How To Become Financially Independent

Americans are terrible savers. No sense in beating-around-the-bush. The average savings rate in the USA in 2015 was 5.5%. But if you break it down by income, those at the top save much more of their income where the low-to-middle income earners save close to nothing, according to the Bureau of Economic Analysis. But why? We all know we need to save more, and yet, we aren’t.

One reason is we live for the moment. Pop culture has taught us to spend, spend, spend, and then spend some more. Obtain instant gratification and the future be damned. Another is debt, which kind of ties into the first. The USA is the largest debtor nation in the world in terms of household debt.

Living next to the Joneses can really take its toll. A third is a false sense of security with Social Security. We were told that social security would provide for us in our golden years. Therefore, we didn’t put much thought into saving for ourselves. Also, many of us worked for companies that offered pensions. Today, most pension plans are gone and Social Security is headed towards insolvency. If you’re under 40, you’ll be lucky to get a penny, and it probably won’t be worth much as the dollar keeps losing its value. Finally, many of us are financially illiterate. Schools don’t teach personal finance, and economics seems like a foreign language. So what can we do?

Think of this as the golden rule in personal finance: Pay Yourself First.

It seems so obvious, yet most of us do the opposite and pay ourselves last. We pay everyone else then save what is left over. The problem is, many times, nothing is left over. We convince ourselves that we’ll start next month and then something else comes up. Something else always comes up. It’s human nature to procrastinate and find excuses not to do the tough or disciplined thing. It’s like going on a diet. You always end up fatter. In this case, you end up poorer. How can you ever retire? Do you want to work forever?

Paying yourself first is easy to do. We just make it harder on ourselves. Simply set up an automatic savings plan so the money is withdrawn from your paycheck before you ever see it. A good place to start is with your 401K or IRA. You get tax savings and, in the case of the 401k, receive a company match most of the time. Whatever you do, always contribute at least enough to get the company match. It’s free money. Most companies match dollar-for-dollar up to 5% of your salary.

You want to aim for a minimum savings rate of 10%. If you haven’t already, create a budget. You’ll not only find where your money is going, but how it is being wasted. Don’t be surprised how easy you’ll find that initial 5%. In conjunction with the budget, use what I like to call the 24 hour rule. Since I do most of my shopping on line, I let my purchase sit in the shopping cart for a day. After sleeping on it, many times I’ll discover I really didn’t want that particular item in the first place. This eliminates that binge impulse. How many times have you asked yourself “why did I buy this thing? What a waste of money.” Automatic savings also helps you take advantage of compound interest (interest earning interest) and dollar cost averaging (avoiding the pitfalls of market timing).

The psychological benefits are significant as well. First, you have the peace of mind that you’ve developed a plan to retire or will have the money available to do what you want to do when you want to do it. Second, seeing success will help keep you on track and stick with it. As with most things, early failures can cause us to give up and not even try. Finally, you’ll develop good spending habits and live within your means, not above them. It usually takes four weeks to make something a habit.

Perhaps most importantly, you put yourself first, not someone else. You are worth more than someone else, so start treating yourself that way.

All About Collateral Loans

These are also referred to as secured loans. When taking out a collateral loan there are many pros and cons, which a person should consider before taking out such a loan. There is no risk to the lender because if the borrower does not pay back the loan the lender has the collateral that the borrower used. Many times with a collateral loan you can get a lower interest rate and a longer period of time to repay the loan. Before applying for a loan figure out how much money you are going to need. You should avoid taking out excessive collateral loans because in the end you will paying back more money. To get an idea of how much you can borrow you should calculate your monthly expenses and monthly income and then decide after seeing how much you have left, how much of a monthly payment you can afford.

Next you will decide what you will offer as collateral because many times what you offer as collateral will help to determine what the rate will be for your loan. A collateral loan can be used to consolidate a debt, home improvements, vacation, or major purchase. When applying for this loan the loans that the bank or lender will give you against collateral will usually be percentage of the estimated market value. For example, if you are using a car that is worth twenty thousand dollars the lender would most likely offer you a collateral loan of seventeen thousand dollars, or approximately eighty-five percent of the value of your collateral.

Pros

• It is an easy loan to get and usually is quickly approved
• The borrower can usually borrow more money that they could with an unsecured loan, which is the type of loan that you would need a good credit score, steady employment, good income to get it.
• If you are turned down for an unsecured loan many times a person can get a secured loan.
• There is not a cap on how much a borrower can borrow.

Cons

• What the borrower used as collateral is at risk if they cannot pay the loan back in the time agreed upon.
• A collateral loan is not available to just anyone as you will need to own a vehicle, house, or another piece of property that can be used as collateral and if you do not have any of the three you cannot get this type of loan.

As you can see there are more pros than cons when considering a collateral loan but do make sure that you do not borrow more than you can pay back.

 

What You Need To Know About Electronic Payment System

During this highly technological age, cash is trying hard to compete with electronic money, since nowadays a lot of people choose to use their virtual wallets. Here, you will read about the pros and cons of using an electronic payment system.

It is plain to see that electronic payment systems have more advantages than traditional banking services. Let’s see:

  • Saves on time

Money transfer from one virtual account to another may only take a few minutes, whereas a wire or postal transfer may take a number of days. Besides, you have to spend some time to go to the bank or post office and wait in line.

  • Controls expenses

Even if a person is willing to control his disbursements, it can take a lot of patience to jot down all the expenses, and this takes up a huge part of the total amount. On the other hand, the virtual account comprises the history of all the transactions, including the store name and amount spent. Best of all, you can check it whenever and wherever you like. In this case, an electronic payment system works to your advantage.

  • Reduced loss and theft risks

You will not make the mistake of losing or leaving your virtual wallet behind, and it can never be taken by robbers.

