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Ten Fantabulous Facts about Flats – And Why Correct Insurance is Vital

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The number of people living in flats is rising. And as more people all over the world migrate from rural areas to cities and population experts predict a rise in the global populace from 7.6 billion to 9.8 billion between today and 2050, going to borrow some sugar from the next flat is likely to become a way of life for most of us.

This is just one of the many facts that Deacon, the blocks of flats insurance specialist, shared with us recently. We learned, for instance, that if a block of flats were to be under-insured, the insurer could reduce the claim in proportion to the under-insurance. So, let’s say a flat was insured for 50% of its correct value. In the event of a claim being made, only 50% might be paid. When you also consider that such buildings carry a higher risk of claim-worthy events such as storm damage, fire and water damage amongst other things, we can see why choosing the correct insurance product is vital!

Also easily overlooked is professional indemnity insurance. Remember, any advice that a landlord provides to their clients is potentially legally binding. Indemnity insurance can help protect the business from potential financial catastrophe and reputational damage from dissatisfied clients.

To find out what else we learned, read on for 10 things you didn’t know about flats.

The Romans Did It First

Not many people were taught this in class, but the Romans built the first flats. With their successful campaigns and a stable economy in the middle of 100 BC, Rome’s population began to grow and housing became a problem. To figure the problem out, Roman engineers built stronger structures that could go higher in the sky; using lime and volcanic sand to make concrete and standardizing blocks to make construction quick and reliable.

A Forest in Your Flat

The Bosco Verticale are two apartment buildings in the middle of Milan where trees and plants grow all around and through from the ground up. Designed by Stefano Boeri, this “Vertical Forest” has more than 20,000 trees and plants peacefully sharing space with the residents, and his design is being copied all around the world.

A Flat Forgotten

Marthe De Florien was a famous French actress who fled her flat in Paris in 1934, just before WW2 began. She never returned, and nobody is certain why. Her landlord, however, had no idea her flat had been vacated and left it empty until his death in 2010. When agents were asked to value his estate, they found her flat, forgotten all those years and untouched, like a jewel in time.

Shapeshifting Apartments

Fans of Star Trek may be pleased to see the future arriving; the architectural firm, Dynamic Group, has designed the first ever rotating and shapeshifting tower block of apartments, to be built in Dubai by 2020.

Recycling Plastic? Try Entire Buildings!

In the UK, many of our landmark buildings are being pulled down to be “recycled” into blocks of flats. For example, the Hoover Building and Battersea Power Station in London and the BBC Television Center at White City have been repurposed into blocks of flats. This trend is likely to continue as demand for apartments in prime city locations continuously rises.

Choo Choo! Train Coming Through!

In the Chinese mega-city of Chongqing, there are apartment buildings that were constructed with space to let trains run through them!

Size Matters

The smallest two-bedroom flats in the world are in Wuhan, China, where each apartment is only 50 square feet. The largest apartment building is the Copan Building in Sao Paolo, which has over 1,160 apartments in its 38 stories that house more than 5,000 people. The tallest building in the world is the Burj Khalifa. But even at 72 meters high, it won’t be the tallest for long. In 2020, the Jeddah Tower should be set to take that prize, coming in at 1,000 meters high.

Going Down and Into the Water

A few thousand years since the Romans built buildings going up, we are trying to build some going down. Since 2011, Mexico City has been working on plans to build a 35 story upside down pyramid. And in Rio De Janeiro, proposals have been put forth for Aequorea – an underwater city to be built off its coast.

Really Expensive

In the UK, deacon.co.uk tells us that London is the most expensive city to live in, costing £7,090 per month. Brighton, Edinburg, and Oxford tie for second at £5,000 per month. But in areas like Southampton, residents can live a decent life for about £3,000 per month.

Feudal Practices

In England, the feudal system of land ownership is still practiced, meaning it’s entirely possible to lose your flat if you skip out on mortgage or service charges, regardless of how long you have been paying them. In Scotland, however, the feudal system was abolished in 2004, protecting homeowners and leaseholders from such practices.

http://www.deacon.co.uk

What is the Coverdell ESA?

