to be true, right?  Or is it?

Let us look at the pros and cons of home ownership.

  1. Yale economist and Nobel Prize winner Robert Shiller debates about the feasibility of accepting home buying as an investment. He says, that the returns are just too small and that the premise of real estate appreciation does not always stand true. Calculated over the past 100 years, home prices have grown at a measly rate of 0.3%, after adjusted for inflation. Stocks and bonds have given, over the same period, an annual return of 6.5%. This difference is just big to ignore.
  2. Home buying should be kept as just that. An asset to protect you and your family against the vagaries of nature. As an investment vehicle, it simply does not stand up to the other instruments available in the market. What blunder most do is to make up more than 75% of their investment based on the price of their home. There is an inherent risk because of the lack of diversification.
  3. Owning a home is an absolute matter of pride. And beyond that, a recognition of all the hard work you have put in to buy that property. It is also a sign of prosperity.
  4. Owning a home is an excellent tax saver.
  5. The question of equity comes into play. Rent paid is gone forever. It never builds up your financial equity. However, with a mortgage payment, equity is built over a period in time.
  6. Owning home lets you beat inflation, even though by a very small percentage. According to Prof. Karl Case, long-term housing did have its moment when it went a wee bit ahead of inflation. Now, if you are young and thinking 30 to 40 years ahead, it is a very valuable insurance against inflation. Not a mean task at all.
  7. Contradicting to what I had said in point 1, the house is a risk capital. Again, as mentioned earlier, a home should never be viewed as a way to get rich, because it simply does not work that way. However, equity in a home can always be linked to your portfolio.

Home owning does have its fair share of pros and cons.  It totally depends on the individual and his or hers financial situations. But as the line goes, “Home sweet home”.

Best Features from Quicken Budgeting Software

Budgeting is an art. It takes a lot of imagination and decision-making skills to create a budget for oneself. In the past all one had to budget was a pen and their balance sheets. It was left primarily to brain power to come up with solutions. The arrival of the new age has seen an advent of newer tools. Tools which have more computational power and is able to calculate a long set of numbers in a jiffy. There are quite a few of them in the market today. Each comes with its own set of unique propositions and one must understand his or her own personal needs before selecting one.

In this long list of budgeting tools stands out one name: Quicken. And it should not be mistaken with Kraken, the monster of Norwegian folklore.

The former is quite a smart tool and the latter, a legend.

Quicken has the following features:

  • It saves every piece of financial transaction information and categorizes them
  • It has a robust data visualization capability
  • It helps you by comparing your investments with the other instruments currently available in the market
  • It’s 128-bit and 256-bit encryption ensures your information is beyond the reach of any wrongdoer.
  • The software creates separate heads for retail and small business and helps you put funds in the correct places.
  • It tracks all expenses like rental, leases, rates and deposits all in one place to give you firsthand information.
  • It also comes with a mobile app. Now, this would mean you can manage your money anywhere and at your convenience.

Hence, the question that now arises is why then Quicken is rarely suggested as a budgeting tool. With so many features to go for it, what pulls it back? We see the reasons are many.

The lack of a free trail especially for a budgeting tool is off-putting. When someone installs software to handle money, the trail period usually works like a charm. Quicken does not have one.

It has way more functionality than what a layman can handle and it does get intimidating for most while using it for the first time.

Over the past few years and versions, there have been complaining about the memory Quicken eats up. Also, reports of bugs causing trouble for the budgeting tool has been around for some time now

In spite of these shortcomings, Quicken does have its followers. However, to up the ante in the field of budgeting tools, it needs to get sharp.

Saving Now Saves You Tomorrow

At 22 you are the king of the world. Nothing seems to bother you. You are invincible, raring to go and virtually unstoppable. Now pause and take a few steps back. This age, rage, and energy will not last forever. A few years down the line, when you slow down a bit, wisdom will suggest that the future holds no surprises, except old age and financial insecurity.

