Monthly Archives: November 2016

Front Loading Your Life

front load your lifeI ran across the term “front loading” your finances awhile back. Unfortunately, I don’t know where exactly where I found it in order to attribute the author of the article. Essentially front loading is what I’m doing.

Front loading is an easy concept. Do all you can now in order to do what you want later. For us now that means paying off all debt (including the house), reaching a net worth of $1m, investing as often and as much as we can, and living frugal to make it happen. Later for us means we retire around 55 years old to travel and do things we enjoy.

Reasons I think front loading is for me and could be for you.

Interest income over time
Investments into the stock market have proven to have an average around a 9% increase on the S&P 500 for nearly the last 100 years. If you’re patient and diligent, you’ll make money on your money. I’ll admit this can get nerve wracking watching some stocks dwindle, but some are winners and balance out the duds. Right now I’m hovering around a 7% gain on my stocks.

Destroying debt is always a good idea
There is no denying that debt is bad. According to Matthew Frankel at Fool.com, the average American household has a total debt of more than $130,000 and that debt burden is costing the average household more than $6,600 in interest per year–about 9% of the average income. We use Dave Ramsey’s snowball plan (Baby Step Two) get out to debt as it makes the best sense to us.

Set a financial foundation
This is more than just having a nest egg or a rainy day fund. This involves a multi-pronged approach. For us it means first having an emergency fund. Ours would cover us for at least 6 months in the unlikely event that we both lose our jobs. Second, investing in our retirement. For us that means my husband’s matched workplace 401k, maxing out a Roth IRA for me, putting extra cash into stocks and buying rental property. Finally, making a commitment to stay in the house we have now until the mortgage is paid off…and even then staying here until we can no longer go up and down stairs. In our town the housing market is increasing by about 12% annually. When we do decide to downsize in 30-40 years, that should give us a pretty good return.

Tax deferment
I will admit that I find tax deferment confusing, but I know it’s a good thing. It’s mostly for your IRAs and 401ks and allows you to make more money now, and pay taxes on it later when you’re likely in a lower tax bracket in retirement. I found this article at John Hancock Investing to be the best explanation of how this works.

I always love learning more. What do you do to front load your finances?

 

5 Good Reasons to Borrow Money

The financial industry caters to borrowers from all walks of life, seeking funding for myriad causes. As a result, dozens of types of loans are available, many aimed at particular functions. Mortgages, for instance, are funded exclusively for the purchase or transfer of certain types of property – most commonly residential and commercial real estate. And government-backed student loans can only be applied toward college tuition and related expenses.

Despite the specialized nature of modern lending, some loans are issued with greater discretion, leaving borrowers to spend the money as they wish.

Personal loans and most forms of short-term financing are extended with few strings attached, placing spending discretion in the hands of those borrowing the money. Unfortunately, these flexible loans can become problematic, when cash is borrowed for ill-advised purchases. To avoid problems, hold high standards when spending borrowed money and don’t let easy access to financing color your spending decisions. Among others, the following examples represent good reasons to take out a loan.

Education/Training
Investing in yourself is almost never a bad idea. Truth is told, in most cases, money spent on personal improvement increases your earning power. College education and advanced certification, for instance, may open doors to higher-paying jobs, or add crucial credentials needed to earn a salary raise. An education loan (and some hard work at school) may be all that’s standing between you and higher take-home pay Federal student loans are available for U.S. students, issued by the William D. Ford Federal Direct Loan program. Interest rates and repayment terms offered by the Government are very competitive, so filing for public aid is a good first step. Private financing is also available, adding to federally-backed financial aid availability. Personal loans are commonly used to pay for classes furnishing fast funds to carry-over students until their financial aid checks arrive. It is important to compare various lending scenarios, in order to assemble the best college funding package for your circumstances.

Start a Business
Entrepreneurs need financing, so if a start-up is in your future, it probably calls for a loan. Borrowing to seed a business venture is a positive step, provided your business plan allows for growing pains and eventual profits. New businesses typical require years to become established, during which owners often work long hours, for little pay. Your start-up investment presents similar possibilities, so the pressure of carrying financing can add to the strain of a fledging enterprise. On the other hand, an old adage aptly points out “it takes money to make money”, and another succinctly identifies the nature of entrepreneurism, stating “nothing ventured, nothing gained”.

Relocate for Opportunity
Employment conditions continually evolve, creating new opportunities for enterprising workers. In some cases, relocation is the fastest path to prosperity and career advancement. A move with your employer likely includes compensation for the effort, but packing-up of your own devices can lead to considerable out-of-pocket costs. A short-term loan, funded to expedite an opportunistic move is another form of investment in your future, so the financing quickly pays for itself.

Add Value to Your Home
Homeowners typically maintain a “wish list” of renovations and improvements they’d like to complete. If your home would benefit from a makeover, it may make financial sense to borrow money, in order to carry-off the updates. Kitchen and bath improvements typically pay the greatest dividends, adding value, comfort and convenience to your residence. Other low-cost improvements include paint and landscaping, which are easily accomplished using a small personal loan or equity financing.

Travel
In some cases, borrowing money for a vacation can save you money. Better to fund travel with cash on hand, but a low interest loan represents a better alternative than paying travel expenses with a high interest credit card. It is up to you to crunch the numbers, and spending money on travel you can’t afford is a step in the wrong direction. A once in a lifetime travel opportunity or a long-anticipated retirement tour may justify borrowing for a leisure venture.

It doesn’t always make sense to go into debt, but when financing is justified, several types of loans are available. Investing in yourself, for instance, can become a money-maker, so taking a loan for education or an entrepreneurial venture makes good sense. Improving your home is another good way to spend borrowed money, and under some circumstances, borrowing for recreation is not an irresponsible approach.