  • User- friendly

All services aim to reach out to a greater number of audiences and so, their interface should be easy for users to understand. Moreover, users can always ask help from the support team since they work 24/7. You can receive an answer by means of the forums as well.

  • Convenient to use

As long as you have access to the Internet, you can carry out transfers anytime, anywhere.

After discussing the advantages that come with using an electronic payment system, it is essential to talk about its disadvantages as well:

  • Restrictions

In every payment system, there is a limit with regard to the number of transactions you can do per day and the maximum amount you can withdraw.

  • Risk of Getting Hacked

Risks can be reduced when you follow the security regulations. This is comparable to the risk of being robbed. The situation can get worse when the processing company’s system breaks down, since this may lead to the leaking of confidential information on the online cards, as well as its owners. Though some electronic payment systems do not launch plastic cards, they can however be involved in Identity theft scandals.

  • The problem of money transfer from one payment system to another

Most of the time, electronic payment systems do not cooperate with one another. If that is the case, you can use e-currency exchange services. However, it can consume a lot of time when you do not have a service you can trust for this purpose.

  • Lack of Anonymity

Since the database of the payment system stores all your transactions – like the name of recipient, amount and time – the intelligence agency can access all your information. Decide on whether that is good or bad.

  • The Need for Internet Access

When you have no Internet connection, you cannot transact on your online account.

 

Tips To Face When Hard Money Loans Are Utilized

Owners of commercial properties have capital needs for varied purposes such as purchase and renovations. In a perfect world the owners of the property would seek out conventional lenders such as banks and credit unions since they would most likely offer the lowest cost of money. Sometimes traditional financing is not available to the borrower or perhaps the borrower does not want to tie up personal funds to finance the project at hand.

In today’s more complex borrowing world traditional lenders cannot fulfill all of the needs of commercial borrowers. Often these borrowers look to Private Lenders to move their projects along. On the surface one may question why a borrower would be willing to pay much higher interest rates to Private Lenders (Hard Money Lenders) and may instead elect not to pursue their project until traditional financing could be found.

Hard Money Loans are typically short in duration and come with higher interest rates and fees when compared to traditional financing. For borrowers the analysis is about their end goal and the planned realization of profit from the completion of the project. Hard Money Loans play an increasingly important part in the commercial real estate world. Here are some instances where Hard Money Loans may make sense for borrowers.

Capital Improvements

If a capital improvement, repairs, or renovations are needed to the property which if completed would enhance the value of the property from both a valuation and/or rental income standpoint – a borrower may look to the shorter duration – higher interest loans as a wise move to achieve the enhancements to their properties. Often in these situation once the work is complete and the increased value and/or rental income is realized the borrowers can look for more traditional financing and pay off the Hard Money Lender and replace the loan with lower cost financing. Or they may look to sell the property and take the profit and move onto their next project.

Development

If a borrower is the owner of a piece of raw land and wishes to proceed with a “ground-up” development – Hard Money Loans may be a source of financing that they cannot find in the traditional marketplace. Lenders will look at a host of variables when assessing the credit worthiness of the project including the borrower’s development experience, collateral, timeline, borrower’s equity in the project, project presentation, and the financial reserves of the borrower. Weakness in one or a combination of these factors may cause a traditional lender to decline the project financing.

Hard Money Lenders will consider the same factors but often weigh them different in making their final determination. Conventional lenders will often put caps on the construction loans that they make as a percentage of the total development costs. In contrast, Hard Money Lenders may lend up to 100% (or more) of the construction costs if the analysis of the project warrants such. In other words – where conventional lenders are limited in the scope of the loans they are willing to make – Hard Money Lenders with experience in development may weigh the attractiveness of the overall project in their determination and ultimate decision.

Purchase of a Property

When borrowers are interested in purchasing a property often the timing of the purchase is critical. Hard Money Lenders service this market and provide an effective tool in the purchase process. Attractive real estate opportunities and strategic property purchases are often time sensitive. Traditional lenders are typically not able to provide financing quickly and thereby are often not a good alternative in these types of real estate deals. Hard Money Lenders are nimbler and able to evaluate, approve, and close loans quicker than traditional lenders.

Undervalue/Underperforming Properties

Undervalued properties or properties that are performing below market efficiency are good candidates for Hard Money Lenders. Traditional Lenders shy away from these loans due to the underwriting guidelines related to income statements and current expenses. In contrast Hard Money Lenders focus primarily on the value of the underlying property. With a properly constructed loan a real estate investor can obtain the required financing to provide time to improve the property, fill vacancies, increase rental income, and get expenses in line. Once the property is stabilized the investor can seek traditional financing to lower interest costs going forward.

Loan Underwriting

It is understood the credit worthiness of the borrower is a primary focus in the underwriting of a traditional real estate loan. Conventional lenders are also restricted by regulatory guidelines which limit how creative they can be in the loan approval process. Factors such as late payments, tax liens, mechanic liens, bankruptcies, foreclosures, and high debt levels all play a part in the underwriting of a loan.

Hard Money Lenders set their own standards concerning the level of risk they are willing to accept. These lenders can establish asset based loans whereby the cornerstone of the loan is the property itself.

Current restrictions in the traditional financing marketplace for those real estate investors that own more than 10 single family rental residences make it difficult to borrower additional funds. Hard Money Lenders are not as concerned about the number of properties that an investor owns rather they analyze the property itself and its attractiveness as an investment.

In closing, Hard Money Lenders can be looked at negatively because they charge higher interest rates to their borrowers. However, Hard Money plays a necessary role in the real estate investment marketplace as they fill a need that is created by the lack of traditional financing sources. Often the higher costs of the loan is well worth the purpose it serves. This provides investors the opportunity to participate in these loans and earn attractive yields with the security of a first position lien status.