At 22, your effort to financial security begins.

At first, this might seem to be a scary proposition with too much information floating around, but there is enough reason

  1. Don’t get flustered with all that has been told to you in the form advice. Take an informed decision based on research. All those numbers around mean nothing if looked into properly.
  2. Start saving a little and more often. Start putting that in 401(k) and see it slowly rise.
  3. If you think the social security net will be good enough for you, think again. It is estimated that by 2037, social security benefit requirements will outstrip contributions. As a result of which, it would get difficult for you to sustain after retirement.
  4. The 401(k) is a reliable ally at this age. Start using it wisely. The money that is invested here is absolutely tax-free. The tax will only be deducted when you take it out. So this instrument is quite handy for a 22-year-old and needs to be made use to its fullest.
  5. The IRAs too have loads of benefits to make use of. It is an Individual Retirement Arrangement and is virtually tax-free, both on federal taxes, state and local ones. Of course, there are riders involved, but at this age, that should be bothersome.
  6. Now is the time to be aggressive. At 22, worrying about your retirement, investment becomes an art. Remember, you still have another 20 years or 30 years to go before you hang your boots up. You can take a risk now. Look out for stocks and bonds. With age, you can slowly change tracks and become conservative. Now is not the time.
  7. There are nontraditional ways to invest too. Heard about ETF (Exchange Traded Funds). They can be bought and sold at any time and is just a regular stock in disguise.
  8. Last but not the least. Stop worrying, start saving. That is the only way forward.

Why Should Not I Pay Off My Home Loan?

No one needs to pay a home loan any more extended than would normally be appropriate. It’s a bit unsettling to have a tremendous obligation approaching over you for a considerable length of time, piling on intrigue. You may even be enticed to pay off your home loan early in case you’re sufficiently blessed to have the money lying around. In any case, paying off a home loan early isn’t generally the most intelligent choice, and there’s a reason home loans are alluded to as “great obligation.” So in case you’re considering paying off your home loan ahead of schedule, here are three motivations to re-examine.

  1. You’ll miss out on that intrigue finding

Paying all that home loan intrigue has an advantage, and it comes as a conceivably sizable assessment derivation. In case you’re in a high assessment section, missing out on this finding could mean paying more in duties, particularly if doing without it pushes you into the following higher section.

  1. You might be left with constrained liquidity

The lodging business sector isn’t especially fluid. Purchasing and offering property takes a great deal of time and work; wrapping everything up can take weeks or even months. On the off chance that you utilize your discretionary cash flow to pay off your home loan, making your home your lone real resource, then you’ll experience issues covering any enormous costs that may emerge. In the event that you lose your employment, have a medicinal crisis, get hitched, or send a child to school, for instance, you’ll need to have fluid resources available. Moving house ought not to be your exclusive choice.

Then again, in the event that you take the cash you’d use to pay off your home loan and rather spread it out over a differing arrangement of speculations, including stocks and bonds, then you’ll have more choices ought to the requirement for money emerge.

  1. It won’t give salary

When you put your cash in stocks and bonds, you can possibly secure a salary stream through profits, premium instalments, and capital increases. Paying off your home loan, notwithstanding, won’t give you salary. Rather, it will abandon you with constrained money left over to contribute. In the event that you put all your cash into your home, it could take years for it to develop in esteem, and paying off your home loan could restrain your capacity to produce wage for things like school, retirement, or other short-and long haul objectives.

 

It’s about the financing cost

In the event that your home loan conveys a high financing cost and you have the money close by to pay it off, then you should pull out all the stops. However, in the event that you have a low loan fee, you can exploit it by clinging to that home loan and utilizing your money to create higher returns somewhere else.

So in totality one can say very easily that its beneficial sometimes not to pay home loans as it saves you a lot of tax and can help in negotiating salary. One should paying off home loans in such a way that one can easily turn the liability into asset.