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Introducing the last account type on our quest to find the best way to save for college, the Coverdell ESA.

Without further delay, here’s what you need to know about the Coverdell ESA.

What is it?

Like the 529, the Coverdell ESA is an education savings vehicle for K-12 and secondary education. Coverdell ESA stands for Coverdell Education Savings Account.

It got its name from Senator Paul Coverdell, who introduced the legislation for a similar account, the Education IRA. In 2002, a new piece of legislation was introduced to make the account what it is today.

The 529 and the Coverdell ESA share many of the same characteristics, but there are some things that set it apart. All of these will be listed below.

Advantages

  • Savings and investments in the account grow tax-deferred and are withdrawn tax-free when used for qualified education expenses.
  • When it comes time to withdraw, those funds are not considered income, as long as you are using them for qualified education expenses.
  • Can use in conjunction with other education tax credits, like the Lifetime Learning Credit, as long as there’s no double-dipping.
  • These accounts are self-directed, so your investment options are plentiful. They include…
    • Age-based funds
    • Static mutual funds
    • ETFs
    • Stocks
    • Bonds
    • Real estate

Disadvantages

  • Contribution limit of $2,000 per child per year.
  • The funds inside the account are taken into consideration when you file for financial aid. The assets are considered their parents assets.
  • If the money is not withdrawn from the account by the time the beneficiary is 30, they could be subject to taxes and penalties.
    • After 30, the funds inside the account become fully taxable and you’re penalized 10%.
  • Like the 529, contributions to this account are not tax-deductible.

Unique Characteristics

  • Only eligible to families/individuals that fall below an income threshold ($110,000 for single taxpayers and $220,000 for couples who file jointly).
  • The contribution limit is $2,000 per child per year, so even if a family member opens an account for your child, you still can’t go over that number, or there will be a penalty.
  • Qualified expenses include…
    • Tuition
    • Books
    • Supplies
    • Equipment
    • Tutoring
    • Special needs services
  • And can also include…
    • Room and board
    • Uniforms
    • Supplementary and transportation services
  • With a 529, the account owner has control over the assets. Conversely, with a Coverdell ESA, the beneficiary has control.

Conclusion

Effectively, there are three education savings vehicles used today. The UTMA/UGMA, Coverdell ESA, and the 529 plan. I’ve written about the other two in the past so go check those out.

On paper, the 529 looks like the best option, with a high contribution limit, a large number of qualified expenses, and there’s no penalty for letting funds sit for decades.

That is all true, and honestly, I prefer the 529, but the vast, vast majority of people that are helping their children save for college will not come close to the high contribution limit.

The only drawback to the Coverdell ESA is the penalty if the funds aren’t used before 30. Other than that, I don’t think the $2,000 contribution limit is a factor because most people can’t put that much away, anyway. Not without sacrificing their ability to save for retirement, as well.

That said, they’re both great options and you can’t go wrong with either one.

What Is A 529 Plan?

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Education, especially secondary education, is getting more and more expensive. The cost of a 4-year public university has gone up 110% from 1994 to 2014 (Source).

Conversely, wages have grown an astounding 8 times slower than that (Source).

What can you do to save for college? How can you help your kids? Are there certain vehicles that work better than others?

We’ll take a look at one of those in the following article.

What is a 529?

A college savings plan that is exempt from federal taxes, if you use the funds to pay for qualified education-related expenses.

Those expenses include tuition, books, room and board, computer equipment, and necessary supplies for students with special needs, as long as the student is attending at least half-time.