To Sign Or Not To Sign – Should you Sign the Back of Your Credit Card

A credit card is the most happening thing in the world of financial transaction. Gone are the days when long queues in banks would give jitters to its customers. With credit cards, there is a degree of financial freedom seldom seen in any other mode. It is also a security nightmare. Imagine, a card with your details falling into wrong hands. Apart from the monetary loss, the loss of identity to is a very big threat. As a result of which, every financial institution issuing a credit card has taken precautions to counter it.

That makes us come to a very pertinent question. Is it necessary to sign in the back of the credit card? Now for years, there has been a school of thought who followed the principle of either keeping the strip blank or mention the statement: “See ID”. However, that really does not make any sense. And the reason for this is that the signature at the back of the strip provides the card holder with an extra level of protection against fraud. You may ask how? When the teller or cashier at the counter provides you with the receipt slip you are supposed to sign, he gives a quick check to the signature done on the credit card. He or she does this to verify, whether the signature belongs to the same person.

More relevant that this is the violation you may be accused of for not signing the credit or debit card signature strip. The cardholder agreement very explicitly mentions the terms and conditions under which the card may be used. One of the conditions is signing at the back of the card.

However, the flip side to this is, many transactions do not require you to sign sales slips. And in a majority of credit or debit card transactions, the employees do not check the signatures. So basically the theory of an extra layer of protection falls flat.

The most foolproof method to keep your card safe is to follow a few rules:

  1. Do not, and I mean never, tell your PIN to anyone. It’s a recipe for disaster.
  2. Do not let any else use your card.
  3. Keep a tab on all the expenses on your credit card. This is the ideal way to find out any suspicious activity on your card.

Following these rules is far more important than deciding whether to sign or not to sign.

HSA: Guess Not Yet Time

Would the question rather be should you? Or would you? Now before we indulge in some plain talking, let us first know what HSA is all about.

What is HSA?

HSA or Health Savings Account, tax benefited medical savings account, which is available to taxpayers who are enrolled in an HDHP or High-deductible Health Plan. The funds invested in such an account will not attract Federal taxes at the time of deposit.

And now come back to the question, why shouldn’t we have an HSA?

Now let me be clear at the onset, that HSA does offer some great benefits and is not all bad. In fact, it should be a plan for the future for every young investor and savings aficionado. However, it really is not for everybody. Let us see the reasons:

  1. HSA needs time to have your funds build up. HSA is basically the combination of employees as well as the employer contributing towards that account, every payday. Now, given that kind of a rate and depending on the expense getting pulled out, it does take a fair amount of time for money to build up.
  2. Suddenly the drug prices begin to pinch. A $20 prescription drug can suddenly turn into a $120 behemoth. Now we know there is a reason for it but it usually is very confusing to understand the dynamics behind it all.
  3. The HDHP is named for a reason. High Deductible in an HSA is high. Period. Compared to most traditional health plans, the deductible here is absolutely in the north. The IRS has also asked for HSA plans to have a minimum family deductible of $2400. On the higher, this figure could touch $6500 for a maximum out of pocket payment of $12100. One look at the figure and you can understand that this entails a lot of cash in one go.
  4. One of the greatest reasons why HSA is not for everyone is primarily because of the confusion it creates. Now, as a rule, you can use your HSA card to pay for any 213(d) expense. There is a list of expenses which fall under the 213(d) expenses as per the schedule present in the IRS Code Section 213(d) Eligible Medical Expenses. The question is how many of us would actually know it. None carry a list and would probably ever do.
  5. As I had mentioned earlier, HSA has its fair share of advantages, but because of the lack of education, it becomes very difficult for most organizations to drive it among its employees. HAS does require a bit of self-research but when fully understood it does offer great benefits. Till such time, it would be an advice to look out for more traditional and simpler medical plans.

Why Shouldn’t I Use a Roth Ira as a Saving Account?