Advantages

  • Funds can be used for K-12, university, graduate school, and trade schools.
  • Parents can withdraw $10,000 per student per year to pay for tuition ONLY.
  • Other people, besides the account owner, can contribute to a 529 plan.
  • If funds are used for the beneficiary you intended, they can be transferred to a family member.
  • Earnings grow tax-deferred

Disadvantages

  • Gift tax exclusions – You are exempt from paying gift taxes if you keep it under $15,000 per individual per year, or $75,000 as lump sum every 5 years.
  • A penalty of 10% will be assessed for funds used on non-qualified expenses.
  • Limited investment options – most plans offer mutual funds as investments
    • Risk-based – Aggressive, moderate, conservative, etc.
    • Age-based – You can select an age-based fund from the get-go, and the fund company will reallocate into new funds as your child gets older.
    • Self-selected

Miscellaneous

  • All plans come with federal tax advantages, but some states offer tax deductions and credits as well!
  • Every dollar in a 529 plan will deduct 5.6% from your family’s need-based financial aid
    • One way around that is to have a family member act as the custodian for the account, so it isn’t in your name
    • However, once the child begins withdrawing the funds and is still attending school, they could have 50% of their financial aid withheld because those withdrawals are considered income
  • You can open one using other state’s plans, besides your own state

Other types of accounts

  • Coverdell ESA – Similar to the 529 in that you use the funds to pay for education-related expenses, However, there is an annual contribution limit of $2,000 per beneficiary, and there’s also an income restriction (once you make above a certain amount, you can no longer contribute to a Coverdell ESA).
  • UTMA/UGMA – Stands for Uniform Transfer to Minors Act/Uniform Gift to Minors Act. I’ve written about this in the past, so if you’d like to learn more, check out the article here.
  • IRA – You can use a Traditional IRA or a Roth IRA to pay for education expenses. Similar to the 529 and the Coverdell ESA, the expenses must be qualified and the student must go to a qualified institution, as indicated by the Department of Education. The most beneficial way to use an IRA is to withdraw the funds from a Roth IRA, but only withdraw what you contributed.

Conclusion

Secondary education is expensive! If you start saving for your kids’ college right away, the compounding returns could really help you save a decent amount.

It’s important to use the right vehicle, and, in my opinion, there’s no better option than the 529.

If you’d like to learn more about paying for college, read this article here. Or if you’re a future or current student that need some finance tips, read this one here.

Be advised: Investments in 529 plans involve risks to principal and may involve additional fees such as enrollment charges and annual maintenance fees. 529 plans offer no guarantees. There are exceptions to the gift tax and estate tax exemptions; please contact a qualified tax, legal, or financial advisor for more information prior to investing.

 

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Pay Off Your Mortgage Faster

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While you love your house, you could likely do without the mortgage payment. For many, having a mortgage is another part of being a homeowner. That said, there’s no need for you to be saddled with a mortgage payment a minute longer than necessary. Learn tips on writing off your mortgage faster.

Take Care of Other Debts

Your mortgage isn’t your only financial obligation. Sit down and take a look at all your other debts and decide what you can pay of first and fastest. Once you’ve paid that debt off, you can funnel the monthly amount you were paying into your mortgage to take care of it faster. This is a great snowball effect that can get you out of debt and help you pay your mortgage faster.

Make Biweekly Payments

Rather than a monthly payment, look into making biweekly payments. The way it works is that you make half your mortgage payment every two weeks, which equals 13 payments a year rather than 12. The benefit of this is that you can knock off eight years from a 30-year mortgage payment, like the kind offered by Sun West Mortgage. That said, the total time you knock off from your payment schedule depends on your current interest rate.

Look Into Refinancing Your Mortgage

If it’s been a few years since you started paying off your mortgage, and if your credit score has improved since then, you may qualify for refinancing your mortgage. With refinancing, you can get a lower monthly payment and a lower interest rate. The trick to paying off your home early is treating your mortgage as if it’s the same amount. Anything more than your new monthly amount can go toward the principal.

Save Money in Other Ways

Go through your daily, weekly, and monthly spending. Are there any areas where you can make cuts? For instance, rather than buying coffee every morning before work, you can brew and bring your own. Rather than eat out, cook more at home. There could also be subscription services you could do without. By making sacrifices for the sake of saving money, you have more to funnel into your mortgage payment. There’s nothing wrong with making short-term sacrifices in exchange for long-term gain. Your future self is sure to thank you.

Use Your Tax Refund or Bonus

The next time you get a bonus at work or your tax refund in the mail, use it to pay down your mortgage. It’s understandable that the last thing you want to do with a refund or bonus check is be financially responsible, but there’s nothing quite like the feeling of financial peace of mind, which lasts longer than the momentary thrill of a shopping spree.