Investment account IRAs (Roth or Traditional), like other IRA items, are beneficial for a few people in specific situations. Somebody as of now said the amassing stage, holding up to develop the base beginning venture required for some common assets. Another awesome case would be money that is stopped, prepared to move without punishment, simply sitting tight for the correct venture openings, yet on which one needs an arrival and some kind of FDIC insurance while holding up.

Before the (practically) incomprehensible occurred in 2008- – amazing speculation banks (Lehman, Merrill Lynch, Bear Stearns, and so forth.) become bankrupt, Reserve Money Market Funds breaking the buck, TARP, Bernie Mad off- – the standard way of thinking was that exclusive the monetarily ignorant would need to keep any IRA cash in FDIC safeguarded accounts at banks. Now that we’re entering The Great Depression II, it can be one of the numerous reasonable decisions for those of us who still have cash cleared out. A 2% APR yield on a segment of one’s IRA resources amid market turmoil is greatly improved than a – 33% profit for the IRA portfolio.

Numerous speculations one can make outside an IRA can likewise be made inside an IRA. The trap is finding an organization that can help you make the ventures you need. A bank account isn’t generally proper for an IRA, nonetheless. In spite of the fact that it’s conceivable to pull back cash from your record under uncommon conditions, IRAs are intended for retirement, not for simple reserve get to henceforth it ought not to be utilized as a sparing record from where you can pull back sum according to your necessities now and again.

One ought to dependably imagine that it is the retirement finance which he had put something aside for harder circumstance when one begins their life after retirement. This sum is spared essentially for the different costs which is borne by different medicinal conditions and individual needs consequently sparing the piece of IRA can make mess at the later phase of your life.

One ought to want to proceed with the IRA and ought not to consider withdrawal till the person had accomplished superannuate, as the sum spared can truly be utilized when one gets dismissal from the general population because of their maturity. Indeed, even after retirement one ought to attempt to put resources into a wide range of things- – conventional stocks and bonds, as well as land, private stock, assess liens, contracts with an IRA. The points of interest being that you get more prominent broadening and can put resources into things in which you are well known/accept with the possibility to develop your cash tax-exempt in the event that you utilize a Roth IRA. Obviously, there are principles you have to take after. Yet, on the off chance that you take after the tenets there are brilliant opportunities to run the show. Thus utilize your Roth IRA sum admirably and put resources into productive ventures as it were.

Employee Stock Options: Do I Invest With A 10% Discount

In other words, this would mean that you have an attractive piece of cake placed right I front of you. It is laden with all the sweetness, you ever wanted have. However, the catch is, one piece of that and you can forget the rest of the dinner because your hunger can only take in that much.

The same analogy goes in for investments. You start investing in stocks and end up putting too many eggs in one basket, the risk automatically rises. Going by the current trend among organizations is to provide a discount to employees who buy their stocks. Now understandably this is done to make things more attractive for the buyer. However, there is a certain thing one needs to keep in mind before indulging in that cake. Even before that let me tell how this thing actually works.

A set amount is of your monthly income is debited off and put into an escrow account. Twice a year, and this may vary from company to company, the money set aside in that escrow account, will be used to buy stocks, either at their lowest prices at buy in or during close, whichever is deemed cheaper. Add to it the employee discount that can vary from 10% to 15%.

Now, you can go ahead and immediately sell it if you want to and earn a 15% bonus, but again these numbers do keep changing.

Now, the thing which you need to keep in mind regarding stock options and the way to hold it. The first one, which we discussed, is for immediate selling and is called an ESOP (Employee Stock Options) and the other one is called RSP (Restricted Stock Purchase). Now what happens in the latter is akin to what one will do to the usual stock and shares i.e. hold on to it for a period in time. Now, chances are that the value of your stock may fall below your discounted price and that you may be facing a loss. If you are willing to sell it within a year, then you do act a short term investor, which may always be a bright idea, especially with company stocks. You may want to hold on to it for a longer period, which again has its risks, but has benefits too. The idea is to keep on checking the prices and the profits you would make.