With a bit of dedication and perseverance, you can have your mortgage paid off faster than you know it. See how these tips work for you.

Why Do Interest Rates Matter?

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I was running through my normal Google alerts yesterday and saw a headline that said, “Do interest rates matter?”

My answer is an emphatic YES!

Of course, interest rates matter. It determines how much you pay and how much you get paid!

When you borrow

Whether you’re talking a mortgage, an auto loan, a business loan, or a credit card, you are charged an interest rate when you borrow money.

For example, the average mortgage rate right now is a shade under 4.5%. In 1981, that same rate got to over 18%. To put these numbers into context, here’s a comparison of the same mortgage with different rates.

Loan amount $250,000. Interest rate 4.5%. 30-year fixed rate. Monthly payment – $1,266.71. Total amount paid after 30 years – $456,015.60.

That same mortgage with an 18% interest rate translates into a $3,767.71 monthly payment, and a total amount paid after 30 years – $1,356,375.60.

Obviously, these are extreme examples, but you get my point.

Just 3 years ago, mortgage rates were a full percentage point lower, until the Federal Reserve started to increase interest rates.

The same goes for credit cards. That 18% mortgage rate from ‘81 is close to the average credit card interest rate today. If you’re using credit cards to buy things you can’t afford, you’re definitely paying for it.

When you save

If you are responsible with your money and are able to save it, you should be rewarded for that behavior. Interest rates are creeping higher now, but a year or two ago you were getting paid next to nothing on your savings account.

When interest rates increase, so does the money you earn from your savings.

The Federal Reserve

The FED sets the tone. They raise or lower the Federal Funds Rate and that has a ripple effect on all the other interest rates in the financial system.

They have a tough job, as you can see currently because they have to raise rates enough to keep inflation at bay but keep them low enough as not to cause a recession.

You see, when the FED raises interest rates, all rates that are classified as variable (on existing debt) go up. The most common example is credit cards. As credit card rates increase, so does the cost of servicing those outstanding balances (minimum payments go up).

As people’s debt gets more expensive to service, the number of defaults (failure to make adequate payments) goes up. This will create a domino effect and can bring the economic system to a halt.

This is similar to what happened in 2008, although on a much larger scale. And 2008 wasn’t caused by frivolous spending, it was caused by finance executives giving mortgages to people who couldn’t afford them, as well as signing poorly structured loans that were affordable in the beginning, but became unaffordable a short while later.

Approaching recession

When The Great Financial Crisis happened, the FED lower interest rates to 0%. This encouraged financial institutions to lend money, and incentivized businesses and individuals to borrow money.

People who borrow, spend, and people who spend help grow the economy.

Here’s our current problem. The Federal Funds Rate is currently at 2.5%. When the economy experiences a recession, in order to encourage borrowing and spending to get the economy out of the recession, the FED needs to cut rates by at least 4 percentage points (I got this number from Dr. James Rickards).

The Trump Administration and other parties are calling for the FED to cut rates to continue the current expansion.

The only problem is this expansion will have to come to an end at some point, and when it does (if rates don’t increase) the FED won’t be able to cut rates enough to help the economy.

Conclusion

I’ll say it again. Interest rates matter.

If you’d like to learn more about this topic and for my disclosures, please visit CRG Financial Services.

 

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What are UGMA and UTMA accounts?

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What is a UGMA account? What is a UTMA account? How are they different? What is the purpose of using one over other savings vehicles?

We’re going to dive into those questions and a few others in the following piece.

What are they?

The UTMA and the UTMA are custodial accounts. An adult (the custodian) opens an account for the benefit of a minor.

UTMA stands for Uniform Transfer to Minors Act. UGMA stands for Uniform Gift to Minors Act. The difference has to do with the age of majority, but more on that later.

Characteristics

For all intents and purposes, these accounts are treated the same. As I said, an adult opens the account for the benefit of a minor.

The account itself does not have a limit of how much you can contribute to it, however, there is a gift tax exclusion for the custodian or anyone else that contributes to the account. While I’m here, I should mention that anyone can put money into the account, not just the custodian.