As for starting a dinner with a cake and missing out on the rest of the food, investment to needs to be diversified. Having a little of most is a much better idea than stuffing oneself with only very few.

How Beneficial Is Working Significant Overtime

Are you working more than 80 hours a week? Is over time working leading to happiness? Are you able to balance your life? Working significantly overtime does not always mean more earning or more happiness.

Many end up working overtime because of the greed of earning more. Stop for a minute and analyses, are working overtime consistently landing to increase in happiness quotient?

Research states that consistent working of significantly overtime is because of any one of this

  • Badly defined job role: Maybe you have accepted a job that is poorly structured, which doesn’t have clear job boundaries. So many times, you end up doing every one job.
  • Your skill and Job description doesn’t match: Have you ended up being in the wrong job? One of another major reason anyone spends loads of overtime because the lack of skill to job smartly.
  • Bad time management: Another reason in this connected world is bad time management, at the office do office work, at home be at home. If you are consistently doing overtime may check your time priorities and allocation. Maybe you are not able to finish job within allocated time due to multi-tasking like doing online shopping, Facebook during work which is breaking your theme of work and every time you break your flow you need to restart to gain speed.
  • You are “YES” person: Saying NO is an art. Don’t accept jobs if you are already loaded with work and if you think. It is right to say No with right reason. Otherwise, you end up accepting everything and spending overtime consistently at work.

 

However, stating all the above, there are some cases where you are working overtime for the period, which does not qualify for consistently working overtime. For example, a lot of accounting jobs need to put extra hours during financial year ends due to business needs and the way business conducted. That is not because of your time management or lack of skill. This kind of overtime happens for short period with correct business reason.  Another such example you are working on your start-up project, where you end up spending loads of time until your idea becomes reality. This is a clear example of passion driving overtime. However, be aware you are a human being you get stressed, you need to revitalize for better thinking and being ultra-productive.

So Working significant overtime consistently surely leads to stress, fatigue making you less productive and innovative. This creates a loop of overtime and stress. Get out of it. Get refreshed, do what makes you happy, spend time on health. A good mind can do wonders in minutes. Be active and alive.

Over The Cliff With A 401(K)

To begin discussing this subject let us be aware of all the facts we know about a 401(k).

What is a 401(k)?

A 401(k) is nothing but a retirement savings plan sponsored or paid by the employer. The employer lets the employee save and invest a certain percentage of their pay before it is taxed. Point to remember in a 401(k) is that you will only be taxed when the money is withdrawn and not when it is deposited.

So would it be worthwhile to contribute to 401(k) with a 3-year cliff?

Your question to me could be what exactly is a cliff? Is it the edge of a mountain or the end to nowhere? A cliff is nothing but vesting. A cliff vesting is when an employee becomes completely vested in a specified period in time. So for example, you have fully vested in a company sponsored pension plan only after 5 years of full service.

Now, coming back quickly to the intended subject, the money that you invest in a 401(k) is all yours. So for example, you work for 5 years and leave your job, there will not be any effect on the investment that you had made in a 401(k). The only thing that changes is the contribution of the employer because that depends on the vesting period. It is a good plan with good benefits. However, it is not something that is quickly recommended to young professionals.

To begin with, a 401(k) is ideally to be kept as a secondary hold. The idea is to maximize other resources and then fall back on this vehicle. My advice would be to begin investing in the Roth IRA and contribute to it till you do not reach the maximum limit. Once you have touched the limit, look towards the 401(k). This has a great advantage, the first and foremost being diversification.

There is a different school of thought who might suggest that given the pretax nature of 401(k), you will have more money to start with and then go ahead with your contributions to the Roth IRA.

Remember, most successful finances are largely behavioral. So a 401(k) being an automated process, really makes you keep aside a certain amount of investment, which otherwise would have been spent elsewhere. It actually is dependent on how you see yourself in 10 years time.