Anyway, the gift tax exclusion is $15,000 per recipient. If the person doing the gifting this amount, they could owe the gift tax.

As far as the age of the majority goes, generally the UGMA is 18 and the UTMA is 21. However, every state is different, so make sure you check to see what the age of majority is in your state.

Prior to the age of majority, the minor is unable to use the funds in the account UNLESS it’s for the benefit of said minor. Once they hit the age of majority, they can use the funds however they want.

Disadvantages

Two of the more common vehicles for education savings are the 529 plan and the Coverdell ESA. Now, I’m not going to go into those two, but they each share one key advantage. Any funds withdrawn for education-related expenses, come out tax-free.

The UTMA/UGMA does not have this capability. What’s more, the taxes on any capital gains made and/or dividends received throughout the year must be paid by the minor.

Also, funds sitting in a UTMA/UGMA, for the sake of the FAFSA, are considered the minor’s assets, and can negatively affect financial aid.

Advantages

There’ve been a lot of negatives so far, and if I’m being honest, there are other savings vehicles available that have more advantages.

The one thing I can think of as an advantage is accessibility.

With the 529 and the Coverdell ESA, any funds not used for education-related expenses are subject to a penalty.

With a UGMA/UTMA, the beneficiary can use the funds for anything that benefits them (while they’re a minor), or they can use them for anything at all once they’ve hit the age of majority.

Conclusion

If you are looking for accounts that are designed around saving for college, then a UTMA/UGMA is not for you. However, if you are looking for an account that is easy to set up, easy to use, and gives you more control, then I definitely would recommend utilizing one.

To make a formal recommendation, I’d go with the UTMA. Again, depending on your state’s rules, this enables you to save more for the beneficiary and prolongs when they can have access to those funds.

If you have any questions about what was said here and for my disclosures, go to my website.

 

If reading this blog post makes you want to try your hand at blogging, we have good news for you; you can do exactly that on Saving Advice. Just click here to get started.

Saving Money With Regular Maintenance

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When was the last time you exercised, had your furnace worked on, or had your oil changed? Performing regular maintenance, in any part of your life, can be quite annoying at times, but it can really make a difference.

The difference can come in the form of money saved, longevity, and/or decreased stress. That said, let’s look into why maintenance is important.

Health

As a nation, the United States is unhealthy. We put junk food into our bodies and lead a sedentary lifestyle that is causing more problems than gaining weight.

Not only is physical exercise good for your body, with benefits like preventing bone loss, increasing muscle strength, improving coordination and balance, and reducing your risk of cardiovascular disease, but it also helps your mind.

Just over half of all Americans are meeting the physical aerobic exercise requirement (Source). The requirement is either 150 minutes of moderate aerobic activity per week or 75 minutes of vigorous aerobic activity per week. Not a lot, right?

Americans spend $3.4 trillion per year on healthcare (Source), and I believe this number could drop dramatically if we all just took better care of ourselves.

Bottom line, regular exercise, and a well-balanced diet can (depending on other genetic risk factors, etc.) can dramatically reduce your long-term healthcare costs.

Home

Regular maintenance of your home has a number of benefits.

  1. It saves you money because all the mechanical components are running optimally. Efficient use of utilities is less expensive. It also increases the longevity of that equipment.
  2. Maximizes your home’s value and resale potential
  3. Peace of mind knowing your home is well-cared for. Stress has negative health effects. Reducing it can improve your health and lower healthcare-related costs.

Car

Keeping your car in optimal running condition will extend its life. It also makes the vehicle more safe to operate because the odds that something breaks while driving is reduced.

A poorly tuned vehicle can use up to 50% more fuel (Source). Spending $50-$100 every three months on an oil change is definitely worth it.

For example, let’s say you fill up once per week at $25. Over a three month period, you’d normally spend $325 on gas. If you’re driving a poorly tuned vehicle, you’ll spend $487.50. Over 1 year, that’s a difference of over $600.

Budget

Creating a budget and regularly checking in to make sure that a) you’re sticking with it and b) it’s still appropriate.

Often when people start budgeting, they find themselves with more money to play with. If they have outstanding debt, they can use that extra money to pay it off.

This could free up more cash that can be used for saving, investing, or getting that cable TV back.

Another thing you should do is cut or eliminate expenses that are otherwise unnecessary. The average American spends almost half of their food budget on eating out (Source).

Investing

This section will revolve around asset allocation and not about picking stocks and the like, specifically, in ones’ retirement plan.

If you have a retirement plan (you really should) my advice is to allocate your assets according to your risk tolerance, time horizon, and comfort level (from a psychological perspective).

If you have a retirement plan through your employer, I strongly recommend utilizing a target-date fund. This takes the worry and the guesswork out of the equation.

Where was I, oh yeah, asset allocation? Unless we’re in a bear market, your stock allocation will do better than your bond allocation.

Over time, the stock part of your portfolio will take up a larger share of your overall portfolio. It’s wise to regularly (though opinions differ) to rebalance back to your original allocation, otherwise, you risk being more aggressive than you intended.

Conclusion

Whether you’re talking about your home, car, or anything else, regular maintenance can save you a lot of money.

Please visit our website to learn more and for our disclosures.

Read More:

Fuel Up and Save Big: Costco’s Secrets to Slashing Your Gas Expenses!

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Become A Smarter Trader With ForexCT

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When you are looking to become a better trader, the best option that you have is to start trading with ForexCT.

ForexCT, as one of the most reliable Forex brokers in Australia, is also a great source of information and education.

One of the main goals of the company is to ensure that all traders are able to make good investments and good trades. So, with this in mind, they developed a wide range of education tools that you can use.

[Read more…]

Creating A Financial Plan You Can Stick To

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The more I read and the more I meet with people, the more I realize that setting up a financial plan is more than dollars and cents.

Yes, the better financial plans have your typical items. Save this much, invest in these things, and contribute to this retirement plan.

But the best plans not only have this to take care of your financial needs but they’re also set up in a way that your psychological needs are met as well.

Can you stick with it?

The best plan is anyone that you can stick with. When setting up your plan, go through it slowly. Take each item one step at a time and consider possible scenarios when determining a particular section.

For example, when setting up a plan for your emergency fund, figure out what’s realistic for how much you’ll need and how long it will take you to get there.

Also, figure out how it will be replenished if/when it’s ever used. Perhaps you’ll have an automatic deposit setup indefinitely?

Another thing to keep in mind is including some flexibility in your plan. For example, if part of the process is setting up a budget and your weakness is eating takeout, include a little bit of money for it.

I generally advocate for eating your meals at home, but if it’s inevitable that you’ll go out to eat, it’s better to include a little bit of it, rather than trying to avoid it.

Will you gasp every time the market dips?

Investing is a vital part of your financial plan. Investing is what helps your savings grow, but at times, your investments can lose value.

Our psychology plays a big role in our success as an investor. It’s said that we experience the pain of a loss two times stronger than we experience the joy of a gain.

That said, you need to plan accordingly to keep your emotions in check. If you let them take control of your decisions, you could end up selling your investments after you’ve already lost value, at which point it may be better for you to stay in.

Most investable assets are in a retirement plan of some sort, so your time horizon is, more than likely, long-term. 20+ years for instance. Your risk tolerance is the other part to take into consideration.

How much are you willing to lose until you say, uncle? In a six month period, would you have to sell after you lost 10%, 20%, 30%, or more? Your answer to this will help determine what you are able to stomach.

The next thing to do is to stress test your portfolio. The popular investing/research websites will have this. You plug in your portfolio with dollar amounts and ticker symbols, and then (depending on the site) you can select a variety of scenarios to see how your portfolio would do during that scenario.

The 2008 Financial Crisis is a common one.

Conclusion

Creating a financial plan that has the potential to meet your goals is important, and having a plan that you’re comfortable with and one that will help you sleep at night is optimal.

Make sure, when you are developing your plan, that you are factoring in your behavior as an investor and as a human. We are emotional creatures, and that makes investing a little more difficult.

If you’d like to learn more about what was discussed here and for our disclosures, visit our website.

 

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